Fortnightly Review & Analysis - USA, Russia & EU (Vol 2 Issue VIII)

16 – 30 Apr 2017

USA

H-1B Visa

On April 19, 2017, US President Donald Trump signed an executive order that seeks to make changes to the H1B visa programme that brings in highly skilled workers to the United States. The time-limited H-1B visas for skilled workers, which are sought by technology giants, serve as an important gateway for many attracted by tech hubs across the United States. Trump went to Kenosha, Wisconsin, where he signed an order dubbed "Buy American, Hire American", in an apparent bid to shore up his popularity amongst the electorate in the Mid-West. He ordered the Labour, Justice and Homeland Security Departments to propose reforms to the visa programme to prevent immigration fraud and abuse. "We are sending a powerful signal to the world that we are going to defend our workers, protect our jobs and finally put America first," Trump said just before signing the order on a visit to a local manufacturing plant. He further said, "Right now H-1B visas are awarded in a totally random lottery and that's wrong. Instead, they should be given to the most skilled and highest paid applicants and they should never, ever be used to replace Americans."

Administration officials said the commerce secretary will review how to close loopholes in enforcing the existing rules and provide recommendations to the president. The order specifically asks the secretary to review waivers of these rules that exist in free-trade agreements.

Proposals for Tax Reforms

A week later, on 26 April, the American President unveiled plans to dramatically cut taxes for US businesses and individuals, slashing the corporate rate to 15 percent. Trump proposed slashing tax rates for businesses and on overseas corporate profits returned to the country, in a plan that his fellow Republicans in Congress generally welcomed but viewed as an opening gambit. Under the Trump plan, we will have a massive tax cut for businesses and massive tax reform and simplification," US Treasury Secretary Steven Mnuchin announced from the White House. Corporate tax rates would be more than halved from the current 35 percent, and tax brackets for individuals would be compressed from seven slabs to just three - 10, 25 and 35 percent. Gary Cohn, Trump's chief economic adviser, who unveiled the plan alongside Mnuchin, called it "the most significant tax reform legislation since 1986, and one of the biggest tax cuts in American history".

But the long-anticipated overhaul - the details of which remain unclear beyond headline measures - could face stiff opposition in Congress, including from some Republicans, with politicians sharply divided over the prospect of fuelling already rising budgetary deficits.

The Democrats sounded an immediate warning. "If the president's plan is to give a massive tax break to the very wealthy in this country, a plan that will mostly benefit people and businesses like President Trump's, that won't pass muster with we Democrats," Minority Leader Chuck Schumer said. He also warned that a plan that dramatically shrinks tax revenues would "explode the deficit". Analysts have said cutting the top marginal corporate tax rate by 20 percentage points could add a whopping $2 trillion or more to the US financial deficit in a decade.

Russia

Domestic Political Developments

Presidential elections will be held in Russia in one year, and already there’s little question about the outcome: Vladimir Putin will enjoy a resounding victory. Prime Minister Dmitry Medvedev’s job, however, is far less secure, and in the lead-up to the election, Putin will have to make a decision about whether or not to bring Medvedev with him into his fourth term. But the question is how can Vladimir Putin avoid the political fallout that will inevitably come from firing Prime Minister Dmitry Medvedev? Facing corruption allegations and losing support within the government, Medvedev according to critics, is quickly becoming a “suitcase without a handle” for Putin.

The competition for the prime ministership—and for the control over the country’s economic future that comes with the job—is already kicking into high gear, all the more so after the anti-corruption protests that took place across Russia on March 26. The opposition is fast making corruption the central theme of the 2018 election, and many activists are pointing the finger directly at Dmitry Medvedev. This is creating a surprising anti-Medvedev coalition made up of the opposition and large numbers of the political elite.

Both the regime and the opposition know that a political showdown is coming. In Putin’s last term, the ruling elite will either enter a period of decline or be forced to transform into something completely new. Combined with the decline in support for the regime, which had peaked after the annexation of Crimea, and the deterioration of the country’s socioeconomic conditions, the recent protests are already prompting various groups to fight for future political influence. The protests are turning up the heat on Putin’s regime. And the question of whether Medvedev will be dismissed is turning into a question of when he will be dismissed. Will it be a few months ahead of the election; right before voting day, as was the case with Putin’s dissolution of the Mikhail Kasyanov cabinet in 2004; or shortly after the election?

In some ways, this fall would be the optimal time to form a new cabinet because it would give Putin enough time to rebrand the government before the election. This is why the anti-Medvedev coalition is strengthening inside the government: to compel the president to get rid of Medvedev in the hope of maximizing short-term political dividends. Thus, Putin faces a dilemma: how does he avoid the political fallout that will inevitably come from firing Medvedev, who is both one of the chief ideologists of the president’s 2018 campaign and the formal leader of Putin’s United Russia Party?

Some Russian insiders have suggested that the easiest solution to the “2018 quandary” would be to appoint a “technical” prime minister. It would be much easier to dump Medvedev, who would psychologically be less offended if he were replaced by a minor, obscure bureaucrat rather than by a longtime rival or ideological opponent. Appointing a technical prime minister would also be in line with the recent state personnel trend: replacing political heavyweights with young technocrats. Putin likes working with individuals who see themselves not as “friends” or “comrades in arms,” but as loyal foot soldiers who do what they are told without asking unnecessary questions or taking advantage of their proximity to power. This would also allow Putin to govern tactically, based on circumstances—the style of governance that he prefers, rather than being answerable to ideologues.

Europe

Theresa May has called a snap general election for June 8, amid polls that indicate she could win a huge Tory majority in Parliament. Some polls have the

Tories at almost double the vote share of Jeremy Corbyn's Labour Party, indicating that the most likely outcome of the election would be a landslide victory for May that would increase her party’s current working majority of 17 in the House of Commons. Some experts estimate that the Tories will take as many as 56 seats from Labour, leaving them with a 200-seat lead over the official opposition party.

While May said the surprise election she has called for June 8 should silence critics and strengthen her hand when she bargains with the EU, the rest of the bloc has given little indication that it’s ready to walk back from its initial hard-line positions. European governments remain insistent the UK can have no membership of the single market if it limits immigration, and Britain must agree to meet its financial obligations before discussions on a future trade deal can begin.

The latest negotiation draft, drawn up after a meeting of national leaders’ aides in Brussels on April 11, ramps up language on the type of agreement the EU wants when it comes to protecting the rights of EU citizens in the UK and British citizens in the EU at the time Britain leaves the bloc. The guarantees need to be “comprehensive, effective, enforceable and non-discriminatory,” the draft says, and people should be able to prove their status through “smooth and simple administrative procedures.”The document contained more detail about the composition of the “Brexitbill” that the EU wants the UK to pay that’s estimated to run to around 60 billion euro ($64.6 billion).