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Grayling's Transatlantic Newsletter - The Cronut - April 2017

24th April 2017

Similar to New Yorkers' favorite pastry the Cronut (half croissant-half doughnut), Grayling's bite-sized news articles meet halfway between America and Europe, to give you a taste of major policy developments spanning the Atlantic.

Dear readers,

Yesterday, France bolstered the West's anti-establishment movement and eliminated candidates from the two leading parties from the second round of the Presidential elections in 2 weeks, which will see centrist Emmanuel Macron and extreme-right Marine Le Pen compete for the Presidency. Being French, I decided to write a last minute article on my three key learnings from the results - and encourage you to join the webinar we'll organize with our Grayling Paris colleagues the week of May 8th.

Another webinar that should already be in your agenda will take place tomorrow (Tuesday), with our D.C. colleagues from Dutko going over Trump's first 100 days and looking ahead to the future. Indeed, this edition of the Cronut focuses on the impact of Trump's proposed tax reform on transatlantic business as well as the controversy over the recent executive order rolling back on Obama's climate change policies. 

On the EU side, we're bringing you up to speed on the new proposed rules on endocrine disruptors (of interest to the pesticides, biocides, cosmetics, toys and food industries) as well as the telecoms reform. You'll have noticed that we haven't included anything on Brexit: this is because everything you need to know is already in our weekly Brexit Bulletin - if you want to subscribe please let us know.

Happy Reading!

Delphine Millot
Head of International Public Affairs
Grayling Brussels, based in New York 

3 Key Learnings From Last Night's Results
Yesterday, millions of French people cast their vote to choose who will govern France for the next five years. Initial results, announced at 8pm sharp last night, indicated that centrist Emmanuel Macron (23.9%) and extreme right Marine Le Pen (21.4%) will face each other in the run-off on May 7th. The results are historic: for the first time, both leading establishment parties have been eliminated in the first round and will not be represented in the final run-off. So what can we learn from the results?

1. Populism is not the only option

While Emmanuel Macron always wanted to represent an alternative to traditional political parties, he showed that nationalism and populism are not the only options. He managed to gather a large proportion of the French electorate behind his project, which focuses on skills, education and an ambitious labor market reform. No-one should ignore the fact that Marine Le Pen is still popular and that other smaller candidates like Nicolas Dupont-Aignan, scored higher than usual. Yet, the results in France show that people can channel their frustrations against the status quo by voting for a candidate who embraces the role and leadership of France in Europe and the rest of the world. 

2. Never underestimate the power of communications 

Emmanuel Macron is only 39 years old and was still largely unknown two years ago - so how did he become the favorite candidate to win the Presidential elections in a country that usually equates political capability with lengthy experience and grey hair? Macron's drive and ambition clearly played a role - but his campaign's game-changing PR and use of digital communications made the difference. Macron hired leading communications experts who helped him break away from traditional - and often outdated - political slogans to embrace a fresh, engaging, relaxed tone. Many of Macron's detractors blamed him for being a "marketing product" - but the truth is that he demonstrated that in today's age of communications, building your brand is as important - if not more - than building your political program in order to get elected. 

3. Pollsters can actually get it right

Believe it or not, for the past few weeks, polls got it right and were placing Macron as the leading candidate, closely followed by Le Pen. They also predicted that candidates Jean-Luc Mélenchon and François Fillon would get close to 20%. With polls failing to predict the outcome of the Brexit and US Presidential votes, French voters were prepared for a surprise. The real test for pollsters, however, will be the run-off on May 7th.  Polls currently indicate a clear victory for Macron by at least 20 points over Le Pen.

The two defeated candidates from the establishment parties, François Fillon and Benoît Hamon, have already backed Macron in the run-off. Extreme left leader Mélenchon has however refused to pledge allegiance either way, creating uncertainty as to which of the two candidates his voters (making up 20% of the electorate) should vote for. His anti-globalization, Euro-skeptic rhetoric and focus on workers' protection are actually more in line with Le Pen than Macron's free-trade agenda. 

Regardless of the run-off result, the new President will need to build a coalition to govern properly and implement his or her agenda. In this context, the outcome of the French Parliamentary elections on June 11th and 18th are absolutely critical - leading us to the conclusion that this was just the 1st of 4 rounds that will decide the future of France - and Europe.

Please stay tuned for our upcoming webinar on the French election results, to be organised with our Grayling Paris colleagues during the week of May 8th!

Has the Time for Real Tax Reform Arrived?
Both House Republicans and President Trump have put forth plans to reform individual and business taxation.

While the plans differ in many respects, they are unified on one aspect—lowering tax rates for businesses, investors, and individuals.  Despite this overarching agreement, the path to tax reform remains littered with obstacles.  

The impact on Transatlantic businesses

The decision is between undertaking comprehensive, fundamental reform (preferred) or targeted, incremental reform.  House Republicans have put forward a version of fundamental reform which includes large tax cuts but also significantly restructures the taxation of business income. Trump’s tax plan also includes large tax cuts but does not move as far in the direction of consumption-based taxation as the House blueprint. 

For example, Trump’s proposals do not include a 20% border adjustment tax (BAT) on imports, as does the blueprint. On the other hand, he just recently raised the possibility of a “reciprocal import” tax, so it is possible Congress and the Administration could come up with a compromise proposal in this area.  

Such a significant tax on imports would provide U.S. manufacturers and U.S. subsidiaries of foreign businesses with a large incentive to restructure supply chains to favor U.S. inputs. Existing supply chains and current manufacturing sites would likely face disruption.

There also seems to be general agreement, even among many Congressional Democrats, that the U.S. system of international taxation poses a competitive burden on U.S. multinationals and must be reformed. While there is bipartisan agreement on a corporate rate reduction, there is a push by many Republicans to replace the worldwide U.S. system of multinational taxation with a territorial system, which would mirror that of many of our trading partners.

Presumably, this would benefit U.S. multinationals, putting them on a level playing field with their transatlantic and international competitors with respect to taxes.

One very significant decision that tax-writers in Congress and the Administration must make is whether the legislation will be deficit-neutral. In other words, will the tax cuts and other reforms be offset by proposals to raise revenue?  Subsumed in this issue are differences over how the deficit will be measured. The outcome of this decision will also affect how the legislation will be processed in the closely-divided U.S. Senate.

Political dynamics affecting the prospects for success
Tax reform has traditionally required the support of both parties to succeed because of the winners and losers that are typically generated by such massive changes.  The prospects for fundamental tax reform have significantly improved with the outcome of the 2016 elections, but substantive design and political obstacles remain.

Trump's Climate Executive Order: Politically Symbolic or Environmentally Meaningful?

President Trump has signed an Executive Order in an effort to prioritize American jobs above the need to address climate change. 

The order will rescind the moratorium on coal mining on federal lands which the President believes will reinvigorate a struggling industry and bring back jobs in states like Wyoming, West Virginia, and Pennsylvania.  The order also requires the Environmental Protection Agency (EPA) to initiate a review of the Clean Power Plan, something many blame for inflicting further economic harm on the fossil fuel industry. 

While the order is intended to focus on domestic issues, many countries that are signatories to the Paris agreement have raised concerns about the potential impacts the order will have on the rest of the world.  Many climate scholars speculate that the Administration's actions -- and those that may follow -- send signals that the US is undermining people's trust in scientific evidence that climate change is real and that failure to address the issues now will have greater consequences later, severely impacting innovation and economic stability both at home and abroad. 

EU countries' greatest fear is that they have lost a much needed participant in the climate effort.  If the US does decide to pull out of the Paris agreement, the looming question is who will step into the driver's seat?  Canada?  China?

President Trump's senior advisors are scheduled to huddle the week of April 24th to resolve long-simmering tensions over whether the United States should stay in the Paris agreement.   As there appear to be strong differences of opinion on this issue among White House policy advisors and members of the President's cabinet, reaching a consensus may prove extremely difficult.   I for one would like to be the proverbial "fly on the wall" for this meeting!
Webinar on Trump's first 100 days:
Key takeaways and upcoming priorities

Tuesday 25 April

15:00 - 16:00 | Brussels time
9:00 - 10:00 US Eastern Time

It’s been an eventful first 100 days for US President Donald Trump – as many predicted.
But what will the other 1360 days bring?
Join us for the latest in Grayling’s Influencer webinar series with Jayne Fitzgerald and Rob Leonard, formerly senior staff to the House Ways and Means Committee with jurisdiction over tax and trade policy, now with Dutko in Washington D.C.

For more details on how to register for this webinar, please visit our website.


Better Safe than Sorry: EU tackles Endocrine Disruptors While the US Watches

The EU has for many years seen itself as a global leader when it comes to environment and health policies. In this vein, it is aiming to be the first jurisdiction in the world to set binding criteria for so-called “endocrine disruptors” – chemicals that affect humans’ hormonal balance, thought to be particularly harmful to babies and young children.
This might all sound rather niche, but these criteria have got a number of industries sitting up and taking notice including pesticides and biocides, cosmetics, toys, and food.
Why?  Because once the criteria are agreed, they are likely to apply horizontally across a number of different EU laws affecting these industries, and many more. Depending on how strict the criteria are, companies may have to remove some substances from their products and reformulate the ingredients – resulting in huge costs and potential disruption to supply lines.
The age-old industry v NGO debate
After long delays, which even involved the the Commission being taken to court by Sweden for missing its own deadline for proposing the criteria, in the Summer of 2016 draft criteria were finally put on the table.
The criteria were largely based on the WHO definition of an endocrine disruptor, but did not include the concept of “potency” (which angered industry) and was limited to identifying those chemicals which are “known” to cause adverse effects (thereby angering NGOs who wanted the criteria to cover chemicals which are “presumed” to cause adverse effects as well).
NGOs have been extremely vociferous in Brussels and continue to argue that all EDCs – including those suspected of being EDCs - should be completely banned in the EU.
Industry is trying to take a more nuanced approach, for example by trying to ensure that potency is included within the criteria – but it is difficult to be nuanced when the arguments expressed in public are so highly charged.
The criteria must still be agreed by EU countries and approved by the European Parliament before they become law, but this issue illustrates how the “precautionary principle” still takes priority when it comes to lawmaking at the EU level. The precautionary principle means that if there is any doubt or unknowns around a particular chemical, then it should be banned or strictly regulated. Yet this can result in perfectly safe chemicals being taken off the market, and lead to huge costs for industry.
A divided Europe
If the EU is to be a genuine global leader in this area, it needs other jurisdictions to follow it, notably the US and China.
Yet even the EU remains hugely divided on the issue of both EDCs and the precautionary principle more generally. France and the Nordics (Sweden, Denmark, Finland) support a strict approach to EDCs, whilst other countries in Central & Eastern Europe and the UK (whilst it remains an EU member) tend to take a more business-friendly approach.
With such a divided Europe, third countries are likely to take a “wait and see” approach before committing themselves to following in the EU’s footsteps.

The View from the US - by MJ Marshall

It is readily apparent that the US is lagging behind the EU on the EDC issue.  While the US Environmental Protection Agency initiated the Endocrine Disruptor Screening Programme (EDSP) some years ago, it is still only in the first phase of its endocrine screenings, which focused primarily on pesticides, but has taken several years to begin a second phase of screenings targeting chemicals. Further, the EDSP currently is in the crosshairs of the Trump administration for possible elimination, in part due to this glacial progress.

But EDSP or otherwise, and overt or not, the precautionary principle still is the approach of choice for many US federal and state regulatory agencies.  This essentially empowers agencies to slap a classification on a substance by finding one study, of any level of quality and repeatability, that they can cite as claiming a concern — even if there are dozens of studies showing the contrary.  

And while that might be an extreme scenario, many US agencies approach hazard and risk assessment more from a “guilty until proven innocent” approach, where the bar that industry needs to meet is variable at best, and more likely inclined to be steadily raised higher.  All of which means that the public may find products being phased out that are in fact safe, and industry and the economy taxed by the absence of sound and transparent hazard assessment approaches.



Sweeping EU telecoms reform: Is industry ready for a new era in regulation? 
The European Commission published landmark reforms in September 2016 to shake up the telecoms industry and dramatically increase investment in high-speed networks and 5G connectivity. Most significantly for business, the Commission proposed a complete overhaul of the existing framework for Electronic Communications and controversial plans to boost the EU’s telecoms regulator BEREC’s powers.
A new European Electronic Communications Code (EECC): The cornerstone of the EU reform

The new Electronic Communications Code will consolidate existing telecoms legislation into one new Directive. Why? EU regulators consider the current Framework to be ill-equipped to deal with the mobile market as it has evolved until now and where it’s headed. An overall theme of the new Code is investment in the light of the relatively downcast projections about Europe’s trajectory towards 5G when benchmarked against the US, South Korea, Japan and China.
Zooming in on OTT players: Blanket regulation from the top-down?

Over-the-top (OTT) communications services such as WhatsApp and Skype are likely to fall under the scope of the new Code, much to their despair. Telecoms operators argue that this is necessary to level the playing field, since OTT services are not subject to restrictions regarding usage of customer data, emergency calls and customer contract rules. OTT players refute their arguments as a means to protect monopolies, highlighting the differences in their business. Leading Members of the European Parliament (MEPs) are also divided over the question of scope.

  • 11 May: European Parliament Industry (ITRE) Committee to consider over 1,000 amendments submitted to Rapporteur Pilar del Castillo’sreport on the European Electronic Communications Code
  • 22 June or 11 July: Provisional dates for an ITRE vote in on the amendments
  • Late July / Early September: The entire European Parliament votes on the report (“plenary”) kicking off interinstitutional negotiations.
  • November: Expected date for agreement between EU Member States in the Council on their position. Large telco countries such as Germany, France, Spain and Italy are thought to be driving internal negotiations.
  • Before end of 2017: Vote in the European Parliament plenary
  • 2018: Negotiations between Council & Parliament on final text
  • End 2018: Informal deadline for end of negotiations, setting in course an 18-month transposition period
  • 2019/2020: Entry into force of new telecoms framework

Business impact

The reforms will affect every business operating in the telecommunications space, regardless of size or business model. This EU’s mantras are “better regulation” and “less is more”, so this is likely to be the framework which governs the sector for the next decade. A heavy-handed approach to OTT providers that considers them legal equivalents to telecos would imply significantly more regulation, but could also offer legal certainty that is the case today. Vertically integrated players also face new rules that will impact compliance and relations with end-users, but are likely to benefit from new incentives and support to help them to improve connectivity.

Full a full download on what’s on the table and where the policy debate is at, visit our Insights page online. To better understand the impact of the Code and with whom and when to engage, contact Eleanor Flanagan, Director, New Technologies in our Brussels office.


Jared Kushner:
Trump's Senior Advisor/Son in Law 

Jared Kushner, the son-in-law of President Donald Trump and husband of the President's eldest daughter Ivanka, was born in New Jersey to a prominent family of real estate developers.  He attended Harvard College and received his JD and MBA from New York University before starting work for the Kushner Companies. Since becoming a principal in the company, Jared has increased its presence in the New York City market and established himself as an influential businessman.

In 2004, Jared's father, Charles Kushner, was arrested and eventually convicted of tax evasion and other charges and sentenced to federal prison.  The U.S. Attorney who brought the charges was the current Governor of New Jersey, Chris Christie. The Governor is a close ally of President Trump and despite Jared's initial resistance, he now works with Governor Christie in his capacity as a senior advisor to his father-in-law. 

Interestingly enough, Jared had been a life-long Democrat and prior to Mr. Trump's presidential campaign, he had no previous involvement in politics or government.  Yet from the outset of the campaign, Jared was the architect of all digital and social media activities and also assisted in speechwriting.  Many observers of the campaign credit Kushner for bringing organizational structure to the team and helping get Mr. Trump across the finish line.

Since being elected President, Mr. Trump has appointed his son-in-law to be the head of the White House Office of Innovation, designed to rework the government with inspiration from the private sector.  Among other things, this new office is tasked with addressing long-standing issues with the Veterans Affairs Department, workforce development, and opioid addiction.

The President also has a great deal of confidence in Kushner's diplomatic capabilities, sending him to Canada to discuss the US relations with the Prime Minister and asking Jared to be involved in brokering peace between the Israelis and Palestinians.

These are significant assignments for anyone, particularly a 36-year old with no former governing experience.  Time will tell if Mr.  Kushner is up to the task.

Photo credit: Washington Post

Verhofstadt: The Remainer poster boy
Guy Verhofstadt – former Belgian Prime Minister, Liberal MEP, and now Head Negotiator for the European Parliament in the Brexit negotiations – may not immediately come to mind when one is asked to name a “famous Belgian” – yet he could be the star performer for the Remain side once negotiations begin. He has already built a solid social media following videos of his lively and outspoken speeches lambasting the likes of eurosceptic Nigel Farage and the UK political class more generally, nor is he afraid to criticize the European Commission or other countries’ national governments. A dyed-in-the-wool federalist, he has written books entitled “Europe's Last Chance: Why the European States Must Form a More Perfect Union” and “The Financial Crisis: How Europe Can Save the World”. We can certainly look forward to more compelling video coverage of his speeches in the next few months.

Photo credit: The European Magazine

Grayling Team

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