LEGISLATIVE/REGULATORY SUMMARY OF ACTIONS
IN SEPTMEBER 2006

HIGHLIGHTS:

Ergonomics Advisory Group Still Meeting Despite Controversy

A much maligned advisory committee on ergonomic standards under MIOSHA is continuing to meet despite legislative attempts to withhold funding and criticism by business groups. The full panel is reviewing another draft of a proposed ergonomics rule to impose minimum requirements for general industry but exempting the construction, agriculture, mining and domestic employment sectors. A subcommittee of the full committee is currently reviewing appendixes dealing with risk factor definitions and related hazards and symptoms. The full committee is not scheduled to meet again until the subcommittee completes its work. Stay tuned.

Governor Signs FLSA/Overtime & Youth Wage “Fix” Legislation

Governor Granholm has signed, with immediate effect, legislation to resolve problems created when the Michigan Legislature increased the state’s minimum wage to federal levels. HB 6213 amends the law to provide that those employees who were previously exempt from minimum wage and overtime requirements would remain exempt. SB 1364 would establish a sub-minimum “youth” wage of 85% of the federal minimum wage ($5.91) for those employees under 18 years of age. In trade for the “fix” legislation, Democrats and the Governor got an “earned income tax credit” for the working poor under the provisions of SB 453. The bills were all tie-barred together and were passed with “immediate effect”—allowing them to become law prior to the October 1, 2006 federal minimum wage increase to $6.95 per hour. The minimum wage will increase again to $7.15 on July 1, 2007 and to $7.40 on July 1, 2008. What impact the bills will have on employment, including university work-study program, is yet to be determined.

ENVIRONMENTAL ISSUES:

Michigan Joins National Program For Mercury Auto Switch Recovery

Michigan has joined a new voluntary initiative to capture mercury switches from automobiles and light trucks before they are flattened, shredded and melted to make new steel. The initiative,called the “National Vehicle Mercury Switch Recovery Program,” is expected to help cut mercury air emissions by up to 275 tons over the next 15 years. After working on pilot projects with the Alliance of Auto Manufacturers, the Michigan Department of Environmental Quality is now encouraging automotive recyclers to participate in the new national program. The program is to be managed by End of Life Vehicle Solutions, a non-profit company formed by the Alliance. The program provides recyclers with educational materials about vehicle models with mercury switches and provides ELVS buckets for the collection of mercury switches and disposal of the switches by the non-profit company at no cost.

Michigan To Partner With Neighboring States On Electronic Waste Management

MDEQ Director Steve Chester announced Michigan is partnering with other Midwest states (Michigan, Wisconsin, Illinois, Iowa) to develop a regional policy for effectively managing electronic waste including computers, televisions and other electronic products.

U.S. House of Representatives Passes Trash Legislation/Interstate Not Covered

Despite a recent agreement brokered by Senators Levin and Stabenow with the City of Toronto to stop imports of Canadian waste by 2010, the U.S. House of Representatives passed legislation (HR 2941) sponsored by Michigan Congressman Mike Rogers, that would empower the states to restrict out-of-country waste. The bill would not address inter state waste shipments which are protected from state regulation by the Commerce Clause of the U.S. Constitution. The fate of the House legislation in the U.S. Senate or whether the President would even sign such a measure is currently unclear. Previously, Senators Stabenow and Levin agreed not to press a vote on a similar Senate bill as a result of their agreement with Toronto officials. Now they appear eager to press the House bill.

MDEQ Anticipates Michigan Compliance With New Federal Particulate Standards

MDEQ Director Steve Chester anticipates that four additional counties that will not comply with new federal particulate standards (2.5 micrometers or smaller) will come into compliance by the new federal deadline.

MDEQ Puts Air Quality Monitoring Online

The MDEQ is posting information about air quality conditions on the Internet. The information will include real time maps of current air quality conditions and forecasts for future days. The site, MIair, also allows people to sign up for e-mail alerts about air quality notifications.

ENERGY:

MPSC Determines Zero “Stranded Costs” For Consumers/DTE

The Michigan Public Service Commission has determined that Consumers Energy (Case U-14526) incurred zero stranded costs during 2004 after revenue from wholesale power sales to third parties was considered. The MPSC also directed Consumers to return a $6.3 million overcharge of 2004 PSCR costs to large commercial and industrial customers (Case # U-13917).

The MPSC also determined that DTE (Case # U-13808) incurred zero stranded costs in 2004 after considering revenue from wholesale power sales to third parties. The commission found that DTE over-recovered $75 million as a result of profits from these sales and directed DTE to roll this amount into its 2005 reconciliation case (#U-14474 in which it shows a current under-recovery of $90 million)—which will likely result in no stranded costs for 2005.The MPSC also indicated in the Consumers case that it expected its order to end the series of stranded cost cases resulting from restructuring of the electric system under Public Act 141 of 2000—the Customer Choice And Electric Reliability Act of 2000.

MPSC Approves New PSCR Recovery Factors For DTE

The Michigan Public Service Commission approved revised power supply cost recovery factors for DTE (Case # U-14702) for the remainder of 2006. The maximum factor is set at 5.45 mills per kilowatt hour. The action helps to offset some under recovery of costs due to the MPSC’s intention setting of lower temporary PSCR factors for this past year to minimize rate shock to consumers after high natural gas costs last winter.

TAXES & ECONOMIC DEVELOPMENT:

Grand Rapids Chamber Unveils “Business Activities Tax” Replacement Proposal

The Grand Rapids Area Chamber of Commerce has unveiled it proposed replacement for both the Michigan Single Business Tax (SBT) and the Personal Property Tax (PPT). The proposal provides for a modified gross profits tax of 0.75% on “business activity” (sales or service revenue) and a minimum tax of $150 for business with gross revenues of less than $350,000. The Michigan Business Activities Tax (MBAT) proposal would replace not more than 90% for the current revenue generated by the SBT and PPT. The guiding principles of the proposal include: broad tax base, low rate, hard to circumvent, treat all business sectors equally, not distort economic behavior, nexus standards to benefit Michigan business, include personal property tax relief to extent possible, and preserve existing credits/incentives already granted to businesses. Cash grants are proposed as an economic development tool rather than tax credits. Local governments, which are largely funded through personal property taxes would be held harmless under the proposal. The full proposal can be viewed at http://www.grandrapids.org/advocacy.

Other proposals include the Detroit Regional Chamber’s proposal to impose a business franchise and licensing tax with liability starting at $350,000, incorporate existing economic development incentives and making no change to the current personal property tax. Another proposal promoted by House Tax Policy Committee chair Fulton Sheen, called the Fair Tax Proposal, calls for the elimination of the income tax, single business tax and property tax in favor of a larger (8-10%) sales tax on all products and services. A proposal by the Michigan Chamber of Commerce includes a net income tax and licensing fee along with a possible 50% personal property tax cut. A joint House and Senate committee is expected to make recommendations by December 1, 2006, but no one expects any action to take place on a replacement tax until 2007. The current SBT expires on January 31, 2007---giving the legislature 15 months to agree on a replacement.

LANSING POLITICS:

Detroit Chamber/MMA Go “Neutral” On Governor’s Race

Both the Detroit Regional Chamber and the Michigan Manufacturers Association have chosen to stay “neutral” in the Governor’s race---which is a significant nod in support for incumbent Governor Jennifer Granholm and a slap in the face to Republican challenger Dick DeVos.

Polls Still Favor Granholm In Gubernatorial Race

Various polls taken in mid to late September continue to give incumbent Governor Granholm a 5-8 point lead over Republican challenger DeVos.

Governor’s Race Spending Hits To Hit All Time Record

The amount being spent for this year’s gubernatorial race will undoubtedly exceed any previous race with DeVos raising over $16 million and Granholm over $12 million by the end of August. Total spending by both candidates as of late September totaled $26 million.

Three Gubernatorial TV Debates Scheduled

There will be three gubernatorial debates between Democrat incumbent Governor Jennifer Granholm and Republican challenger Dick DeVos. The debates are scheduled for Monday, October 2nd in Lansing, Tuesday, October 10th in Grand Rapids, and Monday, October 16th in Detroit. A fourth debate at the Detroit Economic Club is also in the offering for October 13th.

SOS Proposal Off The Ballot

A ballot proposal to Stop Over Spending (“SOS”) has failed a challenge to the number and validity of signatures and will not appear on the November Ballot. The proposal would have limited state spending to prescribed limits based on inflation.

August Unemployment Rate Puts Michigan Last With Mississippi/Revenues Down

A seasonally adjusted unemployment rate of 7.1% in August gave Michigan the distinction of being tied for dead last in employment with Mississippi. In addition, state tax revenues fell by 12.8% over the same period last year.

INDUSTRY NEWS:

AFS Submits Comments to USTR on China's Compliance with WTO rules

This week AFS submitted comments to the inter-agency Trade Policy Staff Committee (TPSC) in the Office of the US Trade Representative (USTR). USTR will use the input received from all the interested parties to prepare its 2006 report to Congress on China's World Trade Organization (WTO) compliance record. AFS’ comments specifically addressed the impact of currency manipulation and the Chinese government's subsidies to many of its manufacturers (including foundries) through government grants and tax breaks, cheap water and energy, and generous loan terms from China's state-owned banks.

As you probably remember, China became a member of the WTO in 2001. Under the agreement, USTR must submit an annual report to Congress on China's WTO compliance efforts by December 11th of each year. The U.S. Trade Representative's office will hold a public hearing next week on the issue in Washington, D.C.

Senate to Vote on Schumer-Graham Bill

Next week the Senate is likely to bring up the Schumer-Graham bill that would put tariffs on imports from China in retaliation for the Asian nation's currency manipulation. The bill (S. 295), introduced by Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) would slap tariffs of 27.5 percent on imports from China to compensate for its weak currency. Last April, the Schumer-Graham legislation passed 67-33 on a procedural vote. It is scheduled for an up-or-down vote before September 30th with two hours of debate equally divided between the Republicans and Democrats.

Senators Grassley (R-IA) and Max Baucus (D-MT) have a much weaker separate measure that could lead to a cut-off of U.S. government loan guarantees to countries whose currencies are "fundamentally misaligned" with the dollar. Senator Grassley had planned to bring his bill as a substitute to the Schumer legislation; however, that effort will likely be blocked by a parliamentary technique to prevent substitute proposals.

During the 109th Congress, AFS has supported H.R. 1498, the Hunter-Ryan Chinese Currency Act of 2005, a WTO-compliant bill that would add currency manipulation to the list of unfair trade practices actionable under U.S. trade law. AFS did not take a position on the Schumer-Graham bill. If your company would like to support S. 295, feel free to to contact your Senators by telephone or fax with the following message:

“Please support the Schumer-Graham “China currency” bill, S.295, when it comes up for a vote on the Senate floor. It is vital that this bill pass by a large majority to help convince the Chinese government to implement a substantial revaluation of its currency. Chinese currency manipulation places U.S. foundries like ours at an unfair competitive disadvantage against Chinese products.”

New Chief Counsel for China Trade Enforcement Meets with Manufacturers

In September, the AFS Washington staff had an opportunity to meet the new chief counsel at the Office of the US Trade Representative (USTR) for China Trade Enforcement - Claire Reade. She has been on the job for just about a month. She is extremely bright and very serious about the job at hand - enforcing U.S trade laws with China. Obviously this is quite a daunting challenge.

USTR is not a large organization (around 200) and is just one important piece of the pie when it comes to trade enforcement. We had an opportunity to discuss our frustration with the administration’s slow process of enforcing China’s compliance with the World Trade Organization (WTO) requirements and specifically on unfair Chinese trade practices, including subsidies and currency manipulation. We urged their office to aggressively use our trade remedy laws to curb imports of unfairly priced or subsidized products, including castings.

US, EU, Canada File Auto Parts Trade Case against China

Last week the United States joined with the European Union and Canada charging that China has erected illegal barriers to the sale of U.S. and other foreign-made auto parts within its borders. The case was filed with the WTO. It is the first complaint against China to reach the litigation stage since Beijing joined the WTO in 2001.

The auto parts dispute involves taxes that China imposes on auto parts made in the United States and other foreign countries as a way to encourage automakers operating in China to use more Chinese-made parts. The parties to the suit allege that this so-called "local content" rule violates WTO rules. The case comes right before Treasury Secretary Henry Paulson is scheduled to meet with Chinese officials regarding a range of trade issues.

The three countries, which have shown increasing signs of impatience with the China's trade policies, took the rare step of joining forces in March to call on Beijing to talk about lowering barriers to China's $19 billion auto parts market. Months of talks produced no resolution of the issue.

High-Level Commerce Department Mission to China Announced

On November 14-17, 2006, U.S. Commerce Secretary Carlos Gutierrez will lead a business development mission to China. The mission will include stops in Beijing and Shanghai and will highlight export opportunities for U.S. businesses in China. According to the Commerce Department, this mission is suited for both experienced exporters, who would like to explore market opportunities in China, and for companies that are currently operating in China and are seeking to increase their level of exports. The mission delegation is expected to comprise U.S. firms from a broad cross-section of industries with commercial interests in China.