The New Balance of Power: What the 114th Congress Means for Business

Following the election of November 2014, here are the before and after numbers:

The Democrats were delivered a serious and important rebuke by the voters. Even attractive, younger incumbent Democratic senators, such as Senator Kay Hagan of North Carolina or Senator Mark Begich of Alaska, who ran “perfect” races lost their seats. Rising stars, including Senator Mark Warner of Virginia, barely returned.

The new Senate will be solidly controlled by the Republicans and the House will have a much larger Republican majority. For Speaker John Boehner (R-OH), who previously could be held hostage by a dozen of his own members, the larger majority will allow him to lead more and follow less.

But the Senate Democrats, diminished in number, will remain a brake on Republican legislative ambitions. Under current legislative rules, it still requires 60 votes on most contentious legislative issues. This requires the Republicans to maintain their party discipline, and pick up the remaining votes on the Democratic side. For many reasons, Democrats historically have demonstrated they are unlikely to exhibit the same remarkable level of party discipline that Republicans were able to achieve while in the minority from 2012 through 2014. A handful of Democrats represent “red states,” such as Senator Joe Manchin of West Virginia, and often can be approached by Republican counterparts. Former Democratic governors, including the above-mentioned, now-chastened Senator Warner and Senator Tom Carper of Delaware, are by temperament and deportment willing to find common cause to legislate.

For these and many other reasons, now that roles are reversed we believe Republicans will have more success in legislating and avoiding Democratic filibusters, the Republican versions of which so frustrated Senate Democrats in the last Congress. But as the 2014 election becomes more remote, those Senators who “cross over” most often will have an even more complex task, especially if Republican hardliners stop most or all Senate confirmations, as some have threatened.

So what does this mean for business? While oceans of ink and terabytes of data are being spilled over the answer, here are 10 areas where you should look for change:

1. Oversight and Investigation
2. Attorney General and Judicial Nominations and Confirmations
3. Tax Reform
4. Financial Services and Banking
5. Health Care
6. Energy and the Environment
7. Immigration Reform
8. Transportation
9. International Trade
10. Conclusion: The Next Election

Oversight and Investigation
by Stephen M. Ryan

Control of the U.S. Senate and House will permit Republican committee chairs to choose the hearing topics, schedule markups, and run the legislative railroad. The Democrats will not be able to call a hearing in either chamber and therefore will have no ability to sustain a policy narrative. Democrats will be reduced to choosing the single witness they can call at Republican-chosen hearings. The ability of Republicans to command and control the agenda will also carry the right to give a thorough and painful review to the first six years of President Barack Obama’s administration. It is likely that the Republican-controlled oversight committees in the Senate, including the Judiciary and Homeland Security and Governmental Affairs committees, will be joined by the Environment and Public Works Committee and others in targeting the Obama administration.

House efforts along these lines, already well established, will see continued heavy oversight from traditional powers such as the Energy and Commerce Committee (which has been engaged in the serious oversight of the Affordable Care Act—ACA, or “Obamacare”—since its passage) and the Oversight and Government Reform (OGR) Committee. OGR will be under new leadership, as will the Agriculture, Armed Services, Budget, Intelligence, Natural Resources, and Ways and Means committees. Clearly, change in the House—in oversight and authorizing committees—is quite sweeping.

The departure of the Democrats from Senate power will see many Obama officials forced to rely on agency lawyers for representation. Environmental Protection Agency (EPA) and White House counsel should say goodbye to their families and friends and buckle down for two years of constant document requests and oversight hearings.

The business community will not mourn the retirement of Senator Carl Levin (D-MI), who took on such U.S. corporate icons as Apple, Microsoft, Hewlett-Packard, Caterpillar and many others, and will finish his oversight authority with a final hearing targeting Goldman Sachs and other banks. Overall, oversight and investigation of the business community will decline dramatically. Excepted from this trend are those in the business or philanthropic community who are aligned with the president or receive government funds, such as the now-bankrupt Solyndra, some of whom may become a target of Republican oversight.

The New Congress and Its Impact on the Nomination and Confirmation of the Attorney General and Other Nominees
by Stephen M. Ryan and Daniel Connelly

In addition to the policy agenda to be advanced by the Republican-controlled 114th Congress in 2015, the next true test of the political dynamic—and potential cooperation—in Washington will be the confirmation process for the next United States Attorney General. The follow-up test will be the treatment of judicial and other nominees.

Democrats seethed at what they perceived as Republican intransigence in confirming nominees while the Democrats held the majority. The Republicans, in turn, seethed at the Democrats’ implementation of the so-called “nuclear option” to allow confirmation of presidential nominees (other than Supreme Court nominees) by a bare majority of votes without filibuster.

Now, many Senate Democrats fear a Republican majority will basically turn off the spigot of confirmations other than for nominations that must be addressed, such as that of the attorney general. Nominations may prove to be area where “working together” is most likely to be demonstrated or fall apart.

Attorney General Lynch

The nomination of Brooklyn United States Attorney Loretta Lynch as Attorney General Eric Holder’s replacement puts a career prosecutor and U.S. attorney with no currently known political infirmities before the soon-to-be Republican Senate. The fact that Attorney General Holder has indicated he will remain in office until his predecessor is confirmed by the Senate may in and of itself produce quicker action because of Republican animosity towards Holder. Republicans, however, are insistent that Lynch’s nomination be considered in the new Congress, while some Democrats believe it ought to be considered in the lame-duck session of the current Congress.

The calculus for determining when the President’s nominee for the office of attorney general will be confirmed involves a number of substantive issues. The president’s likely use of executive authority on immigration—which is opposed fervently by Republicans—as well as the continuing debate over keeping detainees at Guantanamo Bay in Cuba and the use of U.S. courts to try terrorism cases will necessitate decisive action by the president, his attorney general and Congress.

For these reasons, the president and Congress may be compelled to act sooner rather than later on the president’s nominee and, as a result, will provide clear evidence of the working relationship between the new Congress and the president for the next two years.

The Logjam of Judicial and Ambassadorial Nominees

With the exception of two nominees being withdrawn and two other close votes to confirm nominees, President Obama’s past cabinet nominees that have been confirmed by the Senate have enjoyed relatively wide margins of victory or have been confirmed on a voice vote. If the Senate confirmation process for the attorney general is consumed in a political firestorm, it will be the clearest indication that the working “relationship” between Congress and the president is likely to be engulfed as well and, as a result, the gridlock in Washington will continue.

The Democratic hope for confirmation of Loretta Lynch in the lame-duck sessions seems quite unlikely given the current change-of-power scenario and the time required to process her confirmation.

Judicial nominees are the other area of deep concern for Democrats. It has become customary to reduce and pick off some of the president’s nominees during his last year in office. However, Democrats are concerned that all (or almost all) Democratic judicial nominees and ambassadorial nominees will be frozen, not just those that create some level of discomfort among Republicans.

It is possible that current Senate Majority Leader Harry Reid (D-NV) could use the threat of a Lynch confirmation vote in the lame-duck session as a lever to extract approval of some judicial and ambassadorial nominees. Under current rules, she could be confirmed on a majority vote and not filibustered. But it remains to be seen whether that will be done.

The key takeaway for stakeholders is that the president’s action (or inaction) on immigration, and the treatment of attorney-general-nominee Lynch and judicial and ambassadorial nominees, will be a harbinger of the future political environment and the likelihood of congressional action on major issues facing the nation (e.g., tax reform, immigration reform, trade) over the next two years.

On Comprehensive Tax Reform, the Question Is Not “If” but “When”
by David Ransom

On both sides of the aisle and and at both ends of Pennsylvania Avenue, almost everyone in Washington says it is time for comprehensive tax reform.

Still, the odds of comprehensive tax reform being enacted in the 114th Congress that convenes in January 2015 are long. Why? Because rewriting the American tax code is an exceedingly difficult and complex undertaking. That is why it has been nearly 30 years since the last real tax reform, which occurred in 1986 when President Reagan was still in office.

Stakeholders from nearly every industry have skin in the game when it comes to tax reform. Closing so-called loopholes that provide incentives to one industry or another will instigate knock-down-drag-out political fights.

The short political calendar also will make enactment of comprehensive tax reform difficult at best. Remember that in just one year, the presidential aspirants from both major political parties will be crisscrossing the nation trying to secure their parties’ nominations. The presidential campaign nearly always overtakes such politically charged issues and makes them more difficult to accomplish.

Additionally, for tax reform efforts to succeed, the president must make this issue a priority. While President Obama, incoming Senate Majority Leader Mitch McConnell (R-KY) and House Speaker John Boehner (R-OH) have all discussed the possibility of tax reform in the aftermath of the midterm elections, it remains to be seen whether the president will decide to fully engage with Republicans on this issue.

Still, corporate America continues to make the case that our 35-percent corporate income tax rate is the highest in the world, and requires reform to make U.S. companies more competitive. Attention on corporate inversions has only increased attention on this issue. Furthermore, individual taxpayers continue to make the case for tax simplification and reform, and it is hard to argue with that point.

When the 114th Congress convenes, the new chairman of the Senate Finance Committee will be Senator Orrin Hatch (R-UT). Senator Hatch has a history of working in a bipartisan manner, and will be an essential player in any tax-reform debate. On the House side, Representative Paul Ryan (R-WI) is likely to become chairman of the Ways and Means Committee, although he will face a challenge from Representative Kevin Brady (R-TX) for the position now held by the retiring Representative Dave Camp (R-MI).

Representative Camp is widely credited with releasing a tax-reform discussion draft that calls for reducing the corporate income tax rate to 25 percent. The president has indicated support for a 28-percent corporate rate.

In addition to the political hazards noted above, tax-reform efforts also are burdened by the fact that Republicans and Democrats approach the issue from fundamentally opposed views. Republicans argue that tax reform should be revenue neutral. Many Democrats see tax reform as a method of closing “loopholes” and raising revenue to pay down the debt and invest in infrastructure. Do not expect either party to change those views in any tax-reform debate.

While the outlook for enactment of comprehensive tax reform may appear dim at this point, it would be a mistake for any stakeholder with an interest in tax policy to stand on the sidelines and to decline to engage in the debate.

Comprehensive tax reform is coming. It is simply a question of when it will arrive. Representative Ryan, for example, has stated that he believes tax reform will occur in one to three years. With this in mind, experience indicates that stakeholders who are mostly likely to be heard are also those who have consistently gone to Capitol Hill over the years to make their substantive appeals on tax matters. Standing on the sidelines is not a recipe for success. It is a recipe for failure.

Financial Services and Banking: Let the Oversight Begin
by David Ransom

The new incoming chairman of the Senate Banking Committee, Senator Richard Shelby (R-AL) has made it no secret that he intends to scrutinize various aspects of the Dodd-Frank Wall Street Reform Act and to conduct vigorous oversight of the Consumer Financial Protection Bureau (CFPB), which was created by Dodd-Frank.

Senator Shelby, who previously served as chair of the Banking Committee from 2003 to 2007, will only be able to serve as chair for another two years under Republican rules. Look for Senator Shelby and his likely counterpart on the House Financial Services Committee, Representative Jeb Hensarling (R-TX), to probe the CFPB on everything from privacy concerns about information in CFPB’s database to the agency’s plans for a new building. Also, Senator Shelby and Representative Hensarling are proponents of replacing the CFPB’s one-director structure with a five-member commission, and of requiring the bureau to receive its funding through the annual appropriations process rather than through the Federal Reserve. President Obama’s administration will no doubt fight any fundamental remaking of the CFPB by the Republican Congress.

Senator Shelby, who is no fan of Wall Street, also may find common ground with Democrats on the committee on capital rules for banks. He also has expressed concerns about the Financial Stability Oversight Council—which was created by Dodd-Frank—and the process for designating institutions as systemically important.

Representative Hensarling, who currently chairs the House Financial Services Committee, may face a challenge for the chairman’s position from Representative Frank Lucas (R-OK). If Representative Hensarling does prevail, he likely will follow much the same script as Senator Shelby on the CFPB. However, if a long-term reauthorization to the Terrorism Risk Insurance Act (TRIA) is not accomplished in the upcoming lame-duck session of Congress, Representative Hensarling is likely to seek to end the TRIA program because he believes the private sector should be responsible for such coverage. Representative Hensarling also is a proponent of killing the Export-Import Bank of the United States, funding for which expires in June 2015.

Representative Hensarling also is a proponent of housing reform, and could focus attention on that issue in the new Congress. He crafted a bill to cut back on government involvement in the housing market, but that legislation failed to get enough support even from his own party.

What the Election Means for Health Care
by Karen S. Sealander and Erica Stocker

With regard to the health care agenda, the Republican shift in power brings with it the likelihood that the 114th Congress will consider additional efforts to repeal all or parts of President Obama’s signature health care achievement, the Affordable Care Act (ACA).

Indeed, the incoming Republican Congress may approve a full repeal of the ACA to fulfill campaign promises of newly elected lawmakers. However, such an effort would solely be symbolic, given that any full repeal would surely be met by President Obama’s veto pen and has no chance of becoming law.

The more serious congressional effort that may yield actual legislative change is work on rifle-shot efforts to amend and repeal ACA provisions, including changing the definition of a full-time employee from 30 to 40 hours per week, giving insurance policy holders more options to keep the plans they have, repealing the ACA-created Independent Payment Advisory Board (IPAB) tasked with Medicare cost cutting, and repealing the law’s controversial medical device tax.

Specifically, repealing the 2.3 percent excise tax on medical devices enjoys bipartisan support, and incoming Senate Majority Leader Mitch McConnell (R-KY) has already indicated that efforts to repeal the measure are on his 2015 agenda. Democrats have come out in opposition to the tax as well. In the current Congress, Senate legislation to repeal the excise tax (S. 232) has 41 cosponsors—including six Democrats, only one of whom is not returning to the Senate in 2015. Adding to the likelihood of action is the fact that S. 232 is sponsored by the expected incoming Chairman of the Senate Finance Committee, Senator Orrin Hatch (R-UT).

Another health care issue that Republicans will need to tackle early in the 114th Congress is Medicare and the flawed Sustainable Growth Rate (SGR) physician payment formula. The current SGR patch—which also includes extensions of other Medicare payment provisions affecting hospitals, therapy providers and ambulances, for example—is scheduled to expire on March 31, 2015. At that time, physicians will face a steep 21.2 percent payment cut in the absence of congressional action, which could involve either permanent Medicare physician payment reform legislation or another short-term patch similar to those that have been enacted annually for more than a decade.

The fate of long-term Medicare physician payment reform in the Republican-controlled Congress remains to be seen. There has been strong bipartisan agreement on the policy to reform the physician payment system, but, to date, lawmakers have been unable to agree on how to pay for the significant cost of the legislation. Whether Republican leaders ultimately decide on a short- or long-term SGR measure, they will likely require that it be paid for via reductions elsewhere in the Medicare program. This means that all Medicare stakeholders are potentially at risk.

Continued action on the House Energy and Commerce Committee’s “21st Century Cures” initiative, which seeks to promote medical innovation, is also expected in the 114th Congress.

The Impact on Energy and the Environment
by Stephen M. Ryan and Sam. C. Neel*

The November midterm elections represent a major victory for the fossil fuel industry and a significant defeat for proponents of greenhouse gas reductions. Republican control of the Senate and an even larger Republican majority in the House means four key things for anyone interested in energy and the environment: the Senate Environment and Public Works Committee will now be controlled by a chairman who believes climate science is junk science; the Keystone XL Pipeline now has the necessary votes to be immediately greenlighted; legislative attacks on Environmental Protection Agency (EPA) fossil fuel regulations will be much stronger; and there will be no legislative caps on carbon emissions, and thus, virtually no chance of a meaningful international treaty at the 2015 United Nations Climate Change Conference in Paris.

There will be an ideological shift in key Senate committees leading to increased EPA oversight. The chairmanship of the Senate Environment and Public Works Committee is likely to pass from Senator Barbara Boxer (D-CA) to Senator James Inhofe (R-OK). This represents a major ideological shift with respect to energy and environment issues. Senator Boxer has sponsored legislation to put a price on carbon emissions and is a vocal opponent of attempts to roll back existing environmental laws. Senator Inhofe, on the other hand, rejects the idea that climate change is manmade, is a strong supporter of the fossil fuel industry, and is vehemently opposed to President Obama’s EPA regulations. After grumbling for years that Chairwoman Boxer refused to investigate EPA officials involved in extensive rulemakings, Senator Inhofe is going to shine a bright light on administration officials involved in the planning and implementation of the president’s climate plan.

Since 2011, the Republican-controlled House has voted seven times to allow the construction of the divisive Keystone XL Pipeline. The Senate, under the control of Majority Leader Harry Reid (D-NV), has not held a binding vote on the project since 2012. Senator Mitch McConnell (R-KY), the 114th Congress’s presumed Senate majority leader, lists passing Keystone legislation as a top priority. Before the midterms, Keystone had somewhere between 56 and 58 strong Senate supporters. With the election of Republican senators-elect Cory Gardner in Colorado, Joni Ernst in Iowa, Mike Rounds in South Dakota and Shelly Moore Capito in West Virginia, enough votes flipped to the staunchly pro-Keystone camp. Expect Majority Leader McConnell to bring the measure to the floor early in the new Congress, for the Senate to pass a bill and place it on President Obama’s desk. The President will then be forced to make a tough decision, with two of his traditionally trusted allies—environmentalists and unions—and two of his top priorities—cutting carbon emissions and job creation—pitted firmly against each other.

During his 2014 campaign, Senator McConnell, from the heavy coal-producing state of Kentucky, successfully turned his own reelection into a referendum on President Obama’s EPA regulations. His comfortable victory will likely embolden his efforts to roll back some of the President’s ambitious regulations. In 2014, the House passed H.R. 3826, sponsored by Representative Ed Whitfield (R-KY) and titled the “Electricity and Security Act,” which would, among other things, remove from EPA and give to Congress the power to set dates for EPA regulations to go into effect. The Senate version of the bill never moved. Expect the Senate to bring and pass similar legislation, but unlike Keystone, President Obama will undoubtedly veto any legislation that infringes on EPA’s greenhouse gas regulations, which are a critical component of his legacy.

International climate concerns will be disregarded. Last week, the UN Intergovernmental Panel on Climate Change offered its direst warning yet about the potential effects of climate change: if the world’s nations do not eliminate greenhouse gas emissions, there will be severe, pervasive and irreversible impacts. Foreshadowing the 114th Congress’s response to these international concerns, Senator Inhofe criticized the report as “beyond extreme” and “little more than high hopes from the environmental left.” Senator Inhofe’s views, shared by many Republicans in Congress, do not bode well for U.S. participation at the UN’s climate change conference in 2015. As the last sixteen years since the Kyoto protocol have indicated, without U.S. support for mandatory emissions reductions, there is virtually no chance of a meaningful international treaty on climate change.

Immigration Reform Likely to Remain Elusive in the 114th Congress
by W. Kam Quarles and Arthur J. DeCelle

In the summer of 2013, Republicans saw the powerful influence of Latinos on the Presidential race and responded by saying that immigration reform had to be addressed, if for no other reason than ensuring the GOP’s future competitiveness in presidential and statewide elections. That realization created bipartisan momentum in the Senate. Passage of the Senate Border Security, Economic Opportunity and Immigration Modernization Bill (S. 744) was the high-water mark for bipartisanship on immigration policy.

The blowback from anti-immigration activist groups was so powerful that it halted any House consideration. Some key Republican senators who originally supported S. 744 have effectively disowned the legislation and their votes. Their reversals are coupled with the departures of at least eight Democratic incumbents who voted for the bill. For the next two years, getting 60 votes in the Senate on an immigration measure will be a daunting challenge.

In the House, the fact that most districts are packed with voters of one party leaves many Republicans with only a handful of constituents who are passionate about immigration reform. Republicans also fear primary opponents who will accuse them of “failing to secure America’s borders,” a common refrain in the recent campaign.

Even Senate Democrats face a difficult political situation. They made compromises with pro-immigration reform advocates and made tough votes in order to pass S. 744. They may fear further angering those constituencies by voting for legislation that is certainly going to be more conservative than the 2013 compromise bill.

The prospects are high for executive action. Beyond Congress, President Obama’s anticipated executive action on immigration will further enrage conservatives. Indeed, incoming Senate Majority Leader Mitch McConnell (R-KY) already publicly indicated that such action would “poison the well” for future legislative action.

Regardless, the large margin of victory for Republicans in the Senate may accelerate the timeline for Presidential action. The White House moved slowly in 2014 to prevent any negative impact on Senate candidates. But the President may feel pressure to act in late December while most Americans are focused on the holiday season and Congress has adjourned.

The substance of executive action being considered is a type of “parole” or “probationary” status for undocumented immigrants residing within the United States. The administration needs a response to claims that its policy amounts to blanket amnesty. The concept under discussion mirrors the parole process in our justice system. It requires an acknowledgement of past transgressions, maintains accountability of those in our country, and gradually integrates many immigrants into American society. The administration believes that many Americans oppose mass deportations and understand the inequities facing millions of people living and working in an ambiguous status.

There is an expectation of expanded visa availability. The high-tech and agriculture industries are seeking enhanced temporary visa programs to accommodate their growing demand for future workers. White House interest in those proposals is not clear and legislation is almost certainly required to modify or replace the current visa programs (primarily H-1B and H-2A) that serve these industries.

On Transportation Issues, Progress Is Difficult Even Where There Is Genuine Bipartisan Agreement
by Steven A. Baddour

When the 114th Congress convenes in January 2015, Senator John Thune (R-SD) will take the gavel as chairman of the Commerce, Science and Transportation Committee, and Senator Bill Nelson (D-FL) likely will be the ranking Democrat. (Senator Barbara Boxer (D-CA) has more seniority on the committee than Nelson, but she will remain as ranking member of the Environment and Public Works Committee.)

On the House side, Representative Bill Schuster (R-PA) will continue to chair the Transportation and Infrastructure Committee, although the new ranking Democrat will likely be Representative Peter DeFazio (D-OR), since Representative Nick Rahall (D-WV) lost his re-election bid. Representative John Garamendi (D-CA) reportedly may challenge DeFazio for the top spot on the Democratic side, but Democrats generally adhere to seniority in internal committee matters.

While many of the faces in transportation committee leadership positions will be new in January, the issues that they must address are not. The top matters before the committees include reauthorizations of the Federal Aviation Administration (FAA), the Surface Transportation Board and Amtrak. Also look for the House and Senate committees to spend time on auto safety issues, including the recent airbag recall by major automakers.

Another area of likely focus is the transportation infrastructure bill (e.g., roads, bridges, transit), for which members of both major parties express genuine support because transportation projects create jobs, invigorate communities and aid the economy.

Finding the revenue to pay for the transportation infrastructure bill will be the primary problem. At present, funding for the Highway Trust Fund (HTF) is set to run out on May 31, 2015. Approximately $6.5 billion is needed to fund highway projects through the end of fiscal year 2015 (Sept. 30, 2015), and another $100 billion is needed to fund a six-year transportation bill, an amount that transportation advocates say is ideal.

The funding shortfall is largely a self-made problem. The Highway Trust Fund receives funds from the 18.4 cents-per-gallon tax on gasoline and the 24.4 cents-per-gallon tax on diesel fuel. But increased vehicle efficiency and inflation have depleted the fund. Furthermore, while the transportation committees get to write transportation policy bills, it falls to the Senate Finance and House Ways and Means committees to find the funds to pay for them.

The most obvious method of raising revenue for the HTF to pay for infrastructure is to increase the tax on gas and diesel fuel. The last increase was in 1993 and the political pushback on increasing taxes on anyone who drives is significant. Moreover, it is highly unlikely that Senate and House Republicans—many of whom have made a political career of opposing any tax increase—will vote for such an increase now.

At the end of the day, it is more likely than not that the Congress will find a patchwork of funding sources that allows for a short-term extension of highway projects.

Outlook Promising for Trade Legislation in the 114th Congress
by Carolyn B. Gleason, Pamela D. Walther and W. Kam Quarles

Despite the overall volatility on Capitol Hill, the environment for passing major trade legislation in the 114th Congress is extremely positive. Under our system of shared legislative and executive powers, a high level of cooperation and coordination is necessary to achieve significant progress in producing U.S. trade laws and agreements. President Obama has committed to negotiate two important trade agreements and has held numerous high-profile meetings on this subject with leaders in Asia and Europe. With an engaged Democratic president, the new pro-trade Republican Congress could become as active on trade legislation as Congress was during the Clinton administration.

The Senate Finance Committee and House Ways and Means Committee have jurisdiction over trade-related legislation. Senator Orrin Hatch (R-UT) will be the incoming chairman for the Finance Committee and current Chairman Ron Wyden (D-OR) will be the ranking Democrat. On the House side, former vice-presidential candidate and current Representative Paul Ryan (R-WI) is expected to be elected chairman of the House Ways and Means Committee, while Representative Sander Levin (D-MI) will remain as the ranking Democrat.

An essential element for a coherent, ambitious U.S. trade policy is congressional authority for the president to negotiate trade agreements with other nations that prevents Congress from amending the negotiated terms of the agreement. Trade Promotion Authority (TPA), formerly known as “fast track negotiating authority,” assures that Congress can only approve a negotiated trade agreement by an up-or-down vote, with no amendments allowed. Without TPA, trading partners are often reluctant to make negotiated concessions and give their consent to trade deals that may be unilaterally amended by the U.S. Senate. TPA technically expired in 2007 and must be reauthorized prior to consideration of any new trade agreements. Republican congressional leaders are holding out hope that TPA may still be considered in the 2014 lame-duck session of Congress, but since sixty votes are needed for any controversial legislation in the Senate, TPA is more likely to be taken up under the new Senate majority in 2015.

The administration is currently negotiating two trade agreements that could be finalized over the next two years. The Trans-Pacific Partnership agreement (TPP), an ambitious trade agreement the United States is negotiating with 11 other nations, is expected to be finalized in the near term. Once completed, it will be a major step in President Obama’s “pivot to Asia,” his goal of building a stronger U.S. economic foundation in the Asia-Pacific region. Major issues still need to be addressed before the deal can be closed, including in the areas of agriculture and automobiles.

The Transatlantic Trade and Investment Partnership (TTIP), a separate, equally ambitious U.S. trade negotiation with the European Union, began as an attempt to generate economic growth in the United States and EU after the 2008 financial crisis. The Russia/Ukraine conflicts and recurring EU economic issues continue to impact the pace and trajectory of these negotiations. Both sides have recently reaffirmed their strong commitment to finalizing a successful TTIP accord.

Until the mid-term elections, laws to reduce or eliminate tariffs and maintain tariff preferences for certain U.S. trading partners have faced highly uncertain prospects for enactment, more than a year after expiring. If TPA moves in the 114th Congress, it is possible that TPA renewal could be packaged with authority to renew the Generalized System of Preferences (GSP). New, separate bills are likely to be introduced to enact the Miscellaneous Tariff Bill (MTB), reauthorize the African Growth and Opportunity Act (AGOA), and/or reauthorize the Export-Import Bank.

Conclusion: The Next Election
by Stephen M. Ryan

The 2014 election is barely in the books, but attention already is focused on the next election in 2016, when the shoe will be on the other foot. Republicans swept in by the 2010 election will find it necessary to defend a larger number of Senate seats, some in blue (e.g., Illinois) or purple states. Democratic presidential voting will increase the intensity of these races. Republican Senators remain primarily afraid of challenges from their right—the demise of Republican senators Bob Bennett in the Utah primary and Richard Lugar in the 2012 Indiana primary season did not reoccur in 2014, but only because Republican senators were far more aware of this potential threat, and fought back to win in Mississippi and elsewhere.

As senators Rand Paul (R-KY), Marco Rubio (R-FL) and Ted Cruz (R-TX)— and, potentially, John Thune (R-SD) and Rob Portman (R-OH)—focus on the 2016 presidential election, there is a solid 2015 period for the Senate, House and president to find some area of common ground, which is what the American voter wants.

It is not going out on a limb to state the obvious: former U.S. Secretary of State Hillary Clinton will likely be the Democratic nominee (but then again, she looked that way in 2007), while the choice of Republican nominee is not nearly as clear (in fact, many GOP officeholders currently see themselves as potential presidents).

For more information regarding the areas discussed in this publication, or to better understand the potential legislative agendas of the new Congress and their effects on your business, please contact your regular McDermott Will & Emery lawyer or:

Stephen M. Ryan: +1 202 756 8333 sryan@mwe.com

*Sam Neel, an associate in the Washington, D.C., office, also contributed to this article.