Polarized Congress Could Act on Industry Issues

The new session of Congress may address Internet sales taxes, online counterfeits and trade with Russia.

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WASHINGTON — Gridlock.

This story first appeared in the January 3, 2012 issue of WWD.  Subscribe Today.

That’s likely to be the state of Congress when legislators return this month and the presidential campaign heats up. But if they can get past the partisan bickering, there are several bills before it of major importance to the fashion and retail industries, including a proposal to tax Internet sales, an online counterfeit and piracy measure and a bill that would permanently normalize trade relations with Russia.

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The new session, which officially runs through July before breaking for the Republican Convention the last week of August and the Democratic Convention the first week of September, is likely to pick up where the last one left off before it adjourned for a month-long recess at the end of the year. That means a highly divisive and charged atmosphere in which neither Republicans in control of the House nor Democrats in control of the Senate are willing to cede ground on many issues. Before departing for the holidays, Congress barely broke a deadlock to extend a payroll tax cut and unemployment insurance benefits for two months — a situation much of the nation blames on intraparty divisions between the Republicans in the House and Senate.

The presidential election complicates the political calculations this year. The field of GOP candidates is already staking out ground on issues important to the fashion industry, including China, trade and tax reform ahead of today’s Iowa caucuses. Experts said there will be little room for common ground in Congress, but there are some bills important to the industry that could advance in the first half.

Topping the list is legislation that clamps down on Web sites engaging in online piracy and counterfeiting by broadening the authority of the Justice Department.

“It’s pretty clear they need more authority to go after these [illegal Web domain] names,” said Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association. “From our perspective, we need to have a government that has some type of enforcement of these illegal activities that are stealing from the American public and tarnishing the names of America’s greatest brands, which have taken years to grow.”

Acknowledging that it will be difficult to move any measures through Congress, Burke said he still hopes the bill targeting Web sites that sell counterfeit merchandise has enough bipartisan support to pass this year.

Phillip Swagel, professor of international economic policy at the University of Maryland, said he expects the current bill to be “reworked in Congress and then eventually move forward.”

“The idea of safeguarding U.S. intellectual property enjoys wide support,” Swagel said. “The key is to do so in a way that does not have unintended consequences for innovation in online services.”

Another bill gathering momentum concerns Internet sales taxes, supported by a wide array of interests ranging from Neiman Marcus Group, the National Retail Federation and the Retail Industry Leaders Association to Amazon.com. It would enable states to collect sales taxes from out-of-state merchants regardless of whether they have a physical presence in the state.

The debate over taxing Web sales has taken place in Washington for more than a decade without resolution, but industry lobbyists feel that a bipartisan group of lawmakers has come up with the right legislative proposal that could garner enough support to pass Congress this year. Further boosting the bill’s prospects is an endorsement from former opponent Amazon.

“I think there is a lot of momentum behind it right now,” said David French, senior vice president of government relations at the NRF. “Certainly, there are a lot of frustrated retailers and frustrated governors [pressing for the legislation]…I think there might not be a lot that happens in 2012, but this may be one of the few things that does happen.”

French said revised legislation introduced in the Senate in November is significant “because it gives states more options” and sets up a two-track process to give online sales tax collection authority to states.

Bill Hughes, senior vice president of government affairs at RILA, agreed “it does have traction.”

“I think 2011 was a pretty consequential year for the e-fairness sales tax issue,” said Hughes, adding that several states, including California, Texas, Illinois and Tennessee, have passed state laws to “level the playing field on sales tax collections.”

On the trade front, Russia formally joined the World Trade Organization in December and in order for U.S. companies to gain the full benefits of Russia’s accession, Congress must also grant permanent normal trade relations to the country.

Trade experts expect the House and Senate to vote on PNTR early this year, but human rights issues in Russia and rampant intellectual property rights violations are expected to complicate Congressional approval.

“Granting PNTR to Russia inevitably will involve a Congressional evaluation of Russia’s evident reverse movement on political freedoms and human rights,” said Swagel. “So it’s not clear this will move forward immediately. It could take some time before there is enough progress in Russia to make possible Congressional assent.”

Russia’s WTO entry will create new investment and export opportunities for U.S. retailers and apparel brands seeking entry into the largely untapped market.

“We have seen trade-related votes during elections,” said Burke of the AAFA. “The question they will ask is whether the trade vote can be viewed as taking jobs away from Americans, and I don’t see anyone seeing Russia in the WTO taking jobs away from Americans. I would argue to the contrary. As a result of expanding our bilateral trade in a place like Russia, it will increase American jobs. There will be more sourcing, more U.S. fabrics and cotton sold as a result, whether it is made in China or Central America and imported into Russia. That is an ability to increase our market.”

Industry lobbyists will also continue to monitor Congressional angst over China’s undervalued currency to gauge whether a potentially punitive bill that passed the Senate in November will gain traction this year. House leaders have said the legislation is dangerous because it does not meet WTO rules and could spark a trade war. To date, they have refused to bring it to the floor for a vote.

But the issue has gained some interest among Republican presidential candidates.

Mitt Romney has been the most outspoken about China’s undervalued currency, pledging to impose sanctions on Chinese imports if he is elected to the White House.

“Without question, China will be a subject that the candidates will talk about a lot,” said French. “China is our most significant economic relationship, as well as one of our most challenging relationships. China has an enormous impact on the U.S. retail market and I think it inescapable that politicians will have to address or be called to address China in their platforms.”

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