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The latest from CBI Washington DC
President's Budget for 2011
Unlike Britain, in the US the President's Budget is little more than a 'starter for 10' when it comes to anticipating what government spending will actually look like in the financial year ahead. But it's interesting reading for its economic analysis and its general trends. Obama's second budget, published on 1 February, was no exception.
The headline numbers are huge: $3.83 trillion in spending during fiscal year 2011, and a projected deficit of $1.27 trillion. (That's 8.3% of GDP.) Many of Obama's long-standing policy commitments are in there: healthcare reform, cap-and-trade, a huge expansion of student loans. The budget also seeks to find a middle way between immediate concerns about unemployment / slow growth, and long-term issues about the deficit.
On that, it mostly failed: instead of recommending ways to tackle the structural deficit in the US, the White House has committed to setting up a bipartisan Commission to look into the problem. Even that was opposed by the Republicans, requiring Obama to set it up by executive order, rather than legislation.
Key for CBI members are the tax portions of the bill. The vast majority of these were unchanged from the 2010 budget request. But there are some tax changes, aimed at raising $519 million between 2011 and 2020, reflecting his efforts to tackle the deficit. One of these would create an unlevel playing field in the insurance industry: buried in the budget is a proposal that would change tax policies related to insurers that do business in the United States and that have offshore affiliates. Some insurers would be denied a tax deduction for reinsurance premiums that they send to their offshore affiliates, many of which are based in Bermuda. This is regarded as part of a long-term effort to crack down on what the Administration sees as unfair tax avoidance.
Away from the narrow numbers game, the Budget attracted much attention for its ending of key space programmes. Although Obama actually requested more money for NASA, he suggested ending manned missions to the moon. Interestingly, the suggested replacement would be a $6bn, five year project to develop a commercial spacecraft. This represents a radical departure from NASA's traditional way of doing business – rather than doing its own R&D and development, NASA would oversee private companies under contract. It remains to be seen if Congress will approve this way of doing business.
Latest US action (or not) on climate change
There is no real movement on climate change legislation: Congress has other priorities just now! But the Administration continues to do what it can to take thing forward. Two developments of note:
Tthe EPA has set out its timetable for regulating the emissions of GHGs under the Clean Air Act. In a letter to senator Rockefeller, EPA administrator Lisa Jackson makes it clear that she is determined to move on this, unless Congress acts; she says that the Supreme Court decision in 2007 that CO2 was harmful to health makes her obliged to do so. But she also makes clear that she won't require action from small emitters until 2016 at the earliest. Note that several large US business organisations, including the US Chamber and NAM, are challenging the EPA's legal standing on this. Also, senator Murkowski is pushing legislation that would explicitly deprive the EPA of the right to regulate CO2. You can read the text of Jackson's letter here.
President Obama has given a push to the nuclear industry in the US, promising $8.33bn in federal loan guarantees to a pair of nuclear reactors to be built in Augusta, Georgia. The reactors will be built by the Southern Company, and will use Westinghouse's AP1000 design. They will be the first reactors licensed and built in the US for thirty years.
'Buy America'
In recent months, America Update has extensively discussed the unfortunate 'Buy America' amendments in the Stimulus Act and elsewhere. Canada – whose economy is uniquely intertwined with the US – has negotiated a bilateral exemption to this problem.
A US/Canada agreement on procurement announced this month grants Canadian exporters access to procurement opportunities in the 37 US states and 10 major cities covered under the World Trade Organization (WTO) Agreement on Government Procurement (GPA).
Although all states are not covered by the WTO agreement, those covered include the biggest purchasers of Canadian products, including New York and California. Moreover, the agreement exempts Canadian companies from Buy American restrictions for funds remaining in seven programs under the American Recovery and Reinvestment Act. In return, the US will get permanent access to Canadian provincial and territorial procurement markets under the GPA. In addition, the United States has secured access for American suppliers through September 2011 to construction contracts in a number of Canadian provincial and municipal entities not otherwise covered by the GPA. Finally, the agreement commits the two countries to launch, within the year, further negotiations toward a broader procurement agreement and it establishes a "fast-track" process to address any future issues arising from U.S. procurement restrictions.
Although the agreement applies only on a bilateral basis, it is certain that Canada's other trading partners will be looking at it as a potential precedent for further agreements on procurement. For example, there are expected to be similar discussions with the European Union during the ongoing negotiations on a comprehensive bilateral economic agreement.
Iran
Iran's announcement that it will enrich uranium to 20% has intensified Congressional determination to 'do something' to rein in the Islamic Republic.
In January, the Senate passed the "Comprehensive Iran Sanctions, Accountability and Divestment Act", which significantly increases American sanctions against Iran. That bill now must be reconciled with a similar but somewhat narrower companion bill, the "Iran Refined Petroleum Sanctions Act", passed by the House last December. Over objections from the Obama administration and industry groups, the bills are being fast-track through the conference process. A final bill, with bipartisan support, will most likely contain the stronger Senate language.
We continue to believe that unilateral sanctions are not effective. (See how quickly Chinese investment will move into the vacuum thus created!) We also believe that they can put companies in a pernicious situation of incompatible legal responsibility: the US might choose to sanction a US subsidiary for the actions of a parent company that are perfectly legal in the country in which it is headquartered. The US business community is similarly opposed.
Read the National Foreign Trade Council's objections.
Health and safety
The Occupational Safety and Health Administration (OSHA) has proposed a new rule on repetitive-strain injuries (RSI), which has the potential to expand into something burdensome and expensive.
Currently, OSHA rules require reporting of physical injuries acquired in the workplace, but RSIs aren't explicitly captured and monitored. This reflects the fact that, unlike accident-related injuries, it is almost impossible to tell when an RSI has been developed at work, or at home. OSHA is proposing, however, that companies be required to report and monitor "musculoskeletal disorders" along with other injuries.
The deadline for commenting on this draft rule is 15 March. Read the full proposal and for details on registering comments here.
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