July 2012 Edition 13
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.
Indonesia: Regulations Restricting Import of Finished Products The Indonesian government has launched a new set of regulations to restrict the import of finished products. The regulations are intended to stop the influx of inexpensive imported goods into Indonesia in an effort to encourage the development of local manufacturers and the promotion of local products. According to the new regulations, general importers, defined as those companies that do not have manufacturing plants in Indonesia, may only be allowed to import products from one category, depending on the nature of their businesses. Companies will also be limited to using affiliated third parties to import finished goods. Under the new import arrangement, an importing company that is also a producer may still import raw materials, intermediary goods and capital goods to support its manufacturing activities. It can also import finished goods for the purpose of market testing and for completing product lines, but only under specific quotas and deadlines issued by the Trade Ministry with recommendations from related institutions, such as the Industry Ministry, Health Ministry and the Food and Drug Supervision Agency. Local businesses have long lobbied for the government to restrict imported goods as these are often cheaper than domestically manufactured goods, leaving those companies competitively disadvantaged in the Indonesian market. Industry insiders estimate that the new measures will greatly increase the cost for foreign businesses in Indonesia as many have relied on cheaper imported goods to run their businesses. A wide range of multinational companies, including those in such sectors as retail, food and beverage,
telecommunications, and pharmaceutical industries, are expected to be affected by the revised rules. A number of business groups, including the Indonesia Retail Association, the International Pharmaceutical Manufacturers Group (IPMG), and EuroCham in Indonesia, have criticized the government for the new measures. A few US companies, including General Electric, Caterpillar, and Lockheed Martin, have also jointly expressed their concerns to the Indonesian government about how the new regulations will affect their investment plans in Indonesia. In response to the criticism from the business community, the Trade Ministry has revised the regulations so that some sectors that depend on imported products, such as the retail and the pharmaceutical industry, can import goods from more than one category, given that they provide proof of affiliation with the foreign suppliers from their foreign principals and that this proof is validated by Indonesia’s attachés or official representatives in the suppliers’ country of operation. Since this exemption applies only to certain sectors and the wording of the new regulations is vaguely defined, multinational firms and foreign industry associations in Indonesia are lobbying the government for exemptions from the new rules or for the abolishment of the new regulations altogether.
Contact Mayang Schreiber - email@example.com Evelyn Kusnawirianto - firstname.lastname@example.org
Australia’s Carbon Tax Fuelling Political Debate on Potential Damage to National Economy On July 1 2012, the final elements of the Australian Government’s Clean Energy Legislative Package, popularly known as the Carbon Tax, came into effect. The legislation imposes a charge on emitters for each tonne of carbon they release into the atmosphere. From inception, the legislation has ignited fierce political debate between the ruling Labor and opposition Liberal parties at both the state and federal levels, and this has been reinvigorated in recent days by the legislation coming into force. The Prime Minister and key ministers from her government have been making appearances across the country in an effort to aggressively argue the case for the Tax, while Opposition Leader Tony Abbott and opposition spokespeople have launched an equally outspoken campaign to undermine the policy. The latest debate focuses around claims by the government of Prime Minister Julia Gillard that the Australian carbon price of A$23 a tonne falls below rates in other countries with similar programs, including Norway, Switzerland, Sweden, Ireland and South Korea. Labor accuses the Liberals, who assert that the Australian carbon price is the highest in the world, of misrepresenting the facts. The Liberals argue that the Australian carbon regime is broader reaching and applies to a larger portion of the economy than other national schemes that are more sectorspecific, and so the net cost is higher in Australia. Relevant to this debate is the fact that Australia’s charge per tonne will increase gradually until 2015, when the government will move to an emissions trading scheme with rates set by the market. When that happens, companies will be able to trade carbon credits. However, Independent MP Rob Oakeshott
and others have called for the Government to remove or lower the A$15 floor price, which has yet to be legislated, during the 2015 transition. Businesses and industry groups claim that the new Carbon Tax will stifle positive economic sentiment in the market, particularly given the recent drop in the Australian Stock Exchange, and the continued uncertainty of financial markets in Europe. Retailers are also predicting that the Tax, and the added costs it represents, will have a devastating effect on their operations. But as any change to the policy would likely generate questions about the Prime Minister’s leadership and credibility and further undermine support for the Prime Minister within the Labor party, her government is expected to move forward with this controversial regulatory move regardless of push back from the Opposition and businesses. All businesses in Australia that will incur higher costs linked to the Carbon Tax, or will make structural or operational changes to offset the increased costs imposed by the Tax, will need to begin developing communication plans around these actions as soon as possible. Key learnings should also be taken from the case of Australian bakery chain Brumby’s, whose reputation has been seriously harmed due to a slew of negative media coverage and the attention from Australia’s competition watchdog for advising its outlets to raise prices and blaming the Carbon Tax for the decision.
Contact Amy Cook - Amy.Cook@bm.com Evelyn Kusnawirianto - email@example.com
Singapore Companies Face Wage Increases for Low-Income Workers Singapore’s National Wage Council (NWC), a tripartite body comprising unions, employers and the government, has proposed a wage increase of at least SGD 50 (USD 39) per month for low-wage workers. Such workers are defined as those earning up to SGD 1,000 monthly. This equates to a wage increase of at least 5% for those at the top end of this scale. The recommendations, part of the NWC’s 2012/2013 wage guidelines, were accepted by the government as one way of addressing a widening income gap, especially in the face of a rise in the cost of living. The recommendations are applicable to all employees in both the public and private sectors.
In addition, Singapore’s National Trades Union Congress (NTUC) Secretary-General called for a progressive wage system so that income for low-wage workers in such sectors as the cleaning, security, hospitality, and food and beverage, will increase at a faster rate than higher-wage workers. Besides the SGD50 increase, the NWC also recommended that companies that are “doing well” give employees a larger increase. What bearing this recommendation will have on the operations of companies in Singapore is unclear. The guidelines
are expected to take effect from July 2012 and continue to at least June 2013 when the next set of annual wage proposals will be drawn up. This is the first time in its 28 years of existence that the NWC has set a minimum recommended wage increase for this category of workers. The NWC noted that a similar minimum dollar pay rise was not proposed for higher-income brackets given the uncertain macro-economic situation. Broader, qualitative recommendations included rewarding employees through variable wage components, where appropriate, in line with the companies' performance and the individual workers' contribution. The Singapore National Employers’ Federation, the Singapore Business Federation and several chambers of commerce have openly endorsed the guidelines, but they have also expressed some reservations. They are particularly concerned about the impact the action will have on small- and medium-sized employers who may come under cost pressures because of the guidelines. There are also concerns about the ability of employers to ensure that any wage increases are in line with job performance and the possibility of higher-income category workers calling for a similar increase. Together
with the Ministry of Manpower’s recent moves to tighten the government’s foreign labor policy and reduce quotas for the entry of foreign talent, Singapore-based companies may face further labor-cost constraints in addition to this development. The NWC guidelines are the latest in a series of developments affecting the cost of Singapore’s labor market. More far-reaching proposals to protect the lowest-income groups may yet follow in light of rising inflation and an overall increase in wages. The volatility in the Singapore economy and the related use by the government of regulatory remedies to address the impact of that volatility on workers argues that companies need to ensure that they have good channels of communication with government so that their views will be taken into consideration as the government formulates new policies and related regulations.
Contact Joy Albert - firstname.lastname@example.org Evelyn Kusnawirianto - email@example.com
Germany: New energy policy - opportunity and challenges for the energy sector and business A year ago, the German centre-right government decided to radically change its energy policy and its core: power production. Key legislation is now expected this autumn on what is a particularly contentious issue. The new “Energy Strategy” aims to not only fully phase out nuclear energy by 2022 but also to make the German energy mix 'greener' by reaching very ambitious renewable energy targets of 80-95% by 2050. This is amid a power sector which relies heavily on coal and nuclear energy as primary energy sources. Naturally, these plans will lead to a new energy mix with the need for massive investments in energy and most likely with rising energy prices that will affect both business and citizens. This makes energy policy one of the most debated issues in German politics which will also shape the general election in autumn 2013. At the same time, the government struggles with implementing this strategy. Heavy delays have already rattled the government and there is a chance of a centre-left government that argues for even more 'greener' policies and more renewable energy after 2013.
The uncertainty coming from the implementation of the government strategy represents a major business challenge to the majority of companies in the energy industry, including system operators, energy producers and plant manufacturers who urgently need a stable regulatory framework. Further concerns are related to the competitiveness of the German economy, the biggest in the European Union. Energy intensive industries like the chemicals sector or manufacturing expect lay-offs and carbon leakage as a result of the increasing energy prices. Providers of renewable energy technology do have a slightly better business outlook, even if the most recently planned cuts in the ballooning feed-in-tariffs for renewable energy and competitors from Asia threaten the renewable energy industry, a flagship for the green economy. Companies producing photovoltaic (PV) and wind technologies are under pressure with some of them with major production plants in Germany having filed for bankruptcy in the last few months. While the share of electricity produced from renewable energy in Germany is expected to rise from today’s 20 percent to 50 percent by 2030, this goal is under
massive pressure as the German energy sector is already struggling to deliver a stable and affordable supply of energy. Power supply shortages have become a major issue and if the current plans were to become reality, unofficial government projections say that energy prices could double within the next 15 - 20 years, risking the competitiveness of Germany's economy and its still strong industrial production base. Other important issues are the establishment of regulations and market conditions to make investments in new conventional power plants and energy storage facilities economically feasible and the simplification of planning regulation to allow an efficient construction of new facilities. Part of this will be massive investments in the outdated power grid to integrate new energy production facilities like offshore wind parks in the North Sea, a task with which grid operators are struggling as estimated investments of more than 20 billion Euros for the coming years are expected. At the moment, analysts see major progress only after the elections. Consequently, German energy
policy over the next year is expected to only evolve through a series of rather minor steps and regulatory changes. These changes will nevertheless play an important role as they are essential parts of the legislative package that tackles implementing the energy strategy. Key parts of the legislation including the finalization of the grid development plan is scheduled for early November 2012 with legislation to change the support for solar energy and other renewable energy sources also expected for the autumn. In addition, new Minister of the Environment Peter Altmaier announced an Action Plan for summer 2012 which includes ten key measures the government intends to implement before the elections to make the new 'Energy Strategy' a reality. A new government will have to take the implementation from there in 2013.
Contact Christian Thams – firstname.lastname@example.org Johannes Lehken – Johannes.email@example.com
Brussels: New energy efficiency law in the EU a last minute compromise to hit challenging targets by 2020 With the clock running out on its EU presidency, Denmark achieved on 13 June the final agreement on the first ever European Union energy efficiency law. The ultimate goal of the Energy Efficiency Directive is to codify a weak non-binding target - agreed by European leaders in 2007 - to reduce EU energy consumption by 20% by 2020. Once the European Parliament votes on the deal in September, EU Member States will be obliged to collectively reduce the bloc’s energy consumption by 17% by the end of the decade. Additional measures are expected to bridge the gap with the 20% target including legislation to reduce carbon emissions from light passenger vehicles to eco-design measures. In other words, this piece of legislation represents a clear turning point on the EU’s energy efficiency policy since Member States will - for the first time- have to set national indicative energy efficiency targets for 2020. If the EU is not on track, the European Commission can propose “further measures” on several sectors. More precisely, this new text is focused on three core policy sub-sectors: Building Renovation: Member States must make a long-term strategy mobilizing investment in the national building stock including a 3%-floor-area
annual renovation of their central government building. Central government purchasing under the public procurement directive should be limited to products, services and buildings with high energy efficiency programmes. Energy Efficiency obligations: Perhaps the most controversial provision, the new Directive also requires energy distributors and suppliers to reduce their customers' annual consumption by 1.5%. While Member States have won numerous exemptions on this measure, restricted to 25% of the energy savings it allows, this provision will be reviewed in 2016. The text makes provision too for binding financial instruments and for customers to be provided with better information, by means of smart meters. Heating and cooling (cogeneration): By 2015, Member States must carry out a comprehensive assessment of the potential for Combined Heat and Power and district heating, based on a cost-benefit analysis for which criteria are laid down. Public support can only be given for cogeneration that fulfills certain efficiency criteria. In short, the European Union has finally its energy efficiency law with mandatory targets covering a
broad range of policies. The key challenge remains a proper and adequate implementation that will allow the EU to converge into a more effective energy efficient economy from both supply and demand side. The outcome is still difficult to predict. A combination of political will from Member States and perhaps additional measures on transport, lighting and
buildings might be essential to hit the 20% target. The race against the clock has just started…
Contact Diederik Peereboom - firstname.lastname@example.org
Italy: The Government “SPENDING REVIEW” The Italian Government is about to pass the spending review which analyzes the public administration expenses for the rationalization and the control of costs. This is essential in order to achieve the public finance targets, help modernise the State and revitalise the economy. Overall, the “reviewable” government spending in the medium term is about 295 billion Euros. However, in the short term the “reviewable” spending is significantly lower and estimated at circa 80 billion Euros. In the current economic situation, the Government has focused on cutting public spending by 4.2 billion Euros for 2012, and it expects all public administrations to contribute. The reduction in costs
will be achieved by enhancing the range of savings advocated by the Government in the early months of activity. For example, the savings of over 20 million Euros by the Presidency of the Council due to a cut in consulting and staffing numbers, reducing the salaries of public managers, the reform of Provinces, reforming local public companies and savings in healthcare. The passing of the law is scheduled for early July, after consultation with the unions and local authorities.
Contact Irma Cordella - email@example.com Katia Consentino - firstname.lastname@example.org
Colombia: Tax reform The Government of Colombia announced the presentation of a tax reform bill to Congress for July 20th, aiming to increase fiscal pressure on wealthier taxpayers. Different sectors of the economy are watching developments closely due to the possible elimination of tax exemptions, changes in particular rates and the creation of new taxes. The elimination of exemptions will have a great impact on industries such as food, liquor industries, mining and tobacco. Furthermore, the financial sector is alert to any changes that might directly affect the stock market. Another concern of the reform is related to the payment of taxes by NGOs and foundations: the entities will be charged with a 27% tax unless the surpluses produced by their activities are reinvested into their specific cause. Finally, employers have also expressed their worries, due to the possibility of the proposed tax scheme returning to double taxation (meaning charging both
the company and the shareholder as a person). The idea is to tax the dividends that exceed certain amounts and the sale of shares subject to taxable or occasional income. Five key aspects of the tax reform are: Elimination of the ad hoc basis that benefits banks. With Act 14 (1983) the tax sector had a special tax base which did not charge them on their entire income. Defining the nature of tax subject to trusts. Limiting governments at a municipal level in their capacity to concede tax exemptions. The tax on certain types of vehicles will be reduced from 30 percent to 16 percent. The Value Added Tax (VAT) of 5% will be applied to certain products in the basic food basket.
Contact Miguel Angel Herrera - email@example.com
Argentina: Major reform to the Civil Code The government of President Cristina Fernández de Kirchner presented a reform bill to Congress with the objective of shortening and unifying the Civil and Commercial Codes. The President announced the bill stating that “we cannot address 21st century issues with 19th century regulation”. Regarding social aspects the main changes consist of: the non-distinction of gender to contract a marriage together with the possibility of separating possessions and concluding prenuptial agreements; the simplification of divorce and adoption proceedings; the introduction and regulation of medically assisted reproduction; and the recognition of indigenous property rights over lands as exclusive, perpetual, indivisible, imprescriptibly, not subject to taxation, and non-sizeable ones. Although abortion is not mentioned, the new code preserves the existing criteria through which a person is considered as such since conception. As far as commercial aspects are concerned, the legal figure of “single member companies” is introduced so as to make investment processes easier. In addition, the code regulates new forms of contracts, such as arbitration agreements, commercial agencies, commercial concessions, franchises, supply contracts and leasing. The articles add and harmonize consumer rights issues, particularly when concerning electronic contracts and misleading advertising. The bill, agreed by a commission of specialists and supported by several members of the Supreme Court of Justice, was initially presented in March. The most controversial point, however, lies on an apparently
small change which was introduced by the Executive after the commission’s intervention. A modification to article 765 may allow obligations acquired in foreign currency to be settled with the equivalent amount of legal tender currency. In an Argentine context, such a modification restricting the acquisition of foreign currency (US Dollars, among others) has produced diverse interpretations, with critical media announcing an implied “pesification” of Argentina’s economy by law - a word guaranteed to send shivers down the spines of Argentines who remember all too well how their decade-long dollar peg was ditched after the country’s $100bn default in 2001, forcing a return to pesos amid a brutal devaluation. Government authorities stated there will be no “pesification of contracts or savings”: they explained the reform will affect only those contracts where no specific clause makes paying back in the same/foreign currency compulsory. Nevertheless, the legislative treatment of the bill is likely to become a much more controversial episode than expected and given its supplementary nature, the case will almost certainly obtain a definition through judicial proceedings. In an attempt to avoid an escalation of the issue, the government made clear all bonds and deposits in dollars are excluded from the reform, which, in turn has no retroactive effects.
Contact Diego Campal – firstname.lastname@example.org
US: Pennsylvania Enacts Mechanism to Fund Replacement of Aging Energy Infrastructure Cast iron, a material widely used until the 1950’s for natural gas utility mains in the US, has been involved in a growing number of incidents resulting in damage and injury. In Pennsylvania, fatal explosions involving cast iron natural gas mains in January and February of 2011 sparked efforts that resulted in the Pennsylvania General Assembly crafting a mechanism that allows utilities to more quickly and simply recover the cost of replacement of aging facilities. Called a Distribution System Improvement Charge, or DSIC, this mechanism has been available to water utility companies in Pennsylvania and ten other states for a number of years. Pennsylvania’s
recently-enacted DSIC mechanism allows natural gas and electric utilities to make a request to the Pennsylvania Public Utility Commission (PUC) to add a charge to each of their customer’s bills to recover costs of facility replacement once the new facility is in service. Currently, Pennsylvania energy utilities wishing to recover facility replacement costs must include them as part of a Base Rate Case. Base Rate Cases are expensive to prepare and submit, and can take more than a year or more to adjudicate. The DSIC process offers a timely and efficient facility cost recovery mechanism to qualifying Pennsylvania utilities.
During the legislative consideration, consumer advocates worried that the DSIC accelerated recovery of facility costs, which average approximately $1 million per mile replaced, would unduly burden energy utility consumers. One provision included to address these concerns limits the DSIC charge on a utility bill to 5 percent of the total distribution charge. (Utility bills have two primary cost components: the distribution charge, which is the cost to deliver energy over the utility’s system; and the fuel charge, which is the actual commodity cost of the energy to be consumed.) Proponents of the DSIC are hopeful the availability of this mechanism will prompt more rapid replacement of cast iron and unprotected steel main used by natural gas utilities. Currently, Pennsylvania natural gas utilities are replacing cast iron and unprotected steel facilities at a rate that could take many decades
to complete. In addition, with natural gas prices still depressed - due in part to an oversupply situation caused Pennsylvania’s Marcellus Shale gas – utility bills are lower and can more easily absorb an additional charge. Other states are watching the DSIC mechanism’s progress in Pennsylvania. With aging transportation and utility infrastructure a growing concern across the US, elected and appointed officials at the federal, state and local levels are seeking workable models to general revenues to more rapidly replace at-risk facilities with more contemporary, safer materials.
Contact Keith Dorman – email@example.com Nathan Rhea – firstname.lastname@example.org