The President’s Long-Forgotten Power To Raise Tariffs

President-elect Trump’s expressed interest in possibly raising tariffs on imported goods has prompted considerable effort in trying to understand the scope of Presidential authority to raise tariffs. While the Congress has primary authority to set tariffs and the U.S. has made extensive international commitments to not raise tariffs, President-elect Trump will have a degree of unilateral authority in this area. Many recent news articles and reports have catalogued Presidential authority in this area. In doing our own research, we uncovered a statute – Section 338 of the Trade Act of 1930 – that has been overlooked but gives the President significant tariff-raising authority, and permits private parties to petition for relief.  Here is the link to the article we recently authored explaining Section 338, its history, and its prior uses.

Presidential Appointees Can Take Advantage of 2014 OGE Guidance on Hedge Funds

 As the President-elect begins to nominate individuals for Senate-confirmed positions in his administration, one of the major hurdles these individuals face is the statutory requirement that the Director of the Office of Government Ethics (“OGE”) review and certify a public disclosure of each source of income exceeding $200 and each property interest exceeding $1,000 in value.  While for many classes of assets, identifying and disclosing the relevant assets is relatively straightforward, it is often much more difficult to file a compliant report for pooled investment fund assets, such as hedge funds, since the details of the underlying assets are often undisclosed to the investor by the fund manager or subject to a confidentiality agreement between the investor and the fund manager.  This alert explains the most recent OGE guidance applicable to hedge funds and other pooled investment fund holdings.

Prior to 2014, OGE maintained a strict “disclose or divest” policy, requiring a nominee to divest their undisclosed assets—regardless of whether or not the filer had access to information about the fund’s underlying holdings—unless the fund qualified as an “excepted investment fund.”  This strict policy, OGE recognized, “can conflict, for no substantive reason, with the goal of attracting and placing talented professionals in public service.”  Thus, in 2014, OGE issued revised guidance clarifying that the investor may not be required to “disclose or divest” if either (1) a fund is an “excepted investment fund” or (2) if the investor has no access to information on certain underlying assets, which allows OGE to certify that the investor may report only what is known about the fund.The advisory linked above provides additional details on this disclosure requirement, the potential exemptions, and other relevant considerations for potential nominees.

Ghana’s New President: Jobs, Jobs, Jobs

Nana Akufo-Addo, the 72-year-old leader of the New Patriotic Party (NPP), was elected Ghana’s president on December 9 by a margin of 1 million votes, affirming the country’s status as a leading democracy on the continent. The peaceful election  supports former assistant secretary of state for African affairs and election observer Ambassador Johnnie Carson’s recent remarks that the country is “a gold standard for democracy in Africa.”

The results reflect wide frustration in Ghanaian society with low growth, high unemployment, and a government that seemingly had lost touch with the average Ghanaian. This frustration was expressed in the creation of the Occupy Ghana Movement and Red Friday, which had support from various segments of society including previously apolitical professionals.

Akufo-Addo—who lost close races for the presidency in 2008 and 2012 (by only 300,000 votes in the latter)—brings experience to the job as the son of a former president, a human rights lawyer, former attorney general, and former foreign minister. This experience and his focus on job creation played large roles in his defeat of President Johan Mahama of the National Democratic Congress—with 53.9 percent to 44.4 percent of the votes, an apparent landslide. With 171 of 275 seats in parliament, the NPP has been given a clear mandate. This is the largest number of seats that any party has had in Ghana’s parliament since 1992.

In addition, while the incumbent party has twice been defeated at the polls by the opposition, this is the first time that a sitting Ghanaian president has been turned out of office after only one term.

1-District-1-Factory

 The president-elect’s campaign was based on a commitment to create jobs and to move Ghana to the forefront of industrialization efforts in West Africa. Specifically, the Ghanaian leader promised to establish at least one factory in each of the 216 districts across the country (“1-District-1-Factory”). The Akufo-Addo team has reportedly identified 300 projects that they are ready to move forward on. However, it is not clear how these projects will be financed.

Another priority is to develop the country’s significant bauxite resources as well as an integrated aluminum industry to take advantage of the bauxite, again creating the opportunity for more jobs.

During the course of his campaign, Akufo-Addo pledged on a number of occasions that the private sector would regain its “pride of place” in Ghana’s economy and that “killer” taxes would be slashed.  He also promised to develop a “dual system” that would enable artisans and wage workers to go to school to upgrade their skills while continuing to work.

Greater transparency

 On the “toxic issue” of corruption, the president-elect has pledged to ask parliament to pass legislation to establish a special prosecutor within six months of taking office. He has also said that he will crack down on politicians who are flouting the public procurement act—violations of which have been quite high in recent years.

In fact, Mahama’s tenure as president was marred by persistent corruption scandals, reports of inflated costs of various projects and tenders being awarded to those close to government officials. In fact, an Accra think tank, the Danquah Institute, published a report in November contending that Ghana has lost $1.93 billion to sole-sourced contracts since 2010.

As for the country’s oil resources, which produce about 110,000 barrels per day, Akufo-Addo said that he would transform Ghana’s Western Region, where the oil is produced, into an international oil hub and build a “first-class” port facility.

The challenge ahead

 The president-elect will face a steep challenge in revitalizing Ghana’s economy. Rolling power blackouts are common and, according to the World Bank, there is discontent with living standards, rising taxes, fuel prices, and utilities. The government is facing particular challenges with land use, infrastructure, and the provision of services, especially as it relates to housing, sanitation, transportation, and employment opportunities for the youth. The African Development Bank notes that over half of Ghana’s population lives in urban areas.

Ghana’s growth dropped to 3.9 percent in 2015, the lowest rate in two decades, from a peak of 14 percent in 2011, reflecting the global decline in commodity prices. Ghana is the world’s second-largest producer of cocoa after Ivory Coast and, after South Africa, the continent’s second-largest gold producer. However, inflation is at its lowest rate since March 2015, and the cedi has been relatively stable, although nominal interest rates are high.

2016 has not been a particularly good year for democracy in Africa. However, with last week’s outcome in Ghana, South Africa’s municipal elections in August, and Nigeria’s historic presidential election last year, the importance of democracy to the continent cannot be underestimated.

This article originally appeared on The Brookings Institution’s “Africa in Focus” blog. 

The Week Ahead in the European Parliament – December 9, 2016

Summary

Strasbourg will be vibrant next week, as it hosts the European Parliament’s plenary session, during which major positions are expected to be adopted.

On Tuesday, the achievements of the Slovak Presidency of the Council of the EU will be subject to a debate among the political group leaders, the Commission President, Jean-Claude Juncker, and Slovakian Prime Minister, Robert Fico. The objective is to assess Slovakia’s work during its presidency before Malta takes over in January 2017.

On Wednesday, MEPs are expected to hold a debate to discuss their input into the next European Council summit that will be held on Thursday, December 15. As a reminder, the European Council includes the heads of State and government of all the 28 EU Member States; the Commission President, Jean-Claude Juncker; the President of the Council of the EU, Donald Tusk; and the High Representative for Foreign Affairs & Security Policy, Federica Mogherini. The Parliament President, Martin Schulz, is also expected to address the European Council. The Council meeting will focus on important and pressing EU issues, such as migration crisis, Brexit, youth employment and relations with Russia.

The Parliament will also address aviation policy. On Wednesday, the Parliament is expected to hold a debate on an Aviation Strategy for Europe. The strategy aims to foster the growth of the EU aviation sector by opening new markets and creating additional opportunities for companies through the conclusion of new international agreements with key countries, and also to plan the means to manage the growth in traffic. The Commission also wants the EU to maintain its leadership on passenger rights and safety, and environmental protection, while fostering innovation and proposing a clear framework for drones. See the Communication here, and the draft report here. Continue Reading

Global Enforcement of the Nagoya Protocol in Life Sciences Industries

In October 2014, the Nagoya Protocol entered into force. It created a new international regulatory system affecting all life science companies that conduct R&D on biological material such as animals, seeds, flowers, viruses, fragrances, flavonoids, essential oils, enzymes, yeasts, and so on. So far, compliance by companies is progressing slowly due to unawareness of the regime and uncertainty over its requirements.

By January 2017, this new international agreement will be in force in 89 countries, including China, India, Mexico, Switzerland, South Africa, and the entire EU. Between December 4 and 17, 2016, the second “COP-MOP” takes place. At that meeting, the parties to the Nagoya Protocol are working to accelerate substantive implementation and enforcement of the rules.

How the Nagoya Protocol Works

The full title of the Nagoya Protocol to the Convention on Biological Diversity reads “…on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from Their Utilization.” Under the Protocol, the Parties may adopt (i) provider-country measures on “access and benefit sharing” (ABS), but must adopt (ii) user-country rules to enforce compliance with provider-country measures.

(i) Provider-country rules are most relevant for countries rich in biodiversity such as India, Denmark (Greenland), France (mainly through the overseas territories), Brazil, and South Africa. First, as “providers” of genetic resources, countries may require a public permit to obtain them from their territory. Such a permit commonly describes what genetic resource may be acquired, and whether the results of R&D may be commercialised. Second, countries may require the negotiation of a contract with public or private entities on how benefits from R&D on the genetic resources will be shared. Monetary benefit-sharing can include payments into a public fund or making the resulting product available at a preferential price. Non-monetary benefit-sharing can include providing access to scientific results of the R&D.

(ii) User-country rules are most relevant for countries with advanced technological capabilities, where public and private entities conduct R&D to develop commercial products from genetic resources. Under the Nagoya Protocol, all parties must adopt enforcement measures to ensure that genetic resources used in their jurisdiction have been acquired in compliance with rules of the country that provided them.

The Nagoya Protocol covers “genetic resources” and “associated traditional knowledge.” Both are legal terms subject to controversy. Nevertheless, the following examples likely fall within the scope.

  • Black cumin seeds and the derived compound thymoquinoe with properties that reduce food allergies;
  • pineapple stem and the derivative bromelain, a proteolytic enzyme used as the active ingredient in an EU-approved medicinal product to treat burn wounds, and;
  • flower buds of the Japanese Pagoda Tree and the derived flavonoid rutin with properties useful in hair and skin cosmetics. In Asian traditional medicine the Pagoda Tree is mentioned for its hemostatic effects, possibly qualifying as “associated traditional knowledge” under the Nagoya Protocol.

In the span of two years, the Nagoya Protocol has created a complex web of public rules and private contracts spanning almost one-hundred provider and user countries.

Challenge for Industry

Upon reviewing their R&D pipelines, many companies are likely to find that the vast majority of their activities do not trigger provider country obligations. However, user countries’ rules require that companies have in place processes to check whether access and benefit-sharing obligations apply. This necessarily implies reviewing all R&D activities. If the company then finds that Nagoya obligations are triggered, they must request public permits and negotiate benefit-sharing as required in the provider country.

EU Policy Update

Election Blues in the U.S. and France

November is usually a quiet month for EU affairs, allowing working groups, Parliament committees and “trilogues” between the co-legislators to make progress behind the scenes.

This month, the EU institutions and the Member States followed closely the U.S. elections, and began to analyze its implications for Europe.  One such topic—the future of the transatlantic relationship—was discussed, at least indirectly, a few days after the election of Donald Trump. Indeed, on November 14, 2016, the EU Foreign Affairs and Defense Ministers held a joint meeting, focused on the “level of ambition” of the EU in the field of European security and defense cooperation.  The discussion was based on the proposed implementation plan for the “Global Strategy on Foreign and Security Policy” presented in June by High Representative and Vice President Federica Mogherini.  See the Global Strategy here, the implementation plan here, and the Council Conclusions here.

November 27 saw the conclusion of the “primary” of the French center-right party, les Républicains (see here), which resulted in the surprise victory of former Prime Minister Francois Fillon over the two main contenders, Alain Juppé and Nicolas Sarkozy.  Fillon is therefore expected to compete with Marine Le Pen, leader of the hard right Front National in the second round of the French presidential election, to be held in May 2017.  For Covington’s full analysis of these developments, please see the Global Policy Watch blog post on this topic by Jean De Ruyt, available here. Continue Reading

This Week in Congress – December 5, 2016

This should be the final week of legislative activity for the 114th Congress, with the House and Senate expected to work through the outstanding items that remain on their to-do list for 2016.  Lawmakers are scheduled to be in session until December 16, but resolution and passage of a spending measure to keep the government funded into 2017, the annual national defense authorization act, and the biomedical innovation bill, among a handful of other final legislative items should be wrapped up, enabling members to depart Washington, D.C. at the end of this week.  Republican leaders appear determined to wrap up a week early to allow more time at the start of the 115th Congress in January 2017 for consideration of resolutions of disapproval of “midnight” regulations issued by the outgoing Obama Administration under the Congressional Review Act.

Negotiations over a continuing resolution (CR) have been ongoing and press reports indicate congressional leaders are close to a deal that should be ready for a vote this week.  Current government funding expires on December 9.  Although initial discussions on the CR were focused on a three-month extension of current spending authority into March 2017, leadership now seems to be agreed on extending that authority into April after acknowledging the reality of the congressional calendar.  Both chambers are anticipating an active legislative agenda in the first few months of the 115th Congress, and the Senate will be particularly busy with the confirmation process for appointees to the new Administration.  Republican leadership recognizes that it would be challenging to add an appropriations deadline to the agenda in the first 100 days of the new session.  Legislative text has not yet been released, but House leadership indicated on Friday that the text of the spending bill would be ready to permit a vote this week.  Although the funding portion is easily crafted, many funding anomalies and various legislative provisions that can be agreed upon must be crafted, making the final drafting of the CR a laborious and time-consuming task.

In addition to the expected consideration of a CR this week, the Senate is set to take up two additional lame duck priorities.  Following the successful passage of both the biomedical innovation bill (H.R. 34, the 21st Century Cures Act) and a $619 billion conference report to the National Defense Authorization Act (S. 2943) through the House of Representatives last week, the Senate is now poised to take action on these measures.  Senators are scheduled to return on Monday for a procedural vote on the 21st Century Cures Act, legislation that will invest greater resources in medical innovation and speed up the process by which the Food and Drug Administration (FDA) approves new drugs and devices.  The legislation also includes additional provisions to address the opioid epidemic and to bolster the country’s mental health systems.  There is widespread, bipartisan support for the measure, and even though several Senate Democrats have criticized the final version of the bill and announced their opposition, the legislation is expected to see Senate approval this week and be signed into law by the President.

Once the 21st Century Cures Act has been dispensed with, the Senate will begin consideration of the conference report to the National Defense Authorization Act, which passed the House last Friday by a vote of 375-34.  This legislation provides an additional $8 billion in funding for overseas contingency operations and readiness shortfalls and covers the $5.8 billion supplemental request sent by the President to Congress in November.  It also includes a 2.1 percent pay raise for U.S. troops.  The funding in the bill is simply an authorization, and defense hawks have been critical of the CR strategy that congressional leaders have been pursuing because a CR will not provide the military with all of the funds authorized by this bill.

Among other potential items that could come up for consideration in the House and Senate before the close of this legislative session is the conference report to the Water Resources Development Act (WRDA), which House and Senate leaders indicate is close to being finalized; if completed, WRDA is likely to hitch a ride to passage on the CR.  Also in the mix is a bill proposed by Senators John McCain (R-AZ) and Lindsey Graham (R-SC) intended to “fix” the Justice Against Sponsors of Terrorism Act (JASTA).  The new law, which allows the families of 9/11 victims to sue the government of Saudi Arabia and other countries over alleged ties to the terrorists who carried out the attacks, survived a presidential veto earlier this year, but members of both parties have agreed there could be unintended, negative consequences.  The legislative “fix” would narrow the scope of the initial language.

The House is scheduled to convene again on Monday when it will take up six bills under suspension of the rules, including S. 1635, legislation authorizing the activities of the Department of State for FY 2017.

On Tuesday, members will consider a suspension package consisting of 21 bills, reported out of the Energy and Commerce, the Natural Resources, or the Veterans Affairs Committees.

On Wednesday and during the remainder of the week it is possible for the House to take up additional measures under suspension of the rules.  Also expected for floor consideration is H.R. 5143, the Transparent Insurance Standards Act of 2016.  The legislation would require the Treasury Department and Federal Reserve to provide additional reports to Congress on international negotiations regarding regulatory standards in the insurance industry.  Chief sponsor of the bill, Rep. Blaine Luetkemeyer (R-MO), chairman of the House Financial Service Committee’s Housing and Insurance Subcommittee, stated the bill is intended to “increase transparency and strengthen Congress’ role in supervising foreign standards setting organizations.” Consideration of H.R. 5143 will be subject to a rule.  Finally, the House will tackle the CR when it becomes available.

The hearing schedule for congressional committees remains light, but the high-profile event of the week will be a hearing before the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights to examine the impact of AT&T’s proposed acquisition of Time Warner Inc.  AT&T CEO Randall Stephenson and Time Warner CEO Jeffrey Bewkes are scheduled to appear before the subcommittee, alongside investor Mark Cuban and Gene Kimmelman of Public Knowledge, a consumer advocacy group.

Autonomous vehicle technology continues to be the subject of committee interest on Capitol Hill.  The House Transportation and Infrastructure Subcommittee on Highways and Transit will host a roundtable on Tuesday morning regarding the impact of integrating this technology on America’s transportation systems.  Roundtable participants include the United States Department of Transportation Under Secretary for Policy Blair Anderson, American Trucking Association President and CEO Chris Spear, and the Insurance Institute for Highway Safety Executive Vice President and Chief Research Officer David Zuby.

Relatedly, the Senate Commerce, Science, and Transportation Subcommittee on Surface Transportation and Merchant Marine is hosting a hearing Wednesday afternoon regarding the security of America’s critical transportation infrastructure.  American Trucking Association CEO and President Chris Spear will also be providing testimony to this  subcommittee (in addition to his appearance on the House side), alongside U.S. Department of Homeland Security Inspector General John Roth, Port Authority of New York and New Jersey Chief Security Officer Tom Belfiore, and Amtrak’s Interim Chief of Police Neil Trugman.

Several other events this week are focused on foreign affairs.  The Senate Armed Services Committee is hosting a hearing on Tuesday morning regarding U.S. defense challenges and worldwide threats.  On Wednesday afternoon the House Foreign Affairs Subcommittee on Asia and the Pacific will hold a hearing on whether President Obama’s “pivot to Asia” has been a “step or stumble.”  In addition, the full Senate Foreign Relations Committee will meet on Tuesday for a hearing to examine Iranian support for terrorism.

The full details for these events and other congressional hearings scheduled throughout the week ahead are included below:

 
Tuesday, December 6, 2016

House Committees

Volkswagen’s Emissions Cheating Settlement: Questions Concerning ZEV Program Implementation
House Energy and Commerce – Subcommittee on Oversight and Investigations
Subcommittee Hearing
10 a.m., 2322 Rayburn HOB

American Compassion in India: Government Obstacles
House Foreign Affairs
Full Committee Hearing
10 a.m., 2172 Rayburn HOB

Examining Decades of Data Manipulation at the United States Geological Survey
House Natural Resources – Subcommittee on Oversight & Investigations
Subcommittee Hearing
10 a.m., 1324 Longworth HOB

Roundtable on the Impact of Autonomous Vehicle Technology on America’s Transportation Systems
House Transportation and Infrastructure – Subcommittee on Highways and Transit
Subcommittee Hearing
10 a.m., 2167 Rayburn HOB

Step or Stumble: The Obama Administration’s Pivot to Asia
House Foreign Affairs – Subcommittee on Asia and the Pacific
Subcommittee Hearing
2 p.m., 2172 Rayburn HOB

The Federal Information Technology Acquisition Reform Act (FITARA) Scorecard 3.0: Measuring Agencies’ Implementation
House Oversight and Government Reform – Subcommittee on Information Technology; House Oversight and Government Reform – Subcommittee on Government Operations
Subcommittees Joint Hearing
2 p.m., 2154 Rayburn HOB

Senate Committees

Emerging U.S. Defense Challenges and Worldwide Threats
Senate Armed Services
Full Committee Hearing
9:30 a.m., 216 Hart SOB

Defeating the Iranian Threat Network: Options for Countering Iranian Proxies
Senate Foreign Relations
Full Committee Hearing
2:30 p.m., 419 Dirksen SOB

Intelligence Matters
Senate Select Intelligence
Full Committee Hearing (CLOSED)
2:30 p.m., 219 Hart SOB

Ensuring Independence: Are Additional Firewalls Needed to Protect Congressional Oversight Staff from Retaliatory Criminal Referrals?
Senate Judiciary – Subcommittee on Crime and Terrorism
Subcommittee Hearing
2:30 p.m., 226 Dirksen SOB

Wednesday, December 7, 2016

House Committees

1890 Land-Grant Institutions: Recruitment Challenges and Scholarship Opportunities
House Agriculture
Full Committee Hearing
10 a.m., 1300 Longworth HOB

Waste and Duplication in the USDA Catfish Inspection Program
House Energy and Commerce – Subcommittee on Health
Subcommittee Hearing
10 a.m., 2322 Rayburn HOB

Unconventional Monetary Policy
House Financial Services – Subcommittee on Monetary Policy and Trade
Subcommittee Hearing
10 a.m., 2128 Rayburn HOB

Corruption: A Danger to Democracy in Europe and Eurasia
House Foreign Affairs – Subcommittee on Europe, Eurasia and Emerging Threats
Subcommittee Hearing
10 a.m., 2172 Rayburn HOB

Examining the Costs of Overclassification on Transparency and Security
House Oversight and Government Reform
Full Committee Hearing
9 a.m., 2154 Rayburn HOB

California National Guard Bonus Repayment
House Armed Services – Subcommittee on Military Personnel
Subcommittee Hearing
2 p.m., 2118 Rayburn HOB

Time and Attendance Abuse at the U.S. Patent and Trademark Office
House Oversight and Government Reform – Subcommittee on Government Operations
Subcommittee Hearing
2 p.m., 2154 Rayburn HOB

Senate Committees

Examining the Competitive Impact of the AT&T-Time Warner Transaction
Senate Judiciary – Subcommittee on Antitrust, Competition Policy and Consumer Rights
Subcommittee Hearing
10 a.m.

Assessing the Security of Our Critical Transportation Infrastructure
Senate Commerce, Science and Transportation – Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety and Security
Subcommittee Hearing
2:30 p.m., 253 Russell SOB

Examining the Department of the Interior’s Land Buy-Back Program for Tribal Nations, Four Years Later
Senate Indian Affairs
Full Committee Hearing
2:15 p.m., 628 Dirksen SOB

Intelligence Matters
Senate Select Intelligence
Full Committee Briefing (CLOSED)
2:30 p.m.

Thursday, December 8, 2016

House Committees

Navy Littoral Combat Ship Program
House Armed Services – Subcommittee on Oversight and Investigations
Subcommittee Hearing
9 a.m.

Mixed Martial Arts Issues and Perspectives
House Energy and Commerce – Subcommittee on Commerce, Manufacturing and Trade
Subcommittee Hearing
10 a.m., 2322 Rayburn HOB

The Impact of Regulations on Short-Term Financing
House Financial Services – Subcommittee on Capital Markets and Government Sponsored Enterprises
Subcommittee Hearing
9:30 a.m., 2128 Rayburn HOB

Government Spending Data Transparency
House Oversight and Government Reform – Subcommittee on Government Operations
Subcommittee Hearing
10 a.m., 2154 Rayburn HOB

Senate Committees

State Department/USAID Management Challenges
Senate Foreign Relations – Subcommittee on State Department and USAID Management, International Operations, and Bilateral International Development
Subcommittee Hearing
10 a.m.

The Week Ahead in the European Parliament – December 2, 2016

Summary

The coming week is a political group week, i.e., the week during which political parties hold internal meetings to discuss their position and strategy, and also prepare the next plenary to be held on December 12-15, 2016, in Strasbourg.

In view of the Maltese presidency of the Council of the EU that starts in January 2017, the Conference of Presidents (including the Parliament President, Martin Schulz, and the political group leaders) will travel to Malta to meet the Maltese President, Marie-Louise Coleiro Preca, and Prime Minister, Joseph Muscat.

Although legislative activity is limited during political group weeks, a few interesting hearings and votes will take place.

On Monday, the Committee of Inquiry into Emission Measurements in the Automotive Sector (“EMIS”) will hold a presentation of the study on the differences existing between EU and U.S. legislation in the field of car emissions. The study has been prepared by the European Commission at the request of the EMIS Committee. The study draws a comparative analysis between the EU and the U.S. in various fields, such as emission standards (including their implementation and enforcement), and the regime applicable for banning the use of defeat devices. See the full study here. Continue Reading

Re-Opening NAFTA: Consequences for U.S. Businesses

President-elect Donald Trump made trade policy a key issue in his campaign and has declared his interest in either withdrawing from or renegotiating the North American Free Trade Agreement (NAFTA). Government officials from Mexico and Canada have publicly stated that their respective governments are open to renegotiating the treaty. As a result, companies that do business in Mexico or Canada or engage in cross-border transactions with those countries are likely to confront significant new challenges and uncertainty in the next few months.

Any renegotiation could lead to an increase in U.S. tariffs on imports from Mexico and Canada, which could increase to the levels applied to other members of the World Trade Organization (WTO). There may also be parallel increases in Mexican and Canadian tariffs on imports from the United States. Such shifts would threaten Mexico’s maquiladora industry in particular, which depends upon the tariff-free movement of inputs and finished products to and from the United States. Renegotiation also could affect U.S. firms that supply goods and services to the Mexican and Canadian governments and place in doubt bilateral arrangements facilitating the movement of U.S. workers and executives across the Mexico and Canada borders. Such a dramatic move, moreover, might be a precursor to unilateral U.S. trade measures. U.S. presidents, for example, have significant authority to impose tariffs against foreign trade practices.

What the Trump Administration’s policy priorities would be in any renegotiation are not clear, but changes in tariffs and the protection of U.S. jobs may be at the top of that list. It would not be surprising if President-elect Trump were to wield the threat of withdrawal as a source of leverage in any talks, and perhaps also seek to impose punitive tariffs against imports from Mexico and/or Canada. Any unilateral actions, of course, could prompt Mexico and Canada to retaliate in kind, such that these bilateral relationships deteriorate and market uncertainty increases.

If a Trump Administration goes so far as to withdraw unilaterally from the trade pact, that would also have the consequence of removing the protection that NAFTA’s Investment Chapter provides to the investments of U.S. investors in Mexico and Canada.

The Investment Chapter of NAFTA grants U.S. investors with investments in Mexico and Canada several substantive rights. For instance, Mexico and Canada must grant fair and equitable treatment to the investments of U.S. investors, must refrain from adopting arbitrary measures that may affect those investments, and must not expropriate those investments unless certain conditions are met, including the payment of compensation. The Investment Chapter also allows U.S. investors to seek damages in an international arbitration proceeding if any of those rights are violated. These substantive and procedural protections would no longer be available to U.S. investors if the United States were to withdraw from NAFTA. For those investors who believe Mexico or Canada has violated NAFTA, as long as a party notifies its intention to file a claim while NAFTA remains in force, its ability to seek redress in an arbitration related to that dispute will be preserved, even after any U.S. withdrawal has occurred.

Companies with significant investments in Mexico and Canada would be wise to consider how a withdrawal from, or fundamental changes to, NAFTA might impact their businesses going forward. Reopening NAFTA negotiations could present risks as well as opportunities for those on both sides of the border.

Use of the Congressional Review Act in the 115th Congress to Overturn Obama Administration Regulations

In just five short weeks, the 115th Congress will convene in Washington.  Now that Republicans control majorities in both houses and the White House, Republican leaders hope to use the Congressional Review Act (CRA) to overturn regulations issued by the Obama Administration over the past few months.  According to a recent Congressional Research Service review, over 100 regulations are potential targets for Congressional disapproval under the CRA, including:

  • The Department of Labor’s new overtime rule requiring employers to pay overtime to employees making less than $47,000 per year
  • FDA regulations governing serving sizes and nutrition labeling
  • Department of Agriculture regulations on nutrition standards for food served in schools
  •  Department of Health and Human Services regulations setting new performance standards for Head Start
  •  EPA regulations setting standards of performance for municipal landfills
  •  Treasury Department and Commodities Futures Trading Commission regulations governing covered swap entities, including margin and capital requirements
  •  Department of Labor regulations requiring paid sick leave for federal contractors
  •  Securities and Exchange Commission regulations requiring resource extraction issuers to disclose payments made to governments for the commercial development of oil, natural gas, or minerals
  •  Department of Transportation/Federal Aviation Administration regulations regarding the use of small unmanned aircraft (“drones”).

The Congressional Review Act

The CRA provides expedited procedures by which Congress may disapprove an administrative “rule” by enacting a joint resolution of disapproval.  A “rule” is broadly defined by reference to the Administrative Procedure Act and includes regulations issued by both executive branch departments and agencies (such as the Department of Labor), and independent agencies and commissions (such as the Federal Communications Commission or the Federal Trade Commission).  Before a regulation can take effect, the issuing agency must report the regulation to Congress. After the report is made, Congress generally has 60 days to introduce and pass a joint resolution of disapproval under the CRA’s special procedures, but the counting of the 60 days differs depending on whether the joint resolution is being introduced or considered and whether consideration is taking place in the Senate or the House of Representatives.

When rules are submitted to Congress within 60 days of a sine die adjournment of Congress, such as at the end of the second session of a given Congress, then the 60 days clock “resets” at the beginning of the new session.  Thus, for rules reported to Congress within 60 legislative days of the end of the 114th Congress, members of the 115th Congress will have the full 60 days to introduce and consider joint disapproval resolutions.  The “reset” period begins on the 15th day of the new session.  Because the CRA relies on legislative days—which are determined differently in each chamber—rather than calendar days, rules reported to Congress as early as mid-May 2016 may be eligible for congressional disapproval.  The parliamentarian of each house determines the actual cutoff date for CRA disapproval of a given rule.

If a joint resolution of disapproval is timely enacted with respect to a particular regulation, then the regulation will not take effect — or, if the regulation already has gone into effect, it will be treated as if it had never gone into effect. Moreover, the regulation may not be reissued in substantially the same form, nor may a new regulation that is substantially the same be issued, unless it is specifically authorized by subsequently enacted legislation. The CRA may be used only to disapprove a regulation in its entirety, and the rejection of each given rule requires its own resolution of disapproval (although some members of Congress have proposed legislation that would permit Congress to disapprove of regulations in larger blocks).

The primary advantage of using the CRA to invalidate an undesirable regulation is its expedited procedures, particularly in the Senate.  For example, if a joint resolution of disapproval is introduced in the Senate, and the jurisdictional committee fails to report it to the full Senate within a specified period, a petition of 30 senators may place the joint resolution on the Senate’s calendar.  In addition, Senate consideration of the joint resolution is not subject to filibuster, and debate is limited.  Once debate begins, the Senate may not move on to the consideration of other business until the joint resolution is disposed of.  Enactment of a joint resolution of disapproval under the CRA requires a majority vote in each chamber of Congress and signature by the president.

The CRA has been used successfully only once. In November 2000, the outgoing Clinton administration issued final ergonomics regulations.  In that same month, the Republican Party gained control of both chambers of Congress and the presidency.  In March 2001, the Republican Congress used the procedures under the CRA to cancel the ergonomics regulations.  The current political conditions are ripe for further such uses.

What’s Next?

President-Elect Trump campaigned on a promise to roll back countless Obama Administration regulations, and just last week proposed “formulat[ing] a rule that says that for every one new regulation, two old regulations must be eliminated.”  Although repeal of most regulations would require new rounds of notice-and-comment rulemaking, Republicans who support undoing the previous administration’s rules may rush to end the 114th Congress early in order to maximize the number of existing or soon-to-take-effect rules subject to the CRA in the new Congress.

The new Republican Congress and the Trump Administration are also expected to use traditional legislation to rollback a number of Obama initiatives, including the Affordable Care Act (“Obamacare”) and its attendant regulations, dozens of Dodd-Frank Wall Street Reform and Consumer Protection Act regulations, the Department of Labor’s fiduciary rule for retirement plan advisors, and others.  However, unlike regulations subject to the CRA, these rules are subject to filibuster by Senate Democrats.

The Republican leadership in both houses of the incoming 115th Congress are enthusiastic about rolling back Obama Administration rules and regulations, and have promised to use all tools at their disposal to accomplish that goal.

The strong likelihood that Congressional Republicans and President-Elect Trump will use the CRA to undo Obama Administration regulations should be of interest to companies who support or oppose the regulatory initiatives listed above, or any other regulations that may face Congressional scrutiny early in the new Congress.

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