Leaked: What’s in Obama’s trade deal
Is the White House going to bat for Big Pharma worldwide?
A recent draft of the
Trans-Pacific Partnership free-trade deal would give U.S. pharmaceutical
firms unprecedented protections against competition from cheaper
generic drugs, possibly transcending the patent protections in U.S. law.
POLITICO has obtained a draft copy of TPP’s intellectual property chapter as it stood on May 11, at the start of the latest negotiating round in Guam. While U.S. trade officials would not confirm the authenticity of the document, they downplayed its importance, emphasizing that the terms of the deal are likely to change significantly as the talks enter their final stages. Those terms are still secret, but the public will get to see them once the twelve TPP nations reach a final agreement and President Obama seeks congressional approval.
Still, the draft chapter will provide ammunition for critics who have warned that TPP’s protections for pharmaceutical companies could dump trillions of dollars of additional health care costs on patients, businesses and governments around the Pacific Rim. The highly technical 90-page document, cluttered with objections from other TPP nations, shows that U.S. negotiators have fought aggressively and, at least until Guam, successfully on behalf of Big Pharma.
The draft text includes provisions that could make it extremely tough for generics to challenge brand-name pharmaceuticals abroad. Those provisions could also help block copycats from selling cheaper versions of the expensive cutting-edge drugs known as “biologics” inside the U.S., restricting treatment for American patients while jacking up Medicare and Medicaid costs for American taxpayers.
“There’s very little distance between what Pharma wants and what the U.S. is demanding,” said Rohat Malpini, director of policy for Doctors Without Borders.
Throughout the TPP talks, the Obama administration has pledged to balance the goals of fostering innovation in the drug industry, which means allowing higher profits, and promoting wider access to valuable medicines, which means keeping prices down. U.S. Trade Representative Michael Froman has pointed out that pharmaceutical companies often have to invest hundreds of millions of dollars to get a new drug to market, which they would have little incentive to do without strong protections for the patented product. But Froman has also recognized the value of allowing much cheaper generic drugs to enter the market after those brand-name patents expire. In the U.S., generics now comprise more than five-sixths of all prescription drugs, but only about one-quarter of drug costs.
Advocates for the global poor, senior citizens, labor unions and consumers as well as the generics industry have accused the administration of abandoning that balance, pushing a pharmaceutical-company agenda at the expense of patients and taxpayers. One critic, hoping to illustrate the point and rally opposition to TPP in Congress, gave POLITICO the draft chapter, which was labeled “This Document Contains TPP CONFIDENTIAL Information” on every page.
U.S. officials said the key point to remember about trade deals is that no provision is ever final until the entire deal is final—and that major compromises tend to happen at the very end of the negotiations. They expect the real horse-trading to begin now that Obama has signed “fast-track” legislation requiring Congress to pass or reject TPP without amendments.
“The negotiations on intellectual property are complex and continually evolving,” said Trevor Kincaid, a spokesman for Froman. “On pharmaceutical products, we are working closely with stakeholders, Congress, and partner countries to develop an approach that aims to make affordable life-saving medicine more widely available while creating incentives for the development of new treatments and cures. Striking this important balance is at the heart of our work.”
The draft chapter covers software, music and other intellectual property issues as well, but its most controversial language involves the rights of drug companies. The text reveals disputes between the U.S. (often with support from Japan) and its TPP partners over a variety of issues—what patents can cover, when and how long they can be extended, how long pharmaceutical companies can keep their clinical data private, and much more. On every issue, the U.S. sided with drug companies in favor of stricter intellectual property protections.
Some of the most contentious provisions involve “patent linkage,” which would prevent regulators in TPP nations from approving generic drugs whenever there are any unresolved patent issues. The TPP draft would make this linkage mandatory, which could help drug companies fend off generics just by claiming an infringement. The Obama administration often describes TPP as the most progressive free-trade deal in history, citing its compliance with the tough labor and environment protections enshrined in the so-called “May 10 Agreement” of 2007, which set a framework for several trade deals at the time. But mandatory linkage seems to be a departure from the May 10 pharmaceutical provisions.
In an April 15 letter to Froman, Heather Bresch, the CEO of
the generic drug company Mylan, warned that mandatory patent linkage
would be “a recipe for indefinite evergreening of pharmaceutical
monopolies,” leading to the automatic rejection of generic applications.
The U.S. already has mandatory linkage, but most other TPP countries do
not, and Bresch argued that U.S. law includes a number of safeguards
and incentives for generic companies that have not made it into TPP.
“With all due respect, the USTR has…cherry-picked the single provision designed to block generic entry to the market,” Bresch wrote.
Generics are thriving in the U.S. despite linkage, saving Americans an estimated $239 billion on drugs in 2013. But the U.S. is the world’s largest market, and advocates fear that generic manufacturers may not take on the risk and expense of litigation in smaller markets if TPP tilts the playing field against them. One generics manufacturer, Hospira, reportedly testified at a TPP forum in Melbourne, Australia, that it would not launch generics outside the U.S. in markets with linkage.
The opponents are also worried about the treaty’s effect on the U.S. market, because its draft language would extend mandatory patent linkage to biologics, the next big thing in the pharmaceutical world. Biologics can cost hundreds of thousands of dollars a year for patients with illnesses like rheumatoid arthritis, hepatitis B and cancer, and the first knockoffs have not yet reached pharmacies. The critics say that extending linkage to biologics—which can have hundreds of patents—would help insulate them from competition forever.
“It would be a dramatic departure from U.S. law, and it would put a real crimp in the ability of less expensive drugs to get to market,” said K.J. Hertz, a lobbyist for AARP. “People are going to look at this very closely in Congress.”
Drug companies are already pushing for TPP to guarantee them 12 years of exclusivity for their data regarding biologics, although the draft text suggests the other TPP nations have not agreed. Jay Taylor, vice president of the Pharmaceutical Research and Manufacturers of America, said it’s crucial for TPP to protect the intellectual property that emerges from years of expensive research, so that drug companies can continue to develop new medicines for patients around the world.
“These innovations could be severely hindered if IP protections are scaled back,” Taylor said. “This is especially important in the area of biologic medicines, which could hold the key to unlocking treatments for diseases that have thwarted researchers for years.”
U.S. officials would not discuss the status of the TPP talks. But they suggested the May 10 Agreement did include a milder form of linkage, although it didn’t prevent regulators from approving generics mired in patent disputes. They also believe a 2009 U.S. law included a form of linkage for biologics, although again, that law's dispute resolution process for patent issues was not as prescriptive as the TPP draft. And they cautioned that any pre-Guam draft would not reflect recent negotiations over “transition periods” that would delay the stricter patent standards in developing countries like Vietnam.
In any case, Kincaid said U.S. negotiators are determined to strike a balance between innovation and access in the final product.
“While this is our touchstone, the negotiations are still very much in process, and the details of a final outcome cannot yet be forecasted,” he said.
But Malpani of Doctors Without Borders said U.S. negotiators have basically functioned as drug lobbyists. The TPP countries have 40 percent of global economic output, and the deal is widely seen as establishing new benchmarks for some of the most complex areas of global business. Malpani fears it could set a precedent that crushes the generic drug industry under a mountain of regulation and litigation.
“We consider this the worst-ever agreement in terms of access to medicine,” he said. “It would create higher drug prices around the world—and in the U.S., too.
POLITICO has obtained a draft copy of TPP’s intellectual property chapter as it stood on May 11, at the start of the latest negotiating round in Guam. While U.S. trade officials would not confirm the authenticity of the document, they downplayed its importance, emphasizing that the terms of the deal are likely to change significantly as the talks enter their final stages. Those terms are still secret, but the public will get to see them once the twelve TPP nations reach a final agreement and President Obama seeks congressional approval.
Still, the draft chapter will provide ammunition for critics who have warned that TPP’s protections for pharmaceutical companies could dump trillions of dollars of additional health care costs on patients, businesses and governments around the Pacific Rim. The highly technical 90-page document, cluttered with objections from other TPP nations, shows that U.S. negotiators have fought aggressively and, at least until Guam, successfully on behalf of Big Pharma.
The draft text includes provisions that could make it extremely tough for generics to challenge brand-name pharmaceuticals abroad. Those provisions could also help block copycats from selling cheaper versions of the expensive cutting-edge drugs known as “biologics” inside the U.S., restricting treatment for American patients while jacking up Medicare and Medicaid costs for American taxpayers.
“There’s very little distance between what Pharma wants and what the U.S. is demanding,” said Rohat Malpini, director of policy for Doctors Without Borders.
Throughout the TPP talks, the Obama administration has pledged to balance the goals of fostering innovation in the drug industry, which means allowing higher profits, and promoting wider access to valuable medicines, which means keeping prices down. U.S. Trade Representative Michael Froman has pointed out that pharmaceutical companies often have to invest hundreds of millions of dollars to get a new drug to market, which they would have little incentive to do without strong protections for the patented product. But Froman has also recognized the value of allowing much cheaper generic drugs to enter the market after those brand-name patents expire. In the U.S., generics now comprise more than five-sixths of all prescription drugs, but only about one-quarter of drug costs.
Advocates for the global poor, senior citizens, labor unions and consumers as well as the generics industry have accused the administration of abandoning that balance, pushing a pharmaceutical-company agenda at the expense of patients and taxpayers. One critic, hoping to illustrate the point and rally opposition to TPP in Congress, gave POLITICO the draft chapter, which was labeled “This Document Contains TPP CONFIDENTIAL Information” on every page.
U.S. officials said the key point to remember about trade deals is that no provision is ever final until the entire deal is final—and that major compromises tend to happen at the very end of the negotiations. They expect the real horse-trading to begin now that Obama has signed “fast-track” legislation requiring Congress to pass or reject TPP without amendments.
“The negotiations on intellectual property are complex and continually evolving,” said Trevor Kincaid, a spokesman for Froman. “On pharmaceutical products, we are working closely with stakeholders, Congress, and partner countries to develop an approach that aims to make affordable life-saving medicine more widely available while creating incentives for the development of new treatments and cures. Striking this important balance is at the heart of our work.”
The draft chapter covers software, music and other intellectual property issues as well, but its most controversial language involves the rights of drug companies. The text reveals disputes between the U.S. (often with support from Japan) and its TPP partners over a variety of issues—what patents can cover, when and how long they can be extended, how long pharmaceutical companies can keep their clinical data private, and much more. On every issue, the U.S. sided with drug companies in favor of stricter intellectual property protections.
Some of the most contentious provisions involve “patent linkage,” which would prevent regulators in TPP nations from approving generic drugs whenever there are any unresolved patent issues. The TPP draft would make this linkage mandatory, which could help drug companies fend off generics just by claiming an infringement. The Obama administration often describes TPP as the most progressive free-trade deal in history, citing its compliance with the tough labor and environment protections enshrined in the so-called “May 10 Agreement” of 2007, which set a framework for several trade deals at the time. But mandatory linkage seems to be a departure from the May 10 pharmaceutical provisions.
“With all due respect, the USTR has…cherry-picked the single provision designed to block generic entry to the market,” Bresch wrote.
Generics are thriving in the U.S. despite linkage, saving Americans an estimated $239 billion on drugs in 2013. But the U.S. is the world’s largest market, and advocates fear that generic manufacturers may not take on the risk and expense of litigation in smaller markets if TPP tilts the playing field against them. One generics manufacturer, Hospira, reportedly testified at a TPP forum in Melbourne, Australia, that it would not launch generics outside the U.S. in markets with linkage.
The opponents are also worried about the treaty’s effect on the U.S. market, because its draft language would extend mandatory patent linkage to biologics, the next big thing in the pharmaceutical world. Biologics can cost hundreds of thousands of dollars a year for patients with illnesses like rheumatoid arthritis, hepatitis B and cancer, and the first knockoffs have not yet reached pharmacies. The critics say that extending linkage to biologics—which can have hundreds of patents—would help insulate them from competition forever.
“It would be a dramatic departure from U.S. law, and it would put a real crimp in the ability of less expensive drugs to get to market,” said K.J. Hertz, a lobbyist for AARP. “People are going to look at this very closely in Congress.”
Drug companies are already pushing for TPP to guarantee them 12 years of exclusivity for their data regarding biologics, although the draft text suggests the other TPP nations have not agreed. Jay Taylor, vice president of the Pharmaceutical Research and Manufacturers of America, said it’s crucial for TPP to protect the intellectual property that emerges from years of expensive research, so that drug companies can continue to develop new medicines for patients around the world.
“These innovations could be severely hindered if IP protections are scaled back,” Taylor said. “This is especially important in the area of biologic medicines, which could hold the key to unlocking treatments for diseases that have thwarted researchers for years.”
U.S. officials would not discuss the status of the TPP talks. But they suggested the May 10 Agreement did include a milder form of linkage, although it didn’t prevent regulators from approving generics mired in patent disputes. They also believe a 2009 U.S. law included a form of linkage for biologics, although again, that law's dispute resolution process for patent issues was not as prescriptive as the TPP draft. And they cautioned that any pre-Guam draft would not reflect recent negotiations over “transition periods” that would delay the stricter patent standards in developing countries like Vietnam.
In any case, Kincaid said U.S. negotiators are determined to strike a balance between innovation and access in the final product.
“While this is our touchstone, the negotiations are still very much in process, and the details of a final outcome cannot yet be forecasted,” he said.
But Malpani of Doctors Without Borders said U.S. negotiators have basically functioned as drug lobbyists. The TPP countries have 40 percent of global economic output, and the deal is widely seen as establishing new benchmarks for some of the most complex areas of global business. Malpani fears it could set a precedent that crushes the generic drug industry under a mountain of regulation and litigation.
“We consider this the worst-ever agreement in terms of access to medicine,” he said. “It would create higher drug prices around the world—and in the U.S., too.
Congress’ bizarre idea to pay for health care
The House wants to sell off the Strategic Petroleum Reserve to fund its medical-research bill. Here’s why it shouldn’t.
Now that the Supreme Court has
settled the latest challenge to Obamacare, the next big healthcare news in Washington
will likely be the 21st Century Cures Act, a $106.4 billion healthcare-research
bill that could come to the House floor in July.
How will Congress pay for it? If you haven’t been watching, you’ve missed one of the stranger decisions of the year: the Energy and Commerce committee proposes to sell off 64 million barrels of crude oil from the Strategic Petroleum Reserve.
The sale of 64 million barrels would reduce the size of the oil reserve by about 10 percent from its current size of 690 million barrels. According to the Congressional Budget Office, it would raise $5.4 billion, and reduce government outlays from the Cures Act over its five-year period by a similar amount.
Congress, always under pressure to pay for new programs out of existing ones, may believe it has found a pot of gold. And given the remarkable expansion of North American oil production, it may also view a reduction in the size of the reserve as responsible cost-effective public policy.
But this is likely shortsighted. According to the U.S. Energy Information Agency (EIA), our economy will continue to rely upon petroleum for many years, and work by EPRINC and many other research groups demonstrates that we will remain vulnerable to severe economic damage from disruptions in petroleum supplies in the world oil market. The SPR remains an important strategic asset for protecting the U.S. economy and security interests from this vulnerability.
The SPR is a large stock of crude oil available for release into the market to address a large loss of supply to the U.S. and our allies. The reserve was created in the aftermath of the 1973-74 Arab Oil Embargo as a strategic counterweight to the power of OPEC, and a way to insulate America from any shocks from future disruptions of the flow of petroleum to the United States and our allies. Congress authorized the construction and operation of the SPR in 1975, and the U.S. has longstanding treaty obligations with many of our OECD allies to replace at least 90 days of oil imports.
One could argue that the U.S. today doesn’t really need a petroleum reserve, or that we could get by with a much smaller one. Today the SPR has the capacity to replace U.S. petroleum imports beyond our treaty obligations by more than 250 million barrels. In addition, well over half of our net imports come from Canada, hardly an insecure supplier. And aren’t we planning to get off of petroleum anyway?
Think again. According to EIA, looking out just ten years, the national economy’s reliance on petroleum will remain substantial and an important driver of our economic well-being. If you think petroleum is no longer important just take a look at the consequences of the recent decline in oil prices. If oil prices in 2015 remain $50 per barrel less than in 2014, we will see a worldwide net shift in income from producers to consumers of $1.5 trillion. U.S. drivers are expected to see annual savings of $500 or more in 2015 from lower oil prices.
But is a smaller petroleum reserve really a prudent policy? Probably not. Our research shows that price spikes in in transportation fuels is highly regressive, with most of the cost disproportionately hitting middle class and low-income groups. This vulnerability remains even thought our work shows that the U.S. and much of the Western hemisphere will largely separate from physical trade flows with Middle East producers in the next few years. We will likely be importing very little oil from the Middle East. But physical trade flows have little to do with oil prices.
A large supply disruption in one place would spike petroleum prices everywhere. And when that happens, the reality of the world oil market is that the brunt would largely be borne by U.S. middle and low-income earners. The very high level of gasoline and diesel prices in Europe (from fuel taxes) and rapid income growth in Asia will attenuate the consequences of a price rise on these economies. Much of the Middle East population is insulated from gasoline price spikes as transportation fuels are heavily subsidized. Nevertheless, any major price spike will drive a decrease in demand, and that decrease will come from reduced gasoline use by U.S. consumers responding to higher prices. The price shock to the national economy will be severe. A large reserve would give the President an effective tool to blunt the price spike and limit damage to the national economy. This is its primary strategic benefit.
Secretary of Energy Ernie
Moniz made this very point at the recent annual meeting of energy analysts in
Washington, D.C. when he stated that even with our rising domestic production,
a sudden loss of oil production from the world oil market, 20% of which still
moves through the Strait of Hormuz, would spike world oil prices and inflict
enormous damage on the national economy.
Perhaps how we think about the SPR should change, but we certainly should be very cautious in making any assumption that our current good fortune will always be with us. If we have learned anything since the first Arab Oil Embargo, it is that we should have humility when looking at the future of the oil market.
We support a vigorous debate on the appropriate use and size of the strategic petroleum reserve, but we should have this debate openly before we undertake major changes. We would do no less before making decisions on the size of our naval fleet, the number of army divisions, or air force squadrons. It would be a mistake to forget about the “strategic” part of the name and start treating it like a bank.
Larry Goldstein is a trustee at the Energy Policy Research Foundation (EPRINC), a Washington based public policy think tank, its former president and co-founder of Petroleum Industry Research Associates. Lucian Pugliaresi is President of EPRINC and served on the National Security Council staff in the White House under President Reagan.
How will Congress pay for it? If you haven’t been watching, you’ve missed one of the stranger decisions of the year: the Energy and Commerce committee proposes to sell off 64 million barrels of crude oil from the Strategic Petroleum Reserve.
The sale of 64 million barrels would reduce the size of the oil reserve by about 10 percent from its current size of 690 million barrels. According to the Congressional Budget Office, it would raise $5.4 billion, and reduce government outlays from the Cures Act over its five-year period by a similar amount.
Congress, always under pressure to pay for new programs out of existing ones, may believe it has found a pot of gold. And given the remarkable expansion of North American oil production, it may also view a reduction in the size of the reserve as responsible cost-effective public policy.
But this is likely shortsighted. According to the U.S. Energy Information Agency (EIA), our economy will continue to rely upon petroleum for many years, and work by EPRINC and many other research groups demonstrates that we will remain vulnerable to severe economic damage from disruptions in petroleum supplies in the world oil market. The SPR remains an important strategic asset for protecting the U.S. economy and security interests from this vulnerability.
The SPR is a large stock of crude oil available for release into the market to address a large loss of supply to the U.S. and our allies. The reserve was created in the aftermath of the 1973-74 Arab Oil Embargo as a strategic counterweight to the power of OPEC, and a way to insulate America from any shocks from future disruptions of the flow of petroleum to the United States and our allies. Congress authorized the construction and operation of the SPR in 1975, and the U.S. has longstanding treaty obligations with many of our OECD allies to replace at least 90 days of oil imports.
One could argue that the U.S. today doesn’t really need a petroleum reserve, or that we could get by with a much smaller one. Today the SPR has the capacity to replace U.S. petroleum imports beyond our treaty obligations by more than 250 million barrels. In addition, well over half of our net imports come from Canada, hardly an insecure supplier. And aren’t we planning to get off of petroleum anyway?
Think again. According to EIA, looking out just ten years, the national economy’s reliance on petroleum will remain substantial and an important driver of our economic well-being. If you think petroleum is no longer important just take a look at the consequences of the recent decline in oil prices. If oil prices in 2015 remain $50 per barrel less than in 2014, we will see a worldwide net shift in income from producers to consumers of $1.5 trillion. U.S. drivers are expected to see annual savings of $500 or more in 2015 from lower oil prices.
But is a smaller petroleum reserve really a prudent policy? Probably not. Our research shows that price spikes in in transportation fuels is highly regressive, with most of the cost disproportionately hitting middle class and low-income groups. This vulnerability remains even thought our work shows that the U.S. and much of the Western hemisphere will largely separate from physical trade flows with Middle East producers in the next few years. We will likely be importing very little oil from the Middle East. But physical trade flows have little to do with oil prices.
A large supply disruption in one place would spike petroleum prices everywhere. And when that happens, the reality of the world oil market is that the brunt would largely be borne by U.S. middle and low-income earners. The very high level of gasoline and diesel prices in Europe (from fuel taxes) and rapid income growth in Asia will attenuate the consequences of a price rise on these economies. Much of the Middle East population is insulated from gasoline price spikes as transportation fuels are heavily subsidized. Nevertheless, any major price spike will drive a decrease in demand, and that decrease will come from reduced gasoline use by U.S. consumers responding to higher prices. The price shock to the national economy will be severe. A large reserve would give the President an effective tool to blunt the price spike and limit damage to the national economy. This is its primary strategic benefit.
Perhaps how we think about the SPR should change, but we certainly should be very cautious in making any assumption that our current good fortune will always be with us. If we have learned anything since the first Arab Oil Embargo, it is that we should have humility when looking at the future of the oil market.
We support a vigorous debate on the appropriate use and size of the strategic petroleum reserve, but we should have this debate openly before we undertake major changes. We would do no less before making decisions on the size of our naval fleet, the number of army divisions, or air force squadrons. It would be a mistake to forget about the “strategic” part of the name and start treating it like a bank.
Larry Goldstein is a trustee at the Energy Policy Research Foundation (EPRINC), a Washington based public policy think tank, its former president and co-founder of Petroleum Industry Research Associates. Lucian Pugliaresi is President of EPRINC and served on the National Security Council staff in the White House under President Reagan.
Congress Dawdles as Puerto Rico Hurtles Towards Financial Ruin
With Puerto Rico spiraling toward financial disaster,
spokesman Josh Earnest stood in front of cameras yesterday
and reiterated the White House's support for an idea to help the
troubled island: Let its public corporations to go through a
structured bankruptcy, the same way they can in the 50 states.
In an April campaign stop, Jeb Bush said much the same thing: “Puerto Rico should be given the same rights as the states.”
With both Obama and Bush behind the same plan, you might expect it to have decent odds on Capitol Hill. You'd be wrong. Puerto Rico’s non-voting delegate, Pedro Pierluisi, introduced such a bill in the last Congress, but it never even received a vote in committee.
That might be about to change: In response to emails from POLITICO today, Senator Chuck Schumer (D-N.Y.) and Senator Richard Blumenthal (D-Conn.) said they plan to introduce a bill to let the territory use the Chapter 9 bankruptcy protections available to U.S. states.
“We have been working with colleagues for some time to draft a measure that would more fairly give Puerto Rico the same Chapter 9 Bankruptcy Code options that all the states have,” Blumenthal said. “Events of the last week have given this issue a great deal of more public visibility, but the facts about the financial challenges have existed for some time.”
There's no guarantee they'll get any traction – and if they do, certainly not before the island’s electric utility faces a $400 million bond payment on Wednesday.
The lack of action on a bill that could have been taken up anytime in the past two years shows just how difficult a road Puerto Rico faces when it comes to political attention in Washington, even in dire emergencies. It's subject to Congressional oversight, but without any actual vote in Congress, it simply doesn't register as an important issue. The political upside for taking action on a Puerto Rico issue is small, and the downsides are large.
“The alarm bells are not going off in Washington about this,” said Republican strategist Ron Bonjean, “and Congress is going to have real trepidation into supporting anything that appears to be a bailout.”
Puerto Rico has been flirting with serious financial trouble for a while. Years of mismanagement have crushed the island’s economy, leaving it with massive debt and no conceivable way to pay it off in a reasonable time. These financial troubles received renewed attention Sunday, when the New York Times reported that Puerto Rico Governor Alejandro García Padilla said the island would be unable to repay its $73 billion debt, potentially starting with a payment due Wednesday by the Puerto Rico Electric Power Authority (PREPA).
If Puerto Rico were a state, its public corporations could file for Chapter 9 bankruptcy to restructure their debts, giving it leverage in negotiations with its bondholders. But thanks to an apparent oversight made during technical corrections to the U.S. Bankruptcy Code in 1978, Puerto Rico and other U.S. territories are excluded from Chapter 9 protection.
Last summer, the island tried to exempt itself: it passed
a law allowing PREPA and two other
public corporations to file for Chapter 9 bankruptcy. But in February a U.S.
District Court judge threw out the local override, and said it was up
to Congress to change the bankruptcy code.
Pierluisi, Puerto Rico’s only delegate to Congress, introduced a bill to do just that in February, and a subcommittee of the House Judiciary Committee held a hearing on it. That’s as far as it has gone so far.
The bill has garnered zero co-sponsors, though Pierluisi says that is tactical: “I believe the bill, if brought up for vote in committee or on the floor, would garner bipartisan support,” he told POLITICO. “However, Members who have asked to be added as cosponsors tend to be Democrats, since I am a Democrat. Therefore, so as not to create the mistaken perception that this is a partisan bill, I have chosen not to add cosponsors to date.”
Puerto Rican politicians were hopeful that Congress had finally recognized the importance of the issue not just to the U.S. territory but also to U.S. municipal bond markets, which could be affected by a Puerto Rican default. “I thought that members of Congress on both sides of the aisle were starting to understand why this bill makes sense and why this is not a bailout,” former Puerto Rican Governor Luis Fortuño said, although he worried that Padilla’s comments would be a setback.
On the Senate side, Schumer and Blumenthal are looking for Republican co-sponsors before they introduce it. “We have strong interest on both sides of the aisle,” Blumenthal said. A House Judiciary aide said that Bob Goodlatte (R-Va.), the chair of the House Judiciary Committee, has not endorsed the bill “but feels the Committee has a responsibility to review the merits of this legislation.”
Any action in Congress will take weeks at best, though. And bondholders are pushing back, saying it would unfairly change the terms of their bonds long after they bought them and lead to a more disorderly restructuring, versus continuing the current negotiations.
In the meantime, the details of the negotiations are private, but reports indicate that the sides are still far apart as the deadline approaches.
It’s unclear what will happen if the public energy utility fails to make its payment Wednesday. In normal circumstances, the entity would file for bankruptcy—but since that isn’t available, there’s no precedent for what would happen. Creditors could theoretically begin seeking redress immediately. In the case of a public utility like PREPA, the court would appoint a receiver to manage it. “It would be some sort of quasi-officer, I guess, beholden to the court,” said John Pottow, a University of Michigan law professor who testified before the subcommittee hearing in February. “But we don’t know the full extent of what the receiver’s powers would be.”
And then what? That’s when the real uncertainty begins, Pottow told POLITICO: “It’s never happened before.”
In an April campaign stop, Jeb Bush said much the same thing: “Puerto Rico should be given the same rights as the states.”
With both Obama and Bush behind the same plan, you might expect it to have decent odds on Capitol Hill. You'd be wrong. Puerto Rico’s non-voting delegate, Pedro Pierluisi, introduced such a bill in the last Congress, but it never even received a vote in committee.
That might be about to change: In response to emails from POLITICO today, Senator Chuck Schumer (D-N.Y.) and Senator Richard Blumenthal (D-Conn.) said they plan to introduce a bill to let the territory use the Chapter 9 bankruptcy protections available to U.S. states.
“We have been working with colleagues for some time to draft a measure that would more fairly give Puerto Rico the same Chapter 9 Bankruptcy Code options that all the states have,” Blumenthal said. “Events of the last week have given this issue a great deal of more public visibility, but the facts about the financial challenges have existed for some time.”
There's no guarantee they'll get any traction – and if they do, certainly not before the island’s electric utility faces a $400 million bond payment on Wednesday.
The lack of action on a bill that could have been taken up anytime in the past two years shows just how difficult a road Puerto Rico faces when it comes to political attention in Washington, even in dire emergencies. It's subject to Congressional oversight, but without any actual vote in Congress, it simply doesn't register as an important issue. The political upside for taking action on a Puerto Rico issue is small, and the downsides are large.
“The alarm bells are not going off in Washington about this,” said Republican strategist Ron Bonjean, “and Congress is going to have real trepidation into supporting anything that appears to be a bailout.”
Puerto Rico has been flirting with serious financial trouble for a while. Years of mismanagement have crushed the island’s economy, leaving it with massive debt and no conceivable way to pay it off in a reasonable time. These financial troubles received renewed attention Sunday, when the New York Times reported that Puerto Rico Governor Alejandro García Padilla said the island would be unable to repay its $73 billion debt, potentially starting with a payment due Wednesday by the Puerto Rico Electric Power Authority (PREPA).
If Puerto Rico were a state, its public corporations could file for Chapter 9 bankruptcy to restructure their debts, giving it leverage in negotiations with its bondholders. But thanks to an apparent oversight made during technical corrections to the U.S. Bankruptcy Code in 1978, Puerto Rico and other U.S. territories are excluded from Chapter 9 protection.
Pierluisi, Puerto Rico’s only delegate to Congress, introduced a bill to do just that in February, and a subcommittee of the House Judiciary Committee held a hearing on it. That’s as far as it has gone so far.
The bill has garnered zero co-sponsors, though Pierluisi says that is tactical: “I believe the bill, if brought up for vote in committee or on the floor, would garner bipartisan support,” he told POLITICO. “However, Members who have asked to be added as cosponsors tend to be Democrats, since I am a Democrat. Therefore, so as not to create the mistaken perception that this is a partisan bill, I have chosen not to add cosponsors to date.”
Puerto Rican politicians were hopeful that Congress had finally recognized the importance of the issue not just to the U.S. territory but also to U.S. municipal bond markets, which could be affected by a Puerto Rican default. “I thought that members of Congress on both sides of the aisle were starting to understand why this bill makes sense and why this is not a bailout,” former Puerto Rican Governor Luis Fortuño said, although he worried that Padilla’s comments would be a setback.
On the Senate side, Schumer and Blumenthal are looking for Republican co-sponsors before they introduce it. “We have strong interest on both sides of the aisle,” Blumenthal said. A House Judiciary aide said that Bob Goodlatte (R-Va.), the chair of the House Judiciary Committee, has not endorsed the bill “but feels the Committee has a responsibility to review the merits of this legislation.”
Any action in Congress will take weeks at best, though. And bondholders are pushing back, saying it would unfairly change the terms of their bonds long after they bought them and lead to a more disorderly restructuring, versus continuing the current negotiations.
In the meantime, the details of the negotiations are private, but reports indicate that the sides are still far apart as the deadline approaches.
It’s unclear what will happen if the public energy utility fails to make its payment Wednesday. In normal circumstances, the entity would file for bankruptcy—but since that isn’t available, there’s no precedent for what would happen. Creditors could theoretically begin seeking redress immediately. In the case of a public utility like PREPA, the court would appoint a receiver to manage it. “It would be some sort of quasi-officer, I guess, beholden to the court,” said John Pottow, a University of Michigan law professor who testified before the subcommittee hearing in February. “But we don’t know the full extent of what the receiver’s powers would be.”
And then what? That’s when the real uncertainty begins, Pottow told POLITICO: “It’s never happened before.”
How not to strangle the Internet of Things
Here’s what we lose by regulating against imaginary problems.
The Internet of
Things is the hot new fixation in the world of technology, and it’s already
raising concerns about safety, security, and privacy – many of which are
persuasively documented in the special package just published here. We all face
a host of new vulnerabilities in a world in which we’re always plugged into the
Internet, and the objects around us are
constantly sharing data about our personal and professional lives.
These fears have led some policymakers and activists to call for preemptive regulations. Specifically, they’re calling for limits on certain types of data collection, or restrictions on where and how these technologies can be used.
This is an appealing approach. It’s also shortsighted.
There’s good reason to be excited about the Internet of Things; experts estimate that the total global impact of networked technologies could generate anywhere from $2.7 trillion to $14.4 trillion in value by 2025. And it’s likely to increase all kinds of human goods. But we’re not going to tap its full potential if these technologies are smothered in layers of red tape while they’re still in the cradle.
The problem with imposing precautionary rules is that by trying to prevent hypothetical worst-case scenarios – hackers setting your house on fire; blackmail based on your medical data – it’s likely we would unwittingly discourage many best-case scenarios as a result. We don’t know if any of those frightening things will ever really happen. We do know that the Internet of Things is going to require creativity, agility, and lots of experimentation to reach its full potential. And that won’t happen if its players are constrained a thicket of new precautionary laws, or by fear of crossing lines drawn out of excessive caution.
That doesn’t mean law shouldn’t play a role. But it’s important to realize that there are already many potential legal remedies and other solutions already available. Common law can handle many of the issues that the IOT raises. Existing privacy torts and existing targeted rules (such as “Peeping Tom” laws) can address privacy and security harms as they develop. If safety is the issue, volumes of pertinent federal health and safety rules already exist to enable the class actions lawsuits that are bound to take flight at the first sign of any product defects.
Policymakers also have a role. They can encourage privacy and security “by design” for IOT developers, although those are best implemented as guidelines for an industry still developing, rather than as top-down controls that force it one direction or the other. More privacy-enhancing tools—especially robust encryption technologies—can also help, and government officials would be wise to promote these tools instead of restricting them.
The Federal Trade Commission and state attorneys general will also play an important backstop role by policing “unfair and deceptive” practices. The FTC has already been very active in overseeing the digital economy by encouraging companies to live up to the privacy and security promises they make to their consumers. Governments can also help play the role of educator by explaining the potential dangers of new IOT technologies as well as potentially inappropriate uses.
Beyond that, going further with more heavy-handed rules at this early stage would be a mistake. We don’t actually know which risks are going to turn out to be serious, and which are just bogeymen. For now, we can wait and see how our existing legal systems handle IOT issues and then fill gaps from there.
The model to follow is the nonpartisan vision that Congress and the Clinton administration crafted in the mid-1990s for the Internet itself: they embraced light-touch regulation and relied on existing legal remedies instead of imposing overarching, top-down regulatory frameworks for a new and fast-moving technology.
The result of that approach speaks for itself. The Internet and the Web became models of “permissionless innovation,” and allowed America to take a commanding lead in the global information economy. By protecting and extending that approach now, policymakers can foster the growth of the Internet of Things and get this next technological revolution off to a fast start.
Adam Thierer is a senior research fellow with the with the Technology Policy Program at the Mercatus Center at George Mason University and the author of “Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom.”
These fears have led some policymakers and activists to call for preemptive regulations. Specifically, they’re calling for limits on certain types of data collection, or restrictions on where and how these technologies can be used.
This is an appealing approach. It’s also shortsighted.
There’s good reason to be excited about the Internet of Things; experts estimate that the total global impact of networked technologies could generate anywhere from $2.7 trillion to $14.4 trillion in value by 2025. And it’s likely to increase all kinds of human goods. But we’re not going to tap its full potential if these technologies are smothered in layers of red tape while they’re still in the cradle.
The problem with imposing precautionary rules is that by trying to prevent hypothetical worst-case scenarios – hackers setting your house on fire; blackmail based on your medical data – it’s likely we would unwittingly discourage many best-case scenarios as a result. We don’t know if any of those frightening things will ever really happen. We do know that the Internet of Things is going to require creativity, agility, and lots of experimentation to reach its full potential. And that won’t happen if its players are constrained a thicket of new precautionary laws, or by fear of crossing lines drawn out of excessive caution.
That doesn’t mean law shouldn’t play a role. But it’s important to realize that there are already many potential legal remedies and other solutions already available. Common law can handle many of the issues that the IOT raises. Existing privacy torts and existing targeted rules (such as “Peeping Tom” laws) can address privacy and security harms as they develop. If safety is the issue, volumes of pertinent federal health and safety rules already exist to enable the class actions lawsuits that are bound to take flight at the first sign of any product defects.
Policymakers also have a role. They can encourage privacy and security “by design” for IOT developers, although those are best implemented as guidelines for an industry still developing, rather than as top-down controls that force it one direction or the other. More privacy-enhancing tools—especially robust encryption technologies—can also help, and government officials would be wise to promote these tools instead of restricting them.
The Federal Trade Commission and state attorneys general will also play an important backstop role by policing “unfair and deceptive” practices. The FTC has already been very active in overseeing the digital economy by encouraging companies to live up to the privacy and security promises they make to their consumers. Governments can also help play the role of educator by explaining the potential dangers of new IOT technologies as well as potentially inappropriate uses.
Beyond that, going further with more heavy-handed rules at this early stage would be a mistake. We don’t actually know which risks are going to turn out to be serious, and which are just bogeymen. For now, we can wait and see how our existing legal systems handle IOT issues and then fill gaps from there.
The model to follow is the nonpartisan vision that Congress and the Clinton administration crafted in the mid-1990s for the Internet itself: they embraced light-touch regulation and relied on existing legal remedies instead of imposing overarching, top-down regulatory frameworks for a new and fast-moving technology.
The result of that approach speaks for itself. The Internet and the Web became models of “permissionless innovation,” and allowed America to take a commanding lead in the global information economy. By protecting and extending that approach now, policymakers can foster the growth of the Internet of Things and get this next technological revolution off to a fast start.
Adam Thierer is a senior research fellow with the with the Technology Policy Program at the Mercatus Center at George Mason University and the author of “Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom.”
Fireworks lobby to Obama: Enough with all the rules
Has the administration gone "completely insane" with regulation? The pyrotechnics industry thinks so.
VIDEO: Julie Heckman on the industry's big week — and how to watch a fireworks show
Fireworks manufacturers have been on something of a winning streak of late: Sales of both low-and high-grade celebratory explosives in the U.S. are projected to top $1 billion this year; more states than ever now allow consumers to buy sparklers, Roman candles and other do-it-yourself pyrotechnics. Obscure regulations are being scaled back to help light up the country's summertime skies.
But with the Fourth of July busy season bearing down, the industry says it still has one big problem: President Barack Obama's administration.
Whether it be duplicative safety rules on the fireworks themselves or requirements that truckers limit their weekly time on the road, the makers, marketers and distributors of pyrotechnics complain that Obama's regulators are "completely insane" by forcing so many standards on an industry that's as much a part of a patriotic summer as baseball and apple pie.
Officials at the Consumer Product Safety Commission counter that the fireworks industry is still operating in a danger zone. Data released last Friday counted 11 fatalities and more than 10,000 injuries from fireworks in 2014. While the number of injuries in the country was down from the prior year, CPSC communications director Scott Wolfson warned "that's an unacceptable number," especially as more states open up their markets to legal fireworks.
Amid her busy season, American Pyrotechnics Association executive
director Julie Heckman recently sat down with POLITICO senior writer
Darren Samuelsohn to explain why she won't have a break until after July
5th, once she's checked in with the operators of some 15,000
professional display performances across the country. She also talked
about why it's been so challenging in dealing with a rotating cast of
Obama administration political officials and how her industry deals with
safety concerns when so much of its product comes from China.
Darren Samuelsohn: What is the Fourth of July period like for your organization?
Julie Heckman: It is very nerve-racking. You know, it's our Christmas season, if you will. We love dealing with the press, the media, but there is always that concern that your phone's going to ring with potentially bad news that something went wrong somewhere. We're prepared for it, we pray it doesn't happen, and we just want to get through July 5th and read the headlines that everything went off perfectly.
DS: States are definitely more friendly to fireworks today — 47 states and Washington D.C. now allow some or all types of consumer fireworks. Why are we seeing so many states loosen their fireworks prohibitions?
JH: The move in relaxing the laws is really driven a little bit by the economy and it's also because the lack of enforcement…. People are going to celebrate on the Fourth of July with fireworks, and typically they will cross state lines, county lines. They'll bring their fireworks back to their home where it might not be legal. And so, with enforcement, as well as with looking at the amount of revenue generated from, you know, selling fireworks, states are saying, "Hey, we don't want to lose that revenue. We'd like to gain it in our state." And they're looking at special taxes that help support perhaps fireworks training for the enforcement officials or a special fund that they can generate that money with.
DS: Only three states still have complete
prohibitions on fireworks: Delaware, Massachusetts and New Jersey. Why
are they holding out?
JH: You know, it's interesting. Those bans have been on the books since the early 1900s. I'm hearing there's possible legislation going to move in Massachusetts and Delaware, but I don't know why New Jersey's not forging ahead.
DS: What do you make of the CPSC’s latest data out last Friday, showing fireworks fatalities were up in 2014, while there were fewer injuries?
JH: I think when you look at the statistics published by the U.S. Consumer Product Safety Commission with regard to firework-related injuries, actually, it's very positive. We look at the consumption, the overall usage of backyard consumer fireworks has increased significantly during the past decade, and when you look at the use of fireworks and compare then the number of injuries, actually, the injury rate has declined. I'm not aware of one other consumer product on the market today where the usage has risen so dramatically, yet the injuries have gone down.
DS: How do you guarantee safety when such large percentages of the fireworks consumed in the U.S. —nearly all consumer products, and about 75 percent of the display fireworks — come from China?
JH: The industry has been very committed to working with the foreign manufacturers over in China. In fact, through the APA, another organization was created, the American Fireworks Standards Laboratory, which is a third-party certification organization. They actually test the product in China to make certain that not only does it meet the Consumer Product Safety Commission regulations, it exceeds them, because AFSL standards go a step beyond what the federal government mandates. And you know, the product has improved significantly, so we're very proud of that.
DS: How did the West Coast labor dispute affect the Chinese firework imports?
JH: We were very nervous at the end of lunar new year, because that is when the vast majority of fireworks leave China to arrive on the West Coast ports. We had volumes of containers sitting out in the Pacific Ocean waiting to get in. We've been fortunate. All the product is here for this Fourth of July. It could have been far worse.
DS: You are backing legislation from Sen. Lamar Alexander, the PORTS Act, that would give state governors more power to intervene in labor disputes like the one that recently ended on the West Coast. Why?
JH: We do not want to see any industries go through the disruptions that occurred on the West Coast this year. …We think it's really important that when there is a lockout and there is a disagreement to try and get these contracts solved that the governors can take action.
DS: What's your biggest ask on Capitol Hill this session?
JH: Right now we are advocating for reauthorization of the Hazardous Materials Transportation Act. That will fix a few issues for us, including the ongoing problems with EX [explosives] approvals and special permits, fixing the hazmat safety permit program, and also addressing duplicative background checks.
DS: What do you see as the chances for action on that bill this year?
JH: Oh, it's been going on forever. It's kind of interesting. You feel like, how many years have I been working on this, will I ever see reauthorization? Again, cautiously optimistic. I don't know if it will move with the larger surface transportation bill or not, but we're going to continue to focus on those several key issues.
DS: The CSPC agreed to review its safety standards this year for fireworks. What are you hoping will come out of this?
JH: I think the primary issue that the firework industry has right now with the Consumer Product Safety Commission is the testing for audible effect. That ear test needs to go away. We need something that can be replicated in the field, predominantly in China using a lab so that everybody's on the same level. Because what's loud to me might not be loud to you.
DS: Your members have called for more reforms to the permitting process for the firework industry at both the Pipeline and Hazardous Materials Safety Administration and the Federal Motor Carrier Safety Administration. Have those agencies been doing a better job from your perspective?
JH: I think both PHMSA and FMCSA have done a pretty decent job at trying to improve their programs over the past several years, but I think within this administration we've seen too many changes. You know, by the time you get an administrator really engaged in your issues and her team, the support team, working on them, there's been a shift. We've had acting administrators in both agencies that are now being replaced again. And so, you kind of start all over with the educational standpoint of what's important to your industry.
We're one of hundreds of industries that the agency has to focus on. Right now I think PHMSA in particular is worried about crude oil, and FMCSA has to worry more about passenger vehicles, because... that's where the accidents are.
DS: Does it feel like your industry is ignored?
JH: They get put on the back shelf.
DS: How would you size up the Obama administration’s regulatory approach for your industry?
JH: I've been working with the industry for a very long time, 26 years. I have never seen as many rulemaking initiatives as I have with this administration. It has just been completely insane. You know, I'm not saying it's necessary, but it would be really great when — take a tiny industry like fireworks, and we've got to comply with ATF, CPSC, EPA, OSHA, multiple divisions of the Department of Transportation, it's really challenging. It would be great if we could have one agency that took care of everything, and I'm sure there are other industries that are also feeling that pain, but it has been very significant.
DS: You did get a big win in April when PHMSA removed a requirement for the fireworks industry to get a permit for each individual product, even when the actual ingredients in it were the same but only the name was different.
JH: We were extremely pleased when PHMSA decided to not require a new EX [explosives] application come in for an additional name on a firework item. ...We think that's going to help eliminate the backlog in some of the work for PHMSA.
DS: Your industry is also getting what it wants concerning driving time restrictions on truckers too?
JH: We're very concerned about the hours of service. ...We basically echo the concerns of the American Trucking Association. Our folks are so heavily regulated and, while most people don't think about the firework industry except one day a year, Fourth of July, we have to comply with everything. And we do have an hours-of-service exemption, very, very narrow, provides some relief for our companies during the ten days around the Fourth of July so that they are able to take their rest time and not count it towards their driving time. So, Federal Motor Carrier Safety Administration has been generous to us because of our safety record--we've proven our safety record over a ten-year period with having this exemption. And so, that's a key matter that we're very interested in.
DS: Given the state action and some of these regulation moves, it actually sounds like your industry is on something of a winning streak?
JH: We're a very tiny industry, just barely over a billion dollars. We don't have big lobbying dollars. You can talk about lobbying, you're looking at the lobbyist right here. We have a great commodity, we have a great industry record to promote, and I think when we do go to Capitol Hill for support, members of Congress listen to us. I mean, we're small — [we] represent small family businesses who are trying to do their very best to survive. And so, we pick and choose our asks very carefully. We want the industry to be regulated, we just want common sense regulations.
Fireworks manufacturers have been on something of a winning streak of late: Sales of both low-and high-grade celebratory explosives in the U.S. are projected to top $1 billion this year; more states than ever now allow consumers to buy sparklers, Roman candles and other do-it-yourself pyrotechnics. Obscure regulations are being scaled back to help light up the country's summertime skies.
But with the Fourth of July busy season bearing down, the industry says it still has one big problem: President Barack Obama's administration.
Whether it be duplicative safety rules on the fireworks themselves or requirements that truckers limit their weekly time on the road, the makers, marketers and distributors of pyrotechnics complain that Obama's regulators are "completely insane" by forcing so many standards on an industry that's as much a part of a patriotic summer as baseball and apple pie.
Officials at the Consumer Product Safety Commission counter that the fireworks industry is still operating in a danger zone. Data released last Friday counted 11 fatalities and more than 10,000 injuries from fireworks in 2014. While the number of injuries in the country was down from the prior year, CPSC communications director Scott Wolfson warned "that's an unacceptable number," especially as more states open up their markets to legal fireworks.
Darren Samuelsohn: What is the Fourth of July period like for your organization?
Julie Heckman: It is very nerve-racking. You know, it's our Christmas season, if you will. We love dealing with the press, the media, but there is always that concern that your phone's going to ring with potentially bad news that something went wrong somewhere. We're prepared for it, we pray it doesn't happen, and we just want to get through July 5th and read the headlines that everything went off perfectly.
DS: States are definitely more friendly to fireworks today — 47 states and Washington D.C. now allow some or all types of consumer fireworks. Why are we seeing so many states loosen their fireworks prohibitions?
JH: The move in relaxing the laws is really driven a little bit by the economy and it's also because the lack of enforcement…. People are going to celebrate on the Fourth of July with fireworks, and typically they will cross state lines, county lines. They'll bring their fireworks back to their home where it might not be legal. And so, with enforcement, as well as with looking at the amount of revenue generated from, you know, selling fireworks, states are saying, "Hey, we don't want to lose that revenue. We'd like to gain it in our state." And they're looking at special taxes that help support perhaps fireworks training for the enforcement officials or a special fund that they can generate that money with.
JH: You know, it's interesting. Those bans have been on the books since the early 1900s. I'm hearing there's possible legislation going to move in Massachusetts and Delaware, but I don't know why New Jersey's not forging ahead.
DS: What do you make of the CPSC’s latest data out last Friday, showing fireworks fatalities were up in 2014, while there were fewer injuries?
JH: I think when you look at the statistics published by the U.S. Consumer Product Safety Commission with regard to firework-related injuries, actually, it's very positive. We look at the consumption, the overall usage of backyard consumer fireworks has increased significantly during the past decade, and when you look at the use of fireworks and compare then the number of injuries, actually, the injury rate has declined. I'm not aware of one other consumer product on the market today where the usage has risen so dramatically, yet the injuries have gone down.
DS: How do you guarantee safety when such large percentages of the fireworks consumed in the U.S. —nearly all consumer products, and about 75 percent of the display fireworks — come from China?
JH: The industry has been very committed to working with the foreign manufacturers over in China. In fact, through the APA, another organization was created, the American Fireworks Standards Laboratory, which is a third-party certification organization. They actually test the product in China to make certain that not only does it meet the Consumer Product Safety Commission regulations, it exceeds them, because AFSL standards go a step beyond what the federal government mandates. And you know, the product has improved significantly, so we're very proud of that.
DS: How did the West Coast labor dispute affect the Chinese firework imports?
JH: We were very nervous at the end of lunar new year, because that is when the vast majority of fireworks leave China to arrive on the West Coast ports. We had volumes of containers sitting out in the Pacific Ocean waiting to get in. We've been fortunate. All the product is here for this Fourth of July. It could have been far worse.
DS: You are backing legislation from Sen. Lamar Alexander, the PORTS Act, that would give state governors more power to intervene in labor disputes like the one that recently ended on the West Coast. Why?
JH: We do not want to see any industries go through the disruptions that occurred on the West Coast this year. …We think it's really important that when there is a lockout and there is a disagreement to try and get these contracts solved that the governors can take action.
DS: What's your biggest ask on Capitol Hill this session?
JH: Right now we are advocating for reauthorization of the Hazardous Materials Transportation Act. That will fix a few issues for us, including the ongoing problems with EX [explosives] approvals and special permits, fixing the hazmat safety permit program, and also addressing duplicative background checks.
DS: What do you see as the chances for action on that bill this year?
JH: Oh, it's been going on forever. It's kind of interesting. You feel like, how many years have I been working on this, will I ever see reauthorization? Again, cautiously optimistic. I don't know if it will move with the larger surface transportation bill or not, but we're going to continue to focus on those several key issues.
DS: The CSPC agreed to review its safety standards this year for fireworks. What are you hoping will come out of this?
JH: I think the primary issue that the firework industry has right now with the Consumer Product Safety Commission is the testing for audible effect. That ear test needs to go away. We need something that can be replicated in the field, predominantly in China using a lab so that everybody's on the same level. Because what's loud to me might not be loud to you.
DS: Your members have called for more reforms to the permitting process for the firework industry at both the Pipeline and Hazardous Materials Safety Administration and the Federal Motor Carrier Safety Administration. Have those agencies been doing a better job from your perspective?
JH: I think both PHMSA and FMCSA have done a pretty decent job at trying to improve their programs over the past several years, but I think within this administration we've seen too many changes. You know, by the time you get an administrator really engaged in your issues and her team, the support team, working on them, there's been a shift. We've had acting administrators in both agencies that are now being replaced again. And so, you kind of start all over with the educational standpoint of what's important to your industry.
We're one of hundreds of industries that the agency has to focus on. Right now I think PHMSA in particular is worried about crude oil, and FMCSA has to worry more about passenger vehicles, because... that's where the accidents are.
DS: Does it feel like your industry is ignored?
JH: They get put on the back shelf.
DS: How would you size up the Obama administration’s regulatory approach for your industry?
JH: I've been working with the industry for a very long time, 26 years. I have never seen as many rulemaking initiatives as I have with this administration. It has just been completely insane. You know, I'm not saying it's necessary, but it would be really great when — take a tiny industry like fireworks, and we've got to comply with ATF, CPSC, EPA, OSHA, multiple divisions of the Department of Transportation, it's really challenging. It would be great if we could have one agency that took care of everything, and I'm sure there are other industries that are also feeling that pain, but it has been very significant.
DS: You did get a big win in April when PHMSA removed a requirement for the fireworks industry to get a permit for each individual product, even when the actual ingredients in it were the same but only the name was different.
JH: We were extremely pleased when PHMSA decided to not require a new EX [explosives] application come in for an additional name on a firework item. ...We think that's going to help eliminate the backlog in some of the work for PHMSA.
DS: Your industry is also getting what it wants concerning driving time restrictions on truckers too?
JH: We're very concerned about the hours of service. ...We basically echo the concerns of the American Trucking Association. Our folks are so heavily regulated and, while most people don't think about the firework industry except one day a year, Fourth of July, we have to comply with everything. And we do have an hours-of-service exemption, very, very narrow, provides some relief for our companies during the ten days around the Fourth of July so that they are able to take their rest time and not count it towards their driving time. So, Federal Motor Carrier Safety Administration has been generous to us because of our safety record--we've proven our safety record over a ten-year period with having this exemption. And so, that's a key matter that we're very interested in.
DS: Given the state action and some of these regulation moves, it actually sounds like your industry is on something of a winning streak?
JH: We're a very tiny industry, just barely over a billion dollars. We don't have big lobbying dollars. You can talk about lobbying, you're looking at the lobbyist right here. We have a great commodity, we have a great industry record to promote, and I think when we do go to Capitol Hill for support, members of Congress listen to us. I mean, we're small — [we] represent small family businesses who are trying to do their very best to survive. And so, we pick and choose our asks very carefully. We want the industry to be regulated, we just want common sense regulations.
A great day for coal? Not exactly.
Why the Supreme Court’s strange EPA decision won’t matter as much as people think.
It won’t get as much attention as today's perplexing Supreme
Court decision blocking mercury limits for coal-fired power plants, but the
government quietly revealed last Thursday that the U.S. electricity sector has reached a major
milestone. Coal, America’s number-one source of power since the feds began
keeping track in 1949, fell to number two behind natural gas in April.
Meanwhile, the latest official data on power generating capacity suggest the trend away from coal is only accelerating. In the first five months of 2015, U.S. utilities added 2.1 gigawatts of new wind and solar capacity, 1.2 GW of new gas capacity, and 0 GW of new coal. As I wrote at length last month, the question is not whether the U.S. coal industry will continue to decline, but how fast.
Today’s 5-4 Court ruling has been framed as a dramatic victory for coal, but the truth is it probably won’t do much to arrest that decline. Industry officials and Republican politicians have hailed the decision as a harsh rebuke to President Obama’s Environmental Protection Agency, and the majority opinion authored by the acerbic Justice Antonin Scalia certainly reads that way. But it’s ultimately a narrow decision that should have a relatively modest impact on the U.S. grid.
The instant reaction to the Court has focused on Scalia’s complaints that the EPA failed to consider the costs of its rule, particularly his suggestion that the agency engaged in the regulatory equivalent of buying a Ferrari without checking the price. But the EPA did conduct an intensive cost-benefit analysis of its mercury rule before imposing it, concluding that the economic benefits (not to mention the thousands of lives it would save) would far exceed the costs, and the majority did not question that analysis. It merely questioned the timing of that analysis, ruling that the EPA should have considered the costs of the regulation before making its initial decision to regulate back in 2000. The Court didn’t find that the agency ignored costs, just that it considered them too late in the process.
As Justice Elana Kagan pointed out in her dissent, that “peculiarly blinkered” analysis “would put the cart before the horse.” The EPA had no way of knowing exactly how much its regulation would cost before designing its regulation, but it did figure that a toxic air pollutant that was poisoning Americans and driving a childhood asthma epidemic probably ought to face some sort of regulation under the Clean Air Act. So it decided to regulate, knowing that it would analyze the costs in great detail later. A better analogy than buying the Ferrari without knowing the price would be visiting a doctor about back pain without knowing the precise cost of back surgery. That early in the process, nobody knows what kind of treatment will eventually be needed.
In any case, the Court has essentially put the ball back in the EPA’s court, and the agency shouldn’t have too much trouble demonstrating that the costs of the rule (which it has already calculated are much less than the benefits) are not too high to go forward with the rule. The questions are whether the EPA can comply before President Obama leaves office, which seems likely, and whether lower courts will allow the mercury rule to remain in place until then, which seems unlikely.
But even if the mercury rule dies, there are only 22 coal plants in the U.S. that are still operating without mercury controls, according to SNL Energy. Since the EPA finalized the rule in 2012, most of America’s dirtiest coal plants have either been scheduled for retirement or retrofitted with modern control technologies. Even the staunchest coal advocates seemed to acknowledge today’s ruling came too late to reverse the industry’s decline. Senate Majority Leader Mitch McConnell complained that “much of the damage has already been done,” while House Speaker John Boehner bemoaned that “we can’t erase the damage the EPA has already caused by shutting down coal plants and putting thousands of Americans out of work.”
Really, though, the EPA is just a part of the marketplace’s war on coal. In 2005, cheap coal provided 50% of our power, expensive gas provided 19%, and exorbitant wind and solar provided 2%. But coal has gotten much costlier as it’s been forced to account for much more of its mess, not just mercury but soot, smog, sulfur dioxide, and other air and water pollutants, with Obama’s plan to regulate carbon looming as the next big legal battle. At the same time, the costs of gas, wind and solar have plummeted in recent years. In April, coal was down to 30% of utility generation, gas was up to 31%, and wind and solar were up to 9 percent. The Sierra Club has helped retire 195 coal plants since launching its Beyond Coal campaign in 2010; it’s almost on track for its goal of shutting down half the fleet by 2017.
A Supreme Court that denied EPA’s power to regulate coal pollution could conceivably reverse that trend, but that’s not what the Court did today. It provided some comfort to Americans who would equate a decision to protect children from asthma with a decision to buy a fancy sports car. But it didn’t put coal back in the driver’s seat.
Meanwhile, the latest official data on power generating capacity suggest the trend away from coal is only accelerating. In the first five months of 2015, U.S. utilities added 2.1 gigawatts of new wind and solar capacity, 1.2 GW of new gas capacity, and 0 GW of new coal. As I wrote at length last month, the question is not whether the U.S. coal industry will continue to decline, but how fast.
Today’s 5-4 Court ruling has been framed as a dramatic victory for coal, but the truth is it probably won’t do much to arrest that decline. Industry officials and Republican politicians have hailed the decision as a harsh rebuke to President Obama’s Environmental Protection Agency, and the majority opinion authored by the acerbic Justice Antonin Scalia certainly reads that way. But it’s ultimately a narrow decision that should have a relatively modest impact on the U.S. grid.
The instant reaction to the Court has focused on Scalia’s complaints that the EPA failed to consider the costs of its rule, particularly his suggestion that the agency engaged in the regulatory equivalent of buying a Ferrari without checking the price. But the EPA did conduct an intensive cost-benefit analysis of its mercury rule before imposing it, concluding that the economic benefits (not to mention the thousands of lives it would save) would far exceed the costs, and the majority did not question that analysis. It merely questioned the timing of that analysis, ruling that the EPA should have considered the costs of the regulation before making its initial decision to regulate back in 2000. The Court didn’t find that the agency ignored costs, just that it considered them too late in the process.
As Justice Elana Kagan pointed out in her dissent, that “peculiarly blinkered” analysis “would put the cart before the horse.” The EPA had no way of knowing exactly how much its regulation would cost before designing its regulation, but it did figure that a toxic air pollutant that was poisoning Americans and driving a childhood asthma epidemic probably ought to face some sort of regulation under the Clean Air Act. So it decided to regulate, knowing that it would analyze the costs in great detail later. A better analogy than buying the Ferrari without knowing the price would be visiting a doctor about back pain without knowing the precise cost of back surgery. That early in the process, nobody knows what kind of treatment will eventually be needed.
In any case, the Court has essentially put the ball back in the EPA’s court, and the agency shouldn’t have too much trouble demonstrating that the costs of the rule (which it has already calculated are much less than the benefits) are not too high to go forward with the rule. The questions are whether the EPA can comply before President Obama leaves office, which seems likely, and whether lower courts will allow the mercury rule to remain in place until then, which seems unlikely.
But even if the mercury rule dies, there are only 22 coal plants in the U.S. that are still operating without mercury controls, according to SNL Energy. Since the EPA finalized the rule in 2012, most of America’s dirtiest coal plants have either been scheduled for retirement or retrofitted with modern control technologies. Even the staunchest coal advocates seemed to acknowledge today’s ruling came too late to reverse the industry’s decline. Senate Majority Leader Mitch McConnell complained that “much of the damage has already been done,” while House Speaker John Boehner bemoaned that “we can’t erase the damage the EPA has already caused by shutting down coal plants and putting thousands of Americans out of work.”
Really, though, the EPA is just a part of the marketplace’s war on coal. In 2005, cheap coal provided 50% of our power, expensive gas provided 19%, and exorbitant wind and solar provided 2%. But coal has gotten much costlier as it’s been forced to account for much more of its mess, not just mercury but soot, smog, sulfur dioxide, and other air and water pollutants, with Obama’s plan to regulate carbon looming as the next big legal battle. At the same time, the costs of gas, wind and solar have plummeted in recent years. In April, coal was down to 30% of utility generation, gas was up to 31%, and wind and solar were up to 9 percent. The Sierra Club has helped retire 195 coal plants since launching its Beyond Coal campaign in 2010; it’s almost on track for its goal of shutting down half the fleet by 2017.
A Supreme Court that denied EPA’s power to regulate coal pollution could conceivably reverse that trend, but that’s not what the Court did today. It provided some comfort to Americans who would equate a decision to protect children from asthma with a decision to buy a fancy sports car. But it didn’t put coal back in the driver’s seat.
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