Topics Covered:

Encryption & Authentication
Electronic Commerce
Global Public Policy Activites
Intellectual Property Right Protection (IPR)
Year 2000 Millennium Challenge
Procurement Reform
Critical Information Protection and Assurance
Taxation
Finance & Accounting
Human Resources Issues
Immigration
State Legislative Activities

ENCRYPTION & AUTHENTICATION
ITAA contact: Jon Englund

A. ENCRYPTION

Challenge
Protecting confidential business information is a prerequisite to realizing the full potential of the Internet for digital commerce. Unfortunately, the Administration's current "key recovery" proposal allows for the export of encryption software only up to a 56-bit key length for a period of two years, contingent upon a plan approved by the Department of Commerce. Encryption software at this level can be easily broken, and is readily available outside of the United States. As a result, American software companies are beginning to lose a significant share of the encryption market, and could lose up to $65 billion by end of the decade (translation: substantial loss of jobs) if the U.S. government does not relax controls on exports.

Actions
ITAA supports legislation in the House and Senate that would relax export controls on encryption software. We have also fought strongly against the imposing of new domestic restrictions. Specifically, we support legislation authored by Rep. Goodlatte (HR 850) in the House. ITAA has been a leader in the encryption coalition, Americans for Computer Privacy. Based on our pressure, the Administration has relaxed export controls on encryption for the financial, securities, and medical segments of industry.

B. DIGITAL SIGNATURES & AUTHENTICATION
ITAA contact: Jon Englund

Challenge
ITAA supports legislation that would encourage federal agencies to make more of their forms available online and give an electronic signature the same legal recognition as a handwritten signature. We believe it is important to allow the private sector and consumers to choose the form of electronic authentication most appropriate for specific transactions. We oppose legislation that would give one segment of industry-such as financial institutions-an unfair advantage over other segments of industry in offering authentication services. As such, we are both technology- and industry-neutral. This legislation will also ultimately mean hundreds of millions of dollars contracted out by the government to achieve the legislation's goals. Long-term, the bill will save federal taxpayers billions of dollars.

Action
ITAA opposed the SEAL Act, which would have given the banks an advantage over other segments of industry, and testified on this legislation before the Senate Banking Committee. S. 2107, sponsored by Senator Abraham, was attached to the Internet Tax Freedom Act. It requires all federal agencies to make their forms available online during a five-year period and gives an electronic signature the same legal recognition as a handwritten signature. The bill is technology neutral, and requires the federal government to rely upon these electronic authentication techniques that are gaining acceptance in the commercial world. Now that the Internet Tax Freedom Act has been passed and signed into law as part of the Omnibus budget bill, ITAA believes it will provide the impetus for a cultural change within the federal government to use electronic commerce and not just post static information on the Internet. Additionally, this measure will help to spur great use of commercial electronic authentication techniques in the private sector and create significant efficiencies and cost-savings.

ELECTRONIC COMMERCE
ITAA Contact: Mark Uncapher

The estimates of the growth and size of the emerging electronic marketplace are staggering. The Department of Commerce predicts that electronic commerce will account for more than $70 billion in sales in the year 2000. Forrester Research more optimistically projects that over $327 billion will change hands by 2002.

Without a supporting infrastructure, including both the investments in physical networks and the preservation of supportive public policy, the full potential of the digital economy will remain unfulfilled. The Department of Commerce's recent study, The Emerging Digital Economy, concluded information technologies are responsible for more than one-quarter of real economic growth that has occurred over the past five years. That this progress occurs in a highly competitive industry is no coincidence. IT companies understand that today's market leader can be completely overtaken tomorrow by another company with a new or perceived better idea.

But it is essential that an industry-led market-driven approach to maintaining the continued robust growth of electronic commerce be pursued. The Commerce Department study, together with the Clinton Administration's Framework for a Global Electronic Commerce support this view. The issues are many and diverse. They range from developing a fundamental foundation/architecture upon which to build the networks to the many public policy issues that will impact consumers and businesses.

ITAA has promoted public policy agenda that would encourage the continued robust development of electronic commerce.

A. TELECOMMUNICATIONS, INTERNET ACCESS and the DEVELOPMENT OF BROADBAND SERVICES ITAA Contact: Mark Uncapher

Challenge
As computing power doubles every 18 months, the limitations of analog, circuit-switched networks become all the more apparent. Our telecommunications infrastructure, especially the final connection to the customer, is not keeping pace with these advances elsewhere.

Without more broadband investment, customers will be stuck on muddy dirt road entrance ramp connections to the gleaming information super highway. The IT industry looks to an exciting range of competitive technological alternatives - cable, wireless, satellite, third wire overbuilds - to offer these new on-ramp services. No one knows which technology will win the broadband race, or whether any single offering will dominate. What is known, however, is that enforcement of competitive safeguards is necessary.

The 104th Congress passed the landmark Telecommunications Act of 1996. Among its central objectives is opening telecommunications markets to more competition, however this objective has not been self-executing. Continuing choices, new investments, and even vigilant enforcement are necessary if the Act is to reach its full potential.

One important part of the 1996 Telecommunications Act is Section 706, which seeks to "encourage the deployment on a reasonable and timely basis of advanced telecommunications capacity to all Americans" and required the FCC to begin a review on broadband deployment.

The local loop or final link to the customer's premises is perceived as the biggest impediment to investment and innovation. As long as local incumbents maintain control of those essential facilities, service providers cannot directly reach customers, and customers cannot take full advantage of the available new technologies.

Because the incumbents are reluctant to have their profits eroded they have been reluctant to press ahead with investment in technologies such as "digital subscriber line" or DSL. This family of technologies vastly increases the capacity of copper wires. Now, due to technologies and market developments, the incumbents have announced plans to deploy these technologies. If granted freedom from the pro-competitive requirements of the Telecommunications Act, incumbents could select which providers have access to both unbundled network elements and wholesale digital services, and this would allow them to control how DSL services would be provided.

Removing these requirements for advanced services would be entirely contrary to the spirit and intent of the 1996 Act, marking a retreat that would stifle competition, close off access to the local loop and foreclose competitive investment.

Action
As a matter of public policy, the intent of the Telecommunication Act of 1996 is clear. Telecommunication markets are to be open to competition. Enforcement of these policies, however, is proving to be a challenge. If competitive pressures encourage more rapid broadband deployment, then competitive safeguards need to be vigilantly enforced.

On May 7, 1998 ITAA President Harris N. Miller testified before the Telecommunications Subcommittee of the House Commerce Committee, calling for more effective enforcement of the pro-competitive requirements of the Act.

Miller also serves as co-chairman of the Internet Access Coalition, consisting of companies and associations that represent all segments of the IT industry - hardware, software and services. The Coalition champions maintaining the affordability of consumer access to the Internet and other information services via analog, circuit-switched telephone lines, and in accelerating the deployment of efficient, affordable, and reliable broadband data communications services. It has been at the forefront of legislative, regulatory and legal issues when the interests of the Internet have been at stake.

ITAA has filed comments with the FCC responding to a number of the pending petitions that have been filed by the incumbent carriers under Section 706. We questioned whether the FCC has the legal authority to grant the regulatory relief being sought. ITAA's comments focused on whether, as a matter of sound policy, it makes sense to release the incumbents from complying with the pro-competition parts of the Act in return for their promise to upgrade their networks to permit broadband capacity to travel over the last mile.

The key to encouraging the deployment of broadband services is to create a race among a variety of potential technologies and providers. Only the threat of competing alternative telecommunications infrastructures seems likely to encourage faster broadband deployment.

B. PRIVACY
ITAA Contact: Mark Uncapher

Challenge
The issue of privacy and the need for an aggressive policy of an industry-led, market- driven self-regulatory approach is a key issue in Washington, DC and other global capitals. Without aggressive and credible self-regulation, industry understands that government regulation will be imposed.

ITAA has a long history of leadership in and support for privacy protection, but our member realize that what was done in the past must be updated to reflect digital environment realities. ITAA believes that private sector privacy initiatives can meet consumer and government expectations for fair information practices and thus avoid potentially onerous government imposed regulation.

Action
ITAA has joined a coalition of nearly 50 American companies and other trade associations in the formation of the Online Privacy Alliance. The organization, which includes many ITAA member companies, is a cross-industry coalition committed to protecting the privacy of individuals in cyberspace. The group is meeting the challenge given industry a year ago by the Clinton Administration to produce a self-regulation privacy plan for the Internet. The new Online Privacy Alliance goes beyond a previous joint privacy initiative of ITAA and eleven other high tech trade associations to include many additional companies and associations involved in electronic commerce.

The Online Privacy Alliance will:

• identify and advance effective online privacy policies across the private sector;
• support and foster the development and use of self-regulatory enforcement mechanisms and activities, as well as user empowerment technology tools, designed to protect individuals' privacy;
• support compliance with and strong enforcement of applicable laws and regulations;
• support and foster the development and use of practices and policies that protect the privacy of children;
• promote broad awareness of and participation in Alliance initiatives by businesses, non-profits, policy makers and consumers; and
• seek input and support for Alliance initiatives from consumer, business, academic, advocacy and other organizations that share its commitment to privacy protection.

ITAA is committed to the Alliance mission statement, including adopting and posting privacy guidelines consistent with the Alliance's guidelines and appropriate to ITAA's membership as well as participating in self-regulatory enforcement mechanisms appropriate to the Association's online activities. ITAA will be encouraging its members to adopt privacy guidelines consistent with the Alliance's guidelines and appropriate to their industry's sectors and to implement appropriate self-regulatory mechanisms. ITAA will also continue to actively participate in the Alliance's business outreach and consumer education programs.

ITAA filed comments with the FCC on February 17, 1998 in support of the All-Carrier Disclosure rule. The rule provides carriers to make information necessary to intercarrier interconnection, as well as interconnection and operation of customer premise equipment and enhanced services.

ITAA has long advocated voluntary industry fair information practices. A copy of ITAA existing standards (ratified by ITAA's Board six years ago) is available at http://www.itaa.org/about/privacy.htm.

C. ACCESS CHARGES
ITAA Contact: Mark Uncapher

Challenge
Local phone companies challenged the FCC that Internet traffic not be subject to access charges. Access charges are per minute charges assessed by local telephone companies for long distance calls. Had the incumbents prevailed, the cost to consumers and businesses to access the Internet would have increased dramatically. For example, had access charges of even 2½ cents per minute been imposed, the cost of accessing the Internet for an average consumer would have jumped from $20 to $50 per month. Such a cost increase would have a crippled the dramatic growth of the Internet and Electronic Commerce.

Action
In a significant victory for consumers, the Internet and the overall IT industry, the Eighth Circuit Court of Appeals has ruled in favor of the FCC. ITAA had actively participated in the case as an intervenor, in support of the FCC. As a result of the decision, Internet Service Providers (ISPs) will continue to be exempt from interstate access charges. In its decision the court concluded that: "The FCC has made a rational choice regarding the treatment of ISPs from a number of alternatives that each are imperfect." The court concluded that the FCC's "market-based" approach for reducing interstate access charges was just right, and that the agency acted within the discretion extended it via the Telecommunications Act of 1996. The appeals court held that the FCC struck an appropriate balance for the transition from implicit universal service subsidies to an explicit system.

Despite this recent court victory, ITAA is concerned that a recent decision by the Federal Communication Commission could undermine the successful legal rational it used in the Eight Court Case. In asserting Federal jurisdiction over dial-up Internet traffic, some may be tempted to reopen the legal argument that dial-up Internet access is a long distance service that should be subject to access charges. We note that FCC Chairman Kennard appropriately acknowledged that if such an outcome occurs, it would trigger widespread public outcry. The FCC was addressing the compensation rate structure for dial-up calls terminating with Internet service providers.

ITAA is proud to have represented the interests of both Internet consumers and the electronic commerce business community in helping achieve this judicial milestone. ITAA will continue to play an active role in pressing for realization of true telecommunication reform and a high value, highly competitive information services industry.

ITAA's pleadings for the Eighth Circuit Court Case are accessible at: http://www.itaa.org/isec/, under the "Archives" section. The 8th Circuit decision can be found at: http://www.wulaw.wustl.edu/8th.cir/Opinions/980819/972618.P8.

D. "E-RATE"
ITAA Contact: Mark Uncapher

Challenge
A court challenge to the so-called "E-Rate" program had claimed that non-telecommunications carriers that had "paid nothing" into the program should not be able to draw from the fund. Established under the Telecommunications Reform Act of 1996, the "E-rate" program pays for Internet access for schools and libraries.

Action
ITAA has actively participated in the debate over the "E-Rate" program, defending the issues of specific interest to the IT industry. In a brief filed with the Fifth Circuit Court of Appeals on June 2, 1998, ITAA argued schools and libraries should have access to the services of the broadest selection of possible vendors. Drawing upon the language of the Telecommunications Reform Act, ITAA argued that requiring "competitively neutral rules" meant that schools and libraries should be free to use the services of many potential vendors. In order to select the most cost-effective provider of Internet access and internal connections, recipients should be free to choose vendors beyond those affiliated with a telecommunications carriers, to take the fullest advantage of competition.

A decision in the case, Texas Office of Public Utility Counsel, et al. v. FCC and the United States of America, is pending and is not expected until later in 1999.

E. FTC REGULATIONS
ITAA Contact: Mark Uncapher

Challenge
The Federal Trade Commission has begun consideration of how existing rules and regulations that govern media could be applied to the digital environment.

Action
ITAA filed comments with the Federal Trade Commission (FTC) on July 7, 1998 concerning the interpretation of "rules and guides" to electronic medium. ITAA argued that it is vital that FTC rulings - including judgments as to their applicability to various forms of electronic media - reflect a thorough understanding of the technology underlying the particular medium at issue. ITAA expressed its concern that the FCC seemed to be applying to the Internet false or at least questionable analogies from other media. For example, rules that are appropriate for direct mail, in many contexts would not make sense in the online world. ITAA sought to aid in the consideration of FTC rules by discussing the varying characteristics of different Internet media. E-mail and web browsing, for example, would each require different regulatory treatment.

ITAA will file comments with the FTC later this month in response to an inquiry about consumer protection issues in Global electronic commerce.

F. UNIVERSAL SERVICE
ITAA Contact: Mark Uncapher

Challenge
Appropriation language sponsored by Sen. Ted Stevens (R-AK) in 1997 required the FCC sponsored to re-examine its definitions and other aspects of its universal service decisions. According to Stevens, unless the FCC redefined Internet services as ''telecommunications,'' more and more traffic, including voice telephony, would be routed through ISPs. He feared this would undermine universal service support mechanisms. Stevens wanted ISPs to make direct payments into the universal service fund. Consequently many information technology companies providing "enhanced services" to their customers could have been drawn into having to make payments.

Action
ITAA, its member companies and the Internet Access Coalition were actively engaged on this issue. Meetings were held with FCC Commissioners and their staffs, as well as on Capitol Hill. The information technology industry's position was supported in a letter to the FCC from Senate Commerce Committee Chairman John McCain (R-AZ). A joint letter from Senators Ashcroft (R-MO), Ford (D-KY), Kerry (D-MA), Abraham (R-MI) and Wyden (D-OR) was sent supporting the ITAA position that ISPs not have to pay directly into the universal service fund.

A fairly intense lobbying battle was waged at the FCC and on Capitol Hill over possible "universal service payments" by ISPs. The Wall Street Journal carried an editorial, "Hitting Up the Internet" strongly criticizing the FCC's anticipated Internet telephony position. In the spring of 1998, the FCC released its "Stevens Report" to Congress reaffirming its existing policy on the universal service fund and the Internet, confirming that ISPs are not telecommunications 'common carriers' and that they need not make direct universal service fund payments. Had the FCC concluded that ISPs were 'common carriers,' costs to Internet consumers would have increased and the Internet would have been subjected to new regulation.

ITAA's comments on the Report stated in part that "the FCC has once again shown itself to be the Internet consumer's friend. Subjecting ISPs to new regulations and fees would only make Internet services and benefits less affordable and less accessible to consumers. We support the goals of the universal service program, and believe that schools and libraries should have access to the broadest array of technological choices. The FCC's non-regulatory approach is the best way to meet that objective."

The FCC will review Internet telephony on a case-by-case basis. This treatment is consistent with the approach that ITAA had encouraged the FCC to take.

G. CENSORSHIP
ITAA Contact: Mark Uncapher

The Internet should receive the same 1st Amendment protections that printed material enjoys. ITAA supports using commercially available products to let consumers make their own on-line choices with regard to content. Forcing the Internet to operate through a quagmire of divergent views and legal proceedings in various jurisdictions will never be as effective as arming individuals --including parents-- with the tools to make their own choices. Rather, censorship raises local barriers on an inherently global medium.

H. DOMAIN NAMES
ITAA contact: Jon Englund

Domain name administration is at the heart of the continuing health, stability and accessibility of the Internet. ITAA identified a need for increased awareness and information on the trademark and governance issues surrounding the reform of the domain name administration system. To that end, ITAA has lead industry efforts to foster a dialogue among interested stakeholders by convening the first forum on Internet domain names. Designed to facilitate a discussion of the fundamental issues and an airing of different views, ITAA contributed significantly to a constructive dialogue on this important issue.

ITAA has been leading a coalition effort to help create the structure for the new Internet management organization, The Internet Corporation for Assigned Names and Numbers (ICANN). A decision was recently made on how to structure the domain names supporting organizations, and ITAA played a leading role in making this happen.

GLOBAL PUBLIC POLICY ACTIVITIES
ITAA contact: Sheila O'Neill

A. GLOBAL ELECTRONIC COMMERCE

Challenge
Work to demonstrate the global IT community's commitment to provide leadership in addressing and solving electronic commerce public policy concerns expressed by governments and international organizations. Where possible, ensure that the IT industry has a voice at international discussions involving electronic commerce policy issues and help galvanize the international IT industry

Actions
As the U.S. member and secretariat of the World Information Technology and Services Alliance (WITSA), ITAA was represented at the October 1998 OECD Electronic Commerce Ministerial. Working in collaboration with several other international industry associations, produced the Global Business Action Plan for Electronic Commerce, which was then supported by the business communities in over 100 countries. The document provides detailed recommendations on policy issues including privacy, security, authentication, intellectual property protection and others and outlines proactive industry steps to address government concerns.

Through WITSA, a founding member of the Alliance for Global Business (AGB), a coordinating mechanism of leading international trade associations created to provide business leadership on information society issues and electronic commerce. Jointly, these organizations represent the bulk of electronic commerce in almost all countries in the world. The coalition represents a diverse cross section of business in over 140 countries. Membership includes providers and users of information technology, large multinational enterprises and small start-ups, and companies in developing as well as developed economies.

Sent a delegation of ITAA members to meet with delegates to the World Trade Organization (WTO) to provide hands on demonstrations of electronic commerce and to discuss the WTO's discussions on electronic commerce.

Challenge
Provide U.S. negotiators with the IT industry's views on the upcoming World Trade Organization services negotiations slated to begin in 2000.

Actions
Met with representatives from USTR to outline the industry's concerns and to insure IT services as well as IT dependent services are given a high priority. Submitted comments on information technology services and the 2000 trade negotiations to USTR. Outlined concerns regarding the current limited classification of services used by negotiators as well as concerns regarding further market liberalization in the IT sector as well as sectors that are reliant on IT services.

INTELLECTUAL PROPERTY RIGHT PROTECTION (IPR)
ITAA Contact: Marc Pearl

Challenge
As electronic commerce begins to gain a critical mass of acceptance, it is essential to ensure that the information and content that is sent into the digital environment is secure, and intellectual property rights are protected. Unauthorized copying and distribution of copyrighted material, and the wrongful distribution of such works cannot be tolerated.

The potential economic profitability and continuing robust growth of electronic commerce requires that the content provider and software manufacturers work in close partnership with Internet access and online service providers (ISP/OSPs). ITAA members provide the transmission facilities and software that enable copyright holders to have their intellectual property distributed in the digital environment. These same ITAA members and others also are copyright holders in their own right and are deeply committed to IPR protection. ITAA supports the "market-driven, industry-led, self-regulatory" premise put forward in the Clinton Administration's Framework for a Global Electronic Commerce report, which calls for a careful and reasoned balance between the rights and obligations of owners, distributors, and customers.

A number of global policy makers and organizations, including the United States Congress, the World Intellectual Property Organization (WIPO), foreign governments, and multi-national commercial organizations, have carried on a vigorous debate for a number of years on how to best confront IP rights in the digital environment. A few of the critical issues debated have included: (1) ISP/OSP liability for infringement actions of third-parties; (2) a desire by some database providers to receive greater protection for their collections of information ("facts" as opposed to copyrighted creative expressions), following a European Community model called sui generis; (3) how best to confront the "device" or "anti-circumvention" issue; and (4) insuring that legitimate/authorized computer security testing firms are not put out of business by an overly broad copyright law.

A. OSP LIABILITY
ITAA Contact: Marc Pearl

A major controversy arose when the Clinton Administration issued its White Paper on Copyright Protection in the Digital Environment in September of 1995. This issue remained contentious during the WIPO Diplomatic Conference held in December 1996. The controversial proposal called for a new distribution right for content owners over digital networks - a "transmission right." Companies involved in the distribution of Internet/Intranet communications, and those that develop communications software argued that this new "right" as applied in the digital environment could easily be interpreted to limit of these companies to continue to provide the facilities or conduit for the signals. ITAA argued, both at the WIPO Diplomatic Conference and during the subsequent Congressional debate on the treaties that came out of WIPO that copyright law and the proposed new international intellectual property rights treaties would be interpreted to assign liability, not only on an "initiating" infringer, but also on online, Internet, and software access companies, who "facilitate" the transmission of content, and have no control or knowledge of any infringements, particularly if initiated by a third party.

Over the course of the following two years ITAA presented its position on this issue at WIPO symposia/conferences in Spain, the Philippines, Hungary, and Malaysia. We released a discussion paper on technology solutions for digital copyright protection at the WIPO Diplomatic Conference, (Copyright in Cyberspace is available on ITAA's Internet home page), and were an active member of the Ad Hoc Copyright Coalition, which brought content providers and copyright owners together with ISPs/OSPs to fashion a legislative compromise that was incorporated in the 105th Congress' Digital Millennium Copyright Act (H.R. 2281). The new law will serve as a template for an international approach to IPR, and the utilization of technology tools and solutions in the digital environment.

ITAA's position is best articulated in the IP section of the Trans Atlantic Business Dialogue (TABD) which we helped author: "All stakeholders should undertake…cooperative efforts aimed at formulating legal frameworks that address the challenges and opportunities of establishing responsible, reasonable and practicable business practices in the digital environment. The basic features of such a framework include:

• recognizing the common stake of right holders and service providers in ridding the electronic marketplace of pirated goods;
• promoting responsible business practices by all parties involved in the transmission and/or storage of copyrighted materials; refraining from imposing economically unreasonable or technically infeasible burdens on intermediaries that neither generate nor select nor control content, without creating blanket immunities;
• enhancing incentives for cooperation in the development of marketplace solutions to the problem of online piracy, including "notice and takedown", and in the deployment of technological tools and solutions to fight it, and
• preserving an appropriate role for the courts, especially in the prevention of ongoing infringements.

A. DATABASE PROTECTION
ITAA Contact: Marc Pearl

IP Subcommittee Chairman, Representative Howard Coble (R-NC) has introduced in the 106th Congress, H.R. 2354, the "Collections of Information Antipiracy Act." It is a slightly modified version of the same bill that passed the House of Representatives in 1998 (H.R. 2652). Judiciary Committee Chairman, Senator Orrin Hatch (R-UT) has promised Chairman Coble that the Senate will consider database protection in this term. The issue of database protection has come up in Congress because of some bad case law, and partly as a response to the European Community's over-reaching Database Directive, which would establish sui generis protection to "collections of information" (facts/databases). Rather than relying on technological and existing legal protections, including contract, copyright, misappropriation and unfair competition laws, the Directive and the Coble bill seeks to protect the economic investment of compiling a database - a sweat of the brow approach. The Intellectual Property Advisory Group of ITAA has determined on a number of occasions over the past three years that the impact such an overly broad protection would have on database companies and those that utilize databases could be enormous and economically devastating. ITAA testified at a House Judiciary Committee hearing in 1998 expressing our concern that there could be enormous unintended consequences if the overly broad measure passed and that a more narrowly-drawn Federal statutory 'misappropriation' approach could fill in remaining gaps in the law.

ITAA has been leading a coalition of IT companies that provide and utilize databases, together with representatives of the research, science and library communities in an educational campaign regarding our concerns about the House Judiciary Committee approach to database protection. We took part in negotiations coordinated by Senator Hatch to craft a less onerous federal misappropriation measure last summer. Unfortunately, no compromise could be reached, and our coalition then, successfully, was able to convince lawmakers that this particular database protection measure should not be attached to the Digital Millennium Copyright Act that subsequently passed the Congress on October 12, 1998. President Clinton signed the bill into law on October 28, 1998.

ITAA will continue to serve as a moderating voice in an attempt to bring the parties together who have a stake in the success of the Internet, through WIPO and in the 106th Congress.

C. COMPUTER SECURITY TESTING
ITAA Contact: Marc Pearl

A major title of the Digital Millennium Copyright Act focused on implementing the WIPO treaties dealing with devices that would circumvent copyright protections. A number of ITAA member companies engaged in computer security testing were concerned that the provisions, as written, would threaten their very existence, if a future court interpreted the language to prevent them from using 'copyright circumvention tools' in their work. In an effort to craft language to allow such companies to continue their valuable and necessary work in the public and private sectors, but also to ensure that unauthorized activities remain outlawed, ITAA worked in coalition with a number of companies to develop a "savings clause." ITAA set up and took part in coalition meetings to present our position before Department of Commerce, White House and Senate Judiciary Committee leaders, as well as with members of the content industry. Language we sought to permit authorized computer security testing was inserted in the Digital Millennium Copyright Act's Title I.

YEAR 2000 MILLENNIUM CHALLENGE
ITAA contacts: Heidi Hooper; Olga Grkavac; Marc Pearl

Challenge
In order to save space and speed processing, most computer systems were originally set up to identify calendar dates with only the last two digits of the year. Without going through a software conversion process, the vast majority of those systems will not be able to recognize "00" as the Year 2000 (e.g., "04" would be read as 1904, not 2004). When these systems are unable to recognize this two-digit year field correctly, they will not be able to calculate, process, or manipulate date data, and many systems will fail, or, at the very least, fail to operate properly.

The challenge of the Year 2000 (Y2K) software conversion are enormous, and should be of substantial concern to executives whose operations use IT in both business and government. This problem will affect computations that calculate age, sort by date, compare dates, or perform other specialized date data exchange tasks. This problem exists for mainframe, midrange and PC computers alike, because two digit year fields can be found in micro-code, operating systems, software compilers, applications, queries, procedures, screens, databases, and data.

Estimates have placed the cost of correcting the problem for businesses and the public sector in the United States alone at $50-$75 billion. It is estimated that the total IT services marketplace in America annually is $150 billion. Therefore, Y2K software conversion costs can represent anywhere from 33%-50% of the dollars that will be spent for information systems each year for the next few years. Some ITAA member companies have pegged the worldwide total to correct the problem at $600 billion. At an approximate cost of $1.50/per line of code and $450-600 per affected computer program, the Gartner Group estimates that individual medium-sized companies will spend between $3.6-$4.2 million each to convert its software. ITAA member Viasoft has estimated the cost to be $1,000/per impacted program, and an Andersen Consulting client estimated that more than 12,000 working days will be required to correct its own existing applications.

Action
ITAA has created a multifaceted Year 2000 response program. Our Year 2000 Task Group was established in 1995 to educate:

1. IT customers in both the public and private sectors about the Y2K challenge, and explain the need to take steps immediately to address it;
2. Congress and federal and state governments on the need to ensure appropriate funds for software conversion in the public sector; and
3. The IT industry about the significant nature of this situation and to develop a comprehensive industry response.

ITAA's Y2K Legal and Legislative Advisory Group has been a leading voice in a number of venues with respect to the public policy aspects of Y2K. It developed Federal definitional Y2K compliance language, and has been active - both with Congress and in state legislatures - in the crafting of legislation to encourage remediation efforts. We were one of the architects of the historic Y2K Information and Readiness Disclosure Act of 1998, which passed Congress unanimously in early October and was signed into law by President Clinton - 11 weeks after his first speech on the topic. As part of ITAA's continuing efforts to make and keep the public aware of the Y2K issue, and taking advantage of the new law, we have published a Y2K Product and Service Questionnaire, distributed a set of Guidelines to help companies take advantage of and fully utilize the Act, and sponsored a special Internet Webcast on the law.

There is enormous support in the 106th Congress for further legislation that will continue to encourage all parties in the supply chain to continue to remediate and test their systems in 1999 to prevent business disruptions on January 1, 2000. This legislation being actively considered by Congress would also allow responsible parties who developed Y2K action and contingency plans an opportunity to at least mitigate damages caused by a Y2K glitch. Working with over 90 companies and associations representing practically every sector of the American economy, ITAA and the Year 2000 Coalition has crafted a set of principles contained in bills that were introduced in the House and Senate on a bi-partisan basis in late February 1999. Additionally, ITAA through our State Initiative program is monitoring key Y2K legislative proposals in all 50 states, and has initiated a contact letter to each of the state legislatures outlining these very same principles.

PROCUREMENT REFORM
ITAA Contact: Olga Grkavac

Challenge
After the major procurement reform legislation enacted during the l03rd and l04th Congress, the 105th Congress considered, as expected, little in the way of procurement related bills. The major bill enacted last year was the Federal Activities Inventory Reform Act, known as FAIR. OMB issued draft guidance on March 1, 1999 and the agencies' will need to list their commercial activities by June 30th. ITAA supported the FAIR Act, since we believe that it could provide some valuable information on the agencies' commercial activities that could be candidates for future outsourcing. The federal government continues to outsource only a small portion of its activities, especially when compared with the private sector and even some state governments. It remains one of the principal challenges of the Procurement Policy Committee to educate the Congress and federal agencies on the benefits of outsourcing to the private sector.

While no other major legislation is expected, the Department of Defense may propose some acquisition reforms as part of the DoD Authorization bill for FY 2000. The OMB Circular A-76 continues to be a possible subject for congressional action. In depth oversight hearings on FASA, Clinger-Cohen are expected to be held during the year. It is also possible that Congressman Tom Davis (R-VA) will reintroduce legislation to establish a pilot Cooperative Purchasing program for Y2K products and services. As last year, when the Government Printing Office Reform Act caught many by surprise, it is always possible that unexpected legislation will require quick action by the Committee.

Action
ITAA intends to monitor the implementation of the FAIR Act very closely, and to use the information provided to promote outsourcing by the federal agencies. The Procurement Policy Committee will continue to monitor all legislative and regulatory actions that could impact the IT industry.

CRITICAL INFORMATION PROTECTION AND ASSURANCE
ITAA Contact: Doug Sabo

Challenge:
Aggressors attack at the point of maximum leverage. For modern society, this means critical infrastructures such as transportation, telecommunications, oil and gas distribution, emergency services, water, electric power, finance and government operations. Increasingly, critical information technology infrastructures support these vital economic systems and become themselves targets of opportunity for terrorists, adversary nations, criminal organizations and non-state actors. These potential vulnerabilities raise numerous difficult questions and challenges for industry and federal, state and local governments about how to best ensure against and provide for critical information protection and system assurance.

Both government and industry have a major stake in protecting the nation's critical infrastructures and their underlying information resources from intentional attack and/or natural disaster. While the ends may be commonly shared, the policies that government and industry are developing in order to provide this protection are at risk of diverging significantly. Industry contends that any models or actions dealing with CIP must highlight the Administration's intention that policies necessary for the development of electronic commerce and information technology innovation be industry led, market driven and self-regulatory.

Last spring, President Clinton issued Presidential Decision Directive 63 (PDD63) outlining the Administration's vision for protecting the nation's critical physical and cyber infrastructures. PDD63 outlined a policy framework and assigned agency responsibilities for crafting an initial national infrastructure protection plan by 2001, and a comprehensive plan buy 2003. In implementing the initiatives outlined in that directive, the Administration is emphasizing the crucial need for creating public-private sector partnerships to meet the challenges ahead.

While industry welcomes the creation of cooperative relationships, it is concerned that government regulation may emerge that mandates incident reporting requirements; standards to protect infrastructure elements from physical or cyber attack; system requirements for incident detection capabilities; and/or the development of processes to react to the attack, and to reestablish the critical service. By definition, if the service has been deemed critical to the nation, then all levels of government can be expected to have increased interest in the operation, management and protection of the private businesses and services which comprise the infrastructure elements. The manner in which this government concern is manifested can have a significant effect on private sector interests and economic development in an increasingly digital world.

Federal, state or local government policies, which impose protection standards more stringent than those inherent in the private sector risk mitigation process, may not be acceptable. Additionally, requirements for reporting incidents to government operations centers and responding to government directed reconstitution plans might impose burdens that the private sector finds unpalatable and may wish to influence.

A coordinated, comprehensive attack on critical US infrastructure is an event that will require coordinated and comprehensive team preparation and response by government and industry. The nature of that teamwork is in the process of being developed through an ongoing national debate, substantive analysis and constructive dialogue. A well-prepared and informed private sector must remain engaged and work with government to find the proper balance which optimizes the government's role of protecting critical infrastructure with business' need to manage risks appropriately for the infrastructure developed by the private sector for private and commercial use.

Action
In the past year ITAA's Critical Information Protection (CIP) Task Group has continued its mission of providing outreach and education to Administration officials, federal civilian and law enforcement agencies, Congress and the public on the issues of critical information protection and assurance. The CIP Task Group has been very active particularly in the wake of Presidential Decision Directive 63 (PDD63), which was issued last spring. The activity of the ITAA CIP Task Group will only increase as federal agencies and industry grapple with the implementation of PDD63 which has provided an initial outline and direction for the development of a more comprehensive national infrastructure protection strategy and plan.

In the past 12 months, much has happened. The Enterprise Solutions Dividion members have been active in what has been the rapid development of information infrastructure security issues and policy. Recent activities of the CIP Task Group include:

• Organization of one of the first concerted industry efforts to address CIP issues;
• Release of white papers focused on critical information infrastructure protection;
• Preparation of industry response to President's Commission on Critical Infrastructure Protection (PCCIP) report and recommendations;
• Regular meetings with representatives of the PCCIP, the follow-on Critical Infrastructure Assurance Office, Congressional Staff, Department of Commerce, NIST, NTIA, the National Security Council and federal law enforcement officials to educate, discuss and provide input into national infrastructure policy developments;
• Continued work with federal government on the implementation of Presidential Policy Directive 63 (PDD63);
• Co-sponsorship of Critical Infrastructure Protection '98 & '99 Conferences with Armed Forces Communications & Electronics Association (AFCEA) in Spring 1998 and Winter 1999
• Co-sponsorship of the International Software Assurance and Certification Conference (ISACC) '99 and with RST and NIST in March 1999;
• Development of a concept paper and proposal for a private sector Cyber Infrastructure Protection Center which would act as an information clearinghouse and focus on education, awareness, and information sharing in the private sector and user communities
• Selected and announced by the Department of Commerce as a Sector Coordinator for the Information and Communications infrastructure sector in conjunction with US Telephone Association and the Telecommunications Industry Association;
• Coordinating with the FBI's National Infrastructure Protection Center to identify and coordinate industry representation and participation in Center activities; and
• Working with federal partners including the Attorney General, the Department of Commerce and National Security Agency representatives on development, of a critical infrastructure protection education and awareness campaign and other initiatives.

A host of new activities are planned for 1999 including publications, surveys, conferences and information clearinghouses. The efforts of the CIP Task Group are gaining momentum and will take on greater significance and breadth as the issues of information security and assurance grow in prominence and importance in the policy community and the private sector.

TAXATION
ITAA contact: Carol Cayo

Challenge
Over the last 15 years, the "Research and Experimentation Tax Credit" (commonly known as the R&D Tax Credit) has enhanced the competitive position of the U.S. in the world economy by encouraging the business community, and particularly the IT industry, to conduct more research in the United States. The Credit expired in June 1995 and was not re-enacted until President Clinton signed the "Small Business Job Protection Act" into law, extending the credit from July 1, 1996 through May 31, 1997, with a gap in coverage from June 1995 to July 1996. President Clinton later signed into law "The Taxpayer Relief Act of 1997," which included an extension of the credit from June 1, 1997 through June 30, 1998. Once again the credit was allowed to expire. Congress then extended the credit through June 30, 1999 and made the measure retroactive to cover the period from June 1998, as well. The IT industry invests heavily in research and experimentation to create new products for its markets. The credit has helped establish the U.S. role as the world leader in developing new technologies, by reducing the cost of investing large amounts of capital in long-range, high-risk programs. International competitors, located in countries that extend attractive tax incentives for research and experimentation, now have an advantage over U.S. companies who must contend with the uncertainty about the U.S. R&E credit's continued availability. Absence of the credit threatens the competitive position of the U.S. in the world marketplace.

Action
ITAA has long advocated a permanent extension of the credit so that business decision-makers can rely on its availability in forming their long-term corporate R&E programs. ITAA members and staff continue to meet with Members of Congress and their staff urging a permanent extension of the credit. On February 24, 1998, Representatives Nancy Johnson (R-CT) and Bob Matsui (D-CA) introduced H.R. 835, legislation to make the R&E Tax Credit permanent. Senators Orrin Hatch (R-UT) and Max Baucus (D-MT) are expected to introduce similar legislation in the Senate next week.

A. TAX CREDIT FOR IT TRAINING PROGRAM EXPENSES
ITAA Contact: Carol Cayo

Challenge
Many American companies are experiencing difficulties in recruiting skilled workers to fill key positions in the information technology field. ITAA's recent study (in cooperation with Virginia Tech), Help Wanted 1998: A Call for Collaborative Action for the New Millennium, found that there are currently over 346,000 vacant IT positions in mid- to large-sized American companies. This represents a 10% vacancy rate. The shortage of IT workers is directly related to the need for more IT training opportunities and options: without adequate training resources, incumbent workers' skills will become outdated and new workers wishing to enter the industry will not be able to turn their technology aptitudes into technology skills. The logistical and financial barriers to IT training prevent more people from pursuing IT jobs. It is critical that industry and government work together to expand IT training and education opportunities.

Action
During the 105th Congress Senator Kent Conrad (D-ND) introduced legislation designed to increase the number of partnerships between the IT industry and educational institutes and job training programs (S 2089). The legislation sought to provide employers with a credit against income tax for IT training expenses. The credit would be an amount equal to 20% of the IT training program expenses, not to exceed $6000 in a taxable year. The bill makes the credit available only for IT training that is provided by public sector trainers such as colleges and universities. Senator Conrad's staff assured ITAA that it was the Senator's intention to make private sector training programs eligible for the credit along with private sector programs. At the Senator's request, ITAA submitted proposed modifying language to clarify that utilizing a private sector training provider for IT training would qualify for the credit. ITAA wrote letters to members of the Senate Finance Committee urging support for the measure, and organized a grassroots campaign to get the legislation enacted. An attempt was made to incorporate the measure into an omnibus tax bill to be passed by Congress before adjourning for the year. Unfortunately, the IT Training Credit provisions were not included in the omnibus bill

On February 25, 1999, Senator Conrad reintroduced the measure (S 456) in the 106th Congress. ITAA continues to work with the Senator and his staff to generate support for passage of the measure.

B. COMMUNICATIONS AND ELECTRONIC COMMERCE TAX PROJECT
ITAA Contact: Carol Cayo

ITAA is a member of the Steering Committee of the Communications and Electronic Commerce Tax Project being shaped by a group of government and business entities and agencies under the auspices of the National Tax Association. The purpose of the Project is to develop a broadly available public report, which identifies and explores the issues involved in applying state and local taxes and fees to electronic commerce and that makes recommendations to state and local officials regarding the application of such taxes. The Steering Committee hopes to have a report available early this summer. The business partnership organizations include ITAA, the Committee on State Taxation, the U.S. Communications Association, the Interactive Services Association, and the National Cable Television Association. The government partnership organizations include the National Governors' Association, the National Conference of State Legislatures, the Federation of Tax Administrators, the Multi-state Tax Commission, and the National Association of Counties.

C. OECD GOVERNMENT/BUSINESS DIALOGUE ON TAXATION OF ELECTRONIC COMMERCE
ITAA Contact: Carol Cayo

ITAA was a delegate at the Ottawa Business/Government Dialogue on Tax and Electronic Commerce sponsored by the Organization for Economic Co-Operation and Development (OECD) in the fall of 1998. The meeting discussed ways to realize the potential of electronic commerce. Developing a taxation framework is considered to be a high priority by both government and business to ensure that taxation systems are fair and predictable in operation, and do not distort or impede the conduct of business. In the next stage of this work, the OECD wants to set up small advisory groups composed of representatives from business and government to "promote an exchange of views and an effective and appropriate input of the business sector into the deliberations of governments." ITAA members and staff plan to continue working with the OECD on this important project.

D. NORTH DAKOTA
ITAA Contact: Carol Cayo

February 16, 1999, the North Dakota House of Representatives passed HB 1108, legislation to address a number of telecommunications tax issues. A number of amendments were incorporated into the measure including one intended to clarify that Internet access providers are telecommunications service providers subject to the state's telecommunications gross receipts tax. The bill was sponsored by the Natural Resources Committee at the request of the Tax Commissioner.

The Senate is expected to consider the bill very soon. ITAA President Harris Miller has sent letters to the Governor of North Dakota and the Senate Leadership urging them to oppose the proposal if the language characterizing Internet access providers as telecommunications service providers is not removed. ITAA staff is organizing grassroots support from Internet access providers located in North Dakota, urging them to call the Governor's office, the Senate Majority Leader's office and their representative in the Senate to urge them to oppose the measure in its current form.

FINANCE & ACCOUNTING
ITAA Contact: Douglas Sabo

Challenge
Consistent, fair and sound financial and accounting practices are instrumental to the growth of industry. The U.S. enjoys the most efficient and effective capital markets in the world, due, in part, to having the most comprehensive and transparent business reporting model. Complete and transparent financial statements are the cornerstone on which our process of capital allocation is built.

The success and legitimacy of the process for building this business reporting model lies in the prevalence in the U.S. of private sector-led governing bodies to outline finance and accounting practices. Since 1973, the Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Statements from this organization are augmented by opinions and standard procedures offered by the American Institute of Certified Public Accountants (AICPA), a national professional of over 330,000 CPAs in the U.S.

Various governmental bodies also play a role in the establishment of financial accounting and reporting standards. The Securities and Exchange Commission (SEC) has statutory authority to establish these standards for publicly held companies under the Securities Exchange Act of 1934. Throughout its history, however, the Commission has reinforced the tendency toward industry self-regulation by relying on the private sector for this function to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest. As in other areas, Congress also periodically has stepped into the policy-making area for financial reporting.

Finally, with the IT industry widely recognized as a global industry, international standards organizations also play a role in issuing statements and regulations affecting the financial practices of IT companies in the U.S. Most notable among these is the International Accounting Standards Committee, an independent private sector body, made up of 143 accountancy organizations in 103 countries, working toward uniformity in accounting principles around the world.

This landscape, marked by industry-led self-regulation with periodic interventions of government players, is one in which the information technology industry exists. The industry, though, characterized by its global nature and fast-development(ing), can constantly be impacted by changing dynamics. For example, it's more affected by proposed scrutinous financial reporting regulations than other slower-growth industries. Therefore, the IT industry faces the challenge of a) carefully assessing the impact of any proposed changes, b) educating these various standard-setting organizations concerning the impact of existing and proposed reporting procedures on the industry, and c) being organized to be represented and heard effectively during the decision-making process.

Stock Options
The stock option issue--specifically relating to how to account for stock-based compensation--is one with the potential to directly and significantly impact the bottom-line of IT companies and to affect their ability to attract and retain skilled, highly-sought after employees. The issue of how to account for stock-based compensation, including stock options and employee stock purchase plans (ESPPs), has been the source of heated debate among industry, accountants, and FASB. FASB's most recent actions, detailed below, signal to many in industry a long-term goal of FASB to control the use of and accounting for stock options.

Beginning in 1972 with the issuance of APB Opinion 25, "Accounting for Stock Issued to Employees" and continuing with FAS Statement 123, the debate remains today with FASB considering numerous changes and interpretations of its accounting procedures. FASB currently is reviewing Opinion 25, with changes proposed regarding repricings and stock compensation to Board of Director members. As currently drafted, these rule changes will require companies to recognize the compensation cost of stock options during the vesting period, rather than at the exercise date. Once an option is re-priced, that option must be accounted for as a variable plan, giving rise to compensation expense for subsequent changes in the stock price, from the time it is re-priced to the time it is exercised. In addition, FASB is proposing that members of companies' Boards of Directors not be considered employees of the company, thus affecting the accounting for stock-based compensation to these individuals.

Business Combinations: Pooling vs. Purchase; IPR&D Use
The Financial Accounting Standards Board (FASB) is two years into a major project studying the accounting rules for mergers and acquisitions. The Board is looking at (1) whether one method of accounting for M&A transactions--namely the Purchase method--should be required for all deals, and (2) clarifying the rules regarding intangible assets that make up goodwill charges and how to account for In-Process Research & Development (IPR&D). The Board has stated that it is interested in moving toward international convergence on accounting rules as well as improving the quality of information contained in companies' balance sheets and earnings reports. Toward this end, FASB collected responses in February on a G4+1 international paper on business combinations rules that specifically advocated moving to one method--the Purchase method--for accounting for mergers and acquisitions. The Board also recently announced its intentions to require companies to amortize IPR&D expenses over time, rather than to write them off immediately as a one-time charge. ITAA submitted comments to FASB on February 12.

The U.S. Securities and Exchange Commission (SEC) recently has paid increased attention to the goodwill charges companies--particularly those in the high-tech industry--are writing off as IPR&D. Since Lynn Turner, the SEC's Chief Accountant, sent a letter to the American Institute of Certified Public Accountants (AICPA) on IPR&D abuse on September 9, 1998, the SEC has stepped up the pressure on the IPR&D issue and has notified 150 companies that their accounting for recent M&A deals was under scrutiny. As a result, many companies have been forced to restate their earnings.

Revenue Recognition
The rules governing when a software company can recognize revenue from a software purchase have been in a constant state of development. Most recently, the AICPA issued SOP 97-2, "Software Revenue Recognition," in 1997 to clarify when revenue is recognized from software sales. SOP 98-4 deferred the effective date of the provision of 97-2 that addressed vendor-specific objective evidence (VSOE) in response to concerns from industry and accounting firms alike. The AICPA issued 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions," in 1998 to address the VSOE issue. Currently, software industry leaders have begun to predict that the AICPA will, once again, revisit the issue of software revenue recognition.

Software Development Costs
In 1985, FASB issued Statement 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed." The statement specified that costs incurred internally in creating a computer software product shall be charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. Thereafter, all software production costs shall be capitalized and subsequently reported at the lower of unamortized cost or net realizable value.

While FASB currently is not reviewing Statement 86, numerous software companies have expressed an interest in pursuing the removal of this Statement.

Action
With standard-setting bodies such as the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the American Institute of Certified Public Accountants (AICPA) increasingly reviewing and drafting policies affecting the IT industry, ITAA has responded by making these issues a top priority for 1999. The timelines set out by both the SEC and FASB on these finance and accounting issues indicate that significant decisions will be made in a short time period; exposure drafts on many of these issues will be released in the first half of 1999 and will require prompt attention by ITAA and its members. ITAA has implemented a plan to educate our member companies on the significance of these issues, to reach out to the standard-setting bodies to provide information on the impact of proposed rules on the IT industry, and to organize our member companies to ensure the IT industry's voice is heard.

HUMAN RESOURCES ISSUES
EDUCATION AND THE IT WORKFORCE SHORTAGE
ITAA Contact: Kim Baker

Challenge
As we move into the next millennium, it is clear that the information technology (IT) workforce will continue to have a major impact on the American economy. The IT industry, according to the US Department of Labor, is the fastest growing industry in the US economy. The IT workforce currently totals 2.5 million and needs to grow by 7-10% annually to accommodate demand. The Bureau of Labor Statistics forecasts that employment in IT service jobs alone will nearly double between 1996 and 2006.

As a result, our industry is facing a national labor shortage of historic proportions, and IT companies cannot find enough workers with the requisite skills. This serious, growing shortage of skilled IT workers throughout the US threatens to impact the competitiveness and growth of American industry. The recent Help Wanted 1998 survey conducted by ITAA found that there are at least 346,000 vacant IT positions nationwide, indicating a 10% vacancy rate. Factors impacting the shortage include the inaccurate image of the IT professions, lack of involvement of women and minorities in IT jobs, and college curricula which may not keep pace with industry needs.

Policy
State and federal funding for technology training must be expanded. Young people must be encouraged to move into rewarding, well-compensated jobs in the IT sector. Leaders in the IT industry, together with public officials at all levels of government must become actively involved in and lend strong voices to this effort. The Administration has shown increased awareness of the demand for high-tech workers. By providing incentives in job areas with the greatest shortages of skilled workers and greatest availability of high-paying jobs, the government will recover its investment more quickly.

We are urging our country's policy makers to place greater focus on US education and training to satisfy the rapidly growing demand for skilled IT workers. The nation must invest in IT training for our public school teachers so that they will be able to prepare our future workers with these essential skills right from the start. ITAA recognizes that by beginning with educating the key players, we can then work towards collaborative efforts to change workforce and education policy and ultimately increase the IT labor pool.

ITAA supports legislation that provides incentives for businesses to provide, promote and/or reimburse their employees for IT training. ITAA also supports incentives for individuals to pursue IT training, such as tax credits and scholarships for IT education and training programs. We back policies that allows all IT education/training providers, including private vocational facilities, to fall under the tax credit/grant partner umbrellas already afforded to colleges and universities.

We encourage legislation that includes government as a stakeholder with a shared responsibility in problem resolution. We commend the establishment of federally appointed commissions like the 21st Century Workforce Commission and the Commission on the Advancement of Women and Minorities in Science, Engineering and Technology Development that focus national attention on this critical issue and conduct targeted, results-oriented research.

ITAA endorses legislation that develops community-based solutions through regional training consortia and IT industry curriculum advisory boards which disseminate best practices, increase the capacity of existing partnerships, creating new programs and partnerships and replicate successful training models.

Actions
ITAA is conducting its third in a series of national, comprehensive studies of the shortage of skilled IT workers in American industry, Help Wanted 1999. To foster a broader understanding of the dynamic IT workforce, these surveys clearly and accurately measure the labor shortage currently experienced by both IT and non-IT companies. ITAA distributed its previous studies to Congress, government agencies and other trade associations whose constituencies play a role in developing and/or modifying education and workforce policy.

ITAA is convening the second annual National IT Workforce Convocation on April 12-13, 1999 in Austin, TX. Hundreds of key practitioners in education, government, and industry will gather to gauge the nation's progress in dealing with the shortage of IT workers, highlight replicable programs that are expanding training & recruitment opportunities, determine priorities for private sector & government action, and recognize excellence in innovative partnerships.

In addition, the Convocation features addresses from the Honorable Lloyd Doggett, US House of Representatives and University of Texas-Austin President, Dr. Larry Faulkner. The April 1999 event will examine the root causes of the skills gap and reiterate the need for public/private partnerships to address the issue. National committees comprised of leaders in industry and education investigated barriers to the involvement of under-represented groups, strengthening the current workforce and increasing industry involvement in School-to-Career activities.

ITAA initiates a wide variety of partnerships between industry and academia, including projects with National Alliance of Business (NAB), Education Development Center (EDC), Community Options, Women Work!, US Department of Labor, and many others. We continue to partner with the corporate sector on national PR campaigns to raise awareness of opportunities in the IT industry and in hosting regional symposia to examine workforce needs by locality and to determine specific community-based solutions.

Through a National School-to-Work Office (Departments of Labor and Education) grant, ITAA with the National Alliance of Business (NAB) and the Education Development Center, Inc. (EDC) have teamed up on a two-year School-to-Career (STC) project. The goal of the Techforce Initiative is to facilitate, support and promote IT employer participation in STC activities. Some examples of STC activities include job shadowing, career days, mentoring, internships, IT training for teachers and development of improved IT curriculum through business-education partnerships.

Another DOL funded program brings together ITAA with Community Options, Inc. a national non-profit dedicated to serving people with disabilities. We are replicating a successful model program in Denver that trains and places people with disabilities into entry-level IT jobs. PASS*IT*ON (Plan for Achieving Self-Support with Information Technology Opportunities Nationwide) is intended to meet the needs of the business community for competent IT employees and help injured workers and people with disabilities prepare for challenging, lifelong careers.

ITAA is also partnering with Women Work!, a national non-profit organization that assists women from diverse backgrounds achieve economic self-sufficiency. The RITA (Recruiting for the Information Technology Age) project is funded through a Women in Apprenticeship and Non-Traditional Occupations (WANTO) grant, administered by the Department of Labor (DOL) Women's Bureau. ITAA will facilitate communication between the local IT employers and the regional program staff and provide technical assistance on skills training where women will be trained for and placed in entry-level IT jobs

ITAA has developed the High Tech Workforce Resource Center. This online resource provides comprehensive information on workforce issues, including best practices and original research. Unlike other workforce information centers, this site provides tools for industry, academia and job seekers, which supports ITAA's goal of bringing together these stakeholders in meaningful alliances.

The ITAA Workforce and Education Committee, comprised of members who have a commitment to addressing workforce issues, has played an integral part in ITAA workforce activities.

A. IMMIGRATION
ITAA contact: Renée M. Winsky

Challenge
Access to skilled IT workers - in order to keep U.S. companies competitive - must not be unreasonably or unfairly curtailed. Like other industries, the IT industry makes extensive efforts to locate and train qualified U.S. workers to meet this demand before incurring the substantial additional expense and complexities of hiring foreign workers to address shortages. The IT industry needs to have access to the best and the brightest from around the world to maintain America's global leadership in IT, to help meet worker shortages, and to counter the growing trend of moving IT work offshore. Use of foreign IT workers can help us combat the offshore threat and keep high paying IT jobs here in the U.S. The use of foreign workers helps the U.S. avoid the tremendous movement of jobs overseas that has occurred in other industries.

The H-1B nonimmigrant visa program was created in 1952. In 1990, Congress imposed a 65,000 cap on the number of visas issued on an annual basis. During the final weeks of August 1997 the cap was reached for the first time. The cap was reached again in May 1998. In 1998, the American Competitiveness and Workforce Improvement Act (ACWIA) was signed into law. Highlights of the law include the following.

• Cap raised to 115,00 through FY 2000
• Cap decreases to 107,500 in FY 2001
• Cap reverts to 65,000 in FY 2002
• Scholarships provided for low-income students and worker training
• A new fee for H-1B approved petitions of $500 is imposed
• A labor market study and an age discrimination study are to be performed by the National Science Foundation and Congressional Research Service
• H-1B "dependent companies" are defined as those who have 15% or more H-1B population
• Recruitment and displacement attestations for dependent companies are now included
• Penalties for LCA violations have been increased
• Current Whistleblower protections have been codified
• A benefits attestation for all employers is now included

There are strong indications that the H-1B cap will be reached in April 1999.

Action
In response to ACWIA, the U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking in the January 5, 1999 Federal Register. Initial comments were due February 4, 1999. ITAA along with the U.S. Chamber of Commerce, National Association of Manufacturers, and American Electronics Association requested an extension of the comment period. An extension to February 19, 1999 was granted. ITAA filed comprehensive comments on February 17, 1999. The DOL plans to publish interim final rules in April or May. Interested parties will be able to comment on those rules.

In another turn of events, President Clinton's proposed budget for fiscal year 2000 shifts permanent and H-2B application processing from the Employment Training Administration to the Wage & Hour Division of the Employment Standards Administration. While encouraged by the DOL's recognition of the dire need to improve this process, ITAA is adamantly opposed to the proposal to combine service and enforcement functions under one department.

Consolidating these functions is not necessary in order to solve the problems of accountability, communication, and compliance you described with the current labor certification system. Consolidation will only create a clear conflict of interest because it places adjudication and enforcement within the same unit. The Immigration and Naturalization Service's (INS) struggle with the same issue of service and enforcement residing in one division is evidence of the conflict. Several proposals to the INS, including the Administration's own, recommend separating the two functions. It is inconsistent for the Administration to recommend the opposite approach for DOL.

As the proposal stands now, DOL may find it difficult to engage the employer community in a constructive dialogue. A much more positive approach would be to drop the consolidation proposal and focus solely on possible streamlining of labor certification with the ETA. While the law and process must be enforced and violators punished, it should not be at the expense of those employers who abide by the law and treat the process fairly.

B. CLASSIFICATION OF INDEPENDENT CONTRACTORS
ITAA contact: Renée M. Winsky

Challenge
Under current law, the issue of determining whether a worker is an employee or an independent contractor is contingent upon a facts/circumstances test that requires 20 factors to be taken into account. This produces inconsistent results, controversy between the taxpayers and the Internal Revenue Service (IRS), and produces distortions within the IT industry with resulting unfair competition in the industry.

Action
On February 3, 1999, Senator Christopher S. "Kit" Bond introduced the "Independent Contractor Simplification Relief Act," S. 344. According to Bond, the "proposal provides an alternative to the '20 factor test' by creating clear rules determining who is an independent contractor based on objective criteria, which can be met in either of two ways:

• showing a written agreement; demonstrating economic independence, such as the ability to realize income as well as the risk of loss; and demonstrating workplace independence such as a home office, work at more than one of the service recipient's facilities, or use of your own equipment; or
• showing that the individual performs services through his or her own corporation, provides his own benefits instead of receiving the from the service recipients, and maintains a written agreement."

In addition, according to Bond, the "plan would protect against the IRS's common and costly policy of 'retroactive reclassification' provided the parties involved complied with certain requirements, such as satisfying all IRS reporting requirements."

Finally, the "Act repeals Section 1706 of the 1986 'Tax Reform Act,' and bars companies that contract with 'knowledge professionals' like computer programmers, from the protection against reclassification that exists under current law."

The legislation, cosponsored by Senators Nickles, Coverdell, Cochran, Snowe, Bennett, and Ashcroft, has been referred to the Senate Finance Committee. ITAA will continue to follow this legislation.

C. EMPLOYEE TUITION ASSISTANCE PROGRAM
ITAA contact: Marjorie Bynum

Challenge
Section 127 of the Internal Revenue Code (Exclusion for Employer Provided Education Assistance) allows an employee to receive from their employer up to $5,250 per year in tax-free educational assistance. This exclusion is applicable whether or not the education is related to employee's job or not.

Action
Section 127 which was originally enacted in 1978, has expired and been reinstated nine times. ITAA has lobbied for the permanent extension of Section 127. S. 127 introduced by Senator Daniel Moynihan (D-NY) included a provision to make Section 127 permanent, however, the House passed version H.R. 127 introduced by Representative Sander Levin (D-MI) did not. The most recent extension occurred in the Taxpayer Relief Act of 1997 signed into law by the President on August 6, 1997 extending Section 127 through May 31, 2000 for undergraduate course work. Educational assistance for graduate-level course work was not included, and therefore is taxable.

During the second Session of the 105th Congress, ITAA worked with the Senate Finance Committee to reinstate the graduate level exclusion. This provision, however, was not included in the final tax package passed by Congress at the end of the session.

D. ERGONOMICS
ITAA contact: Nathan Ridnouer

Challenge
The Occupational and Safety Health Agency (OSHA) has declared "repetitive stress illness" the nation's top workplace health and safety problem. OSHA officials have stated that they will promulgate a standard as soon as possible. To justify its activity, OSHA continues to play numbers games with injury reporting statistics even though these ailments have declined 15% over the last two years, and currently comprise less that 5% of all workplace illness and injury reports, according to the Bureau of Labor Statistics.

Action
The National Coalition on Ergonomics, of which ITAA is a member, has focused on three fronts: a science task force; legal task force and communications task force to get the real facts reported.

The latest development on the Ergonomics front is the February 12, 1999 release of OSHA's latest working draft of an Ergonomics Standard. Specific provisions could change dramatically before a proposed ergonomics program standard is published in the Federal Register later this year. OSHA must also prepare a series of economic, risk and other analyses supporting the proposal. Then, the working draft and accompanying analyses will undergo a series of reviews. After those reviews, OSHA will publish a proposed rule and provide many opportunities for public comment. The draft is available on OSHA's Web site.

Background
Work-related musculoskeletal disorders (WMSDs) are now a leading cause of lost-workday injuries and workers' compensation costs. This is evidence enough that an Ergonomics standard is needed now. Recent research supports this statement:

• WMSDs account for 34% of all lost-workday injuries and illnesses, according to the Bureau of Labor Statistics (BLS).
• There were 647,000 lost workday WMSDs reported in 1996.
• WMSDs account for $1 of every $3 spent for workers' compensation.
• WMSDs each year account for more than $15-$20 billion in workers' compensation costs. Total costs add up to as much as $60 billion.
• Carpal tunnel syndrome, one form of WMSD, leads on average to more days away from work than any workplace injury. Carpal tunnel syndrome cases involve more than 25 days away from work, compared to 17 for fractures and 20 for amputations.
• Workers with cases of severe injury can face permanent disability that prevents them from returning to their jobs or handling simple, everyday tasks like combing their hair, picking up a baby or pushing a shopping cart.
• WMSDs are preventable.

A substantial body of scientific evidence supports OSHA's effort to provide workers with ergonomic protection. The evidence strongly supports two basic conclusions: 1) there is a positive relationship between musculoskeletal disorders and workplace risk factors, and 2) Ergonomics programs and specific Ergonomic interventions can reduce these injuries.

Labor groups have made ergonomics a priority issue in 1999, setting the stage for a major political battle as OSHA moves to issue regulations, not based on scientific proof, looking to solve a problem before it is diagnosed. ITAA will work to ensure regulations are not promulgated which will negatively impact the industry.

STATE LEGISLATIVE ACTIVITIES
ITAA contact: Lisa Wallenda Picard

Challenge
State legislators are becoming increasingly involved in high tech and electronic commerce issues. Though the Federal government has supported the continued robust growth of the IT industry through its "market-led, industry-driven, self-regulatory" position outlined in the Framework for a Global Electronic Commerce report described throughout this Public Policy Report, governments have not been so willing to 'give up' their ability to tax and/or regulate the digital environment. As a result, a number of state legislatures attempt to pass laws that would serve to impose taxes on the Internet; strict liability on companies for Y2K failures; onerous privacy and content controls; and other restrictions and regulations that could 'balkanize' the Internet, restrain the growth of electronic commerce and/or impose heavy and costly burdens on ITAA member companies.

Action
In late 1997, ITAA brought together interested companies under the umbrella of the ITAA's State Initiative Program. This specially member-funded coalition was created out of a desire to educate state legislators and regulators to the unique and intricate aspects of IT policy.

The first year of the State Initiative was quite successful, and the program has been broadened in 1999 to monitor the legislative activities in 14 'key' state legislatures and in all 50 states with respect to the Year 2000 software challenge. The priority topics for the group include:

• Year 2000
• IT Procurement
• Internet/Electronic Privacy
• Telecom Infrastructure
• Critical Infrastructure (including the Year 2000 Challenge)
• IT Workforce Shortage
• Internet Content and Jurisdiction
• Electronic Commerce

The State Initiative program monitors significant legislation (both positive and negative) and then contacts and lobbies on those measures that the steering committee decides needs our attention. Last session, ITAA directly weighed in on a variety of state bills in California, Tennessee, Michigan, New York, Pennsylvania, Washington State, Florida and Texas. ITAA also testified in a number of state capitols on issues important to our members. ITAA President, Harris Miller, testified before the Pennsylvania Senate Committee on Technology and Science regarding the Year 2000 problem. Marc Pearl, ITAA's General Counsel testified before the Connecticut legislature in support of a centralized CIO position.

In late 1998, ITAA's State Initiative group hosted Year 2000 issue briefings for California State Legislators and their staff and also developed an online Year 2000 "survival guide" for state legislators and their staff. In Virginia, ITAA was appointed to the Electronic Commerce advisory board of the State Joint Committee on Technology and Science. ITAA also works closely with the staffs of both the National Conference of State Legislators and the Council of State Governments and their staffs to bring new insight into policy decisions concerning the Internet, electronic commerce, privacy, taxation, the IT workforce shortage and the year 2000. Last year, ITAA spoke on various issues at several conferences as well as assisted committee staff in addressing these concerns in legislation, and will remain active in these forms in 1999.