February 2013 Edition 17
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.
Korea: Tighter Government Controls on Foreign Exchange Transactions The South Korean Government has been active in defending the won since it surged against the dollar from May 2012 and recently strengthened to below 1,060:1 (KRW:USD). While a stronger won may contribute to robust domestic consumption, as Korea is a manufacturing and export-driven country, a declining won-dollar exchange rate means the country’s major exporters, such as electronics and automotive companies, will find it increasingly less profitable to sell their goods overseas. In an effort to defend the won, the South Korean government has been exploring measures to stabilize the currency, including modifying how the cap on banks’ foreign exchange forward position ratio is applied; increasing the bank levy on foreign borrowing; and modifying the tax ratio on foreign bond investments amongst other measures, under a phased approach. Commentators have speculated that the government may also implement a Tobin Tax, an excise tax on cross-border currency transactions to restrict hot money flows, but this is not seen as a likely measure as President-elect Park Geun-hye is officially against such a tax.
South Korean central bank Governor Kim Choong-soo has also said recently in a meeting with foreign correspondents, that the Bank of Korea’s role is to control volatility in the currency through “smoothing” operations. The South Korean government’s policy on exerting control over foreign exchange transactions is of great interest to the financial industry, and foreign investors who are involved in exchange speculation. BursonMarsteller Korea stands ready to apply its expertise in financial communications and government relations to help investors monitor public discussions on this issue against the backdrop of significant political change, and to manage stakeholder relationships including government officials, lawmakers, interest groups and local communities as the country prepares for the inauguration of a new President.
Contact Melody Wong - melody.wong@bm.com
India: Upcoming Implementation of The Companies Bill 2012 The Companies Bill 2012 was passed by India’s Lower House of Parliament on December 18, 2012. The legislation seeks to bring radical changes to the manner in which corporates are run. Besides a statutory provision for Corporate Social Responsibility (CSR) spending, the Bill limits the liability of independent directors, provides fixed terms for independent directors, mandates appointment of women directors, and calls for
rotation of auditors, among others. The Bill replaces The Companies Act 1956 and is likely to be tabled in the Upper House of Parliament in the Budget session to be held sometime in February 2013. Officials are targeting the beginning of the new financial year (April 1) as the effective date for the new Act. Passage of the new Companies Bill, with as many as 470 clauses, will present a range of new provisions for the corporate sector to address.
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The Bill gives more teeth to shareholders. Now, shareholder associations or a group of shareholders can take legal action against fraud in the companies they invest in and participate in class action suits. The legislation also grants statutory powers to the Serious Fraud Investigation Office (SFIO) to tackle corporate fraud. It also closes a window for independent directors as they would not be entitled to receive any stock options. Any director’s remuneration should not exceed five per cent of a company’s net profit. The new law also requires independent directors to constitute at least one third of the board. The Bill contains provisions to enhance corporate engagement in CSR. Although CSR is not precisely defined by the Bill, it will mandate for-profit companies to fund activities related to it. The CSR condition will apply to firms that have a net worth in excess of Rs 5 billion, or a turnover of Rs 10 billion or more, or a net profit of Rs 50 million or more. The auditing industry is also impacted. Audit firms cannot take up more than 20 assignments at any time. The appointment of auditors must be ratified annually. Other provisions include protection for employees and share buy-back limitations. If a company winds up operations, it must pay the equivalent of two years’ salary to each employee. The Bill bans the buy-back of shares within one year of the last buy-back. Laws on raising money from the public will also be tightened. Only banking companies, non-banking financial
companies and other firms allowed by regulators will be permitted to accept deposits from the public. The full impact of the Companies Bill 2012 to corporations is not immediately clear but once implemented, the proposed framework would obviate the need for repeated tinkering of provisions in Parliament. While companies are worried about the mandated spending on CSR and other major provisions, the auditing community is complaining of over-regulation. There are indications that the Ministry of Corporate Affairs will invite comments from the public on the draft rules before finalizing them. Overall, The Companies Bill 2012 will usher in much needed changes in corporate governance. However, it is imperative for the government to define the supporting mechanism for its implementation and compliance. Any major delays or gaps would severely blunt the efficacy of this legislation and damage the otherwise fragile business climate. Genesis Burson-Marsteller is poised to assist corporations in India to participate in active dialogue regarding their position on this legislation with key stakeholders in the government and industry associations, in an effort to ensure that their interests are considered in the final implementation.
Contact Melody Wong - melody.wong@bm.com
Australia: Government Reviewing Goods and Services Tax The Australian government is currently reviewing its system of distributing the Goods and Services Tax (GST) originally introduced on 1st July 2000, amongst its states and territories. The system is currently based on the principle of Horizontal Fiscal Equalisation (HFE).The original system was designed to ensure that states and territories have the fiscal capacity to provide their residents with services of the same standard in areas such as education, health and public transport. The actual level of services delivered is a matter of policy for each state and territory. The review considers whether the existing GST distribution system and current formation of HFE still ensures that Australia is in the best position to respond to long-term trends, challenges and structural changes in the economy whilst maintaining confidence in the financial relationships between the states and territories.
Four state governments representing 90 per cent of voters – New South Wales, Victoria, Queensland and Western Australia – joined forces to demand that GST revenue be distributed on an equal per capita basis. Their argument was that this approach is fair, simple, and transparent and would allow states to plan budgets with greater certainty. One key element of the national discussion on this issue has centred on the tax rate for goods purchased online from overseas retailers. On 17th December 2012, at a Standing Council of Federal Financial Relations meeting in Canberra, State and Federal Treasurers called on the government to reduce the GST-free threshold for goods purchased online from overseas retailers from the current threshold of AU$1,000 to AU$500. While the government rejected this proposal, it did recognise that the threshold is high compared to most countries around the world and elected to consider lowering it.
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Large retailers feel any positive change to this threshold will allow them to stay competitive despite increased pressures from foreign online shopping websites. Traditional retailers also believe that unless the threshold is reduced, sales and jobs will be jeopardised. In recent years, the strength of the Australian dollar combined with the high GST threshold has provided a strong incentive for local residents to shop online both within Australia and in international markets. Many observers believed that lowering the GST threshold may lower online shopping volumes and return competitiveness to Australia’s bricks and mortar retail sector. This in turn will impact the level of advantage currently enjoyed by international retailers. Given this, it is essential for retailers overseas to be aware of ongoing discussions and decisions surrounding the GST and the effect it may have on their business in Australia. The review provided two interim reports to the Treasurer in March and June 2012. The Treasurer
received the final report in October and presented it to the Council of Australian Governments (COAG) for consideration. No commitment has yet been made on any changes in the GST-free threshold for goods purchased online from overseas retailers. A final decision on new arrangements for the GST is due by the end of 2013. As discussions and debates around the GST distribution system continue, Burson-Marsteller Australia can support those companies which are impacted to help them engage with key stakeholders. Burson can develop strategies and points for communication, monitor conversations, identify and leverage opportunities for thought leadership and white papers, as well as increase a company’s profile and participation in relevant industry associations to ensure involvement in debates early in the process.
Contact Melody Wong - melody.wong@bm.com
Singapore: Driving International Commitment and Collaboration on Sustainability Development As part of Singapore’s energy diversification plans, liquefied natural gas (LNG) will be made available in 2013. The country’s LNG terminal is to commence operations in the second quarter, with the diversification strategy expected to enhance Singapore’s energy security and cost competitiveness. The availability of LNG will also encourage new growth opportunities arising from smart energy technologies, energy efficiency and energy demand management. In recent years, the Singapore Government has strengthened Singapore’s reputation as a global knowledge-sharing and technology hub on sustainable development. A recent measure is the 2011 mandate to raise minimum levels for land reclamation by at least one metre by the Environment and Water Resources Ministry, to buffer against new rises in sea levels. Singapore’s National Climate Change Secretariat also released a strategy document in 2012 detailing the government's multi-fold initiatives – from reducing carbon emissions, to beefing up research capabilities for clean technology solutions. With a growing population of more than five million people occupying a surface area of just over 700 square kilometres, Singapore sorely lacks renewable
energy sources and the scale to implement them cheaply. For instance, solar and tidal energy are both environmentally sustainable and secure but they come at a cost to Singapore's economic competitiveness. The lack of space for solar panels and busy shipping lanes prevent Singapore from harnessing these alternative sources of energy. Yet, the government recognises that more creative ways have to be found to balance the intricate relationship between Singapore’s productivity and its environment or quality of life in the long run. As such, Singapore has taken a route not uncommon in other developed economies – positioning itself as the go-to international destination to harness knowledge and exchange ideas on sustainable development. This serves to encourage new test beds of technologies in collaboration with the private sector and academia before adaptations are made for individual market needs. High profile events such as the World Cities Summit, Singapore International Water Week and Singapore International Energy Week created opportunities for discussions on environmental sustainability not just in Singapore, but also around the world. Key announcements, often made via
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these platforms, provide good indications of business opportunities that could be available in the near future. For instance, experts from the Asian Development Bank (ADB), India, China and Thailand led a detailed discussion on pan-Asian solar markets at the inaugural Photovoltaic Asia Pacific Financial Summit during the Singapore International Energy Week 2012. Insights included how, despite barriers limiting large-scale development, ADB is committed to solar energy and working together with various entities to create access to more energy. In the lead up to the energy/sustainability-related events, organisers continually identify potential event
partners and content providers. The agenda at these events offers many possibilities for companies involved in land use planning, water technologies, vertical greenery, solar adoption and green building, among others, to seek growth opportunities and new markets around the world. Burson-Marsteller Singapore is well positioned to work with the industry, the government and corporations to accelerate growth in this exciting ecosystem of sustainability.
Contact Melody Wong - melody.wong@bm.com
Denmark: New Register for Products Containing Nano Material On January 29th, the Danish Parliament will have its first debate on a new proposal from the Danish Centre-Left Government which changes several environmental laws on chemical substances, most of them in order to comply with EU regulations. However, one issue is designed to promote more EU regulation rather than comply with it: the introduction of a register of products on the Danish market, containing nano material. The ambition of the Danish Minister of Environment is threefold: 1. Encourage more public debate about nano materials, including the risks connected with their use; 2. Introduce the register to enhance consumer knowledge; 3. Push for similar EU legislation within the REACH framework. The proposed legislation will authorise the Minister of Environment to introduce new rules, making it obligatory for manufacturers and importers of substances, mixtures of substances and other goods
to report the data to the Ministry of Environment. Other Danish public authorities, such as the Working Environment Authority, will also be subject to such demands should they have relevant information about any such products collected in their daily work. The Ministry of Environment will be able to collect and publish this information in a register. Although the wording of the law does not limit its application to nano materials, it was made clear when initially introduced in Parliament, that the plan is to make use of this new legislation to introduce a register of such products on the Danish market. The law will be discussed in the Danish Parliament for the first time on January 29th and it is expected that there will be a majority in favour with the law likely to be passed before summer. There will be inevitable amendments in parliament negotiations and more details needed on the specifics of the register but if it all progresses as expected, the register could be introduced as early as autumn 2013.
Contact Janus Lodahl - janus.lodahl@bm.com
UK: Launch of the New Green Deal On January 28th, the UK Department for Energy and Climate Change launched its Green Deal scheme, a new government initiative designed to help home owners adopt more green technologies and energy efficiency measures in their properties. Consumers who install new measures such as double glazing, roof insulation or new heating systems will be provided with a loan that is paid back through future energy bills. The scheme is aimed at reducing the overall cost of energy bills over time through delivering greater energy efficiency savings to households. As part of
an incentive for early adopters, the Government has announced a ÂŁ125 million cashback, where homeowners could get more than ÂŁ1,000 worth of cashback for installing the measures. As a result the scheme is expected to see an increase in demand for the building and home improvements sectors in the UK.
Contact Maria Allen - maria.allen@bm.com
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Argentina: The Communication Challenge of Fracking The municipal council of Cinco Saltos, a city in the oil province of Río Negro, recently banned the use hydraulic fracturing technology – commonly known as “fracking” – for hydrocarbon extraction. The decision was supported and promoted by environmental associations and NGO’s. Although it is uncertain as to how this issue will escalate given the government’s interest in expanding energy resources, it represents a significant challenge to overcome this decision and to win over public opinion. Argentina currently has an energy deficit despite having great natural resources. The national government recently expropriated YPF from the Spanish firm REPSOL and established the “Vaca Muerta’s” reservoir of shale gas and shale oil, as a priority of the new energy policy. The site is located in the province of Neuquén, near to Río Negro and environmental NGOs are likely to be very active.
In this context, the main challenge for industry and private investors is not getting the approval to operate from government but to convince local populations and the wider public that their activities are necessary. There is a real need for industry to be active in the public discourse on this issue and to educate and inform the debate. They should learn from the reputational challenges that the mining industry has encountered: despite its economic influence, high levels of employment and government support, it is still viewed negatively by the general public. When it comes to fracking, industry needs a coordinated proactive strategy in place to engage in the wider debate.
Contact Augusto Rovere - augusto.rovere@bm.com
Brazil: Actions to Promote Investment President Rousseff announced investments of R$ 54.2 billion until 2017 for the port sector, continuing a programme of activity to increase Brazil’s competitiveness. The new funds will be invested in leased and privatised terminals (TUP), with R$ 31 billion planned for 2014 2015, and R$ 23.2 billion in 2016 - 2017.
Investments of R$ 2.6 billion will be made for improving waterways, rail, roads and traffic regulation in 18 major Brazilian public ports. The Ministry of Transport will contribute R$ 1 billion and the remaining amount will be raised by states and private companies.
The package for the port sector continues the wider programme of government privatisation: the initiative to privatise three airports in early 2012; introducing auctions for highways and railroads; and now announcing bids for new private terminals within and outside areas of existing ports. The most recent move by the government also encourages entrepreneurs to create entirely new private ports in the country.
The package brings a new regulatory framework to the sector which promotes the integration of railways, roads and water transportation. It also creates an institute to scientifically support the needs of dredging the channels. As seen with the highways and railways packages, investment will rely heavily on initial government funding and incentives rather than the private market.
The ports that will receive investment are, by region: 1. Southeast: Espírito Santo, city of Rio de Janeiro, Itaguaí (Rio de Janeiro), Santos (São Paulo); 2. Northeast: Cabedelo (Paraíba), Pecém (Ceará), Suape (Pernambuco), Aratu and Porto Sul (Bahia). 3. North: Porto Velho (Rondônia) Santana and Itacoatiara (Amazonas), Santarém, Vila do Conde, Miramar and Outeiro (Pará); 4. South: Porto Alegre and Rio Grande (Rio Grande do Sul), Paranaguá and Antonina (Paraná), São Francisco do Sul, Itajaí and Imbituba (Santa Catarina).
Within the new regulation of the sector there is an important change: there will be no distinction between private ports and mixed (i.e. those which operate their own cargo and loads from other companies). This has been one area of contention for private companies and the government.
Contact Augusto Rovere - augusto.rovere@bm.com
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US: Trends and Perceptions of the Global Economy As we begin 2013 in earnest, we looked back at the last year to gauge what some of the leading influencers in key global markets thought of the status and outlook of the global economy and society. These trends, some of which were expected, provide us a good benchmark for business planning. The uncertain future of the Eurozone and the lack of resolution of the U.S. fiscal cliff will continue to cast uncertainty on business, not just for 2013, but perhaps for the next few years. While growth is expected in 2013 in both regions, it certainly will not be a return to what was once projected. There is also fear that tepid growth may be the new normal for the near future. Emerging markets are expected to weather the crisis better than advanced economies, but will also experience lower growth rates than expected. The perception is that China’s growth, along with other Asian economies and the BRICS, will help drive growth in the coming years. Increased financial regulation is viewed as an important priority by almost all, which has implications for businesses around the world. Influencers expect emerging economies to focus efforts on implementing reforms and regulations on a domestic level in the coming years. There is also support for increased multilateral cooperation and
oversight, or perhaps even the development of a multilateral framework for effective global financial governance and regulation. There are some fundamental issues such as the growing problem of a skills gap where, on one hand, there is high unemployment around the world, but at the same time, there is a shortage of skilled labor. This gap needs bridging through education and training, which has repercussions for leading global universities. At the same time, in today’s austere times and with technological innovation, governments are under pressure to do a lot more for their people with a lot less. Finally, access to the internet, news media and technology has expanded the views and aspirations of people around the world. This globalized view has created a growing disconnect between the public’s aspirations and the government’s ability to deliver opportunities. Notably, it is not just economic ambitions that are unmet, but also social and political aspirations.
Contact Amit Khetarpaul – amit.khetarpaul@bm.com Michelle Lancaster – michelle.lancaster@bm.com
US: Companies Need to Lead on Sustainability Traditional corporate social responsibility (CSR) activities like supporting charities are good, but today, American consumers expect more from companies they interact with. A recent Public Affairs Pulse survey found that a majority expect companies to actively work toward improving education, health care, to provide relief when disasters occur and supporting community services. The survey went on to show that half believe companies should provide financial support for infrastructure projects such as building and maintaining roads, bridges and mass transit — not unexpected in the aftermath of Hurricane Sandy. Too many companies, however, continue to view CSR as a separate business activity, which makes it easy for the function to get lost, leading to disparate and inconsistent efforts throughout the company or, worse, business decisions that work against a company’s very own sustainability objectives.
Adding to these potential problems is the fact that labor unions are becoming more involved in corporate CSR initiatives. Labor unions view CSR efforts as an opportunity to gain leverage with shareholders and will often position their demands to shareholders as CSR related to win their support. This is becoming a power tool labor unions use to combat the decline in union membership. The key is to view sustainability as a core function of the business. This begins at the top. The CEO and other senior executives must not only be clear in defining these efforts, they must also support them and explain their importance to the rest of the organization. It is also important to embed sustainability in the core business plan and operations. Some of the world’s leading corporations achieve this by making sustainability objectives indistinguishable from other business objectives. They view sustainability not from a
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single CSR or environment lens; instead, it is a combination of serving the customers efficiently, giving back to the communities in which they operate, exceeding strict environmental and other guidelines, providing an opportunity to employees to make a difference in the world and still being able to return growth to investors. Our experience at Burson-Marsteller is that companies who do this are better able to take
the leadership role on CSR efforts as well as explore the opportunities available to them that bring value. We’ve also found that this approach brings sustainability objectives to the forefront and puts the company in a stronger position to explain the value it provides.
Contact Nathan Rhea – nathan.rhea@bm.com
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