The Big Story: Foundational trade policy to be extended, staving digital tariffs for now
Friday evening in Abu Dhabi, the World Trade Organization 13th Ministerial Conference (MC13) appeared likely to conclude with a temporary extension of the moratorium on the imposition of customs duties on electronic transmissions, a critical policy for startups and digital trade. The moratorium, which has existed since 1998 and has been renewed at every subsequent Ministerial Conference, is a foundational Internet policy that enables digital trade by prohibiting tariffs on electronic transmissions, like software, for example. Without the moratorium in place, which is set to expire at the end of the month, countries would be able to introduce tariffs on digital goods and services, dramatically raising barriers to trade for startups in those markets. A draft text released Friday showed the moratorium being extended until the next Ministerial Conference.
At MC13 and in the months leading up to it, startups and businesses of all sizes from virtually every industry urged extension of the moratorium, underscoring its universal importance. Last month, Engine joined a coalition of over 200 organizations from across the globe outlining the benefits of the moratorium and urging ministers to extend it. Engine also led a coalition of over 40 startups and support organizations calling on U.S. policymakers to take steps to make it permanent. Despite its broad support, thanks to WTO rules, a small handful of countries, like India, Indonesia, and South Africa, are able to block outcomes like the extension of the moratorium for their leverage to pursue their own priorities. Their longstanding opposition to the moratorium’s extension contributed to the delays and uncertainty around its extension.
The e-Commerce moratorium is a foundational Internet and international trade policy, and without it, the global trade landscape would fracture and barriers would increase, especially for startups. It is encouraging to see that the moratorium is likely to be extended for now, but policymakers should proceed with their work to secure continuation of this necessary policy into the future.
Policy Roundup:
Supreme Court skeptical of Texas and Florida social media laws. On Monday, the Supreme Court heard oral arguments in a pair of cases about state laws that restrict content moderation online. A majority of Justices appeared skeptical of the laws because they would impinge on Internet services’ First Amendment rights to exercise editorial discretion. The Texas and Florida laws each have high applicability thresholds, but those thresholds are arbitrary and meaningless when considering the constitutionality of the laws. As Engine emphasized in an amicus brief ahead of oral arguments, the sorts of content moderation restrictions in the laws impede the First Amendment rights of startups to choose what content to display and curate on their websites.
Report shows funding plummeting for Black-founded startups. This week, Crunchbase released a report examining the state of venture funding for Black-founded startups in the U.S. showing a staggering 71 percent drop from 2022 to 2023. That drop far outpaced the decline in overall startup funding of 37 percent, and marked the first time since 2016 that it failed to reach $1 billion. Policymakers need to enact measures to improve access to all capital pathways for underrepresented founders so that they have an equitable opportunity to innovate within the U.S. startup ecosystem.
Expected rule raising wealth criteria would shrink pool of startup investors. This week, The Securities and Exchange Commission's Small Business Capital Formation Advisory Committee recommended against raising the wealth threshold to qualify as an accredited investor and discussed a possible test would-be investors could take to qualify. If the Securities and Exchange Commission (SEC) moves to increase wealth thresholds, as they are expected to do, the pool of eligible investors stands to dramatically shrink, reducing investor diversity and ultimately the diversity of startups that receive funding. While this recommendation is positive for startups, the SEC will likely continue to move forward with its plans. Policymakers should continue efforts to expand the definition of accredited investor and are slated to consider the Expanding Access to Capital Act on the floor of the House next week, which would, amongst other provisions, also include an expansion.
Florida governor expected to reject social media law requiring age verification. On Friday, Florida Governor Ron DeSantis (R) is expected to veto a bill that aims to impose one of the nation's strictest bans on social media use for minors under 16, in favor of considering a similar alternative. That bill, HB1, would require Internet services with certain features like algorithms to verify the age of their users, including by providing an anonymous option, which does not technically exist. As Engine explored in a recent report, age verification requirements are particularly onerous for startups, because they create new costs, distract from product development, increase cybersecurity risks, diminish user experience, and ultimately undermine their growth and competitiveness.
Small Business Committee criticizes recent U.S. policy shift on digital trade. On Monday, the House Committee on Small Business sent a letter to U.S. Trade Representative Katherine Tai underscoring the disproportionate burdens to be faced by startups and small businesses as a result of the administration’s decision to abandon support for long-held digital trade priorities last fall. The Committee urges Ambassador Tai to reconsider that decision. Their letter follows an open letter from a coalition of startups calling upon policymakers to support smart digital trade policies, like opposition to data localization and digital-specific levies, that lower barriers to trade for startups.
Startup Roundup:
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