At the national level, the U.S. has developed a legal framework for Foreign Direct Investment (FDI), protection of personal data and privacy, competitive telecommunications services, modest regulation of most businesses, labor laws and civil rights laws that protect minorities (by sex, national origin, race, religion, age over 40, disability, veteran status and other protected classifications). Enforcement of civil rights can result in drastic remedies, including judicial supervision of educational opportunities and business operations, as well as class actions with punitive damages.
Legal Framework for Global Services
Democratic policies would be implemented against the backdrop of existing domestic and international legal frameworks governing global services.
This framework of liberalized global trade has been in place since 1993, and the accession of China to the World Trade Organization (WTO) was approved in 2001. Fifteen years of practical experience has resulted in the intended globalization of services and goods. Along with globalization comes economic dislocation of jobs that are offshored. Simultaneously, business-process methods performed by a machine have become eligible for patent protection in the U.S., and business processes have become automated through measurement, mapping, efficiency analysis and productivity tools.
Taxation of Trade in Services
None of the candidates proposes a discriminatory tax on services, including imported services. However, companies engaged in sourcing should consider the possible impact on their outsourcing contracts, if the Democratic Congress and a Democratic President were to adopt a protectionist law, such as the Keeping American Jobs at Home Act, as proposed by Senator Wyden in 2004. That 2004 draft would have eliminated any credit or deduction for expenses incurred in transfer of the production of goods (or the performance of services) from within the U.S. to outside the U.S. that results in the replacement of workers who reside in the U.S. with other workers who reside outside of the U.S.
No tax deduction would have been allowed for amounts paid for training of replacement workers, transporting tangible property outside the U.S., any expense or loss incurred in connection with the sale, abandonment, or other disposition of any property or facility located within the U.S. and used in the production of goods (or the performance of services) before such transfer, or expenses paid or incurred for administration or travel in connection with the planning and carrying out of any such transaction, or for the acquisition of any property or facility located outside the U.S. The discriminatory taxation rules would not apply to expenses directly allocable to the sale of goods and services outside the U.S. Such legislation would undoubtedly be challenged as a breach of U.S. obligations under the WTO agreements.
Foreign Direct Investment
Regulation of FDI in the U.S. has not attracted much attention by the Presidential candidates. The existing legal regime for foreign investment in “sensitive” industry sectors has been under challenge since the politically forced withdrawals of China National Oil and Dubai Ports Authority. Adoption of politically neutral principles for investment by foreign government “sovereign wealth funds” have been negotiated ad hoc to avoid further political backlash and protectionism under the Exon-Florio law that established the federal inter-agency Committee for Foreign Investment in the U.S. Foreign investments that threaten local “security” will be challenged by any U.S. presidential administration, and other countries are heeding the lesson to protect their own “security” in various strategic industries such as transportation, logistics and technologies.
Data Privacy and Security
Existing federal criminal legislation such as the Computer Fraud and Abuse Act already serves as a strong deterrent to insider sabotage and security breaches. Additionally, there could be some Democratic impetus to adopt legislation such as offered in 2004 by Democrat Congressman Edward J. Markey (D), the “Personal Data Offshoring Protection Act of 2004,” H. 4366, 108th Congress, that would have required U.S. businesses to export personal data only to foreign business that have a legal regime that the Federal Trade Commission considers for adequate protection, and to require U.S. businesses to obtain the consent of data subjects for transmittal of personal data to other countries.
The number of security breaches of personal information in the U.S. and globally is the single largest threat to successful outsourcing and offshoring. Virtually all enterprise customers expect their service providers to ensure compliance with data protection and privacy laws, regardless of the additional costs to comply with new changes and regardless of the increasingly sophisticated threats.
Neither the Democrats nor the Republicans wish to see any impairment of security for protecting privacy of personal data. Accordingly, after the election, we may expect bipartisan promotion of data-security legislation such as Senator Patrick Leahy’s proposed “Personal Data Privacy and Security Act of 2007,” 110th Congress, S. 495. That bill would apply to business entities that “compile, access, use, process, license, distribute, analyze or evaluate personally identifiable information in electronic or digital form” on 10,000 or more U.S. persons.
Enforcement would be severe but not create a new set of class action plaintiffs. Business entities that violate the security policies and programs would be subject to a civil penalty of not more than $5,000 per violation, per day and a maximum penalty of $500,000 per violation. Intentional and willful violations would be subject to an additional civil penalty of $5,000 per violation, per day and an additional maximum penalty of $500,000 per violation.
Because the U.S. Constitution gives Congress the right to enact laws on interstate and international commerce, such federal legislation would harmonize a patchwork of state laws on the notification by custodians of personal information in case of a security breach. If the Democrats win, the level of protection might be more stringent, and enterprises could anticipate significantly higher regulatory burdens and penalties for non compliance as well as shareholder class actions for sloppy data-custody practices. Despite pro-business leanings, Senator McCain as President would still sign a strict data-privacy law because of his background in military intelligence, military security, crime control and homeland security.
