Washington Retail Insight - May 12, 2006

Volume 11, Number 11
May 12, 2006

In Today's Edition:

• Transportation Tops Agenda at NRF Conference

• NRF Meets with Vietnamese Trade Minister

• Small Business Health Plan Vote Falls Short in Senate

• NRF Testifies on Cyber Crime Legislation

• WOTC, Depreciation Left Out of Compromise Tax Bill

• Postal Service Seeks Another Rate Hike

• NY Bill Would Ban Credit Card Fees on Sales Tax

• Congressional Outlook

• NRF Events

Transportation Tops Agenda at NRF Conference
    
Retail executives from across the country will gather in Washington next week for NRF's 71st annual Washington Leadership Conference, where Transportation Secretary Norman Mineta, other key members of the Bush Administration and senior members of Congress will discuss policy issues important to the industry.
    
Mineta is scheduled to deliver a major public policy address on transportation infrastructure and congestion issues on Tuesday, the opening day of the two-day conference. Also speaking that day are Candida Wolff, President Bush's assistant for legislative affairs, and political pundit Charlie Cook.
    
The conference will continue on Wednesday, when House Education and Workforce Chairman Howard "Buck" McKeon, R-Calif., Senator Jim Talent, R-Mo., and Deputy Secretary of Labor Steven Law will speak at a breakfast session. Afterward, attendees will participate in lobbying meetings on employee health insurance, international trade, credit card interchange, minimum wage, tax policy, immigration reform, data security, Americans with Disabilities Act updates, obesity lawsuit legislation and other topics.
    
The NRF Policy Council, International Trade Advisory Committee, Strategic Supply Chain Council, Gift Card Working Group, Loss Prevention Legislative Committee, and State Association Council are all scheduled to meet as part of the conference.
    
In addition, recently retired Alabama Retail Association President Charles McDonald will be presented with NRF's prestigious J. Thomas Weyant Lifetime Achievement Award, which honors individuals who have committed their professional careers to state retail associations.
    
Conference registration details are available at www.nrf.com/wlc.
    
For more information, contact NRF Director of Grassroots and Industry Relations Marsha Dionne at (202) 626-8152.

NRF Meets with Vietnamese Trade Minister
    
Vietnamese Trade Minister Truong Dinh Tuyen told NRF this week that Vietnam would not be willing to accept a textile and apparel safeguard mechanism as a condition for joining the World Trade Organization.
    
Truong met with NRF and other members of the U.S.-Vietnam WTO Coalition in Washington on Wednesday.
    
Truong came to Washington as the United States and Vietnam this week entered what could be the final round of bilateral negotiations regarding Vietnam's membership in the WTO. Other nations have concluded agreements, and the U.S.-Vietnam talks are the only outstanding bilateral talks.
    
Both sides say they are close to an agreement. Once an agreement is completed, a WTO working party will draft a report and combine all bilateral agreements into a single document on terms of accession subject to a vote by the WTO membership and ratification by the Vietnamese legislature. The process could be completed as early as this summer or as late as the end of the year.
    
The key issue for retailers is the U.S. textile industry's claim that Vietnam provides its textile and apparel producers with massive subsidies, which it has raised as a rationale for either imposing a textile safeguard mechanism or continuing current quotas on imports from Vietnam. The National Council of Textile Organizations recently wrote to U.S. Trade Representative Rob Portman claiming that the Bush Administration made a commitment during congressional consideration of the Central American Free Trade Agreement last year to continue quotas on Vietnam.
    
U.S. negotiators do not appear inclined to push for a safeguard, but have said the issue should be addressed by the WTO working party. U.S. negotiators seem to be under the impression that the level of subsidies is substantially higher than they were initially led to believe. USTR's primary effort seems to be focused on getting an accurate account of the type and size of the subsidies and to eliminate any subsidies prohibited by the WTO once Vietnam joins the organization.
    
Truong said during Wednesday's meeting that U.S. negotiators' impression may be based on a misunderstanding between what the Vietnamese government is actually providing its industry and what it is projected to pay its industry under its national textile strategy. He said his government provides only $23 million in subsidies for all sectors, of which only $5 million goes to the textile and apparel industries.
    
Vietnam is willing to terminate new subsidies upon joining the WTO, but is asking for a five-year transition period to eliminate existing subsidies, Truong said. NRF supports elimination of any prohibited subsidies under WTO rules as soon as possible in order to remove this issue as an irritant in the U.S.-Vietnam trade relationship. But NRF has argued that imposing safeguards or other quotas is not an appropriate way to address the subsidy problem.
    
The Vietnamese are also reported to be pushing for language establishing a waiting period of less than 15 years to recognize Vietnam as a market economy. This is an important issue with respect to the administration of antidumping cases. As a non-market economy country, Vietnam is subject to much more stringent procedures in antidumping cases, which often end up in very high antidumping margins and accompanying tariffs.
    
Nonetheless, Truong said he does not expect the U.S. to clarify Vietnam's non-market economy status as it did in the agreement with China prior to its WTO membership. Implicit in his statement is the view that China is much farther ahead than Vietnam in creating a market economy.
    
Another matter that remains to be resolved in the negotiations is access for U.S. retail establishments in the Vietnamese market.
    
Meanwhile, legislation to give Vietnam permanent normal trade relations status could be introduced as early as the end of May. NRF does not expect Congress to vote on PNTR for Vietnam until the process of joining the WTO is complete.
    
Safeguards are temporary limits on imports from a WTO member nation that can be sought by domestic manufacturers threatened by low-cost imports. Retailers' ability to source goods from China was thrown into turmoil last year when the Bush Administration approved two dozen safeguards quotas limiting textile and apparel imports from China even though there was little evidence of harm to U.S. manufacturers.
    
For more information, contact NRF Vice President and International Trade Counsel Erik Autor at (202) 626-8104.

Small Business Health Plan Vote Falls Short in Senate
    
In a major setback for small businesses seeking affordable health insurance for their employees, opponents of Small Business Health Plan legislation defeated a key procedural vote in the Senate this week. The action is expected to put the bill on hold for the remainder of the year as premiums continue to escalate.
    
The Senate voted 55-43 Thursday night in favor of S. 1955, the Health Insurance Marketplace Modernization and Affordability Act, sponsored by Health, Education, Labor and Pensions Committee Chairman Michael Enzi, R-Wyo.
    
But the procedural "cloture" vote to cut off debate required 60 votes to pass, leaving the measure five votes short.
    
The balloting was overwhelmingly along party lines: Senator Ben Nelson of Nebraska, a co-sponsor of the bill, and Senator Mary Landrieu of Louisiana were the only Democrats to vote in its favor. Senator Lincoln Chafee of Rhode Island was the only Republican to vote against it. (Click here for vote.)
    
The legislation was seen as Congress' best opportunity to pass major health insurance reform this year, and the defeat disappointed NRF and other supporters who saw opponents as setting political considerations ahead of the need to address soaring health insurance costs and lack of access to health care for millions of working families.
    
Enzi had attempted to address many concerns voiced by critics. On Wednesday he introduced a manager's amendment that would have limited variations in insurance premiums created by the bill. Under the amendment, the most expensive plan could be only five times as expensive as the cheapest, compared with 25 times as expensive in the original bill. Senator Olympia Snowe, R-Maine, was prepared to offer a bipartisan amendment that would have kept the bill from overturning state coverage mandates provided that they were in effect in 26 states or more. Enzi also offered that Republicans would schedule a vote on a Democratic substitute if Democrats would support his bill.
    
Democrats nonetheless insisted that they be given votes on a wide variety of unrelated issues ranging from stem-cell research to the deadline for Medicare drug benefits.
    
NRF and other business groups conducted a major lobbying campaign in preparation for this week's vote. NRF set up a phone bank that forwarded hundreds of telephone calls from small retailers to senators' offices to support the bill. NRF also wrote to all 100 senators, telling them SBHP legislation would "level the playing field and give participating small employers the same advantages as Fortune 500 companies and unions."
    
The Enzi bill would allow businesses and trade associations to pool their members in Small Business Health Plans in order to purchase insurance coverage at rates available to large groups. Similar Association Health Plan bills have repeatedly passed the House only to stall in the Senate. The Enzi bill differs by maintaining state regulatory oversight and not allowing the plans to self-insure. It would also establish a federal commission to streamline various state regulations and reduce administrative costs.
    
NRF has strongly supported AHP/SBHP legislation since the concept was first proposed, seeing it as a means to help small retailers bring skyrocketing employee health costs under control and as part of a multi-component plan for addressing health insurance costs for all retailers.
    
Enactment of SBHPs would save small businesses about 13 percent on average and up to 25 percent in some cases -- a savings ranging between $450 and $1,250 annually per covered employee. One recent report showed that as many as 8.5 million previously uninsured workers would receive coverage if the legislation is enacted. 
    
For more information, contact NRF Vice President and Employee Benefits Policy Counsel Neil Trautwein at (202) 626-8170.

NRF Testifies on Cyber Crime Legislation

     NRF this week testified in favor of legislation that would bring computer hacking under federal racketeering laws and increase penalties for hackers.
    
"The bill before you is a good first step toward punishing and deterring bad actors while protecting the interests of businesses and our customers," NRF Vice President for Loss Prevention Joseph LaRocca told a House panel. "When the federal computer crimes law was last amended, Internet access and usage was still in its infancy. As the Internet and on-line retailing have grown, smart criminals have kept on top of technology trends, and sometimes ahead of those trends. What used to be a focus on physical crime has quickly shifted and accelerated into the on-line world. Today's culprit is more sophisticated, hard to find and next to impossible to identify or reach -- the cyber criminal."
    
LaRocca said both retailers and consumers are victims when hackers break into merchants' databases to steal information about customers.
    
"Unauthorized access and use of retailers' customer data is a double hit -- first to our customers but also to retailers themselves," he said. "The minute customers stop trusting a retailer with their personal information, that retailer is doomed to fail. To protect all our assets -- property, goods, employees, credit card information and our brands -- retail loss prevention professionals are aggressively building bridges across our discipline and to law enforcement and looking for tools like this."
    
LaRocca testified Thursday before the House Judiciary Committee's Subcommittee on Crime, Terrorism and Homeland Security as part of a hearing on H.R. 5318, the Cyber-Security Enhancement and Consumer Data Protection Act of 2006, sponsored by Chairman James Sensenbrenner, R-Wisc. The legislation would update the federal Computer Fraud and Abuse Act for the first time since 1996.
    
LaRocca said NRF supports provisions of the legislation that would extend federal security law to foreign and interstate computer frauds, noting that computer crimes can be initiated from remote locations that operate across political jurisdictions. NRF also supports provisions defining computer crimes as a "racketeering activity" under the Racketeer Influence and Corrupt Organizations (RICO) law, creation of "conspiracy to commit cyber-crimes" as a federal offense, and an increase in the maximum prison term to 30 years from the current 10 or 20. The measure also provides an additional $10 million each to the Justice Department, FBI and U.S. Secret Service for investigation and prosecution of computer crimes.
    
For more information, contact NRF Vice President for Loss Prevention Joseph LaRocca or Vice President and Government and Industry Relations Counsel Maureen Riehl at (202) 783-7971.

WOTC, Depreciation Left Out of Compromise Tax Bill
    
Congressional leaders this week reached agreement on a $70 billion tax cut bill stalled since February, finally settling on a compromise between conflicting House and Senate versions of the measure. But lawmakers removed key items important to retailers, leaving merchants to seek another vehicle for extension of long-standing tax credits and a recently shortened depreciation life for improvements to leased stores.

     The agreement announced on Wednesday centers on extension of 2003 tax cuts that reduced the rate for dividend income to 15 percent from as high as 38.6 percent and the rate on capital gains from 20 percent to the same 15 percent. The cuts were scheduled to expire at the end of 2008 but would now run through the end of 2010, the same as the rest of President Bush's $1.7 trillion package of tax relief adopted in 2001 and 2003.

     The bill would also extend individual Alternative Minimum Tax relief through the end of 2006. The plan includes $90 billion in tax cuts over 10 years, offset by $20 billion in revenue raisers to provide a net tax cut of $70 billion. Among other provisions, corporate estimated tax payments due in July through September would be accelerated, increasing to 105 percent in 2006, 106.25 percent in 2012 and 100.75 percent in 2013.

     The conference report on the bill -- H.R. 4297, the Tax Increase Prevention and Reconciliation Act of 2005, sponsored by House Ways and Means Committee Chairman Bill Thomas, R-Calif. -- passed the House 244-185 on Wednesday and passed the Senate 54-44 on Thursday. President Bush is expected to sign the legislation into law.

     As expected for some time now, the compromise leaves out previously included language that would have extended the Welfare to Work Tax Credit, the Work Opportunity Tax Credit, the research and development tax credit and a 15-year depreciation period for improvements to leased stores for as long as two years. All expired at the end of 2005 and will remain in limbo unless reauthorized by Congress.

     The setback is expected to be only temporary: NRF lobbied heavily for the provisions and is currently seeking to get them back on track by having them attached to pension reform legislation currently in conference. The pension measure could be taken up before the Memorial Day recess, but might be delayed because there are still many issues to be worked out on that legislation.
 
     The House bill passed last November and a Senate version passed in December would have extended the provisions for one year, while a later Senate version passed this February would have extended them for two years.

     WWTC and WOTC offer businesses a tax credit equal to 40 percent of the individual's first-year wages up to $6,000 (for a maximum of $2,400 per employee) to hire welfare recipients and other disadvantaged individuals, and have been widely used by retailers to help those individuals move into the workforce.

     The depreciation provision would extend a measure passed in 2004 that reduced the depreciation period for improvements to leased store properties to 15 years instead of the previous 39 years. NRF has lobbied for extension of the 15-year depreciation life, but has also urged lawmakers to expand it to include owned stores as well.

     For more information, contact NRF Vice President and Tax Counsel Rachelle Bernstein at (202) 626-8168.

Postal Service Seeks Another Rate Hike

     The U.S. Postal Service has announced that it will seek another rate hike that would drive up mailing costs for retailers. The move comes only four months after the most recent increase went into effect and while legislation intended to keep rates under control is pending in Congress.

     The proposal filed with the Postal Rate Commission by the USPS Board of Governors last week seeks an average increase of 8.5 percent that would go into effect in June or July of 2007 if approved.

     First Class mail would go up 7.1 percent, increasing the price of a stamp to 42 cents from the current 39 cents. Included in the proposal were plans for a "Forever Stamp" that could be used for any future single-piece First Class letter no matter how prices might change beyond 2007. Standard Mail would go up 9 percent, Priority Mail 13.8 percent and Express Mail 12.5 percent.

     USPS said it needs the increase to cover higher operating costs -- including rising fuel costs and employee health care expenses -- and to provide mailers with incentives to increase the efficiency of mail pieces based on weight and shape. The Postal Service currently does not distinguish pricing among letters, flats and parcels even though each carries significantly different processing costs.

     The new rate filing comes after a January increase of 5.4 percent to cover costs incurred under a 2003 federal law requiring USPS to place $3.1 billion in escrow. Comprehensive postal reform legislation that would address the escrow issue and help avoid future increases has passed the House and Senate, but attempts to negotiate a final version agreeable to both chambers has been stalled since the Senate's vote in February. It was unclear whether the new rate proposal would help break that impasse.

     NRF supports the reform legislation because increases in postal rates represent a significant added cost for retailers. Retailers are among the nation's largest mailers, using the Postal Service to ship merchandise, mail catalogs and advertisements, send bills and receive payments. 

     For more information, contact NRF Director of Government Relations Allison O'Donnell at (202) 626-8193.

NY Bill Would Ban Credit Card Fees on Sales Tax

     Retailers' fight against soaring credit card interchange costs has moved into the state arena.

     Legislation has been introduced in the New York State Assembly that would bar Visa and MasterCard from imposing interchange fees on the sales tax portion of a transaction. The move follows action on interchange legislation in the Kentucky and Alabama legislatures as well.

     "Picking the pockets of American consumers by charging hidden interchange fees that drive up the cost of merchandise is itself fundamentally unfair, but this legislation properly exposes one of the most egregious credit card company practices -- adding these fees on top of the taxes the state collects," said Mallory Duncan, chairman of the Merchants Payments Coalition and senior vice president and general counsel at NRF. "The credit card companies' practice of adding a hidden fee on top of a tax is unconscionable. Americans have a right to know how much the interchange fee is on any transaction that involves a credit or debit card, just like they know the fee on an ATM withdrawal."

     The Merchants Payments Coalition -- a group of 20 trade associations representing retailers, restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and other businesses that accept debit and credit cards -- was formed in 2005 to seek ways to address rising interchange rates.
      While NRF does not lobby at the state level, interchange will be one of the issues addressed on Capitol Hill when retailers gather in Washington next week for NRF's 71st annual Washington Leadership Conference. A House subcommittee held a hearing on interchange in February, and NRF and other MPC members hope to see additional congressional action sometime this year.

     A.B. 11193 was introduced May 2 by New York Assemblyman Richard L. Brodsky, D-Westchester. The measure would bar credit card companies from applying credit or debit interchange to the sales tax charged on a purchase. Doing so would be declared an unlawful and deceptive act. New York merchants paid $95.7 million in interchange fees on sales tax last year, according to an Assembly summary of the bill. The legislation has been referred to the Assembly Consumer Affairs and Protection Committee.

     Interchange is a percentage of each transaction -- sometimes accompanied by a flat fee -- that Visa and MasterCard banks collect from retailers every time a credit or debit card is used to pay for a purchase. The fee varies with type of card, size of merchant and other factors, but averages close to 2 percent. Total credit and debit card interchange collected by Visa and MasterCard amounted to $26.7 billion in 2004, according to the Nilson Report, a business magazine that covers the credit card industry.

     Interchange is charged on the entire amount of a transaction, including sales tax. Merchants are not allowed to deduct the fee from the tax revenue submitted to state and local governments, however, meaning that prices of merchandise are further driven up in order to cover the amount interchange adds to sales tax obligations.

     Introduction of the bill comes on the heels of similar legislation introduced in the Kentucky legislature that prohibits credit card companies from charging interchange fees on sales taxes. Additionally, legislation was recently introduced in the Alabama legislature urging the U.S. Senate to conduct hearings on interchange fees.

     For more information, contact NRF Senior Vice President and General Counsel Mallory Duncan at (202) 783-7971.

Congressional Outlook:

House: Returns 12:30 p.m., Tuesday, May 16.
Senate: Not announced

NRF Events:

• May 16-17, Washington Leadership Conference, Washington, D.C.

     For information on NRF events, contact Eileen Pryor at (202) 626-8114 or pryore@nrf.com.

    
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