2011 Washington Year in Review: Fiscal Outlook Cloudy with a Chance of Progress

2011 Washington Year in Review:  Fiscal Outlook Cloudy with a Chance of Progress

By Maggie Hershey, senior director, SEMI North America Public Policy

As the country continues to work its way through troubling financial times, the debate in Washington, D.C. this year has been almost entirely focused on issues of government spending, revenue, and debt.  The tone was set by the new Republican majority who came into the House of Representatives with promises fresh from the campaign trail to cut $100 billion in federal spending.  This renewed vigor to cut spending, matched with record high deficits, has colored the debate on most every issue in our nation’s capital.  The forecast for 2012 will likely be more of the same.  Despite these problems, and the vast media coverage devoted to them, there have been some successes for our industry this year, with some hope for more before the presidential election that is now less than a year away. This article will focus on:

  • Trade Expansion
  • Export Control
  • Patent Reform and Intellectual Property
  • FY11 Government Funding and Super Committee
  • FY12 Government Funding
  • Solar/PV
  • Looking Ahead
Trade Expansion

The United States approved the most significant trade agreement since NAFTA when the Congress approved the implementing legislation for the U.S.-Korea Free Trade Agreement and President Obama signed it into law on October 21.  South Korea also has finalized the agreement and it goes into effect in early 2012.  SEMI supported this agreement and urged lawmakers to approve it. 

The U.S.-Korea agreement provides a strong framework for trade with a key trading partner for our industry.  It eliminates tariffs for a wide range of goods, including flat panel display equipment.  It also provides for customs facilitation and intellectual property protections, among other things.  It is estimated to generate $10-11 billion in economic benefits and create 250,000 jobs.

Attention now shifts to the negotiation of the TransPacific Partnership (TPP) which is expected to be a comprehensive trade agreement for the Asia Pacific region.  SEMI also supports expansion of the Information Technology Agreement (ITA) which eliminates tariffs on many forms of semiconductor equipment and other IT goods.  We prepared a “wish list” during 2011 of additional items produced by SEMI member companies where we would like to see customs duties eliminated and have supported talks among government officials to launch negotiations in this area.

Export Control

SEMI continues our active program to modernize export controls.  We are working with the Obama Administration on the Export Control Reform Initiative and have provided input on key proposals.  In 2011, we provided major comment letters on the proposed restructuring of the dual-use Commerce Control List and the proposed definition for the phrase “specially designed” which is used frequently in the Export Administration Regulations.  The “specially designed” proposal is of concern since it could expand controls and require export licenses for inconsequential items.  SEMI’s comments, public presentations and the resulting press coverage helped result in the Administration’s plan to revise the proposal which is expected to take into account many of the SEMI comments.

Patent Reform and Intellectual Property

The Congress this fall approved the America Invents Act, the first major patent reform in the United States in several decades.  The highest profile change is to move the United States from a first-to-invent approach to a system based on first-to-file, which brings the U.S. in line with the rest of the world. 

SEMI’s focus on patent reform is to ensure that the U.S. Patent and Trademark Office (PTO) has access to all of the fees that it collects.  Over the past twenty years, almost $1 billion in fees collected by the PTO have been diverted to other agencies.  A provision of the patent reform legislation is designed to stop fee diversion, although there is some concern about whether this practice will permanently end.  SEMI supports full funding for the PTO so that it can use those funds to improve patent quality, reduce waiting times and eliminate the backlog of patent applications.

SEMI has been reaching out to governments and others about the importance of intellectual property protection for our industry.  In 2011, we met with the World Semiconductor Council IP Task Force to discuss our IP issues and talk about ways to work together.  We also met with the U.S. PTO and are preparing to brief the PTO IP Attaches who are based on embassies in key countries.

FY11 Government Funding and Super Committee

To start the year, Congress was forced to clean up the work of the previous Congress, who had left before wrapping up the spending for FY11.  Once that hurdle was cleared, the nation soon engaged in a prolonged debate regarding the debt ceiling, which was resolved in part by the creation of the so-called “Super Committee.”  With that committee failed to agree to $1.2 trillion in cuts over the next 10 years by the November 23 deadline, so Congress now faces the prospect of automatic sequestration of across the board cuts, starting in FY13.  As a budget cap of $1.043 trillion was agreed to for FY12 earlier in the year, this fiscal year will be unaffected by the automatic cuts. 

FY12 Government Funding

Unfortunately, even though the fiscal year began on October 1, Congress has passed only three of twelve annual appropriations bills to fund the government.  One of the bills passed, however, includes funding which consistently SEMI advocates for— due to its importance to our industry.  The Commerce, Justice, and Science (CJS) Appropriations bill funds the National Science Foundation (NSF) and the National Institute of Standards and Technology (NIST), both of which are critical government agencies for basic R&D research.  

The legislation funds NSF at $7 billion, which is $173 million above last year’s level.  Within this funding, NSF’s core research program is increased by $155 million to enhance basic research critical to innovation and U.S. economic competitiveness.  Meanwhile, NIST is funded at $751 million, including an increase of $33 million above last year to support core NIST scientific research programs that help advance U.S. competitiveness, innovation, and economic growth.  Given the very difficult funding environment in Washington with many agencies facing budget cuts, seeing even modest increases for the NSF and NIST is a victory. 

Still outstanding for this year is the Energy and Water Appropriations bill for FY12, which is of great importance to the solar photovoltaic and LED industries.  The House passed its version of the bill in July with a total allocation of $30.6 billion; $1 billion below the FY11 enacted bill and $5.9 billion below President Obama’s FY2012 Request.  The biggest cuts to the Department of Energy (DoE) come from the Office of Energy Efficiency and Renewable Energy (EERE), which funds the Solar Technologies Program and the DoE Office of Science which focuses on basic energy research.  In response, the Senate Appropriations Committee has passed its version of the FY12 energy spending bill, with a total allocation of $31.6 billion, $1 billion more than the House bill.  Earlier in the year, SEMI sent a letter to congressional appropriators urging DoE funding to support basic research and other programs that will allow continued improvements in solar PV technology.

Solar/PV

The potential spending cuts were proposed prior to the announced bankruptcy of Solyndra, the issues related to the DoE Loan Guarantee Program and the high profile trade challenges in the industry.  Although the press and politics in this area make for a more challenging environment for pro-solar public policy, SEMI and its PV Group continue to work to show the successes and potential of the PV industry to policymakers. 

We are pushing for public policy solutions that will allow the U.S. manufacturing supply chain for the PV industry to compete and thrive against global competition.  This includes extending tax incentives like the Section 1603 Treasury Grant Program, the Section 48 Manufacturing Tax Credit, and the R&D Tax Credit and other policies to encourage broader use of solar and increased U.S. manufacturing.

Looking Ahead

While it has been a full year of debate on Capitol Hill, lawmakers still have a lot of work to do before they can adjourn the first session of the 112th Congress.  Most notably, nine of the twelve appropriations bills to fund the government need to be passed by December 16 when the current short-term funding resolution expires.  Also, with a slew of tax provisions set to expire at the end of the year, Congress most likely will go through the now seemingly annual ritual of considering a “tax extenders” package that should include a one-year extension of the R&D tax credit.  This could possibly include a one year extension of the Section 1603 Treasury Grant Program which has been so instrumental in increasing the deployment of solar PV in the United States.

As we look to next year, with the Presidential election just eleven months away, one can expect the debate in Washington to be closely linked with the debate on the campaign trail. The budget battles of 2011 will most likely continue into 2012 as the debt remains a top priority.  In addition, tax reform will be a hot issue as the extension of the 2001 and 2003 tax cuts is set to expire at the end of the year and members of both parties debate the best way to increase America’s economic fortunes.  SEMI’s Washington Office will continue to push for the policies that are most important to our member companies as we work to strengthen our collective industry voice with policymakers.

December 6, 2011