As the old saying goes, every journey begins with a first step. We had a few positive and solid first – and second – steps today for derivatives end-users.

A little while ago, the House Financial Services Committee completed a markup on a number of Dodd-Frank related bills including  H.R. 634, “The Business Risk Mitigation and Price Stabilization Act of 2013” and H.R. 677, “Inter-Affiliate Swap Clarification Act”. H.R. 634 was reported out of committee with a unanimous 59-0 vote and the inter-affiliates bill was reported favorably with a vote 50-10. We believe that now that the relevant committees have both completed their review of these common-sense and critical bills, the House leadership will bring them to the floor for consideration by the full House of Representatives in the coming weeks.

Also this afternoon, Sens. Johanns and Tester led a large bipartisan group in introducing the Senate companion to H.R. 634 (the number is not yet available). The full list of original cosponsors includes: Senators Mike Johanns (R-NE), Jon Tester (D-MT), Roy Blunt (R-MO), Mike Crapo (R-ID), Joe Donnelly (D-IN), Kay Hagan (D-NC), Heidi Heitkamp (D-ND), Amy Klobuchar (D-MN), Jerry Moran (R-KS), Richard Shelby (R-AL), Pat Toomey (R-PA) and Mark Warner (D-VA).

The Senate introduction came on the heels of a concerted effort by end-users to educate Senate offices on the realities of end-user use of derivatives trades – we use them to hedge every-day commercial risk, not for speculative purposes. Thus, end-users like the thousands of manufactures who utilize these risk-management tools shouldn’t be regulated the same was as those companies that are speculating.

We continue to work with Senate offices to get a Senate companion to H.R. 677 (the inter-affiliates bill) introduced in the near-term. So although this is certainly positive progress, we are simply nearing the beginning of the second-act which is getting the Senate to take action on both of these important and common-sense bills that will ensure that main street businesses are able to focus on growing and investing in their business and their growth.

There has been lots of activity coming out of the CFTC in the last few days surrounding derivatives end-users, providing end-users some answers but still leaving many questions. The activity makes sense as the National Association of Manufacturers (NAM), many of our member companies and the Coalition for Derivatives End-Users had been pleading the case for months for a no-action ruling for end-users from reporting rules for inter-affiliate trades which were set to take effect beginning yesterday.

Late Friday night that relief came in the form of an announcement from the CFTC’s Division of Market Oversight and Division of Clearing and Risk issued a Joint No-Action Relief for swaps between affiliated counterparties from certain swap reporting requirements, “which granted relief from certain reporting requirements and the end-user exemption to mandatory clearing for intra-group swaps involving wholly-owned subsidiaries.”

This no-action ruling provides some end-users with more time to comply with the reporting requirements and others are exempt entirely. Of course while we are very pleased that the no-action relief came, we would have liked to have received it more than a mere three business days before the requirement kicked in.

In the days leading up to the no-action relief being announced, the NAM was one of a handful of participants in a press call with Commissioner Chilton who called for the creation of “The End-User Bill of Rights” which would guaranty certain rights including the “right to reasonable implementation”, a “right to legal certainty”, a “right to clear (or not to clear)” and critically, a “right to margin flexibility and reasonable capital rules.” The NAM thanked Commissioner Chilton for his leadership and attention to end-user concerns and for the attention the whole CFTC has paid to manufacturers who did not contribute to the financial crisis that led to the writing and enactment of Dodd-Frank but who have been affected nonetheless. (continue reading…)

Sometimes the ranking of #1 is a dubious distinction… surely no one wants to be #1 on the “worst companies to work for” list, the “worst Super Bowl Commercial” list, the “worst movie of all time” list or the “worst dressed” list, but one year after Japan’s corporate tax rate cut went into effect, the U.S. continues to be home to the highest corporate tax rate in the world.

We live in a competitive world. Everyone, from executives, to states, to countries, wants to be able to compete for investment and jobs – and that is all the more true in the aftermath of the great recession. Yet, a year after reaching this “pinnacle” of worst tax policy, nothing has changed.

The NAM has long advocated for comprehensive pro-growth, pro-job tax reform that will result in a permanent competitive tax code that will allow the U.S. to compete with our peers around the world. As articulated in in the recently released Growth Agenda, “The United States needs a comprehensive plan for economic growth. A bipartisan commitment in Washington to pro-growth policies will make our nation a more competitive place to do business.”  At the heart of this plan is an updated tax code and to improve our competitiveness, it is essential that the United States overhaul its tax system at the corporate and individual levels – something that has not been undertaken in nearly 30 years.

Manufacturers have applauded the stated commitment of the Chairmen of the Congressional tax writing committees – the House Committee on Ways & Means and the Senate Finance Committee – to undertaking comprehensive tax reform. We have high hopes that under the leadership of Chairman Dave Camp (R-MI) and Chairman Max Baucus (D-MT) respectively, the Committees will succeed in this effort this Congress. And we continue to weigh in with both committees as to what manufacturers believe must be included in any comprehensive tax reform plan to make it competitive for manufacturing which at the heart must include creating a national tax climate that enhances the global competitiveness of manufacturers in the United States and the avoidance of policy changes that would increase the tax burden on the manufacturing sector, discouraging job creation and investment. (continue reading…)

The NAM applauds the action of the House Agriculture Committee earlier today in reporting out two bills that are critical to derivatives end-users like manufacturers. These bills, H.R. 634, the “Business Risk Mitigation and Price Stabilization Act of 2013” and H.R. 677 the “Inter-Affiliate Swap Clarification Act” are key priorities for manufacturers and will ensure that end-users are fully exempt from posting margin and that inter-affiliate trades are not treated the same as market-facing trades and are exempt from clearing requirements.

As a steering committee member of the Coalition for Derivatives End-Users the NAM has been leading in advocating for the passage of these bills. Today’s mark-up came on the heels of last week’s House Ag Committee hearing where the Coalition had two witnesses testify in support of these bills including NAM member company Honeywell who testified in support of H.R. 634. That these bills were reported out of the House Agriculture Committee so quickly following the hearing is a solid indication that strong support exists for end-users.

We now look forward swift consideration of these two common-sense, cost and job saving bills in the near-term by the House Financial Services Committee in the coming weeks and the NAM will be leading the charge to have this accomplished.

That would be a good way to describe what’s happening in Congress this week. It’s the beginning of the statutorily mandated budget season with the House and Senate Budget Committees majorities unveiling their budget proposals for Fiscal Year 2014. This is the first time  that’s happened in four years and, for manufacturers, that’s a positive step towards getting our fiscal house in order  We have long said that it’s time to end the tendency over the past several years to ricochet from one economic precipice to another. It’s is time for comprehensive entitlement and tax reforms that would result in getting our nation’s debt and deficit picture under control.

So this week’s action is something that has been sorely needed. Broadly speaking, both the House Republican and Senate Democratic proposals call for tax reform, both seek to reform the growth of entitlement spending and both seek to stabilize the debt. Of course though, as with the way most things have gone in Washington over the past several years, that’s about where the similarities end because how each plan proposes to accomplish these goals is entirely at odds and which one prevails will have many real, significant and lasting impacts on the nation.

We are pleased that the House Republican budget would result in a balanced ledger in 10 years. And we’re pleased that the Senate Democrats in their budget include a nod toward tinkering with a long-sacred cow of entitlement spending although there is a still a long way to go. As NAM’s president Jay Timmons said in the recently released Growth Agenda, “The United States needs a comprehensive plan for economic growth. A bipartisan commitment in Washington to pro-growth policies will make our nation a more competitive place to do business.”  This plan has typically started with the budget process.

This is not to say that just because budgets have been marked up in the respective House and Senate Committees that we’re in for smooth sailing from here. By no means is that likely to be the case, however, as we said at the outset, this is the beginning of the beginning. And we hope it’s the beginning of a real and substantive conversation that will move beyond talking points and allow for a conversation about what the United States needs to fully emerge from the recent economic slow-down and once again compete.

Manufacturers have many ideas of what’s needed to fully accomplish this and those are described in the Growth Agenda and to once again use Jay’s words “manufacturers need our elected leaders to choose policies that make this country a better place to invest, a better place to innovate and a better place from which to export. They must choose policies that strengthen our workforce so that it meets the needs of manufacturing in the 21st century.” This means that we need tax reform, entitlement reform and spending reform that will allow our nation and its businesses to know what the path is and to know that the economy is on sound footing and government is not hampering growth. Tackling these tough issues will not be easy but it is essential for us to compete in the global economy. The NAM will continue to advocate for the policies that will succeed in Making America strong.

End-users continue to watch the time tick by on the countdown clock to the implementation of various aspects of Dodd-Frank while still awaiting clarity on a couple of critical – and costly – regulatory burdens which currently seem poised to impact them. In an ongoing effort to help find that clarity, the NAM has been working diligently as a leading member of the Coalition for Derivatives End-Users on both the hill and before the regulatory bodies implementing the law. Today we hope marked a positive step forward in the House Agriculture Committee’s hearing, “Examining Legislative Improvements to Title VII of the Dodd-Frank Act,” which featured testimony by NAM member and Honeywell International Assistant Treasurer Jim Colby. Colby testified on behalf of Honeywell and the Coalition — in support of coalition-backed legislation H.R. 634, which would provide a clear exemption from margin requirements for non-financial end-users as was the original intent of Congress.

The NAM has long advocated for this legislative fix and has worked longside the Coalition at the regulatory bodies urging that the rules promulgated under Dodd-Frank include this exemption. During the last Congress, the same legislation cleared the House overwhelmingly with over 370 votes in favor and withered in the Senate despite bipartisan support. We’re hopeful that today’s hearing and Ag Chairman Lucas’ indication that the Committee will soon move to mark up the bills included in the hearing will result in quick action that will allow the bill to be considered by the House Financial Services Committee and by the full House of Representatives in the near term.

The hearing also featured testimony in support of another NAM and Coalition endorsed bill, H.R. 677 which would exempt inter-affiliate and centralized hedging center unit swaps from clearing and other regulatory requirements intended for market-facing swaps. This legislation also clarifies a provision in Dodd-Frank that failed to distinguish internal risk management techniques in the form of inter-affiliate swaps from external market facing swaps. Many companies today use centralized hedging centers or centralized treasury units as a risk management tool – one that is often considered a best-practice. Under Dodd-Frank it this structure wasn’t contemplated and today without a change, the internal swaps a company does between these centers and their own affiliates would be subject to the same costly reporting and clearing requirements as external swaps with a swap dealers or a major swap participant. Further, the bill ensures that non-financial end-users who utilize these centralized hedging centers are allowed to use the end-user clearing exemption. Without this clarification, these centralized hedging and treasury centers wouldn’t qualify for the end-user clearing exemption because they would be deemed financial entities since their primary function is to engage in financial transactions for the corporate parent.

We are pleased that the committee also considered H.R. 677 today and hope that it too will be marked up and ready for review by the House Financial Services Committee and the full House in the near-term. A predecessor of this bill moved in tandem with a margin bill last year and also passed the House with over 350 votes. We hope to see that replicated soon.

So, while the clock ticks, hopefully today’s hearing is the first steps towards fixing these two burdensome problems casting a shadow over sound risk management practices employed by end-users.

This morning, a report released under the Hamilton Project banner of “Innovative Approaches to Tax Reform,” proposes the “Elimination of Fossil Fuel Subsidies.”  Unfortunately, the paper ignores sound tax policy and takes aim at a package of long-standing tax provisions that enable oil and gas companies to explore and develop new domestic sources of energy.

Indeed, Manufacturers take umbrage to a number of assumptions in this paper. So let’s start at the top. The report argues that the so-called “subsidies” provided to the industry for domestic production “have a very small impact on production” and thus eliminating these (so-called) subsides would have “a very small impact on production, their removal will not materially increase retail fuel prices, reduce employment or weaken U.S. energy security.” This belies so many real-world facts that we just had to respond.

First, the provisions in question are not subsidies. They represent sound tax policy that, among other things, allow energy companies to deduct ordinary and necessary business expenses and recover their capital costs. In contrast, subsidies are direct payments from the government to entities. This is clearly not what the paper is talking about.

One thing on which manufacturers can agree with the author is the need to enact a “simpler, more efficient tax code” – this is true especially in today’s world where the U.S. has the highest corporate tax rate. This leads to the second fact that is ignored in this report… that oil and gas companies with a global market and worldwide consumers have to look at worldwide production opportunities and U.S. production projects have to compete with opportunities elsewhere. With this reality, good tax policy matters in attracting development and production–and jobs– in the U.S. Despite the author’s assertion that “none of the current tax expenditures for fossil fuels targets novel techniques or … promotes innovation,” horizontal drilling and the sophisticated techniques used in hydraulic fracturing are two innovations that are fairly recent, were costly to develop and have resulted in the development of game-changing resources that are still emerging. And these projects are a boon to local domestic economies where they are ongoing.

Continuing along with our fact-checking, how did the author conclude that oil and gas production is not manufacturing as a basis for his argument that the domestic manufacturing tax deduction for oil and gas should be eliminated? Merriam Webster defines manufacture as: “1) something made from raw materials by hand or by machinery; 2a) the process of making wares by hand or by machinery especially when carried out with division of labor, b) a productive industry using mechanical power and machinery; 3) the act or process of producing something.” That pretty much sums it up, by all accounts oil and gas production is manufacturing by its very nature. Perhaps a refinery tour is in order!

Finally, the report is a wolf in sheep’s clothing as it is apparent that the author seeks to use the tax code to advance an environmental agenda. Throughout the report the author refers to the environmental benefits of a reduction in carbon emissions resulting from a reduction in production and consumption. Manufacturers, like all concerned citizens are concerned about the environment. However, if the author wants to have an environmental debate and address what he proposes as environmental impacts, then that debate should not be engaged under the guise of tax reform.

Manufacturers strongly support comprehensive tax reform, one that lowers the corporate rate to one that is competitive, includes a territorial system of taxation, that includes a permanent and strengthened R&D credit, includes permanent lower rates for small businesses and that includes a robust capital cost recovery system. With these principles as a starting point manufacturers want to engage in a tax reform discussion but if the starting point is from the position taken by this author, then this debate may remain long-awaited.

Even as Washington’s attention careens from one fiscal showdown to the next—which is reasonable with $85 billion in spending cuts due to go into effect in just a few days coming on the heels of December’s Fiscal Cliff–many manufacturers also await what could be an avalanche of regulations to implement the infamous Dodd-Frank Wall Street Reform Act that could prove to bury these derivatives end-users in excessive costs and regulatory burdens to “fix” aspects of the financial crisis that they neither caused nor contributed to.

For the past two and a half years since the passage of this voluminous statute, a number of unintended consequences of the 850 page statute have come to light as derivatives end-users—who use derivatives as a way to manage commercial risk and NOT for speculative purposes—come to recognize how their day to day business practice might be caught up in a slew of regulations from an array of regulators. These rulemakings have the potential to undo best practices, efficiencies and risk management strategies to improve business functions.

To combat this, for the past several years the NAM has served as a steering committee member of the Coalition for Derivatives End-Users working with a coalition of business associations and hundreds of end-user companies to mitigate the impact on end-users of Dodd-Frank’s implementation. The NAM drove an effort during the lame duck Congressional session to seek passage of two bills critical to manufacturers that use derivatives to manage risk.  The effort has served as a springboard for the Coalition’s activity this year.

Already this year, the Coalition has met with the staff, the Chairman of the CFTC as well as several of the Commissioners seeking relief from two of the most time sensitive concerns facing end-users including: the upcoming deadline of April 10th when, without no-action relief from the CFTC, end-users will need to begin reporting their inter-affiliate trades to a swap data repository within 48 hours of the trade; and, a June 10th deadline financial institutions are required to begin clearing trades – a deadline that will impact end-users who use centralized hedging centers to centralize inter-affiliate trades and use that hedging center to conduct external trades unless the CFTC provides exemptive relief to these centralized hedging units of non-financial end-users. The Coalition is working this week to submit requests for these relief actions to the CFTC.

Simultaneously, we continue our legislative effort and already this year the two priority end-user bills – one providing a clear end-user exemption from margin requirements and one exempting inter-affiliate trades from being treated in the same manner as external, market facing trades and rectifying the centralized hedging center issue described above. Those bills, H.R. 634 and H.R. 677, were introduced earlier this month in the House by bipartisan groups of members of both the House Agriculture and House Financial Services Committees–and we hope there will be companion legislation introduced in the Senate in the near term.

The NAM continues to lead both legislative and regulatory solutions to address the challenges facing end-users. Company participation in these efforts is critical to make the case for action and the NAM will continue to coordinate opportunities for members to weigh in on these matters.

The NAM joined the Coalition for Derivatives End-Users today in applauding the determination by the U.S. Treasury Department late last week that foreign exchange (FX) swaps should not to be regulated as “swaps” under the Dodd-Frank Wall Street Reform Act. The NAM and the Coalition called on Treasury to make this final determination two years ago in comments stating that as FX swaps and forwards “do not materially contribute to systemic risk” that they should be granted an exemption from additional regulation. This determination is a clear acknowledgement that over-regulating in this area would be detrimental to end-users’ efforts to manage risk through FX swaps and forward.

Manufacturers have long used derivatives to hedge business risk and the granting of an exemption for these swaps by Treasury is a positive step forward. We hope that other agencies will follow suit and ensure that as they continue to implement Dodd-Frank –particularly in the areas of margin requirements, inter-affiliate trades and cross-border rules –they do not create new costs and regulatory burdens on end-users.  We appreciate Treasury’s granting of an exemption for FX swaps and forwards.

Anyone paying attention to political discourse over the past several years knows that manufacturing is the poster child for the economic recovery that all of Washington – and all of America – is hoping for. Hardly a Congressional debate – or campaign ad – fails to mention the need for additional American manufacturing to help boost our nation’s economic fortunes and return us to the days of strong economic growth. Yet in the same breath, all too often, comes the observation, from far too many, that part of what needs to happen to bring a resurgence in American manufacturing is the implementation of a plan to get our nation’s debt and deficits under control and somehow a key piece of that mantra has become the need to raise taxes on “high income earners” who pay taxes at the top two marginal tax rates.

This position belies the fact that study after study has shown that nearly 1 million small businesses fall into this category, and these are the very businesses that have been successful, surviving the economic storm of the past several years. These are the businesses, including nearly two-thirds of manufacturers organized as a flow-through entity and pay taxes on their business income at individual marginal rates, who are the source of growth, hiring, and investing. Additionally, and central to this whole debate, is the reality that allowing the top two rate cuts enacted in the 2001 and 2003 tax bills to expire would only raise enough money to operate the federal government for about a week – certainly in no way enough additional revenue to put a serious dent in the nation’s deficits.

What manufacturers have been saying for some time now is that in order to bring about Manufacturing Renaissance, we need to make America the best place in the world to manufacture goods. Among other things, this includes a tax code that is simple, fair and most critically – permanent. We applaud elected officials from both sides who have taken up the mantle of the need for comprehensive tax reform. One of these, Pennsylvania Senator Pat Toomey addressed some of these issues in an op-ed today urging Congress to not raise income taxes. In order for manufacturers to succeed they need to have capital on hand to invest and compete and grow. For the nearly two-thirds of manufacturers organized as a flow-through, increasing marginal rates has a direct impact in their ability to have the capital to make these investments.

Once this election season comes to a close we are hopeful that both parties will come together and recognize that what is most needed now is an injection of stability for a shaky economy and extend today’s tax rates for at least a year and during that time undertake a serious comprehensive effort to reform entitlements, revamp our antiquated tax code and change the debt trajectory of our nation. This effort is what is needed to fix the systemic problems facing our nation, not raising taxes on small and medium sized businesses.