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Washington Update
June 15, 2015
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In This Issue

Report from Washington: What's Next for TPP?
Financial Shorts: SEC Rules on Information Reporting & Iceland's Capital
Controls
Political Shorts: NSA Surveillance Act & Export-Import Bank

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Report from Washington: What happens next for TPP?
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Last week, the fate of the Trans-Pacific Partnership (TPP) took a hit as 144 House
Democrats voted with 158 House Republicans to defeat a key piece of legislation
needed to ensure negotiations for the TPP could be concluded. Trade Promotion Authority
(TPA) allows the President to submit trade deals, like the TPP, to Congress for
a vote without amendments. Trade negotiators say this is crucial to finalizing the
deal as it is a straight up or down vote and lawmakers are not able to add amendments
that could potentially kill the deal. As part of the voting process of the TPA,
House leaders structured the voting so that it required passage of the Trade Adjustment
Assistance (TAA) in order to pass the TPA. The TAA, typically favored by Democrats,
is a program that helps workers who lose their jobs due to trade shifts, and is
currently set to expire in September. However, Democrats do not favor TPA and thus
voted against TAA to ensure TPA would not pass.

The setback dimmed hopes that President Obama will be able to complete the TPP,
a 12-country sweeping free-trade and regulatory pact that he has called central
to his economic agenda at home and his foreign-policy strategy in Asia. The fate
of the trade legislation now depends on the President's ability to persuade dozens
of Democrats to switch their votes before a planned do-over vote early this week.

There are some pressure points in the coming months that could force action. Obama
needs fast-track trade authority soon, or else the entire TPP negotiations could
collapse. Also, the TAA expires at the end of September, and as long as Republicans
are in control, this is the last opportunity to renew it - which will put pressure
on Democrats to change their stance as the deadline draws nearer. It's only the
odd procedural circumstances that linked the two bills that brought Democratic opposition
to TAA.

The problem for the pro-trade coalition will be to overcome the deep opposition
to fast-track that has built up among Democrats as they do not support new trade
agreements because of concerns over the potential outsourcing of jobs to low-wage
countries.

House Minority Leader Nancy Pelosi (D-CA), who opposed the trade package last minute,
suggested that Republicans could sway Democrats if the two parties could come to
an agreement on funding for a long-term highway bill which expires at the end of
July. Republican leaders are very unlikely to meet her demands as they already feel
burned after working to fix a Medicare pay-for included in TAA to which Democrats
objected. Pelosi helped negotiate that deal with House Speaker Boehner before ultimately
voting against it because of other policy concerns.

Last week's vote doesn't mean the package of trade bills are dead. House Republican
leaders have called for re-votes by early this week, and noted that they could even
delay those votes further if necessary, buying Obama a little more time to lobby
his own party and GOP leaders time to twist arms.

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Financial Shorts
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* Proposed SEC Rules on Reporting of Information by Investment Companies

The SEC has proposed a set of rules to modernize and enhance the reporting and disclosure
of information by investment companies and advisors. The proposed rules would improve
the quality and accessibility of information available to investors, as well as
allow the SEC to more effectively collect data and monitor risk in the asset management
industry. Companies will be required to give regulators more frequent, detailed
information about their funds.

Mutual funds, ETFs, and other registered investment companies will be required to
fill out a more standardized monthly portfolio reporting form and a new annual reporting
form. Firms will have to report on the fund's investments including data related
to the pricing of portfolio securities, information regarding repurchase agreements
and securities lending activities, terms of derivatives contracts, and portfolio
and position level risk measures to better understand fund exposure to changes
in the market conditions. Additionally, derivatives disclosures will have to be
displayed prominently in financial statements rather than in the notes. Investment
advisers will be required to maintain records on performance calculations. While
this data will be reported each month, the public will only be able to view the
reports from the last month of each fiscal quarter. Mutual funds and other registered
investment companies will be able to make these reports accessible on their websites
instead of by mail.


* Iceland Lifts Capital Controls

After seven years, Iceland has devised a plan to lift the capital controls imposed
after the failure of the Icelandic banking system. When the country's three largest
collapsed in October 2008, the government prevented foreign investors from taking
their money out of Iceland. The capital controls stabilized the banking system and
put the economy on a path to recovery. While these measures were intended to last
for six months, they stayed in place for seven years. Business leaders have complained
that such restrictions have been difficult to manage. Additionally, the controls
have deterred new investment and increased the cost for companies to borrow money.

Now that the country is economically stable - the GDP is predicted to grow 2.7 percent
this year, and unemployment is lower than in both the United States and the European
Union - the government is attempting to lift the controls while preventing a mass
exodus of money that could cause the economy to backslide. Currently, foreigners
hold 1.2 trillion Icelandic krona - a little more than $9 billion - that have been
frozen since November 2008. If investors were to withdraw all of their money at
once, Iceland could face a balance-of-payments crisis, sparking a wave of bankruptcies
and cash-flow troubles.

The plan, which passed through Iceland's parliament by a 56-0 vote (with one abstention),
allows creditors to individually reach deals with the board overseeing the estates
of the failed banks to give up a percentage of the money owed by the end of the
year. If they fail to reach an agreement, the creditors will have to pay a one-time
tax of 39%. Another group of overseas creditors will have the option to participate
in currency auctions or exchange their debt for longer-term government bonds. This
course of action should allow investors to get money out without hurting Iceland's
economy, as the government expects to raise 850 billion krona ($6.4 billion) from
the tax, which will be levied in April 2016

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Political Shorts
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* Congress Passes NSA Surveillance Act

The Senate voted 67 to 32 to pass the USA Freedom Act, a surveillance-reform bill
that shifts the responsibility of mass collection of metadata - the numbers a phone
calls, how long calls last, and where the calls originate - to telephone companies.
Intelligence services will now have to request the data with a warrant from the
Foreign Intelligence Surveillance Court. The Obama administration will spend the
next six months transitioning the program to the new data collection system. The
Freedom Act contains several other modest reform provisions, including more disclosure
from the Foreign Intelligence Surveillance Court. The passage of this bill reflects
the US's changing attitude regarding the balance between security and privacy.

Several key parts of the Patriot Act had expired at midnight on June 1, after the
Senate failed to reach an agreement to extend the anti-terrorism law during their
special Sunday session. Senate Majority Leader Mitch McConnell (R-KY) and other
national security hawks hoped to extend the Patriot Act in its current form. However,
Senator Rand Paul (R-KY) managed to block a short-term extension of the bill with
a 10-hour filibuster-style speech, arguing that there should be more limits on government
surveillance.

The expiration of three key provisions of the Patriot meant that the NSA would no
longer have been able to collect newly created logs of Americans' phone calls in
bulk. The FBI would not have been able to invoke the Patriot Act to obtain wiretap
orders for individual terrorists not linked to a group or court orders to obtain
business records relevant to an investigation. The new legislation reauthorized
the latter two of these provisions. The Freedom Act did not restrict the agency's
mass surveillance of non-American communications.

The USA Freedom Act is the first piece of legislation to reform post 9/11 surveillance
measures, and the first time since the 1970s that Congress has restricted the powers
of intelligence agencies.


* Future of the Export-Import Bank

For the first time in its eighty-year history, the charter of the Export-Import
bank is set to expire on June 30, without the guarantee of congressional renewal.
The Ex-Im bank offers loans to foreign companies that buy U.S.-manufactured goods
in order to boost US exports. While in previous years the bank has received bipartisan
support, opposition for re-authorization has grown louder from the conservative
wing of the GOP.

Supporters say the bank is hugely important to small- and medium-size businesses
and is an engine for job creation and opening new markets overseas.

Ex-Im has generated $2.7 billion over the last six years through foreign fees, while
supporting 1.3 million jobs. That revenue has allowed the agency to provide $20.5
billion in loans, insurance coverage, and other financial assistance in almost 3,700
deals and return about $675 million to the US Treasury. However, critics argue that
the majority of the bank's loan guarantees, about 87%, go to just three large companies-
Boeing, Caterpillar and General Electric. It's argued that small business do not
get the same treatment as larger companies.

The Senate demonstrated support for the expiring Bank by a symbolic procedural vote.
They voted 31-65 not to dispose of an amendment to the annual defense policy bill
from Sen. Mark Kirk (R-IL) that would reauthorize the bank through September 2019
and increase bank's assistance to small businesses. Supporters of the bank hope
to attach its re-authorization to a must-pass bill, such as the annual defense policy
bill, but they have few options before June 30.

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R. Hunter Biden
Rosemont Seneca Partners
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This email was sent to hbiden@rosemontseneca.com by jpeugh@rosemontseneca.com.

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