Status of Tech Legislation

(October 30, 2000) The Congress remains in session, with the outcome of many substantive, tax, and appropriations bills affecting technology still uncertain. Clinton is threatening to veto several key bills that include funding for the FCC, SEC, FTC, NTIA, and USPTO, and which are also the vehicles for passing many other tech related bills, including the FSC bill, a low power FM bill, a social security number privacy bill, a Hart Scott Rodino reform bill, and a porn filtering bill.

On Thursday, October 26 the House passed HR 2614, a large tax package that includes, among other things, the Foreign Sales Corporation bill. The Senate has yet to pass it. Clinton says he will veto it.

Also on Thursday, the House passed HR 4942, an appropriations bill which contains funding for the Commerce, Justice, and State (CJS) departments. The Senate passed the bill on Friday, October 27. This bill includes funding for most of the federal agencies that are important to technology industries.

These include the Federal Trade Commission, which brings civil actions against people and entities that commit consumer fraud on the Internet, the Securities and Exchange Commission, which polices online securities fraud, and the Department of Justice, which has criminal jurisdiction pertaining to computer crimes. In addition, the bill funds the Department of Justice's Antitrust Division, and the FTC's Competition Bureau, which have antitrust authority over merging technology companies.

HR 4942 also contains funding for the Federal Communications Commission, which is expanding its regulatory operations from old economy phone, broadcast, and cable activities to new economy Internet based activities. The bill also funds the NTIA and the USPTO, both of which are parts of the Commerce Department.

Another key bill still being negotiated by Congressional and Clinton representatives is HR 4577, an appropriations bill for the Labor, Health and Human Services, and Education departments. It has yet to be passed by either the House or Senate.

The November 7 election is just over a week away. The Congress usually completes its work much earlier than this. However, Bill Clinton is pursuing a political strategy based on the 1995 appropriations battle. In that year the Congress passed all of the appropriations bills, and adjourned. Clinton vetoed appropriations bills, shut down many government operations, and blamed the Congress.

In subsequent years Clinton threatened to "shut down the government" if the Republican controlled Congress did not agree to significant concessions, which the Congress did.

This year the strategy is being played out again, but with two new twists. Clinton is threatening again to veto bills, and shut down the government. However, Republicans leaders have repeatedly stated that they have already made significant concessions, and that Clinton's real motive is to shut down the government just before the election in an effort to create an election issue that will shift enough votes to swing control of the House from the Republicans to the Democrats.

The other new twist this year is that the Congress did not pass its bills and adjourn. Rather, it has stayed in session. They are continuing to work, and negotiate. Of course, most members are spending most of their time back in their districts or states campaigning for re-election, and only jetting back to Washington for quick votes.

Clinton has retaliated by refusing to sign any continuing resolutions (to continue to fund government operations) that contain more than a one day extension. This is forcing the members to fly back to Washington every day, or miss votes, which a significant number from both parties are doing.

Members of the House and Senate met early Saturday morning, and again on Sunday evening, for the purpose of passing one day continuing resolutions. Both are scheduled to meet again on Monday, October 30.

The current Foreign Sales Corporation (FSC) tax regime, and the replacement language contained in HR 2614, benefit high tech companies that sell goods and services abroad. The bill also contains a variety of tax cuts, raises the minimum wage by $1, and restores Medicare cuts for health care providers.

HR 2614 passed in the House on a largely partisan vote of 237 to 174. 203 Republicans and 33 Democrats voted in favor. See, Roll Call No. 560. Hence, if Clinton does veto the bill, it appears unlikely that the veto would be overriden. The Senate has debated, but not yet voted on, this bill.

The WTO recently held that the current FSC tax regime constitutes an illegal export subsidy. Passage of the replacement language would, at least temporarily, avert a potential trade war with the EU. There is little debate in the U.S. over whether the FSC bill should be passed.

While Clinton has threatened to veto the entire tax bill, he states that he supports the FSC replacement language. On October 26, Bill Clinton sent a letter to House Speaker Denny Hastert (R-IL) and Senate Majority Leader Trent Lott (R-MS) about the tax bill. He stated that "While we have already reached substantial agreement in important areas, such as replacement of the Foreign Sales Corporations regime, your legislation has substantial flaws in several key areas."

Most nations have a territory tax regime, by which they tax the income of corporations within their territory. The U.S., in contrast, has a global tax regime dating back to the 19th Century. American corporations are taxed by the United States government for their domestic and foreign income. This puts U.S. corporations at a competitive disadvantage with respect to their foreign competitors when competing in a global economy. To alleviate this disadvantage, the Congress has provided relief through the Foreign Sales Corporation tax system.

Software companies, such as Microsoft, that sell significant amounts of shrink wrap and OEM installed software products abroad, benefit from the FSC system. Conversely, these companies would be greatly harmed by the absence of a FSC system.

The European Union complained to the World Trade Organization that the FSC system constitutes an illegal export subsidy. A WTO dispute resolution panel, and an appellate body, ruled in favor of the EU.

The bill before the Congress is a replacement for the FSC statute. It would repeal the law held to be illegal by the WTO, but still provide export relief to U.S. companies. The EU will challenge this bill also. However, passage of the bill would at least delay any retaliatory conduct from the EU for the duration of the next round of WTO proceedings.

There is little desire by the EU, its member states, or local industries, to take retaliatory action against U.S. tech companies. Of course, Boeing is another matter. Rather, the FSC issue is interrelated with agricultural issues. The EU maintains protectionist policies to support its politically powerful but inefficient agricultural sector. The U.S. objects to this. The EU complaint about the FSC is, in part, a strategy to obtain a bargaining chip to use in negotiations over agricultural trade.

By threatening the bottom line of technology, aircraft, and other industry sectors in the U.S., the EU hopes to deter the U.S. from seeking to terminate the EU's protectionist agricultural policies.

The House passed HR 4942, an appropriations bill which contains funding for the Commerce, Justice, and State (CJS) departments on October 26 by a partisan vote of 206 to 198. See, Roll Call No. 562. The Senate passed the bill on October 27 by a partisan vote of 49 to 42. Senators Max Baucus (D-MT), John Breaux (D-LA), and Byrd (D-WV) voted yes.

The bill also contains a provision limiting the FCC's authority to grant low power FM licenses. The measure is supported by members of the House Commerce Committee, the National Association of Broadcasters, and National Public Radio. The bill also contains a Social Security Number privacy protection provision. However, some privacy groups oppose the measure for being "riddled with loopholes and exceptions." See, opposition letter.

Clinton says he will veto the bill.

There is also a provision in the bill which affects online gambling. Rep. Harold Rogers (R-KY) had this to say on the floor on October 26: "The conference report contains a provision (Section 629) which clarifies that the Interstate Horseracing Act permits the continued merging of any wagering pools and wagering activities conducted between individuals and state-licensed and regulated off-track betting systems located in one or more states, whether such wagers are conducted in person, via telephone or other electronic media, provided such wagers are placed on a closed-loop subscriber-based service, which would include an effective customer and age verification process to ensure that all federal and state requirements and appropriate data security standards are met to prevent unauthorized use by a minor or non-subscriber. The amendment clarifies that the Interstate Horseracing Act permits wagers made by telephone or other electronic media to be accepted by an off-track betting system in another state provided that such types of wagers are lawful in each state involved and meet the requirements, if any, established by the legislature or appropriate regulatory body in the state where the person originating the wager resides."