The Big Story: Administration continues to disappoint startups on trade
Negotiations over the trade portion of a regional economic framework this week failed to produce significant results, continuing a string of digital trade policy disappointments for startups. The U.S. and a collection of Indo-Pacific nations on Thursday announced the signing or conclusion of three of four pillars of the Indo-Pacific Economic Framework, leaving the trade pillar outstanding over several concerns including key digital trade provisions. Key digital trade provisions for startups, like those ensuring cross-border data flows, are unlikely to make it into the final framework text, especially following the administration's recent decision to abandon support for those provisions at the WTO.
The Indo-Pacific Economic Framework (IPEF), formally launched in May 2022, is the Biden Administration’s flagship trade product, and includes four pillars—trade, supply chains, clean economy, and anticorruption. The latter three are complete, while the trade pillar is on hold over several remaining disputes, including labor and digital trade issues. Startups had hoped that the framework would further expand gold-standard digital trade provisions, like those found in the United States-Mexico-Canada Agreement or the digital agreement between the U.S. and Japan (also an IPEF partner country). If the IPEF trade pillar does eventually materialize, it almost certainly won’t have those strong digital trade provisions needed by U.S. startups as the U.S. Trade Representative (who is leading the negotiations on the trade pillar) recently withdrew support for several digital trade provisions, including around data flows, at the World Trade Organization. Some Democratic lawmakers have cheered that move and said it will be reflected in the IPEF text as well.
Startups need smart digital trade policy that reduces barriers for them to reach and be competitive in markets around the world. Restrictions on how and when (or if) data can be transferred across borders increase costs for startups and can dictate how and where they scale. Engine and a coalition of small business and startup organizations have each warned the administration of these consequences and urged them to reverse course.
Policy Roundup:
$49B short term child tax credit expansion could aid women entrepreneurs. Senate Democrats have floated a short-term expansion of the Child Tax Credit (CTC), which would benefit working parents—including entrepreneurs—by providing additional financial support to raise families. The proposed expansion would make the CTC fully refundable and could be included in a possible end-of-year tax package. Engine has advocated for a permanent expansion to the child tax credit, as have women founders, who have traditionally shouldered childcare responsibilities with diminished access to the startup ecosystem.
New bill would boost angel funds across the startup ecosystem. A bipartisan group of senators introduced the Expanding American Entrepreneurship Act this week, which would raise the cap on fund size and increase the number of investors allowed to contribute to angel funds, allowing a more diverse investment pool to participate. Engine has long called for more diversity amongst investors in the startup ecosystem—earlier this fall, Engine convened Black Founders from across the U.S. startup ecosystem where discussion centered on the unique challenges they face in the startup ecosystem, including accessing capital. Policymakers should push forward with this legislation, as well as other efforts, including expanding the accredited investor definition, to boost diverse investment in underrepresented founders.
Merger rules changes, digital trade reversal concerns feature at antitrust oversight hearing. This week, the House Judiciary antitrust subcommittee held an oversight hearing featuring Department of Justice antitrust head Jonathan Kanter, which delved into issues impacting startup exits and international competitiveness. Lawmakers from both parties expressed concerns regarding the antitrust agencies’ rewrite of the merger guidelines and efforts to remake the premerger notification process. Those efforts will negatively impact the ability of startups to exit via acquisition, and ahead of the hearing, Engine and 30 others from across industry sent a letter to congressional leaders relaying these concerns which was entered into the hearing record. Also at the hearing, lawmakers lamented antitrust agencies’ role in recent changes to digital trade policy that will negatively impact startups’ competitiveness abroad.
Engine submits comments in response to initiative on youth and online safety. The National Telecommunications and Information Administration (NTIA) closed a comment period this week exploring issues at the nexus of youth and online services. In our comments, we highlighted the unique, needed spaces that startups often create for individuals not served by other platforms, which can include young people. We also explain the tradeoffs presented by content moderation or age verification technologies can have for expression and privacy, which are particularly salient for startups with few resources.
New report highlights impact of immigrants. The American Immigration Council released an interactive map and report this week highlighting the substantial contributions of immigrants in the U.S. Immigrants make up 22% of entrepreneurs in the U.S, founding startups that drive innovation and support a vibrant startup ecosystem. Engine has long highlighted the barriers immigrant entrepreneurs face when launching businesses in the U.S. This report further underscores the need for policymakers to craft solutions, including more and better pathways, for immigrant founders and talent to come to the U.S.
Bipartisan group introduces bill to reform controversial spy program. Last week, a bipartisan, bicameral group of lawmakers introduced legislation to significantly reform Section 702 of the Foreign Intelligence Surveillance Act, which has implications for cross-border data flows relied upon by startups and is up for reauthorization this year. The bill would, among other things, introduce warrant requirements and improve judicial oversight. Other efforts floated to reauthorize Section 702 include attaching it to must-pass legislation to fund the government and a potential narrow reform bill featuring minor changes to the program. Congress should take this opportunity to address concerns about the program central to disputes over cross-border data flows, which have negatively impacted startups’ ability to serve customers abroad.
Startup Roundup:
#StartupsEverywhere: Washington, D.C. For founder Eric Blue, Nevly comes from a very personal place. After experiencing personal ups and downs mixed with professional successes, Nevly emerged with a mission of leveraging technology to empathetically transform people’s financial situations. Eric shared with Engine his thoughts on how policymakers can stimulate local, underserved ecosystems, capital access challenges for early-stage founders, and how successful founders can bolster the next generation.
