August 2012 Edition 14
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 150 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.
India: Duty Imposed on Imports of Power Equipment While much of India is experiencing crippling power outages, the Indian government is putting restrictions on the import of equipment for power projects by approving a plan to impose a 21 percent duty on power projects for imported power equipment. Previously, only power projects with capacity of less than 1,000MW were subject to a 5 percent basic customs duty, while no duty was imposed on projects with over 1,000MW capacity. Under the new plan, all power projects, regardless of capacity, will be subject to the same duty structure of 5 percent basic customs duty, 12 percent standard counter-veiling duty, and 4 percent special additional duty, bringing the total up to 21 percent. India has long been facing a chronic shortage of electrical power and its peak electricity demand has on average exceeded supply by nearly 10%. To remedy this, the government has encouraged the development of large-scale power plants that generate power in the range of 1,000 to 4,000MW, but India’s domestic power equipment manufacturers have been unable to produce enough equipment to meet the demand for these new plants. This has led to a dependence on imports of power equipment, mostly from Chinese firms. It is estimated that over 30% of the equipment ordered in the last five years was imported from China and Korea. If the new customs duty is imposed, it will not only hit foreign power-generation equipment firms and their utility customers, but may also pose a further threat to increases in much needed power generation capacity if Indian power utility companies are discouraged from using foreign power equipment. Power-generating companies will face an increase in capital costs for future generation projects, and analysts estimate that these actions will lead to an increased power-generation cost of around
2 percent. The Association of Power Producers (APP), representing 24 power-generating companies in India, has warned that electricity tariffs will be increased for consumers and will lead to further delays in capacity increases if this customs duty is instituted. Multinational power-generating companies operating in India will also be affected. General Electric, for one, has voiced its opposition to the duty by saying that it would adversely impact its ability to service gas-based power-generation needs, in addition to leaving them at a disadvantageto European competitors who will obtain duty-free access under the proposed EU-India Free Trade Agreement. The duties will be applicable starting this August or September 2012 for projects that will be approved between 2012 to 2022 and will not apply to current projects that have already placed orders on power equipment. However, the recent large-scale power grid failure across India may give power producers, industry groups, foreign companies, and chambers of commerce a new opportunity to lobby the government to reconsider this plan. Opponents will also have a stronger case to argue that India has been missing power-generation capacity addition targets for decades and the duty should be abolished in the interest of encouraging new projects to increase power-generation capacity. Burson-Marsteller’s public affairs team in India stands ready to apply their industry-leading government relations capabilities to help clients in the power-generation sector meet their goals in this regard.
Contact Rahul Sharma - firstname.lastname@example.org Evelyn Kusnawirianto - email@example.com
China: New Policies Unveiled to Support Industries and Investments Chinaâ€™s State Council, the countryâ€™s Cabinet, issued a statement on actions the government will be taking to promote economic growth. The statement said "stabilization of economic growth" is the highest priority for the country against the recent economic slowdown and it outlines eleven new tasks the government will carry out to stimulate the national economy. These include: Implementing the policy of structural tax reduction Maintaining prudent monetary policy and a reasonable level of credit Expanding domestic demand by improving policies and measures to increase consumption Increasing the sales of energy-saving and new-energy products Ensuring the timely implementation of the key projects designed in the 12th Five-Year Plan and launching a series of new important projects Clearing up existing projects and solving their problems Encouraging private investment in energy, telecom, railway, education and health Supporting small and micro enterprises to start new businesses Introducing export incentives to stabilize the growth of foreign trade Implementing beneficial rural policies to ensure the supply of agricultural products Maintaining and strengthening the policies for regulating the real estate market In the first quarter of 2012, China recorded a GDP growth of 8.1%, which is 0.8% lower than the previous quarter. Leading indicators such as exports, fixed-asset investment, and domestic consumption have all shown drops. In light of this, many commentators have hoped for a new comprehensive government stimulus package, but the government has been careful to emphasize
that its objective is to stabilize growth and it did not want to initiate any actions that would overheat the economy. A National Development and Reform Commission (NDRC) official has told the media that new policies will be put in place to maintain a reasonable level of investment in society to stabilize economic growth. To this end, a number of new policies designed to open up more sectors to private investment and expand domestic consumption have recently been unveiled to support a wide range of industry sectors including the renewable energy, railways, healthcare, banking, and the securities sectors. For example, a RMB 170 billion package has been announced to promote renewable energy, of which RMB 36.3 billion will be used subsidize the purchase of energy-saving home appliances, vehicles, and high-efficiency electrical machines. In addition, investments from the private sector are increasingly encouraged as several ministries have announced policies to allow private capital into sectors that have been traditionally monopolized by state-owned enterprises. The China Banking Regulatory Commission, for example, has issued a statement encouraging more private investment into banks and financial institutions. Although restrictions on involvement in private capital are expected to be relaxed in various sectors, private companies will still likely face resistance from state-owned enterprises and interest groups. Effective implementation of these new measures will, therefore, be crucial to their success. Private businesses are expected to lobby the government to create a fair, level playing field for them as more policies designed to expand domestic consumption and encourage investments will continue to be unveiled. Burson-Marstellerâ€™s government relations team in China is working with a number of clients to support this strategic communications process.
Contact Jane Zhang - Jane.firstname.lastname@example.org Evelyn Kusnawirianto - email@example.com
Australia: Debates over Tighter Media Regulation Calls by the Australian government for an enhanced media regulation regime have ignited intense debate in the country. At present, the regulation of media in Australia falls under the purview of the Australian Communications and Media Authority. However a Convergence Review under the auspices of the Department of Broadband, Communications and the Digital Economy has proposed the establishment of a new statutory regulator and new media ownership rules. A proposal led by former Federal Court judge Ray Finkelstein has also called for the establishment of a statutory regulator, the News Media Council, to handle media complaints and make media more accountable by requiring outlets to run apologies, retractions, or rights of reply when appropriate. If approved, media across all platforms including print, radio, television and online, will be required to join the News Media Council and make themselves subject to the new standards imposed by the regulator. In addition, media mergers and acquisitions will be required to go through a public interest test administered by the new statutory regulator in order to obtain approval. These proposed measures have coincided with a period of intense change in the media industry that has seen major media companies dramatically reduce headcount in response to revenue pressure. Recent moves by Australian mining magnate Gina Rinehart to secure a seat on the board of the Fairfax media group and allegations of biased reporting on key public issues by News Limited, the Australian arm of Rupert Murdoch’s News Corp, have also raised questions about the influence of vested interests on the impartiality of media. Media companies have called for the proposed reforms to be abandoned, suggesting that any news
regulator connected to the government would be open to political abuse and thus a threat to democracy. Industry bodies including the Business Council of Australia have also criticized the proposed reforms on the grounds that they set a precedent for government intervention in other areas of business and will deter investment and hinder growth in the industry. In light of the fierce opposition, Prime Minister Julia Gillard has written to owners of the major media companies proposing a regime of tougher self-regulation by the industry, while emphasizing that the Government is serious about the reform agenda. The administration is reportedly under pressure from within the Labor Party to reach a compromise ahead of the 2013 general election, but this will be a challenge as the media industry is expected to continue the fight against tighter regulation and media reforms. In addition to the media industry itself, companies both within Australia and overseas should be monitoring the changing media landscape very closely. The mixture of tighter regulation and a challenging financial environment will have long term implications for the Australian media industry. Companies operating in that sector and companies engaged in media relations activities will need to be sensitive to the government’s position and that of a wide range of stakeholders in Australia. Burson-Marsteller’s media relations and public affairs teams are helping clients better navigate in the rapidly changing environment.
Contact Steve Bowen - firstname.lastname@example.org Evelyn Kusnawirianto - email@example.com
Denmark: New Independent Complaint Institution The Danish Parliament has just passed a law creating a new independent complaint institution on OECD Guidelines for Multinational Enterprises. When established on November 1st, anybody will be able to hand in complaints if they think a business, a public institution or another organisation operating in Denmark violates the guidelines – and complaints can concern any type of company, and not only multinationals. Furthermore, complaints may also
be based on the conduct of a business partner of that company. Profoundly unwarranted complaints may be rejected by the complaint institution. If a complaint isn’t deemed profoundly unwarranted, the complaint institution will at first encourage the parties to find a solution on their own, but if that is not possible the complaint institution will independently inves-
tigate the complaint, and may issue a public statement with the conclusions of their investigations. The law also creates a new duty for the 1100 largest businesses in Denmark to issue an annual report on their work concerning human rights and reduction of climate impacts of their business. One of the major concerns in the debate on the new independent complaint institution is that it might create a non-legal parallel system to the regular legal system, where companies can be
publicly criticised without having crossed any rule of law. Employers have also expressed their worries due to the bureaucratic costs of the fact that anybody can complain and do so within the limit of five years after the action has stopped. The law will enter into force on November 1, 2012.
Contact Janus Lund Lodah – firstname.lastname@example.org
Finland: Changes to mining regulation and a potential mining tax The Mining Act of Finland was changed recently, in 2011. The aim was to help new explorations while taking into account the needs of the environment, land owners and public authorities. The most contentious issues in the legislation process were compensations for the land owners and prevention of environmental problems. For example, the new law mandates a collateral payment to be made when new mining ventures are being started. The collateral which was previously only voluntary is intended for compensation measures in case of environmental damage. Due to several ongoing mining ventures, especially the problems related to the Talvivaara project, political pressure to tighten legislation has grown. As of yet the government is unwilling to do any large scale changes, especially because the new mining act has not been enforced for very long. One proposal has been to introduce a “mining tax”. It would collect a part of the mining companies’ revenues to compensate for environmental degradation. The idea was presented by the Green Party in May, even though calls for a similar tax have been made before. The opposition Center Party was also quick to grasp the idea, though details on the use of the proceedings of such a tax differ between the parties. Both used Australia’s 30 % mining tax and Norway’s tax on oil revenues as examples. The National Coalition Party, and minister Häkämies, have traditionally been sceptical of a mining tax. Häkämies has ordered his Ministry to look into mining taxation models in other countries but has emphasized that no movement should be
expected of the government. The collateral procedure of the renewed mining act is sufficient to compensate for environmental damages, Häkämies has said. However, critical voices are becoming louder with the local elections approaching and preparations for the next parliamentary elections starting in 2013. According to Häkämies, the Government is going to have a substantive debate over mining issues during the autumn, which may indicate more changes for the sector even in the short term. Changes to the legislation after the 2014 elections are more probable. The role of the mining industry has grown in recent years both in terms of economic influence to Finland but also in political weight. By many politicians, officials and commentators the mining industry is seen as living a new gold age and that it might come to the rescue of the troubled economy. Some politicians have even dubbed the mining sector as the “new Nokia” of Finland. The Finnish Government has constantly highlighted mining as one of their key initiatives. The Government Program of 2011 highlighted mining industry as one of the key sector for international growth. The program also stated that the Government is pursuing growth in the processing of minerals and growth in the metal sector as well. In the program the government also highlighted the mining sector as one of their priorities in EU policymaking.
Contact Niilo Mustonen - email@example.com
UK: New Guarantees Scheme for Major Infrastructure Investment and UK exporters The UK Government has announced a new UK Guarantees scheme to accelerate major infrastructure investment and provide support to UK exporters. Applications are now open for UK Guarantees to kick start critical infrastructure projects that may have stalled because of adverse credit conditions. These projects could come from a range of sectors including transport, utilities, energy and communications. Up to £40 billion worth of projects that are ready or nearly ready could qualify, with the first guarantees expected to be awarded in the autumn. In addition, a new temporary lending programme will be available to ensure that around 30 public private partnership infrastructure projects worth an estimated £6 billion in the next 12 months can go
ahead. These include projects in the transport, health, housing and education sectors. Finally, a £5 billion export refinancing facility will be available later this year to support British exporters, through the provision of long-term loans for overseas buyers of UK exports at competitive rates by guaranteeing a series of short-term bank loans. Sectors supported could include aerospace, oil and gas extraction equipment, transport and telecommunications infrastructure services, hospital construction and management services, and sports infrastructure.
Contact Hugo Legh - Hugo.Legh@bm.com
Brazil: Actions to promote investment In August, Brazilian President, Dilma Rousseff, is expected to launch a "set" of concessions in four areas: highways, railways, airports and electricity. The package is part of the Government's agenda to promote investment in infrastructure and stimulate the domestic economy. In the electricity sector, the Brazilian Government is preparing a package of actions for the renewal of concessions that will expire in 2015 and which will cut taxes on the electricity bills of large energy companies the PIS/Cofins, which focuses on the electricity bill will be practically zeroed. The Government also intends to terminate some charges that increase the price; the Global Reversion Reserve (RGR) and the Fuel Consumption Account (CCC), among others. President Rousseff is also examining the possibility of granting the private sector the ability to run a new set of federal highways. This set includes at least four sections considered strategic in the Brazilian highway network: BR-101 (State of Bahia), BR-163 (between cities of Cuiabá and Campo Grande), BR-153 (between cities of Palmas and Goiânia) and BR-262 (between cities of Belo Horizonte and Vitória). Two other sections are set for a later stage with the associated auctions not expected until early 2013 - the BR-116 in the State of Minas Gerais and the BR-040 (between cities of Brasília and Juiz de Fora).
The third area of concessions has seen the President sign a law that enables airports to be run by the private sector. The airports of Guarulhos (in the State of São Paulo), Brasília and Viracopos (city of Campinas) have been transferred to the private sector and two other awards will be announced: Confins, in the State of Minas Gerais and Galeão, in the city of Rio de Janeiro. In line with the Federal Government, the House of Representatives has approved two Temporary Measures (MP) from another package of incentives, the Greater Brazil Plan (Plano Brasil Maior). The MP 563, exempts the payroll of certain sectors from particular taxes and the MP 564, which deals with the revitalisation of the National Development Bank (BNDES) and the reduction of taxes on various productive sectors. The two MPs will be voted on in the Senate in August and will then move on for presidential sanction. The Brazilian Government is aware of the challenges that must be faced in these areas: the need to create new financial arrangements to facilitate investment; modal integration and viability of local enterprises; and the technological standards for the production of sustainable infrastructure.
Contact André Miranda - firstname.lastname@example.org
Uruguay: Restriction of Alcohol Sales A draft law proposing strong restrictions on the sale and advertising of alcoholic beverages is about to be submitted to the Uruguayan Parliament. A similar proposal failed to have parliamentary sanction under the administration of Uruguay’s previous President, Dr. Tabaré Vázquez, who achieved one of his major political milestones in a severe anti-tobacco law which has seen a high compliance among citizens. This project is driven primarily by Uruguay’s National Drug Board, which reports directly to the President of the Republic. The main objective of this project is to restrict the points of sale, as well as to make the stores that sell alcoholic beverages do so only if they have special permits (patents). Currently, alcohol is sold in traditional stores, but also in small kiosks that also sell sweets, cigarettes, soft drinks, etc. It also proposes to lengthen the curfew on selling alcohol, which currently extends from 12am to 6am, and particularly aims to limit the sale in convenience stores at service stations. Although the final draft has not been submitted yet, it has been said that the project will also include
restrictions on mass media advertising with the limitations also applying to the sales of beer. Paradoxically, the state is the majority owner of a corporation (Cava) that produces and sells alcoholic beverages, especially spirits. Moreover, the current government has announced it will send another project to the Parliament next week, regarding the liberalisation of the sale of marijuana (marijuana which would even be produced by the State) as a measure to combat drug trafficking. In Uruguay, drug trafficking is penalised, although its consumption is not. There is high compliance with the restrictive rules on tobacco consumption in public places and working areas but they have not significantly impacted cigarette sales. Increasing taxes on cigarettes has generated a sharp increase in smuggling of the products, so it will be interesting to see the effect of these potential news rules on alcohol.
Contact Agustina Navarro – email@example.com
US: A Radical Shift of the Internet Navigating the new gTLD Process The Internet’s naming system is undergoing an historic expansion where .anything is possible and naming opportunities will be limited only by imagination. To kick off this transformation, on June 13, 2012, the Internet Corporation for Assigned Names and Numbers (ICANN) revealed who applied for new generic Top Level Domain (new gTLD) names. A total of 1,930 applications from 60 countries and territories had been filed. Charging $185,000 per new gTLD application, ICANN received more than $357 million in application fees. And millions of additional dollars have, and will be, spent on these applications. In short, new gTLDs are big business – real and potential. With implications for brands, companies and nearly every organization with a presence on the Internet, applicants and non-applicants alike will need to strategize about how they plan to represent themselves in this unexplored territory. For years, the so-called top-level domains have been limited to a few well-established extensions such as .com,
.biz, .edu, .gov and many country-specific extensions such as .UK, .DE and .CN. This new system will see the introduction of new domain extensions that can be virtually any word in any language. In fact, this will be the first time that fully internationalized domain names in non-Latin alphabets, such as Chinese, Cyrillic or Arabic, will be made available to the 70 percent of Internet users around the world who are non-English speakers. So, what’s next? Applications are now under review. Not all new gTLD applications will be approved and some may face organized opposition or multiple applicants competing for the same domain. Complicating matters further, ICANN substantially modified its procedures and is now in the middle of a rigorous, multi-layered approval process. Last month they announced that they believe the initial evaluation will be completed within the year, meaning the results of the process would be published by July 2013.
One thing is for certain: By this time next year, the first batch of new gTLDs will begin to be assigned to owners who will control – literally – a piece of the Internet akin to owning all of the .com infrastructure or a government domain such as .gov. The opening of the Internet to the new gTLD system will alter the very fabric of the World Wide Web for years to come. Whether your organization applied for a new gTLD as a forward-thinking business decision or simply as a
defensive measure, it will be important to start planning for “what’s next.” There’s much to consider. Having a well-thought out global and integrated communications plan that examines all aspects of your business will play a critical role.
Contact Paul Rodriguez – firstname.lastname@example.org Holly Sitzmann – email@example.com
US: Consumer Financial Protection Bureau – A Year Later The Consumer Financial Protection Bureau (CFPB), the U.S. government’s new consumer watchdog, marked its one year anniversary on July 21, 2012. Conceived out of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB is the first federal agency focused solely on the financial protection of consumers. Established by Congress, CFPB’s mission is “to help consumer financial markets work by making rules more effective by consistently and fairly enforcing those rules and by empowering consumers to take more control over their economic lives.1” The bureau has proven to be an assertive, tenacious force. They are committed to action. CFPB remains steadfast in using every tool available to them – from supervisory oversight, regulation and enforcement actions to market research and financial education – so that consumers are protected from unfair or deceptive practices. The bureau is not without detractors who attempt to reduce CFPB’s broad reach. However, Richard Cordray, CFPB’s Director, recently reaffirmed the bureau’s commitment to protecting American consumers in the financial marketplace, saying that “neither he nor the new watchdog agency is going away.2” CFPB has concentrated much attention on consumer credit card complaints since opening its doors. In fact, just last month, the bureau filed its first enforcement action against a large, well-known credit card company. The bureau’s supervision process uncovered the use of deceptive tactics intended to persuade consumers into buying “add-on” products they didn’t understand, or in some cases, couldn’t even use. CFPB determined that the credit card company marketed certain products in a way that violated federal law. This action returned $140 million back to two million
customers who were pressured or misled into buying such products.3 Recognizing that these tactics are not unique to a single institution, CFPB also issued a compliance bulletin that put financial institutions on notice about these prohibited practices and emphasized that they must all comply with the law. Further, the bureau released materials that educate consumers about “red flags” in the credit card industry and provide them with facts about “add-on” products. On December 1, 2011, CFPB also began fielding consumer complaints related to mortgages. The bureau spearheaded efforts to simplify mortgage disclosures and to bring more transparency and accountability to mortgage servicing as well. In addition, CFPB began logging complaints about bank products and services, private student loans and other consumer loans as of March 1, 2012. The CFPB has received approximately 55,300 unique consumer complaints ranging from issues related to mortgages, credit cards, bank accounts and services, student loans and other consumer loans since its inception. More than 81 percent of the filed complaints have already been sent directly to companies for review and response.4 What’s more, despite some industry objection, the CFPB launched a public complaint database on June 19, 2012 that tracks credit card complaints received on and after June 1, 2012. The database includes, among other things, the type of complaint and the company about which the complaint relates. Adding more options for consumers to file complaints about other financial products and services is also being considered. If CFPB’s track record is any indication, then there is no doubt that the bureau takes their commitment
to the public very seriously. Large and small businesses alike that offer financial products and services to consumers should familiarize themselves with the bureau and its core functions. CFPB remains unwavering in its commitment to shielding American consumers from abusive practices and monitoring consumer financial companies to ensure they operate in a way that works for
American consumers, responsible providers and the overall global economy.
Contact Holly Sitzmann – firstname.lastname@example.org
1. www.consumerfinance.gov 2. Los Angeles Times, Jim Puzzanghera, July 21, 2012. “Richard Cordray marks consumer protection agency’s first year: The Consumer Financial Protection Bureau has begun flexing its muscle. But opponents are still trying to shut it down or weaken it.” 3. Prepared Remarks by Richard Cordray on CFPB Enforcement Action, July 18, 2012. 4. Semi-Annual Report of the Consumer Finance Protection Bureau, July 2012.