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June 2013 - Edition 19

Welcome This is the latest edition of “Hot Issues” from Burson-Marsteller’s Global Public Affairs Practice. Every month, “Hot Issues” focuses on new forthcoming legislative or policy issues that will impact business from around our global network of 158 offices in Latin America, Asia-Pacific, Europe, Middle East, Africa and North America. The public policy dynamics in each country, let alone a particular region can be very different, demonstrated by the different experts we utilise in the countries where we operate. Conversely, there are similarities and you can see this in some of the issues we have picked out. Hot Issues are designed to give you a flavour of our global perspective and should any of the items raise particular interest with you, please contact the designated person listed with that issue.

Australia: New funding plan for schools The Federal Government of Australia announced on April 14 plans to deliver an extra AUD$14.5 billion over the next six years to Australian schools, lifting the total projected spending on schools over that period to AUD$49.5 billion. The new investment aims to support performance improvements in reading and math amongst public and private schools. A decision by the Australian states and territories on this plan will be reached this June. If the plan does go through, schools in New South Wales will secure a AUD$5 billion increase, Victoria AUD$4 billion, Queensland AUD$3.8 billion, Western Australia AUD$300 million, South Australia AUD$600 million and Tasmania AUD$400 million over the next six years. These figures correlate with the size of local populations in each state, though there are debates over whether a more effective allocation criterion should be based on actual literacy performance gaps amongst the territories. While this decision is good news for non-tertiary-level schools, the school funding dollars will be drawn from potentially massive cuts to universities and student

scholarships. Such funding cuts to universities could potentially lead to significant job reductions of those institutions, bigger class sizes and fewer enrollment spaces for new students. All stakeholders in the education sector in Australia need to ensure that their voice is heard as the government considers how to implement this measure if a decision is made to move forward. As discussions and debates around the new funding plans continue and decisions are made, BursonMarsteller Australia can provide affected institutions with strategic communication support, track the on-line and off-line discussions on this issue and create opportunities and channels for those institutions to get their positions and messages across to key decision-makers, as well as recommend participation in relevant industry associations to get involved in legislation debates early in the process.

Contact Melody Wong - melody.wong@bm.com

China: A new round of government restructuring begins The 2013 session of the National People’s Congress (NPC), China’s top legislative body, has recently approved the plan on State Council institutional reform and transformation of government functions. The restructuring plan, the seventh in three decades, will see the State Council cut the number of its ministry-level bodies from 27 to 25, while reorganising several other key government departments. Under the plan, the Vice-Ministerial China Food and Drug Administration (CFDA) will be elevated to a full

government ministry and will become a one-stop “watch dog” for food and drug safety in China, covering the whole chain of production, distribution and consumption stages. The new CFDA combines the functions of the former Food Safety Office of the State Council and the previous food supervision duties of the General Administration of Quality Supervision, Inspection and Quarantine, and the State Administration for Industry and Commerce. The new agency aims to consolidate the scattered and often overlapping duties currently embedded

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among these agencies to strengthen unified administration and supervision so as to better address growing public concerns over food and drug safety in China. The State Council also plans to set up a National Health and Family Planning Commission by merging the National Population and Family Planning Commission with the Ministry of Health; dismantle the Ministry of Railways into administrative and commercial arms for increased transparency; merge the General Administration of Press and Publication and the State Administration of Radio, Film and Television into a single media regulatory authority; and unify the scattered maritime administration responsibilities and maritime law enforcement forces currently spread out in different ministries under the new State Oceanic Administration body. The State Council will also incorporate the current functions of the State Electricity Regulatory Commission into the National Energy Administration. This new restructuring plan focuses more on functional and personnel adjustments, than on

political or policy changes. The overhaul attempts to address current duplication of functions, overlapping management, low efficiency and bureaucracy, which many believe have facilitated corruption within the public sector. The plan is seen as a response to public calls to boost government transparency and efficiency. Although it is expected that the restructuring will not exert significant impact on foreign companies’ business operations in China in the short term, Burson-Marsteller China can support efforts by foreign companies to map out the reshuffled organizational and personnel changes related to their industries, monitor policy and regulation developments of the new administration and fine-tune engagement strategies with their key government stakeholders in China.

Contact Melody Wong - melody.wong@bm.com

Singapore: Addressing the manpower crunch with higher productivity The extent of Singapore’s global competitiveness is closely linked to its management of the country’s economic and human resources. Based on the IMD World Competitiveness Yearbook, Singapore was the fourth most competitive country in 2012, behind Hong Kong, the United States and Switzerland. The drop from Singapore’s 2011 third place ranking was not entirely unexpected since the country’s productivity fell by 2.6 per cent in 2012. To counter productivity challenges and to attract stronger investments, the Singapore Government recently announced plans to raise productivity by 2 to 3 per cent a year over the next decade. In addition, the inflow of foreign workers has also been tightened to encourage companies to develop more productive ways of delivering the same results or sell highervalue products to raise profit margins. Although most Singaporeans support the recent measures to regulate the influx of foreign workers, many businesses are feeling pressure generated by that move. To address immediate manpower gaps, the Government has introduced initiatives such as a Wage Credit Scheme (WCS), where the Government will co-fund 40 per cent of wage increases given to Singaporean employees earning a gross monthly wage of up to S$4,000. Other initiatives include

incentives to allow economically inactive Singaporeans to return to the workforce, and to also encourage businesses to employ new technologies to increase productivity levels. However, there has been an intense debate on whether these initiatives will effectively help to increase productivity or whether they are skewed towards subsidizing multinational corporations and government-linked companies that are profitable and already plan to raise wages. Working with several local government agencies, Burson-Marsteller Singapore has been supporting the national discussion on productivity and manpower. From engaging key opinion leaders to take the lead in changing mindsets to featuring highly productive employees who take on more than one role within the same organisation, the B-M team is committed to helping our clients shift perceptions and contribute to their own business benefits while also promoting Singapore’s long term nationwide competitiveness.

Contact Melody Wong - melody.wong@bm.com

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Denmark: Change in taxation of North Sea Oil On the basis of a review of the North Sea Agreement, which lays out the economic framework conditions for the extraction of oil and gas in the North Sea, the Danish government has decided to let the agreement remain in force, but have all companies pay taxes according to the same rules in the future. Since 2003, the so-called DUC oil consortium companies, which include Maersk, Chevron and Shell, have had an effective tax rate of about 60 per cent. From now on, the companies outside of the DUC (the biggest being DONG Energy, Hess and Bayerngas), which so far have had more desirable taxation rules for their existing licenses, will be subject to the same rules as the DUC companies. The new conditions will be introduced gradually, but some companies have threatened to pull out of Denmark if the government does not create a long

transition period to the new rules. According to sources, the change favors companies that already have an existing production. The government seemingly stands by its decision but there might still be a chance to affect the change. The right-wing opposition, which is leading heavily in the polls, is accusing the government of gambling with workplaces. Furthermore, the Danish Minister of Climate, Energy and Building has raised doubts about the size of the proceeds from new taxation rules. The next national election will take place no later than the end of 2015.

Contact Anders Kopp Jensen - anders.jensen@bm.com

Finland: Aggressive measures to make companies welcome The Finnish government agreed on government spending limits for 2014-2017. The government underlined economic growth and new jobs as a solution for the budgetary challenges. In an aggressive move, undercutting Sweden, the corporation tax rate was reduced by 4.5 percentage points to 20 percent. The government’s aim was to confirm the growth potential, accelerate foreign direct investments, thus creating jobs. Together with a deep reform of the dividends tax, the move shifts company taxation away from making profit. The reform didn’t pass with flying colours: the government had to clarify the dividend reform after the leader of the Left Alliance, Minister of Culture Mr. Paavo Arhinmäki, stated publicly that the decision was made with insufficient information. After the ensuing debate, it was decided that non-listed companies can pay dividends to owners with a reduced tax rate up to 150,000 EUR in total. According to preliminary

estimates the dividend taxation amendments increase the tax revenue by approximately EUR 400 million. The agreement contained other industry-friendly decisions as a planned windfall tax for energy companies will get a relief. Previously 170 million euros in tax will now be charged only for EUR 50 million. The government also decided to launch a major growth funding initiative to strengthen the private equity market and to support the growth of SMEs. The new funds will combine both state investments and private money. The government estimates investments of up to a billion EUR to the funds.

Contact Niilo Mustonen - niilo.mustonen@pohjoisranta.fi

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Spain: Transparency in lobbying will have to wait Unlike neighbouring countries, Spain has been lacking a law which regulates the transparency of public institutions. Last year, the ruling Conservative Party in the Spanish government felt that it was time to define how the administration and other public bodies are required to disclose their activities, and to recognize and ensure access to information for Spanish citizens. Therefore, the Council of Ministers adopted the Draft Law on Transparency, Access to Information and Good Governance, which began its slow progress through the Parliamentary red tape in September. Months later, after the popular consultation and 25 postponements open to amendments of the parties, the text continues in Congress, whilst a heated political debate has continued, following the unprecedented news of the King’s son-in-law being charged in a corruption case along with a former treasurer to the ruling political party in government. At the same time, a new issue sneaks into the public eye: lobbying. Those who maintain a professional dialogue with the government for the advocacy of interests and concerns of importance, along with some of the political parties, have seen

in this Act an opportunity to regulate lobbying activities and therefore ensure maximum transparency, creating a record of lobbyists, as is the practice in other EU countries. Establishing a set of clear rules not only provides security to those in public offices, it also encourages access and dialogue amongst the different players in the business, social sectors and other environments including decision makers. However, the main Spanish political parties do not seem to agree on the proposal at this juncture. The President of the Spanish Government has stated that he is open to regulating lobbyists, but not in this legislation. Now in late May, the process remains wide open. We will have to wait still to see if lobbying will be regulated in Spain, and therefore, whether society will recognize the activity that many sectors, especially in the business world, want to develop in the most transparent way possible.

Contact Yolanda Vega - yolanda.vega@bm.com

Colombia: Changes to the mining code Prominent and significant mining companies have expressed concerns about the future following the fall of the mining code in Columbia. The Colombian Constitutional Court declared Law 1382 of 2010, through which the mining code was intended to be renewed, unconstitutional. This declaration was the result of the Government´s failure to set forth the right to prior consultation on the new mining code with amongst others, communities, stakeholders, and advocates. The two year deadline, set by the Constitutional Court for the Colombian Government, for presenting a new proposal for the Mining Code expired on 11th May 2013. Therefore, the old mining code came back into effect. With the 2001 mining code, private mining companies are able to aspire to extensions of their contracts for up to 30 years and not 20 years, as was established by the 2010 norm. The latter is

not a favorable scenario for a country like Colombia, where the economic benefits of mining production are subject of discussion due to the environmental and social costs that derive from mining operations. For Colombia’s environmental groups, one of the major concerns regarding the resurgence of the 2001 code is the threat posed to moors and wetlands. These concerns arise from the fact that the 2001 code does not clarify the restrictions and limitations in this regard. Possible scenarios are massive, public demonstrations organized by environmental groups promoting to veto mining production in Colombia. As 2013 is a pre-electoral year, the situation in Columbia could evolve in a similar way to the situation in Costa Rica, where all mining activities were prohibited. The 2001 code also softens the pre-requisites and requirements for obtaining mining licenses. The

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code does neither require mining companies to demonstrate financial or economic solvency, nor to prepay any royalties. This situation creates new obstacles for strengthening the reputation of the mining industry in Colombia. Nevertheless, the Mining and Energy Ministry is expected to produce a decree in

order to diminish the negative effects for Colombia’s mining future.

Contact Miguel Ángel Herrera - miguel.herrera@bm.com

Brazil: Tax relief for smartphones The Brazilian government has announced a tax relief for smartphones (cell phones that, among other features, allow access to the internet). The equipment will no longer be subject to the PIS and COFINS taxes. The measure benefits smartphones with values of up to R$ 1,500 (approximately US$ 700.00) and can lead to a reduction of up to 30% on the final price to the consumer - in comparison with imported smartphones. There will also be a tax waiver of about R$ 500 million per year. The devices that will benefit from the measure need to be manufactured in Brazil and the tax exemption will be given directly to the consumer at the point-of-sale. Among the technical characteristics necessary for the smartphones are WiFi browser and APP-mail, an operational system that provides a development kit for third parties, a screen less than or equal to 18cm2 (2.8 inches), QWERTY keyboard and applications developed in the country, including by third parties. From the date of the decree’s publication in the Official Gazette, manufacturers have 60 days to submit proposals for how to meet the requirement for national applications to the Ministry of

Communications. Proposals will be reviewed by the Telecommunications Bureau of the Department of Industry, Science and Technology (DEICT) within thirty days. The creation of a committee of mobile applications is also expected, comprising representatives of the government, operators and manufacturers. The goal is to establish guidelines for the development of applications in the country and how they can be embedded in smartphones benefiting from the exemption. The goal is to develop applications focused on Brazilian needs and not just successful translations of applications developed in other countries. The Ministry of Communications considers this measure an incentive to make broad band more popular in the country. According to a study by the Government the use of broad band in Brazil increased by 150% from January to April 2012 in spite of the high prices for smart phones.

Contact Paula Bakaj - paula.bakaj@bm.com

Uruguay: Tax increase for land owners Having failed in its attempt to implement a special tax to avoid the concentration of land and obtain resources for rural roads (the so-called RuralProperty-Concentration-Tax, which was declared unconstitutional by the Supreme Court), Uruguay’s Government has sent another proposal to Parliament. The initiative, which is based on an increase to the Property Tax on fields with surface areas of more than two thousand hectares, will

most probably be approved as the Government has a majority in both houses of Congress. All kinds of agribusiness producers, which have contributed significantly to the country’s development over the last decade, have severely questioned the increase in the land value tax burden, particularly in the economic context of a slowing economy, depreciation of the dollar and a strong increase in domestic costs, especially wages.

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The tax itself contradicts the first tax reform of Frente Amplio’s government (2005-2010) based on corporate income, personal income and consumption. It also doubles the tax burden on fields, which are already subject to tax on the gain in the differences in buying and selling prices and also strong local taxation. The proposal is also viewed as a "blind

tax" because it applies regardless of variations in the price of the land or the profitability of agricultural enterprises.

US: Healthcare reform “train wreck” worries employers As part of his reelection campaign for a second and final term, U.S. President Barack Obama championed the passage of the Patient Protection and Affordable Care Act – dubbed “Obamacare” by the news media – with the goal of providing greater access to affordable health insurance coverage to all Americans. After extremely contentious political debates, Congress passed Obamacare in March of 2010, signaling a long-term and dramatic reinvention of much of America’s healthcare system which the Financial Times said “makes a Byzantine healthcare system more complex. This was of monumental concern for employers, given that individuals’ health-insurance coverage in America is largely employer-sponsored and employer-paid – creating significant internal communications worries about the forthcoming changes. Now three years later, even members of the President’s own political party are calling the transition a potential “huge train wreck” given the current lack of progress in implementing it. Estimates now say that the new laws will create 200 million hours of additional compliance paperwork for American businesses and families. And as core elements of the reform are due to go into effect at year-end, employers are beginning to

struggle with the internal communications that must be finalized now so that employees can make their family decisions before the October 1 “open enrollment” deadline. The law requires employers with 50 or more full-time equivalent employees to offer full-time employees health care coverage that is both “affordable” and provides “minimum value” – as defined by the law – or face substantial penalties, known as the “play or pay” scheme. Individuals who are not provided with insurance coverage through their employers are required to purchase coverage through government-sponsored “exchanges,” although the government IT structure that will serve as “the backbone for enrollment” – providing the gateway for individuals to the new state health insurance exchanges, and as well as to learn if they qualify for Medicaid or insurance subsidies – remains unfinished. Burson-Marsteller has created a “working group” of interested companies and leading attorneys to sort through the communication challenges together.

Contact Wade Gates – wade.gates@bm.com

US: A case study of Public Education Reform Reforming America’s system of public K-12 education has been a topic of heated debate for many years. Texas has become ground zero for public education reforms that started under then-Governor Bush and were later codified with bipartisan support from Congress as the No Child Left behind Act under then-President Bush. In Texas, the biennial legislative session is currently underway and hotly contested issues of school

choice, graduation requirements and teacher preparation are all on the docket. School Choice: In 1995, Texas launched public charter schools, now touted as “one of the most significant education reforms” in the state’s history. Today there are more than 154,000 students in more than 500 public charter schools in the state. The battle over charter schools has been focused on lifting the statutory cap on the number of

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charter schools operators, while strengthening oversight and easing the ability of regulators to “shutter chronically low-performing schools.” In a state with a massive and increasingly diverse student population, it is apparent that the “neighbourhood school” is not always the best equipped to meet the needs of Texas students, and families, advocates and leaders across Texas are advocating for the legislation that would strengthen and support charter schools in the state. After a great deal of pressure to expand charter school options for families and students, the Texas Legislature is expected to pass a bill addressing charter schools for the first time in nearly 15 years. Changing Graduation Standards: In response to calls from educators and employers for graduation standards that allow more opportunities for career-training courses, Texas is considering more flexible diploma requirements. But the push for flexibility has caused alarm among business leaders and advocacy groups concerned about the effects such changes could have on academic achievement in the state, particularly for low-income and minority students. Several measures currently under consideration would redefine the curriculum prescribed for a high school diploma in favor of easing the required courses for graduation. Rather than the current plan, which requires four credits each in science, social studies, English language arts and math, some plans would eliminate or alter the math and science requirements, which sometimes prove to be hurdlers for graduation. Some believe the current system provides the right academic exposure to

succeed in higher education, while others want more opportunity for high school students to explore different pathways around college and directly into a career. This debate is still being waged in the Legislature, but the broader philosophical question of how and whether or not to prepare students for college vs. career will be discussed for years to come. Teacher Evaluations: Texas lawmakers rolled out a framework for evaluating public school teachers more than 15 years ago with the intention of identifying ways to strengthen the state’s teaching corps. Today, fewer than three percent of educators score below the “proficient” level, and the variation in scores has been so small that the state stopped collecting the data after the 2010-11 academic year. With one subjective observation per year, it has proved difficult for administrators to provide effective feedback. There is a growing movement toward tying teacher evaluations to objective measures, like student performance on standardized tests. But with the current movement in the Texas Legislature toward reducing such testing, there is not yet agreement on how evaluations should be conducted. Some proposed reforms, like strengthening requirements for teacher certification programmes, have gained traction. Legislation emphasizing student achievement as part of teacher evaluations has stalled.

Contact Jenifer Sarver – jenifer.sarver@bm.com

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