Washington in Review - April 27, 2018

It has been a rollercoaster ride watching recent trade developments -- the White House floated the possibility of rejoining the Trans-Pacific Partnership (TPP), only for President Trump to reverse course on the idea with a tweet. The Spring IMF meeting and the state visit from French President Emmanuel Macron have dominated geopolitical conversations. Meanwhile, the administration is sending Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer to Beijing amid escalating tensions between the two countries on trade. Our PwC team has more on these developments, as well as other state, federal, and global activity.

Want our Strategic Policy Advisers team to take a look at other topics? Let me know in the comments.

Hope Does Not Spring Eternal at Spring IMF Meeting

The Spring 2018 IMF meetings concluded last week on a cautiously optimistic note. Global growth projections for 2018 and 2019 were reaffirmed at 3.9% (a decade high) on the basis of investment and trade. However, discussions at the meeting centered on the growing global debt (currently at 225% of global GDP), protectionist measures, and a weak cushion for a potential downturn or market volatility.

What does it mean?

• As companies act aggressively in bullish markets, they should also have contingency plans for rainy day scenarios in their operating regions.
• Companies should also advocate strongly for pro-growth and pro-trade policies to support investment plans and help the world prepare for technological change.

Trade Deals: Are You In or Are You Out

In the first state visit of the Trump presidency, French President Emmanuel Macron encouraged global cooperation and advocated reviving the Transatlantic Trade and Investment Partnership (TTIP). This comes on the heels of the US granting the EU temporary exemption from steel and aluminum tariffs. In addition, NAFTA negotiations continue with Mexico hoping to reach agreement before its July 1 presidential election.

What does it mean?

• As the Trump administration evolves its trade strategy, companies need to strategically reassess their international operations and supply chain to weather potential negative impacts, such as rising costs, shifting trade flows, and redirected foreign investment.

Striking a Balance on Trade

In an effort to balance free trade and protectionism, the US seesawed on the idea of potentially rejoining the Trans-Pacific Partnership while reportedly weighing another investigation into China’s restrictions on cloud companies. Similarly, China announced plans to remove caps on foreign ownership of electric vehicles, shipping and aircraft manufacturing, but also levied tariffs on sorghum from the US.

What does it mean?

• While the latest maneuvers threaten to escalate tensions, they are only in the proposal stage and seem set to stack the deck prior to entering any real negotiations.

Tomorrow Will Have To Wait... Seven Years for Chinese Telecom

The US Justice Department launched an investigation into a large Chinese telecom firm, alleging the company engaged in unsanctioned activity in Iran and North Korea. This follows the recent action by the US Commerce Department to impose a seven-year ban on American companies selling equipment to another large Chinese telecom firm accused of similar offenses. The market value of two of the largest American suppliers subsequently plunged.

What does it mean?

• Major component manufacturers in the US are caught in the crossfire. Given the size of the Chinese firms, these companies will face more pressure to replace the lost revenue.
• China could continue to slow or even scuttle the approval of important takeover bids across the tech industry if it decides to retaliate against this latest action.

Government Getting Smart on Tech

Recent hearings on Capitol Hill have highlighted gaps in some lawmakers’ understanding of technology. In response, representatives Bill Foster (D-IL) and Mark Takano (D-CA), have introduced a bill to re-establish the Office of Technology Advancement (OTA). Defunded in 1995, the OTA was set up as a nonpartisan agency tasked with informing lawmakers about the evolution of technology. The resolution is also led by Ron Wyden (D-OR) in the Senate.

What does it mean?

• While government-led initiatives may help, there is also an opportunity for tech companies to educate officials. To be effective, however, companies should continue to build trust among their users and the public.

SCOTUS is not Trollin’ Around

The Supreme Court recently ruled that the appeals process in the US Patent and Trademark Office (USPTO) is constitutional. Since its creation, the appeals board has voided all or part of a patent in roughly 80% of reviewed cases, raising the bar to maintain a patent. While this strengthens opportunities for tech companies to challenge patent trolls, the vast majority of patent disputes end in settlements, never reaching the USPTO board.

What does it mean?

• While some companies celebrate the Court’s decision and its effect on firms’ ability to build more on existing technology, companies with patents may see more challenges, making it more costly to maintain intellectual property.

Stars Align for Satellite Policy Reform

On April 17, the Federal Communications Commission (FCC) unanimously advanced a proposal to streamline spectrum licensing for satellite network operators launching small, low-orbit equipment. The proposal comes on the heels of the FCC’s approval of multiple operators’ plans to launch hundreds of satellites and provide global connectivity, especially for regions without wireline service.

What does it mean?

• Network operators should work with the FCC to refine these rules and assess those in foreign jurisdictions and multilateral organizations to simplify global deployment.
• Tech companies that rely on connectivity should support these efforts as they could open new markets for the digital economy. 

New York Aims to Decrypt Crypto Exchanges

New York Attorney General Eric Schneiderman is launching the Virtual Markets Integrity Initiative, a fact-finding inquiry into the practices of cryptocurrency trading platforms. The focus is to determine whether existing transparency and controls adequately protect individual and professional investors, and to inform them of risks associated with these digital exchanges.

What does it mean?

• Amidst growing public concern, state and federal policymakers aim to ensure consumers are protected from new products and technologies that are not clearly understood.
• Businesses using or developing emerging technologies, such as cryptocurrency, should work with lawmakers to set reasonable controls or risk overregulation by not contributing to the debate.

More Guard Rails for Self-Driving Car Deployment

The Pennsylvania Department of Transportation issued guidance for testing autonomous vehicles in the state. Companies are being asked to certify their safety compliance and provide operating plans including vehicle design and driving routes prior to operating in the state. The guidance is voluntary until the state legislature decides to codify its key elements.

What does it mean?

• After the fatal self-driving accident in Arizona, developers testing on public roads should embrace opportunities to build public trust in their technology.
• Operators continue to face patchwork rules at the state and local levels while federal action languishes, which means adjusting business models as companies cross borders.

Netherlands Take the Boot to Loot Boxes

Last week, the Netherlands Gaming Association (NGA) declared that video game publishers are violating gambling laws through “loot boxes” in their games. The NGA has given publishers eight weeks to change their games or face fines and even sales bans. The randomized player rewards in loot boxes account for $30 billion of global revenue and the majority of publisher revenue in some cases.

What does it mean?

• The video game industry has already attempted to self-regulate on this issue, but this first-of-its-kind ultimatum shows that publishers should be prepared to redesign their games and revenue models to stay in existence.

The State(s) of Net Neutrality: An Update

Oregon now follows Washington as the second state to pass a net neutrality law in direct defiance of an FCC state preemption provision included with the repeal of the 2015 rules. California is also considering enacting these measures, as well as a ban on sponsored zero-rating programs, making it the strictest net neutrality proposal in the nation.

What does it mean?

• States increasingly are emboldened to take action where and when they feel the federal government is failing to do so.
• Telecom providers will need to assess how they operate amidst an increasingly fractured landscape as states enact more rigorous regulatory measures.

For past issues of Washington in Review and other commentary on risk and regulatory issues impacting Technology, Media, and Telecommunications companies, visit us on the web.

Contributors: Jocelyn Aqua, Rachel Blumenthal, Chris Caulfield, Brian Dunch, Arie Esquenazi, Nicholas Hall, Shanna Holako, John Impullitti, Joshua Joseph, Priya Kamdar, Sohail Mathur, Marc Mazzie, Julie Riccio, David Sapin, Antonio Sweet, and Lenora Zimmerman.