SPECIAL COVERAGE: UNDERSTANDING OUTSOURCING

MARCH 5, 2004

Outsourcing Fears Land in Congress's Lap

By Michael M. Phillips
Staff Reporter of The Wall Street Journal

Washington -- There is the Defending American Jobs Act. Also the United States Workers Protection Act and the USA Jobs Protection Act. Not to mention the Jobs for America Act.

With voters worried about losing their jobs to workers in other countries and politicians worried about losing theirs to other politicians, Congress is charging headlong into the debate over the outsourcing of white-collar jobs to Bangalore, India; Accra, Ghana; and other exotic locales.

The political mood has swung drastically in the two years since President Bush's first Treasury secretary, Paul O'Neill, and the Irish rock star Bono traveled to Ghana together. There, they sang the praises of the American company that had hired poor Ghanaians to perform computer data-entry work for U.S. insurers.

These days, the president's top economic adviser, Greg Mankiw, is pilloried for suggesting that offshore outsourcing might benefit the U.S. economy in the long term, while lawmakers scramble over each other to publicize their legislative fixes. Just yesterday, the Senate approved a measure that would limit the use of federal funds to purchase foreign goods or services.

"As the political silly season heats up, everybody and his brother wants to put out a press release saying, `I personally stopped 5,000 jobs from going to India,' " said Harris Miller, president of the Information Technology Association of America, which represents more than 400 computer-software and services companies. His group has a public-relations gambit of its own; along with other business lobbyists, ITAA has created the Coalition for Economic Growth and American Jobs to fend off antioutsourcing legislation.

Although it isn't clear whether any of the congressional proposals will become law, they are sure to fuel an intensifying campaign-year debate over the outsourcing of jobs. Democrats, from presidential hopeful John Kerry on down, are eager to blame job losses on Mr. Bush and the Republican-controlled Congress. The administration has kept mum on the outsourcing outcry, while the congressional leadership seems unlikely to let the most punitive antibusiness measures pass. The legislation popping up in Congress falls into six general categories:

Help Affected Workers

Sen. Max Baucus, a Montana Democrat, is pushing legislation that would extend training, health care and other benefits to employees in the service sector whose jobs are moved abroad. Currently, such trade-adjustment assistance is reserved for manufacturing workers.

The idea has bipartisan appeal: Liberal Democrats can sell it as government aid to the needy; Republicans and free-trade Democrats say it supports commerce by easing the turmoil and insecurity that result when industry moves to the most-efficient location.

While society as a whole may benefit from lower prices for everything from shirts to insurance, workers who lose their jobs deserve help, backers say.

"We have a moral responsibility to make sure that any hard-working men and women who might be negatively affected by a trade agreement are not denied a good-paying job," said Sen. Norm Coleman, a Minnesota Republican and a co-sponsor of the bill.

Baucus aides say the trade measure might be attached to another jobs bill that would cut taxes for U.S. manufacturers. The provision also might wind up tucked into legislation to fix an export-tax subsidy that has run afoul of the World Trade Organization and prompted retaliation by the European Union.

Require Full Disclosure

Senate Democrats, led by Minority Leader Tom Daschle of South Dakota, are backing a bill that would require executives to provide at least three months' notice before they lay off more than 14 workers to send their jobs overseas.

Mr. Kerry of Massachusetts has endorsed the plan, which is akin to a law requiring advance notice for plant closings. The idea is to give workers more time to find new jobs, or, perhaps, to fight the outsourcing. He also wants overseas call centers or order-processing centers for U.S. companies to inform customers about their location. Indian claims processors for an insurance company might have to answer the phone by disclosing that they are in Bangalore, not in Hartford, Conn.

Cut Off Federal Aid

Vermont's Bernie Sanders, the only independent in the House, sees the outsourcing hullabaloo as a chance to crack down on what he considers corporate welfare. His bill, which has 50 co-sponsors, almost all Democrats, would bar federal loans, grants or guarantees for any company that lays off more workers at home than it does abroad.

"You don't give taxpayer money to people who are spitting in the faces of American workers and moving abroad," Mr. Sanders said. He is particularly incensed about the Export-Import Bank, which finances hundreds of millions of dollars in overseas sales by Boeing Co., Motorola Inc., General Electric Co. and other manufacturers with overseas operations.

Despite the large number of co-sponsors, however, Mr. Sanders may be in for a tough fight. A couple of years ago, he failed to get similar language included in an Ex-Im Bank bill. The bank's supporters argued that the bank funds only exports of American-made products, boosting companies and thus slowing the trend toward outsourcing of goods and services.

Crack Down on Federal Contracts

Congress already has barred companies that plan to use offshore labor from winning some federal-government contracts this year, and yesterday the Senate approved an amendment to expand that ban and make it permanent. The measure generally bars contractors from using federal money for work done abroad, and bars state governments from using federal funds to purchase such goods or services. The amendment is part of a larger corporate tax bill -- addressing the WTO's concerns about U.S. export subsidies -- that may not come to a vote for several weeks.

"Our nation's chief export shouldn't be jobs for foreign workers," said Sen. Chris Dodd (D., Conn.), the amendment's sponsor. "Taxpayers' hard-earned money shouldn't be used to bankroll the loss of taxpayers' jobs to overseas workers."

Gary Hufbauer, a trade expert at the Institute for International Economics, a Washington think tank, said it's not surprising that such proposals are gaining momentum in the current political climate. After all, he said, the government has set a precedent by barring federal contracts for companies that discriminate against minorities.

Provide Tax Incentives/Penalties

Sen. John Edwards (D., N.C.), considered a possible running mate for Mr. Kerry after ending his presidential campaign this week, supports eliminating corporate tax deductions for the expense of moving jobs abroad or hiring offshore contractors. He also argues for tax cuts for manufacturers that keep jobs in the U.S.

Claude Barfield, resident scholar at the American Enterprise Institute, said the continuing congressional effort to bring the tax code into compliance with international trade agreements could open the door to outsourcing-related tax measures. "You might get some tilt toward companies that are exporting, as opposed to companies that are actually investing abroad," Mr. Barfield said.

Insist on Privacy Protections

Rep. Edward Markey (D., Mass.) has asked government agencies -- from the Internal Revenue Service to the Central Intelligence Agency -- to investigate whether companies are sending private information abroad to non-U.S. data processors. He worries that sensitive medical, tax or other information may be available to non-U.S. companies, and he plans to introduce legislation requiring consumer consent for such information transfers. "Americans are losing their jobs and their privacy in one fell swoop," he said.