December 2012 Edition 16
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: Foreign investment in for-profit hospitals In October, The South Korean government gave the green light for foreign investors to build and invest in for-profit hospitals in its six free economic zones, with the first one slated to be built in the Songdo Free Economic Zone near Seoul. Such hospital investments remain off limits for foreign investors in other parts of the country. Under the new regulation published by the Ministry of Health and Welfare, foreign investors can own 51 percent of the institutions and can hire up to ten percent of the facility’s doctors from abroad. The remaining doctors must be Koreans. In addition, Korean patients must also be guaranteed full access to these medical institutions. The government and supporters of the regulation argue that opening up foreign-run for-profit hospitals can yield economic benefits by boosting participation in Korea’s medical tourism programme, increasing domestic spending, and providing new jobs. Such investments are also expected to help boost the competitiveness and improve the facilities of Korea’s medical institutions. The new rule will be a welcome move for foreign investors as well as large domestic conglomerates currently in or interested in the health care industry. A few big Korean conglomerates are owners of hospitals and medical institutions while some other companies have expressed interest in such investments. These institutions are currently not-for-profit and companies have often funded them under their corporate responsibility arm. Big companies said these medical institutions are built for the benefit of the community and in some cases, for their employees and their families. But with the introduction of the new regulation, many believe that these companies, as well as hospital associations, could soon be looking into lobbying the government to open up the domestic for-profit hospital market as well. This has been the major reason for strong opposition against the new regulation in Korea. If the door for
privatisation of domestic hospitals is opened up, critics have argued that health care costs will skyrocket due to overtreatment, motivated by profit. As a result, the ruling Saenuri Party had failed previously to pass legislation to allow foreign-invested hospitals. As President Lee Myung–Bak is approaching the end of his presidential term, the administration has decided to move permission forward in the form of enforcement regulations, which do not require parliamentary ratification. It is possible that the National Assembly and the next administration could be pressured to rescind this ruling. As debate over the new regulation intensifies in Korea, both large local conglomerates and foreign investors will need to be aware of the possibility that the next administration may retract the decision. This has also come up as an election issue in the presidential campaign. Companies involved in the medical industry should be particularly mindful of their corporate reputation as well as corporate responsibility efforts in this area. Even before the roll-out of the new regulation, large conglomerates owning medical institutions have been met with suspicion or opposition by local communities. With the escalation of the opposition towards this issue, public criticism and suspicion towards these companies may increase. Burson-Marsteller Korea stands ready to apply its expertise to help companies monitor public conversations and engage with stakeholders including government, lawmakers, interest groups and local communities to minimise criticism and improve their corporate reputation as they operate in this very sensitive industry sector.
Contact Hye Sung Park - hyesung.park@bm.com Evelyn Kusnawirianto - evelyn.kusnawirianto@bm.com
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Australia: Deregulation in the power sector The Australian Federal Government released an energy White Paper in November calling for the country to deregulate the state-owned electricity market, lower electricity prices, and cut red tape. This comes as the electricity industry has received serious criticism from cross-party politicians, the media, consumer groups, and the Competition and Consumer Commission for skyrocketing power bills. The White Paper encourages state governments to embark upon bold electricity reforms including the deregulation of the energy markets, charging more for consumption of power at peak times, and upgrading power infrastructure such as the use of smart meters to help families manage their bills. Currently, with the exception of the state of Victoria, the retail price of electricity in Australia is set by government agencies rather than by the energy firms themselves. Energy assets and infrastructure are also owned by state governments, which many have said is the reason for inefficient competition and high electricity costs in Australia. It is estimated that energy use in Australian households has grown by 33% from 1990 to 2010 with electricity costs accounting for 75% of all household energy bills. The increase in electricity cost is also being blamed by the Australian Competition and Consumer Commission for harming the competitiveness of Australian businesses. The Energy Minister, Martin Ferguson, has urged states in Australia to follow Victoria’s lead in deregulating their electricity sectors as Victoria has seen a slower increase in electricity prices after deregulation and lower transmission costs due to the use of privatised networks. The call for deregulation in the power sector is widely supported by business associations and energy companies in Australia. The country's largest electricity company, Origin Energy, and the Western Australia (WA) Chamber of Commerce and Industry have said that deregulation will enable the market to determine the most efficient cost for consumers and that control
of the energy market by states will stifle future investments and the competitiveness of the industry. Foreign investors are also expected to benefit as the federal government recognizes that overseas investment is critical for installing infrastructure technology like smart grids and metering systems. This will likely make the Australian Government more accommodating in its dialogue with companies seeking to invest in the country. However, the reforms are also expected to face significant obstacles as state Governments are reluctant to fully deregulate the electricity sector. The Queensland and WA governments, for example, have voiced their opposition by arguing that deregulation will not be suitable for the delivery of power in remote areas and that if the deregulation model is adopted in their states, electricity costs will be even higher. Previous network and infrastructure upgrades have also been criticised for adding to consumers’ electricity bills. Going forward, the Federal Government Energy White Paper is expected to form the backbone of Australia’s national energy policy even though debate between political parties, state governments and the Federal government is expected to continue. Companies should be giving thought to issues mapping and corporate positioning to help anticipate and defend against public criticism. There are also opportunities to get involved in the public debate on energy reform through public education initiatives and relationshipbuilding with key stakeholders, including government bodies and consumer groups. As the policy framework develops, Burson-Marsteller Australia is positioned to help companies map the relevant stakeholders, monitor dialogue around this issue and develop points of engagement to help them build support for their position and their contributions.
Contact Steve Bowen - steve.bowen@bm.com Evelyn Kusnawirianto - evelyn.kusnawirianto@bm.com
Indonesia: Plans for Universal Health Insurance Coverage The Indonesian government has announced recently a multi-billion dollar plan to implement the National Social Security System (SJSN) to provide universal health coverage to ensure access to healthcare for all Indonesians. The programme, provided by the Government, is designed to help the low-income and under-served population gain access to medical care.
Under the programme, by paying 22.201 rupiah (USD 2.33) per month, people will be covered and will have access to curative treatment for even chronic illnesses such as cancer, HIV, and heart diseases. According to the Indonesian Minister of Health, the Government is also committed to providing preventive healthcare services to promote the health of the Indonesian
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people through use of the funds collected by the programme. Currently, only 40% of Indonesia’s population is covered by health insurance and many people in under-served regions refrain from seeking medical care due to fears over expensive medical bills. With the implementation of universal health coverage, at least 117 million Indonesians will be covered by the plan. The quality of healthcare is also a concern for Indonesia’s expanding middle class, driving them to turn to neighbouring countries like Singapore and Thailand to seek medical care. According to the World Health Organization, it is estimated that the country only has six hospital beds per 10,000 people. Increased access to healthcare due to universal coverage is expected to drive higher demand and promote increases in quality for hospitals as well as investments in new medical equipment. Foreign companies providing medical equipment, such as Philips Electronics and General Electric, will benefit as they expect medical infrastructure upgrades in Indonesia will lead to a quadruple increase in sales for medical equipment companies over the next three years. Some analysts and critics have, however, expressed concern that the Government is being too hasty in rolling-out the plan as the programme will need time to be widely recognised and accepted by the general
public. Not all private companies are supporting this new programme. Due to the low cost of insurance premiums, pharmaceutical manufacturers are worried that full implementation of universal health coverage may lead to preference by medical practitioners for low cost medication and products. Similar concerns are being shared by the Indonesian Association of Physicians as they fear that the low amount that people are required to pay may lower the quality of services provided by hospitals and by healthcare professionals. Universal health coverage is expected to take effect in 2014 and to be implemented fully by 2019. Detailed regulations, however, still remain largely unclear and are left for debate. Pharmaceutical companies and medical equipment companies will likely increase engagement with relevant government bodies to make sure that their interests are heard and that they are more involved in the decision-making process for healthcare policies. Burson-Marsteller Indonesia has the expertise to facilitate the conversations between the industry players and government as well as relevant stakeholders surrounding the issue, in particular, or other healthcare issues in general.
Contact Dody Rochad - dody.rochadi@bm.com Evelyn Kusnawirianto - evelyn.kusnawirianto@bm.com
EU: The next Multiannual Financial Framework European leaders met in Brussels on 22-23 November 2012 at a special summit to discuss the EU’s next long-term budget.
(eurozone governance issues, as well as a banking, fiscal, economic and political Union).
The summit ended without an agreement on the 2014-2020 ’Multiannual Financial Framework’ (MFF), but this came as little surprise. Expectations were very low well before European leaders arrived in Brussels.
Negotiations leading up to last week’s summit point to the possibility of a real-terms cut or freeze to EU funds over the next seven years. In any case, all proposals presented over the past couple of months have foreseen significant cuts to the original proposal of the European Commission.
Many analysts say that what is worrisome is not the lack of an agreement but the general view that postponing the decision does not constitute a problem, despite the failure to resolve many of the issues that were discussed at the summit, and the apparent disagreement between Paris and Berlin. EU leaders hope to reach agreement early next year, but the decision could drag on even longer. The December summit will not discuss the MFF, but instead focus on agreement on a road map towards a genuine Economic and Monetary Union
The latest proposal was submitted to the European Council by its President, Herman Van Rompuy, on 22 November. This proposal kept the same overall top-line figure of €972bn but redistributed the cuts between five priority areas. The most significant cuts were made in the area of ’Competitiveness for Growth and Jobs’, which includes the flagship Connecting Europe Facility (infrastructure projects to develop Europe's transport, energy and digital networks) and the Horizon 2020 research funding programme. This is one of the areas, along with
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the EU administrative expenditure, where further cuts are envisaged in order to find common ground between opposing parties during talks next year. On the other hand, France and Poland have pushed for – and seem to have achieved – smaller cuts in their priority areas: the Common Agricultural Policy (CAP) and cohesion policy respectively. The UK rebate seems fairly secure for now, even though David Cameron, the British Prime Minister, has asked for more cuts and suggested that the overall figure for the next MFF should be reduced to €890bn. The European Parliament, which must give its consent to the MFF, is unlikely to countenance such a cut. Its President, Martin Schulz, told reporters that the Parliament would oppose any budget lower than the €972bn figure proposed by Mr Van Rompuy. The Parliament fears a repetition of the 2007-2013 budget negotiations, which saw the allocation for research slashed by 30%, compared to the 16% cut proposed by the Commission. The key players in this saga will continue to be Herman Van Rompuy as well as the Commission, the Parliament and the incoming Irish Presidency
(in office for the first half of 2013). The UK was in the spotlight at this summit and its domestic political situation will be very closely observed, especially given the recent vote in the British Parliament which called for a cut in the budget. The German elections, expected in the early autumn of 2013, could complicate negotiations even further. If a new MFF is not adopted during talks next year, the new Lisbon Treaty provisions will take effect, with current spending levels maintained. For those who want to cut the budget, a ‘bad deal’ (a small cut) may be better than no deal at all. This new process will test all involved, and there will be serious questions over the fate of areas which were not covered by the previous MFF, like financing of the European External Action Service, the legal basis of policy areas such as cohesion policy, the future of the so-called ‘project bonds’, and major projects falling under the Connecting Europe Facility.
Contact Anna Tobur - Anna.Tobur@bm.com
France: Plans to increase competitiveness On 5th November 2012, the General Commissioner for Investment, Louis Gallois – former chief of aerospace group EADS – delivered his long awaited report on competitiveness to French Prime Minister, Jean-Marc Ayrault. The centrepiece of the Government’s plans inspired from the report is a €20 billion tax credit for corporations spread over two years. Mr. Gallois originally proposed a €20 billion cut in employers' contributions (before taxation) but still welcomed the Government’s decision. The Government rejected Louis Gallois’s proposal that the share of payroll taxes paid by employees be cut by €10 billion. Overall, the gGovernment measures inspired by the Gallois report have been fairly well received by the business community and economists have been positive in the main, although they regret that the impact for companies will not be seen before 2014. However, right-wing commentators remain critical of the measures arguing that they do not go far enough and will not deliver the expected economic shock; while the Unions are keeping a very watchful eye on developments.
A u-turn on VAT and a standstill on shale gas Half of the €20 billion sum will be raised via increases in sales taxes (Value-Added Tax). Political analysts and media commentators consider this to be the biggest political reversal from the socialists who had previously denounced the increase of VAT during the presidential campaign last spring. The other half of the €20bn will be financed by, yet unspecified, spending cuts and at least €3 billion in environmentally focused “green taxes”. Finally, the Louis Gallois report also mentioned France’s potential shale gas reserves as an energy boost for the country, helping to lower gas imports and ultimately prices. But even before the report was officially released, the Prime Minister’s office reaffirmed its stance against any form of shale gas exploration in France as long as hydraulic fracturing is used to extract the natural gas.
Contact Emilie Rapley - emilie.rapley@bm.com
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Switzerland: Tax agreements with Germany, Austria and the UK The Swiss Government has negotiated tax agreements with Germany, Austria and the UK. These accords are aimed at resolving the dispute over untaxed assets in Swiss banks. They provide that citizens of these three countries can tax their assets in Swiss banks anonymously. These taxes are then transferred from Switzerland to the respective countries. This will ensure that bank customers pay their taxes in their country of origin, but may still retain their anonymity. Thus, untaxed assets in Swiss banks will no longer be and the bank-client confidentiality remains. Thanks to these closed agreements between the signatory states, it is thought that tax revenues – totalling many billions – will be generated.
This move provoked politicians from across the political spectrum to call for a referendum - Swiss law states that if 50,000 signatures are collected and submitted, a referendum can be held on one specific issue – but the requisite signatures were not reached in the designated timeframe and the agreements will come into effect shortly.
Contact Gabi Badertscher - gabi.badertscher@bm.com Gregor Faust - gregor.faust@bm.com
Colombia: Pension reform is coming The Colombian Ministry of Labour has announced its intention to send Congress a pension reform bill before the end of 2012. The Government seeks to increase the number of people affiliated to the pension system and guarantee fiscal stability through this initiative. According to the information available so far, the proposed bill introduces taxes for the highest pensions, raises the age of retirement, duplicates years for pension cancellation, changes the formula for quantifying the amount of the pensions and softens some conditions of the private savings system. For these reasons, the initiative is a matter of interest both for employers and for pension funds of financial institutions with a presence in Colombia.
In early November, the initiative was discussed in the Labor Concentration Commission, as a first step before formal submission to the Congress. Colombia currently has 23 million economically active people: 16 million are affiliated either to a private savings system or to the public system and the remaining 7 million are unemployed and unaffiliated. Due to the high level of informal labour, about 50 per cent of people do not contribute to the pension system and reform is needed to achieve a sustainable future.
Contact Miguel Ángel Herrera - Miguel.herrera@bm.com
Argentina: food regulation on Congress agenda Argentina’s National Congress has focused its attention on the food industry, especially concerning obesity issues. There are currently several projects under discussion which are likely to impact business. The Trade Committee of the Deputies Chamber recently passed a bill to reduce sodium levels and further discussion is scheduled with the whole Chamber. The reduction is aligned with the Health Ministry’s position and establishes a new framework on salt limits for each product. The initiative’s
authors are pursuing the WHO recommendation of 5 grams of sodium chloride consumption per day – average levels in Argentina are up to 13g per day. Another major concern for the sector is the rising level of obesity in the country. One response to the problem, copied in a number of provinces and local districts, is to establish “healthy kiosks” to regulate the kind of food that is offered at schools. The ambition is to give students access to healthy food and nutritional education. Based on their success
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to date, regulators are considering further awareness programmes and potentially mandating every school to establish healthy kiosks and vending machines with a diversity of healthy products on offer. In some of these districts, regulators are also discussing restrictions for so-called “junk food” in schools. Local jurisdictions have a record legislative action in this
area as seen in 2008 when healthcare providers were forced to include the treatment of obesity in their coverage.
Contact Diego Campal - diego.campal@bm.com
US: 2012 post election analysis and what we can expect from the Lame Duck President Barack Obama became the 21st president to be re-elected to a second-term with a 51% - 48% popular vote split and a decisive 332-206 tally in the Electoral College. Though the vote was close in many states, the vote in the Electoral College was decisive and consistent with expectations of many polls. With the economy and jobless recovery trumping other issues on the minds of voters, President Obama carried all of the so-called battleground states in which both parties had spent large sums on advertising and organisation. The big story on election night was demographics, as Democrats carried the vote of minorities, women, young and single voters to defeat Republicans who won a majority among white males and married couples. The Republican Party failed in their bid to gain control of the Senate, and actually lost two seats, but maintained the majority in the House with 233 seats. In some ways, the election results have strengthened the hand of House Speaker, John Boehner in asserting his control over all Republican Representatives, including the most conservative members which could prove critical as Congress addresses the so-called “fiscal cliff.” The combination of unexpected gains by Senate Democrats and marginal losses by House Republicans leaves Washington, D.C., in a statistical status quo for 2013. The general interpretation of the results, however, is that voters do not want a repeat of the dysfunction and gridlock that dominated the 112th Congress. Rather, they expect to see cooperation across the aisle to address key issues facing the nation. Congressional leaders returned to Washington, D.C. on November 13 for the Lame Duck session. During this session Congress will begin to tackle the long
list of legislative items that were put on hold during the election recess. The key question is whether the Administration and Congress can effectively negotiate the laundry list of looming tax and budgetary cuts that must be addressed in order to keep the country from careening off the fiscal cliff, potentially resulting in a devastating economic recession. A comprehensive solution is unlikely given that the end of the year and the 112th Congress is but a few short weeks away. If history teaches us anything, Congress is likely to do the bare minimum needed to prevent the country from going into an economic tailspin, pushing the tough issues and decisions to the 113th Congress. If all parties do in fact reach a Lame Duck deal to avoid sequestration, it is unlikely that Congress can decisively address all aspects of the Grand Bargain. The more likely scenario is an incremental package requiring Congress to meet established targets by a certain deadline and impose harsh penalties should Congress fail to meet the goals presented in the framework agreement. The most likely scenario to reach a Grand Bargain is a re-engineered package similar to that of the $4 trillion in debt reduction negotiated by President Obama and Speaker Boehner in the summer of 2011, which both parties walked away from after it fell through. Given that all parties have expressed interest to take on other issues such as tax reform, the Grand Bargain debate will likely include changes to individual and corporate tax rates, mandatory cuts to discretionary spending, reforms to Social Security and Medicare, as well as a revisiting of the sequestered cuts to defence and Medicare programmes mandated by the Budget Control Act of 2011.
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In addition, Congress is likely to deliberate on difficult issues like energy and immigration. These two issues, in particular, played a major role in the election and President Obama is likely to urge Congress to address these matters. Congress will also likely take up a host of possible unfinished legislative initiatives from the previous Congress including the Farm Bill and unfinished 2013 appropriations bills.
Congress is sure to address a great number of important issues in the 113th Congress, but it is much less clear whether both parties can come to an agreement on the major issues that eluded them in the 112th Congress.
Contact Paul Brown, Prime Policy Group – paul.brown@prime-policy.com Rich Meade, Prime Policy Group – rich.meade@prime-policy.com
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