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Rob Mathias
Managing Director, Washington, D.C.
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May 23, 2008

The mid-term elections of November 7, 2006 marked the end of Republican control of Congress for the first time since 1994. With a 51-49 majority in the Senate and a small but comfortable majority in the House, the Democrats, led by Senate Majority Leader Harry Reid (D-Nev.) and Speaker of the House Nancy Pelosi (D-Calif.), will have control of powerful committee leaderships that will alter the outlook for many of our clients.

Despite the shift in power, do not expect a total Jihad on American business, particularly in highly regulated, high consumer “touch industries” such as healthcare, energy, and financial services. In a large number of races where a Democrat replaced a Republican, the margin was very small and a significant number of new House Democrats are more conservative than their House leadership. Moreover, both parties are now looking toward the 2008 presidential election and are largely expected to move to the center, in order to attract the support of independent voters who have held the balance of power in recent elections.

That said, with the narrow majority obtained by Democrats in both chambers of Congress, there will be no shortage of conflicts, which will result in more opportunities for business to insert its voice into debates through media coverage.

One of the most significant signals for change to come out of these elections may be the public’s adamant views against corruption. Expect to see a lot of emphasis on anti-corruption measures and a push for companies to conduct their business with even more transparency.

The Ogilvy PR Washington Public Affairs team in has been actively monitoring all the new developments on Capitol Hill. Below are some detailed thoughts on how the leadership shift will affect our clients in various industries.

Robert Mathias, Managing Director, Washington

 

Chemistry Industry

California, here we come!

This may have been the first thought of chemical company executives in the moments following the announcement that Jim Webb had captured the Virginia Senate seat and consequently, turned the power of that chamber over to the Democrats.

For years, political change starts in California and moves east. And now, the 2006 election has brought the Golden State’s Sen. Barbara Boxer to lead the Environment and Public Works (EPW) Committee.

With her new power, and the power of other Democrats on that crucial Committee, such as Sen. Frank Lautenberg (D-N.J.) overseeing chemical security legislation and Sen. Hillary Rodham Clinton (D-N.Y.) responsible for the Toxic Substances Control Act, America’s chemical companies will face aggressive oversight.

It is for this very reason that the chemical companies need to continue redefine the industry and linking the benefits of chemistry to the companies and employees that produce them. If this is accomplished, the chemistry industry will go a long way in changing the hearts and minds of the nation and its lawmakers.

Jason Linde, Vice President, Washington

 

Energy Policy

Although the 110th Congress won’t be sworn in until January, the energy industry already has a good idea of how what type of environmentally friendly and “green” legislation the incoming Democratic majority will push.

The Democratic leadership has already indicated it will try to repeal tax breaks from the Energy Policy Act of 2005, questioning everything from gas-mileage standards to tax breaks for alternative energy sources to refiners expensing 50 percent of the cost of capital projects.

In addition, many lawmakers are poised to focus on fuel efficiency or the use of biofuels. This past spring, Sen. Barack Obama (D-Ill.), along with Sen. Richard Lugar (R-Ind.), proposed legislation that includes loan guarantees for companies producing biofuels and a requirement that all new cars have capability to run on multiple types of fuels (so called “flex fuel capable” cars) by the end of 2010.

Sen. Hillary Rodham Clinton (D-N.Y.) has also put together a plan heavy on alternative fuels and efficiency. On the Republican side, Sen. John McCain (R-Ariz.) will press for the goal of 100,000 hydrogen-powered vehicles by 2010.

Assuming it is not handled in the upcoming “lame duck” session, there is still a chance that Congress will revisit the issues of drilling for oil and natural gas in the eastern part of the Gulf of Mexico. However, to get senators from the Gulf states on board, lawmakers will likely offer them enhanced revenue sharing.

Finally, the shift in congressional leadership may also mean increased dollars for the Low Income Home Energy Assistance Program, which is currently funded at $2.1 billion for 2007. The Democrats are likely to push for additional funding to get it to the same level as last year, which was $3.2 billion.

David Tamasi, Account Director, Washington

 

Environment

Environmentalists cheered the results of November 7 as two of their most powerful opponents – Rep. Richard Pombo (R-Calif.) and Sen. James Inhofe (R-Okla.) – were either defeated (Pombo) or lost their chairmanship (Inhofe). This meant that rather than pushing for legislation that environmentalists hated (drilling in the Outer Continental Shelf and ANWR, revamping the Endangered Species Act and National Environmental Policy Act), the new Congress will be reviewing existing Bush administration public lands policies and pushing proposals to stop global warming.

In the Senate, environmentalists cheered the ascension of Sen. Boxer to the chairmanship of the EPW Committee, not only because her expected oversight hearings, but her support for mandatory greenhouse gas caps and opposition to nuclear energy. Boxer has also reorganized EPW to create two subcommittees to examine the global warming issue – one on public sector solutions and one on private sector ones.

While that was good news for the green community, don’t expect much significant change in the status quo for two reasons. First, it will be extremely tough for Boxer to garner the necessary 61 votes to overcome Republican filibusters in the Senate. Second, her likely counterparts in the House do not share her passion. Rep. Nick Rahall (D-W. Va.), new head of the House Resources Committee, is a strong supporter of the coal industry. New House Energy and Commerce Committee chairman Rep. John Dingell (D-Mich.), whose wife is a top official at General Motors and who once called the Kyoto Protocol “the most asinine treaty I’ve ever seen,” not only represents Detroit, but also has hired the former head of public policy for DaimlerChrysler as his staff director at the Energy and Commerce Committee.

Greg Stanko, Vice President, Washington

 

Financial Services

The impact of the election on the financial services industry will in many cases reflect the same reality of the last several years: it will take consensus and bipartisan support to move any piece of major legislation. New chairmen will control the Senate Banking Committee (Connecticut’s Christopher Dodd) and the House Financial Services Committee (Massachusetts’ Rep. Barney Frank) and will, therefore, look to make their priorities a mandate in carrying out oversight and legislative functions. On a macro level, expect an increased focus on affordable housing issues, executive compensation issues, predatory lending laws, insurance issues, regulatory structure and cooperation by regulators on a national and international level.

Financial services issues can be somewhat unique in that they don’t consistently translate along party lines. Oftentimes, the regional, generational or professional background of Members helps organize coalitions. For example, one major issue likely to be decided this year is the extent to which commercial firms can engage in banking activities. Similarly, financial firms have been seeking to enter the real estate business for some time. This issue will also be the subject of hearings and legislation.

Members in the new majority have also discussed their intention to address the operation of the credit card industry. Consumer complaints about interest rates, late-fees and other credit card practices have prompted some Members to discuss legislative initiatives to address these issues. In addition, the dynamic between the authority granted to state banking regulators and that of the Office of the Comptroller of the Currency will continue to be a subject of contentious debate.

Among other large issues, the push for increased regulation of the hedge fund industry will continue. Other issues on Congress’ plate include revisiting Sarbanes-Oxley, the regulation of the government-sponsored enterprises such as Fannie Mae and Freddie Mac, extension of the Terrorism Risk Insurance Act, reform of the National Flood Insurance Program and a review of the regulatory structure of the NYSE, NASDAQ and other self-regulatory organizations.

Andrew Gray, Account Director, Washington

 

Healthcare

While the pharmaceutical and medical device industry was never in danger of winning a popularity contest, the degree of scrutiny will increase as Democratic chairpersons follow through on their promises of "vigorous" oversight of industry, focusing on everything from marketing practices to drug/device safety to the rising cost of drugs.

While PDUFA, MDUFMA and BPCA might look like the result of a typing spasm, they are in fact acronyms for must-pass reauthorization bills that collectively control more than half of FDA's operating budget. These must-pass bills will likely become vehicles for FDA reform efforts, many of which are viewed by our clients as hostile to their interests. Efforts will likely be made to:

* Strengthen FDA's authority to demand changes to drug labeling
* Repeal the clause that prohibited the government from directly negotiating drug prices with manufacturers under Medicare Part D
* Increase post-market surveillance on all new drugs
* Authorize the agency to remove drugs deemed unsafe from the market
* Prohibit consumer promotion of new drugs for a specific time post-approval

Congress is a pragmatic body institutionally uncomfortable with radical departure from the norm. For that reason, Congress will seek to achieve its larger goals through incremental change, focusing, for instance, on chipping away at the number of uninsured Americans by focusing on sub-groups such as children.

Expect pharmaceutical and medical device clients increase their level of corporate reputational work and the industry as whole will be forced to hone its messages (i.e. "Why do drugs cost so much?").

Peter Carson, Senior Vice President, Washington

 

Homeland Security

While this critical issue is likely to be a priority for the new Congress, it is unclear how the Democrats will proceed. Joe Lieberman of Connecticut, a strong supporter of homeland security, returns to chair the Homeland Security and Governmental Affairs Committee, a position he held in 2001-2002. Yet, even with Lieberman’s leadership and great working relationship with soon-to-be Ranking Member, Sen. Susan Collins of Maine, there are a number of questions that need to be addressed and it is unclear what the resolution, if any, is like to be.

Responsibility for oversight is currently spread across a number of committees. Will the new Congress adopt the 9/11 Commission's recommendation to bring the disparate pieces together? There may not be the will to do that, and so fragmentation could continue to be the order of the day.

Another question is the extent to which a more "risk-based" model for funding of homeland security projects will be adopted. Focusing more resources on risk suggests focusing emphasis on population centers rather than spreading funds evenly across the 50 states.

This may point the way to an approach that supports all-hazards preparedness based on risk. And that, in turn, points to the need for public and stakeholder education, public-private partnerships, and other PR-based communication strategies.

Kamer Davis, Senior Vice President, Washington and Jason Linde, Vice President, Washington

 

International Trade

During the 109th Congress, the Senate supported free trade agreements, while battles in the House would often come down to one or two votes, with Republicans usually winning. In the 110th Congress, the Senate still is pro-free trade (albeit with a much smaller majority with the additions of Montana Jon Tester, Ohio’s Sherrod Brown, Vermont’s Bernie Sanders and Virginia’s Jim Webb). The House is now tilted against free trade.

This will be important when the administration looks to renew its fast track negotiating authority and complete several free trade agreements, ranging from the World Trade Organization’s Doha Round to a host of bilateral agreements, such as ones with Colombia, Peru and South Korea. Under fast track, an administration can negotiate an agreement and Congress can only vote it up or down – it cannot amend it. Democrats have long argued that recent free trade agreements do not sufficiently protect the environment and labor rights and that the Bush administration has not adequately funded retraining programs for workers displaced by international trade. They have been receiving increased support from Republicans in manufacturing regions in the Midwest and South. Simply put, the Administration faces an uphill battle on this issue.

The one country that will receive significant scrutiny is China. The main issue that has led to friction is the claim that the Chinese government has manipulated its currency to keep down the cost of its exports. The Administration has been able to use the threat of congressional action to get the Chinese to “float” the renminbi with some success. However, as the U.S. trade deficit grows, the calls for retaliation also grow. Add U.S. government claims that the Chinese government does not adequately protect intellectual property and has recently enacted protectionist barriers to investment and the potential for a trade war between the two countries grows significantly. The question is whether cooler heads will prevail.

Greg Stanko, Vice President, Washington

 

Technology Policy

The biggest technology policy biggest battle in the 109th Congress pitted content providers against access providers on the issue of net neutrality. Content providers, such as Google and eBay, argued that government regulation was necessary to prevent the access providers from creating a two-tiered Internet, where the access providers could determine which (few) content providers got to ride in the fast lane, while the vast majority of other content providers would be stuck in the slow one. Access providers and with their equipment manufacturer allies countered that regulation would stymie investment in Internet infrastructure, leaving the United States falling farther behind other countries in access to next generation Internet services.

At the end of 109th Congress, access providers were literally one or two votes in the Senate away from being able to win the battle. In the 110th, the situation is reversed, with the content providers now holding the upper hand. The question will be whether new Senate Commerce Committee Chairman Daniel Inouye (D-Hawaii) and net neutrality supporters can garner enough Republican support to overcome a likely filibuster.

There are two other issues worth watching.

On consumer privacy, expect Democrats, led by Rep. Edward Markey (D-Mass.), to push for increased consumer protections in cases of identity theft and to oppose regulations that would give the federal government the ability to track personal Internet usage.

Also expect House Democrats, led by Speaker Pelosi, to keep up pressure on companies, such as Cisco, Google and Yahoo!, who are perceived as helping the Chinese government censor the Internet through hearings and legislation. Although legislation is unlikely to pass, it will create public relations problems for these companies and others.

Greg Stanko, Vice President, Washington

 

As January 2007 rapidly approaches, please do not hesitate to contact us if we can provide specific insights to your respective clients in the U.S. and abroad as they chart these unknown waters.