July Washington Policy Issues Outlook

July 2, 2018

 

TRADE

Brewing trade wars: Trade watchers will be on the lookout this month for any indication that high-level trade talks with China have resumed, but it may be too late to avert the tariffs that both countries have threatened against each other's exports.

The first round of U.S. duties targeting China and its technology practices will take effect July 6, on $34 billion worth of Chinese imports in sectors like robotics and automobiles. Those tariffs are expected to prompt near-immediate reciprocal action from Beijing.

And those aren't the only tariffs that will go into effect in July. Canada'sretaliatory penalties against Trump's steel and aluminum duties were set to begin on the first of the month against $13 billion in U.S. goods, while Mexico will target another $3 billion in U.S. exports on July 5.

The White House will also move forward this month with its investigation into whether to impose duties on imports of autos and auto parts, holding a public hearing beginning July 19 to allow industry representatives and others a chance to provide feedback on the probe.

NAFTA, NATO: Looking abroad, U.S. Trade Representative Robert Lighthizer and his team were expected to resume NAFTA talks with Canada and Mexico after the Mexican presidential elections July 1.

President Donald Trump will also have a chance to meet with a number of primarily European allies when he travels to Brussels in the middle of the month for a NATO summit, where trade is likely to be a major point of discussion . Trump is also visiting the United Kingdom during his visit and will sit down with Prime Minister Theresa May. - Megan Cassella

 

DATAPOINT

Chinese investment drops sharply: The president has pursued aggressive trade policies and tariffs against key trading partners including Canada, Mexico, the EU and China. These countries have responded with similar tariffs and WTO challenges, and investors in these countries have also been driven to act. Chinese investment in the U.S. has dropped off in 2018. - Taylor Miller Thomas

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EMPLOYMENT & IMMIGRATION

Ticking clock on reunifying families: The Trump administration has until late July to reunify thousands of children and parents separated by immigration officials in recent months. Last week, a San Diego-based federal judge issued a scathing order that called for the administration to reconnect children under 5 years old with their parents within 14 days and older childrenwithin 30 days. U.S. District Judge Dana Sabraw called the family separations "a chaotic circumstance of the government's own making."

The order came after Trump ordered the Homeland Security Department to keep families detained together, and the administration has warned that the court intervention could slow down the reunification process. The Justice Department hasn't said yet whether it will appeal the order; DOJ is asking a different California judge to allow the administration to detain children indefinitely along with their parents.

Targeting poorer immigrants: U.S. Citizenship and Immigration Services is expected to issue its highly anticipated "public charge" proposed rule in July. The regulation would make it easier to deny the green card applications of immigrants who receive welfare or public benefits, according to draft copies obtained by The Washington Post and Reuters. In addition, the proposed rule would redefine the term "public charge" in such a way as to bar more immigrants from entering the United States. Advocates for low-income families oppose the regulation, which would force parents to choose between immediate assistance and long-term residence in the U.S.

DACA in the courts: The fate of nearly 700,000 undocumented immigrants covered by the Deferred Action for Childhood Arrivals program will continue to play out in federal courts this month. Trump announced last year that he would phase out the program, but three federal judges have blocked that plan. Under those rulings, the administration has been forced to allow people approved for DACA to renew their enrollment pending the outcome of litigation.

A D.C.-based federal judge could take action to further restore the DACA program. U.S. District Judge John Bates said in an April 24 order that he may force the administration to accept new DACA applications if it can't supply an adequate explanation of the termination within 90 days, a clock that runs out in late July. - Ted Hesson

 

BUDGET & APPROPRIATIONS

On track - for now: In a bid to regain faith in their ability to fund the government, lawmakers plan to spend this month passing more fiscal 2019 spending bills on the floor. The goal - to carry out their most basic mission of keeping money flowing to federal agencies - is a lofty one after the string of shutdowns and kick-the-can stopgaps of the past few years. But leaders hope the Senate can build on the recent bout of bipartisanship that has enabled the chamber to pass three of the 12 annual funding measures.

While the Senate spending committee has approved all of its fiscal 2019 bills for floor action, markups are expected in the House this month on the two most controversial measures: Labor-HHS-Education and Homeland Security. Leaders in the lower chamber have put off committee action on those bills amid broader discord over the Trump administration's immigration policies.

In the Senate, top appropriators have suggested pairing the defense spending bill on the floor with the measure that funds the departments of Labor, Education and Health and Human Services. And although the House has already passed its defense funding bill, H.R. 6157, that legislation could essentially get a re-vote as a way to drum up GOP votes for non-defense funding that's less palatable to Congress' staunchest conservatives.

Behind the scenes, conference negotiators will try to reconcile differences between the three-bill minibus the House has passed and the version the Senate approved. That package, H.R. 5895, would fund the departments of Energy and Veterans Affairs, as well as the legislative branch, military construction and water projects. - Jennifer Scholtes

 

DEFENSE/TECHNOLOGY

Hashing it out: Having passed competing versions of the fiscal 2019 National Defense Authorization Act by wide margins, House and Senate Armed Services leaders have kicked off a conference committee to hammer out the differences. Armed Services leaders on both sides of the Capitol have laid out an ambitious timeline to finish the legislation, HR 5515, by the end of July.

In the meantime, there are a slew of differences to reconcile. The bills differ on how aggressively to increase the number of troops, as well as how many new fighter jets and Navy ships to buy. And then there's ZTE ... - Connor O'Brien

Tell us more about ZTE: The Senate's version of the must-pass defense bill would take a slap at the administration by reinstating tough penalties on ZTE, a Chinese telecom giant that violated sanctions against selling to North Korea and Iran. That vote came after Trump revoked his Commerce Department's original seven-year ban, a punishment that probably would have put the company out of business.

House lawmakers sought only to block the federal government from using ZTE products and services. Trump has gathered Republicans for a closed-door meeting at the White House to pressure them to water down the Senate language.

Critics have singled out ZTE's alleged close ties to the Chinese government and warned its products could be used to spy on Americans. But broad prohibitions on the importation and sale of ZTE products could further strain already fraught trade relations with China.

On the business front, U.S. officials are talking with American businesses about being more selective when buying technology, especially from Chinese companies such as ZTE and Huawei. But some small telecom companies say ZTE is a crucial supplier of low-cost network equipment. - John Hendel and Mike Farrell

 

FINANCIAL SERVICES

Meet the new boss: Kathy Kraninger, the president's little-known choice to head the Consumer Financial Protection Bureau, will step out of the shadowsJuly 19 when she faces the Senate Banking Committee for her nomination hearing. Kraninger works under Mick Mulvaney at the White House budget office, and her surprise selection is seen by some as a bid by Mulvaney to extend his grip on the embattled bureau, where he has been acting director. Massachusetts Sen. Elizabeth Warren, who helped set up the CFPB under President Barack Obama and has been fiercely critical of Mulvaney's efforts to curb its powers, will lead Democrats in grilling Kraninger on her plans.

Powell takes his turn: Federal Reserve Chairman Jerome Powell will go before the Banking Committee on July 17 and the House Financial Services Committee the next day for his semiannual testimony on monetary policy, often a market-moving event. Expect him to get a lot of questions on whether rising trade tensions are threatening economic growth and on how fast the Fed is likely to raise interest rates this year.

Anti-redlining law: Banks are waiting on regulators to get moving on proposals to relax the requirements of the Community Reinvestment Act, the landmark 1977 anti-redlining law that encourages lenders to serve poorer communities. Comptroller of the Currency Joseph Otting - a former banker himself who said last month that he has never personally witnessed discrimination - is eager to get going, saying he might decide to start the process without other bank regulators on board. Still, he's hoping to proceed jointly with the Fed and FDIC.

China investment crackdown: House and Senate negotiators will complete a major overhaul of how the government polices foreign investments. The effort, backed by the administration, comes amid growing concern about how China taps into critical technologies. The proposals being hashed out would expand the jurisdiction of the Committee on Foreign Investment in the United States, a Treasury-led panel that reviews foreign takeovers of U.S. companies. Trump had considered directly clamping down on Chinese investments but was persuaded to leave it up the committee, raising the stakes for the overhaul even higher. - Mark McQuillan

 

AGRICULTURE

All about farm bill conference: When Congress returns from its July 4 recess, look for a conference committee to be formed quickly to begin negotiations to meld the House and Senate farm bills into one. The bipartisan Senate bill, S. 3042, was passed by an 86-11 vote late last week - one week after the partisan House measure, H.R. 2, squeaked by 213-211 after being voted down in May. The talks could be contentious - or "wild and wooly," as Senate Agriculture ranking member Debbie Stabenow (D-Mich.) predicted - on a handful of major points of difference between the bills, especially in regard to food stamps, farm subsidy caps and conservation initiatives.

SNAP showdown: After the farm bill vote, both Senate Agriculture Chairman Pat Roberts and Stabenow said the large margin of victory in the Senate gives negotiators from the upper chamber momentum headed into conference. Congress has until Sept. 30 to get Trump a bill before the current farm bill expires. The Senate bill, which has drawn wide support from industry, would largely maintain the status quo in farm policy, and proposes to make a series of noncontroversial, administrative changes to food stamps, formally known as the Supplemental Nutrition Assistance Program, that would mainly seek to combat fraud. The food aid program makes up more than three-quarters of all farm bill spending and helps more than 40 million people in cities and rural communities pay for groceries each week.

Not a single Democrat voted for the House bill, largely as a result of its proposals to impose stricter work requirements on between 5 million and 7 million SNAP recipients and spend billions of dollars to expand state-run employment and training programs under SNAP. Those provisions are part of Speaker Paul Ryan 's long push for welfare reform and are backed by many conservatives and Trump, but they are unlikely to pass the Senate. Roberts and Stabenow crafted their bill to avoid the kind of regional fights that have bedeviled past efforts to pass the farm bill, or the partisan strife over SNAP that nearly derailed the House version.

GMO labeling rule down to the wire: USDA is behind schedule in writing guidelines for implementing the law Congress passed in July 2016 to requiredisclosure of genetically modified ingredients in foods. The law mandates that the guidelines be finished this month. But public comment on the rule doesn't wrap up until July 3, and then USDA still must review the input and update the rule before it goes final.

USDA's regulation will set standards for what needs to be disclosed and provide companies options - either on-package or via a QR code and online listing - for informing consumers that their food contains GMO ingredients. Open questions include whether foods containing highly refined ingredients such as canola oil will be required to be labeled, as well as what the labels itself will look like. For example, USDA has proposed using "BE," for bioengineered, instead of the more widely recognized "GMO." - Liz Crampton

 

HEALTH CARE

Next step in opioid response: Congressional efforts to respond to the opioid crisis are shifting to the Senate, where lawmakers plan to take up a legislative package and reconcile their work with the House. Lawmakers from both parties are touting their efforts ahead of the midterm elections, with the opioid crisis expected to be a top issue for voters.

The House-passed opioid package, HR 6, contains provisions aimed at increasing access to addiction treatment. Nurse practitioners and physician assistants would be given permanent authority to prescribe buprenorphine, a form of medication-assisted treatment, while certified nurse specialists would have authority to prescribe it for five years.

Potential winners: The House bill could yield a windfall for a small number of companies that have spent millions of dollars lobbying Congress. Narrowly tailored provisions would benefit companies such as Alkermes, which spent $1 million lobbying in part to support a bill to fund full-service centers where people can detox, receive medical care and start treatment - a setup that could boost the fortunes of its best-selling anti-addiction treatment Vivitrol. Indivior, an Alkermes rival, spent $180,000 largely in support of a bill that would ease restrictions on certain controlled substances used in injectable anti-opioid treatments - which would make it easier for doctors to buy Indivior's once-a-month injectable Sublocade. - Adriel Bettelheim

 

TAX

Golden rules: The wait continues for a variety of new business tax rules. Federal regulators involved in the effort have said guidance would come out throughout the year to set parameters for last year's massive tax law, the Tax Cuts and Jobs Act, H.R. 1. Acting IRS chief David Kautter in June predicted that guidance on non-corporate businesses known as pass-throughs could emerge in a couple of weeks. That information will govern how such companies - which include partnerships and limited liability companies -- pay taxes on their income. Some of that income will qualify for a 20 percent deduction, but exact definitions of what qualifies and what doesn't remain unclear.

It's not just business owners who want clarity. Lawmakers have said the sooner the better, both to minimize confusion for their constituents and to limit opportunities to take advantage of ambiguities in the new code section 199A.

Money for the taxman: Senate and House appropriators are working this month to finish spending legislation to fund the IRS, which would see a slight uptick in its budget for the coming fiscal year. Most of the extra money is tabbed for costs related to implementing the new tax cut law, including the regulatory process.

Long wait over?: The IRS could also get a new commissioner, tax lawyer Chuck Rettig. The Senate Finance Committee needs to advance the nominee before the full Senate votes on his him. Rettig's confirmation hearing was at the end of June, and the committee could vote in the weeks ahead, according to Chairman Orrin Hatch (R-Utah). If Rettig is confirmed, Kautter would shift full time to his other job in the Trump administration as the Treasury Department's top tax official, where he'd continue spearheading the TCJA rules-writing process. - Aaron Lorenzo

 

EDUCATION

Perkins percolates: Keep an eye out for movement on the first reauthorization of the Carl D. Perkins Career and Technical Education Act in more than a decade.

The Senate's bipartisan rewrite of the law, which governs career and technical education, has rapidly gained momentum after breaking through what Sen. Mike Enzi (R-Wyo.) described as "an impasse." Enzi and Sen. Bob Casey (D-Pa.) were tasked with reaching a compromise on the law, and their proposal flew through the education committee in June. It now heads to the Senate floor with the backing of the White
House, governors, the Chamber of Commerce and several education groups.

Now what? The repercussions of the Supreme Court's landmark ruling against unions in Janus v. AFSCME will set the tone for labor relations probably through the rest of the year.

Immediately, many questions swirl. Now that workers can't be forced to pay unions for collective bargaining activities, it's unclear how many will opt to ride free. Unions have remained staunch in maintaining that the vast majority of their workers believe in their union, but how many will be lured by extra cash in their paychecks?

Groups hoping to weaken the labor movement are urging workers to defect. Local teachers union leaders tell us they anticipate a flurry of anti-union activity, with groups urging voters to part ways with organized labor using slogans like, "Want a raise? Leave your union."

Preschool grants 2.0: A $250 million grant program that helped kickstart public pre-K efforts in a handful of states during the Obama administration is getting rebooted. The Every Student Succeeds Act reauthorized the grant program and moved it into the Department of Health and Human Services, which is now in the final stages of crafting the new parameters for the program and applications for states. We'll be looking out for those this month. - Mel Leonor

 

ENERGY

Infrastructure action (at last): Senate Environment and Public Works Chairman John Barrasso (R-Wyo.) hopes to block out some floor time this summer for his water infrastructure package, America's Water Infrastructure Act, S2800. He's been trying to work out a "tight time agreement" that would limit the amount of time spent on floor consideration. The House cleared a narrower version of the Water Resources Development Act, HR8, in early June.

Money wrangling: Look for the Senate and House to devote floor time this month to their Interior-EPA spending bills for fiscal year 2019, probably as part of another minibus appropriations package. The full Senate Appropriations Committee advanced the measure, S 3073, without amendment June 14, and the House Appropriations Committee approved its own version of the measure, HR 6147, earlier that month. Meanwhile, both chambers will look to iron out differences between their energy and water titles, part of a three-bill package, HR 5895, in a conference. The House announced its conferees before leaving town for the July Fourth recess. - Anthony Adragna

 

CYBERSECURITY

Gone phishin': After the news that marketing firm Exactis exposed some 340 million records containing information on an estimated 218 million people, cybersecurity experts warn about a fresh wave of targeted phishing attacks. These aren't new attacks but remain an unrelenting problem for businesses - especially CEOs who are often prime targets. And the more authentic a bogus email looks, the more likely someone will click on a link or attachment. The Exactis leak can provide cyber criminals with data to design more effective phishing campaigns.

Last year, the Equifax breach exposed personal data on 145.5 million people. Afterward, cyber experts detected a rash of phishing campaigns. Now, eight states have moved to force Equifax to improve its cybersecurity measures. In a joint consent order, states including Texas, California and New York are compelling the company to improve how it patches software vulnerabilities and manages potential vendor risks. Equifax has until the end of July to tell regulators what it's doing to improve its cybersecurity. - Mike Farrell

 

TRANSPORTATION

FAA delays: It's the Senate's turn to pass an FAA reauthorization so the two chambers can reconcile their versions of the bill (S 1405, HR 4) in a conference committee.

If Senate Majority Leader Mitch McConnell follows through on his plan to hold the Senate in session for all but one week of August, instead of recessing for the full month, lawmakers will have more wiggle room to reach an agreement before the current authorization expires at the end of September. But floor time in the Senate is still sparse, and so far senators have been unable to reach an agreement on timing and amendments. Much of July will probably be spent wrangling over that agreement, with Senate floor consideration delayed until then.

Bottom line: At this point, the need for a short-term FAA extension is all but assured. - Kathryn A. Wolfe

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