The Big Story: Startups weigh in on digital trade
Policymakers need to advance strong digital trade principles that help U.S. small businesses compete globally, startups are telling Congress, including at a hearing held by a key House panel this morning. Advancing a positive, proactive trade agenda would help lower barriers to digital trade and facilitate startups’ entry into global markets. At this morning’s hearing held by the House, Ways and Means subcommittee on trade, Olivia Walch, CEO and founder of Arcascope, will testify about the ways strong digital trade policy supports her startup.
Startups benefit from a global trade environment with low or no barriers to trade. In February, more than three dozen startups wrote to Congress urging policies that support their ability to break into new markets, create domestic jobs, earn investment, and scale their ventures. Those points will be echoed by Walch, who says in her testimony that startups “need strong leadership to prevent rules like tariffs on digital goods, mandatory data localization, or forced source code disclosure from hampering our global growth.” In particular, she details how encountering these barriers would lead them to “just stop operating in that country.”
The hearing comes after months of the Biden administration moving in the wrong direction on digital trade, including by walking away from key provisions in trade negotiations last October. In July, around 80 countries agreed to the text as part of those negotiations which did not include provisions ensuring cross border data flows and protecting source code. Policymakers justify the change in digital trade priorities, saying these policies benefit big companies, but they are crucial for startups looking to compete globally. U.S. policymakers should use trade policy to minimize trade barriers that limit startups' ability to reach global markets.
Policy Roundup:
House committee advances controversial Internet legislation. The House Energy and Commerce Committee on Wednesday moved along legislation including the Kids Online Safety Act (KOSA) and the Children and Teen’s Online Privacy Protection Act (COPPA 2.0) that will create obligations for Internet companies, including startups. The bills advanced on voice vote amid discontent from nearly all sides about how amendments altered key provisions. Language in both bills—including language that was added via an amendment to COPPA 2.0 during the markup—acknowledges the burdens of age verification for startups, by creating a tiered knowledge standard that triggers compliance obligations if a company has actual knowledge a user is young. The Senate advanced its version of both bills in a package earlier this summer which carries serious risks for user privacy, user expression, and cybersecurity.
Tech industry advocates call for net neutrality rules. Engine and INCOMPAS submitted an amicus brief this week defending the Federal Communications Commission’s net neutrality protections, noting that small companies will be least able to pay Internet service providers for priority access to their users. In April, the FCC reinstated net neutrality rules similar to those put in place in 2015 and then repealed in 2017. Engine has long advocated for open net neutrality protections to prevent the blocking, throttling, and paid prioritization practices that harm startup competition and innovation.
California AI bill draws continued criticism ahead of veto deadline. Critics of California's sweeping artificial intelligence bill are again urging Gov. Gavin Newsom (D) to veto the bill this week, citing his own stated concerns that the bill could chill AI development in the state. Rep. Jay Obernolte (R-Calif.) joined the list of the members of California’s congressional delegation to express concerns about SB 1047, saying it would burden the development of artificial intelligence, discourage openness, and contribute to the AI regulatory patchwork. Engine has repeatedly called on Newsom to veto SB 1047 due its likely negative impact on startups.
House Republicans express concern with a global tax deal. This week, House Republicans sent a letter to the Organization for Economic Co-operation and Development Secretary-General Mathias Cormann to express their concerns with negotiations around a global tax deal, which would need to pass Congress to ensure U.S. participation. A global tax plan would also eliminate digital services taxes (DSTs), which, while mostly directed at large technology companies, impact startups through increased costs for digital services on which they rely. Policymakers should continue to pursue a global tax deal that avoids a complex and costly DST patchwork for startups.
Committee hearing draws attention to agency impact on small businesses. The House Energy and Commerce subcommittee held a hearing this week on practices at the Federal Trade Commission, focusing on key issues affecting startups like competition and data privacy. During the hearing, committee members and witnesses alike emphasized how the Commission’s new direction under Chair Lina Khan has disregarded the impacts of Commission enforcement actions and rulemakings on small businesses. The Commission’s actions have threatened successful startup exits and proposed rulemakings that would burden their ability to innovate.
Startup Roundup:
#StartupsEverywhere: Scottsdale, Arizona. Sensagrate is revolutionizing roadways by providing data on human-driven and autonomous vehicles to enable intelligent decisions and safety on the road. We recently talked with founder and President Darryl Keeton about how the technology works, AI regulation, the essential role of startup accelerators, and more.
