The Big Story: Lawmakers lament detriment to startups of Trade Rep’s digital trade reversal
This week, Ambassador Katherine Tai, the U.S. Trade Representative, testified before committees in both chambers of Congress where members of both parties expressed concern over her office’s recent actions on digital trade policy. USTR withdrew support for essential digital trade provisions in negotiations at the World Trade Organization last fall, and markedly reduced the number of digital trade barriers in a recent annual report on foreign trade barriers. Ahead of the hearings this week, Engine joined a coalition of industry groups pushing back on the changes to that statutorily required report, and highlighted the importance of addressing digital trade barriers to startups.
Trade barriers encountered by startups dictate the markets where they can reasonably enter, create additional costs that detract from investments in R&D and job creation, and hamper U.S. economic growth by limiting the flow of goods and services across borders. Policies placing limitations on how and when data can be transferred across borders—which USTR is no longer keen to address—have particularly negative impacts on startups because they create unnecessary and burdensome new costs. Sen. Ron Wyden (D-Ore.), the Chairman of the Senate Finance Committee, underscored this point, saying “I'm going to be pushing hard that these policies like forced localization are just poison for small businesses. There's just no way they can move ahead if they're going to be paying for servers and all the rest.”
During the hearings, Ambassador Tai sought to justify her agency’s moves by saying they were necessary because Congress was acting on issues like privacy. As examples, she pointed to the House-passed TikTok divestment and data-broker transfer legislation, but those bills passed after her October moves, not before. Sen. Marsha Blackburn (R-Tenn.) strongly disagreed with these justifications, calling them an “excuse and not an accuracy,” and underscoring that “international agreements on digital trade do not preclude countries from passing privacy laws.” Strong digital trade policy is critical, and we hope lawmakers continue to work with the administration to push for barrier-lowering policies that enhance the competitiveness of U.S. startups.
Policy Roundup:
House committee explores privacy, children’s measures impacting startups. On Wednesday, the House Energy and Commerce Innovation, Data, and Commerce Subcommittee held a hearing on several pieces of legislation addressing privacy and children online that will impact startups, like the American Privacy Rights Act (APRA), the Kids Online Safety Act (KOSA) and the Children and Teen’s Online Privacy Protection Act (COPPA 2.0). Ahead of the hearing, Engine underscored the impact of these bills on startups. The APRA would address the problematic patchwork of unique state privacy laws but could create new burdens for startups and open the door to bad-faith litigation. KOSA and COPPA meanwhile could lead to the need for startups to use flawed and costly age-verification tools. The bills are likely to be marked up in the Subcommittee in early May, where lawmakers should focus on mitigating negative impacts on startups.
Lawmakers unveil bill aimed at maintaining AI global leadership. On Thursday, a group of senators introduced the Future of AI Innovation Act to create voluntary standards to mitigate risks while promoting artificial intelligence innovation. The bill’s sponsors include key Sens. Maria Cantwell (D-Wash.), who chairs the Commerce Committee, and Todd Young (R-Ind.), a member of the chamber’s AI working group. The bill focuses on creating partnerships to further AI research and establish standards to guide development. Importantly for startups, it also will prompt the study of barriers to AI innovation and the creation of public datasets. Policymakers must be mindful of startups as they seek to mitigate potential AI risks, and we appreciate lawmakers’ focus on putting forward a balanced bill.
House committee hears about benefits, ways to improve key startup programs. This week, a House Small Business subcommittee held a hearing reviewing the impact of resources like the Small Business Innovation Research programs. Ahead of the hearing, Haley Marie Keith, the Co-founder and CEO of Indianapolis, Indiana-based MITO Material Solutions, submitted a letter for the hearing record detailing her experience with the SBIR program and how it can be improved. She shared how the SBIR “changed our company trajectory,” but also underscored the need for improvements in guidance—especially around grant reporting and compliance—to lower those burdens on program participants. Policymakers need to ensure the longevity of the SBIR and work to enhance it so that more founders from more backgrounds can benefit.
Telecom agency to vote next week to restore net neutrality rules. The Federal Communications Commission is set to vote next Thursday on a final rule reinstating net neutrality, which is key to ensuring a level playing field for startups. Startups need to stretch every dollar of their limited budgets as far as possible and can’t afford to pay extra to reach users—which could happen without the rules. What’s more, investors want their resources to be put toward growth, not siphoned off to infrastructure costs. That’s why over 1000 startups and investors from all 50 states protested the removal of the rules in 2017. The rules ensuring free and open Internet are a positive step for the startup ecosystem.
Senate set to take up spy program extension with potential problems for data flows. On Friday, the Senate is poised to consider the House-passed extension of Section 702 of the Foreign Intelligence Surveillance Act, a controversial spying authority that has also been at the center of international disputes over data flows, critical for startups. The program lets the government collect Internet communications en masse, both from Internet infrastructure providers and companies that service a surveillance target directly. Earlier this week, leaders in the tech industry flagged how a change included in the House bill could dramatically expand the service providers subject to 702. That expansion could imperil necessary data flows, and lawmakers must mitigate negative impacts of the extension upon startups.
Startup Roundup:
#StartupsEverywhere: Brooklyn, New York. After overcoming childhood shyness in the warmth of his local Caribbean-owned barbershop, Roydon Jeffrey knows the power of the beauty industry firsthand. He set out to create ListedB, an online marketplace for beauty industry professionals. We spoke to him about the financial opportunity within the industry, navigating capital access and investors, and his desire to empower small businesses owners.
