“The change we need.” That was the campaign slogan of Barack Obama in 2008. It's time to explore what change is really needed.
TARP. After his Presidential inauguration on January 20, 2009, an early item on the Democratic Party’s legislative agenda is to change the way in which the U.S. Government monitors and controls the $700 billion in TARP funds used to recapitalize banks and other “assisted institutions” (such as broker-dealers converted into banks) under the TARP relief program. H.R. 384, “An Act to reform the Troubled Assets Relief Program of the Secretary of the Treasury and ensure accountability under such Program,” 111th Cong., 1st Sess., H. Rep. 111-3. While not directed against offshore outsourcing, the new “accountability” legislation could adversely affect offshore outsourcing and violate U.S. obligations on multilateral free trade under the WTO.
A Tool for Bashing Offshore BPO. On Day 1 after the inauguration, now comes Rep. Sue Wilkins Myrick (Republican, North Carolina) with an anti-outsourcing amendment from the floor. Her Amendment no. 8 to the TARP reform act would prohibit any “assisted institution that became an assisted institution on or after October 3, 2008,” from entering into “a new agreement, or expand a current agreement, with any foreign company for provision of customer service functions, including call-center services, while any of such assistance is outstanding.” Fed. Reg., Jan. 21, 2009, page H407. That’s right, if it receives U.S. capital contribution as shareholder or lender, it can’t expand its use of a “foreign company” (including a captive) as provider of call center or “customer service functions.” The scope of such a prohibition could capture a large portion of the BPO global services industry.
Rep. Myrick argued this protectionism is justified by a high local unemployment rate and the principle that U.S. taxes should not fund foreign jobs.
Parliamentary Circumvention of WTO? Parliamentary rules of courtesy invite speakers in opposition to such floor amendments. Well, Rep. Barney Frank (D, Massachusetts) rose in opposition, nominally, saying he supported the amendment but explained that it could result in a breach of WTO obligations. Rep. Frank hit the nail on the head:
But I do want to point out a difficulty that Members of this House should contemplate. We run the risk here that this may violate our obligations under the World Trade Organization. As someone who voted against joining, and I say that without any embarrassment, I would say to Members who will be joining, I believe, virtually every Member of this House in supporting the gentlewoman's amendment that perhaps it should lead them to rethink to having so enthusiastically subscribed to the WTO agreement without some changes. It certainly seems to us that while we do know the government is directly involved, spending its own money, you can have a requirement for domesticity. It is unclear what the interpretation will be here. The interpretation be not be purely an American one. It will be in the dispute resolution procedures of the WTO.
So as we go forward in this Congress and we are told about the advantages of a multilateral approach to trade, and I agree that, properly done, that is very advantageous, I hope Members who more enthusiastically than I embraced this principle will stop to think about it.
Some of us who were worried about the job impact of international economic relations have been derided as the reincarnation of Smoot and Hawley. Well, I guess Smoot and Hawley would have been with us on this one because it says companies who do business in America cannot go overseas for hiring. …
But the fact that we have the hook in the TARP doesn't change what the economics would be. So I welcome what I think is a renewed recognition for some and a belated recognition for others that a regime in which none of these considerations of local employment can be considered is not necessarily in our best interest. [Emphasis added.] Fed. Reg., Jan. 21, 2009, page H408.
Impact on Global Services Business. Providers and users of global services should monitor the legislative process to ensure the U.S. does not revert to the high-tariff exclusionary trade practices of the Smoot-Hawley tariff act of 1930 that spawned the Great Depression.
o The anti-call center TARP amendment passed by voice vote. No one called any one else to stand and be counted in support of a law that violates U.S. international obligations.
o Those voting for the anti-call center TARP amendment were warned about such a violation, and disregarded the warning.
o This issue will reappear and may disappear when the House and Senate adopt similar bills and meet behind closed doors in conference to adopt a single bill that each can then approve for transmittal to the President for signature.
o Maybe if the government were exercising rights as a shareholder in a TARP “assisted institution” such restrictions might be valid under WTO rules.
o This debate about TARP and offshore call centers and customer service functions is only a side show to new U.S. legislation on outsourced manufacturing and international trade regulation. Cong. Charles Rangel (Dem., New York) introduced a H.R. 496 on January 14, 2009, a bill “To amend United States trade laws to eliminate foreign barriers to exports of United States goods and services, to restore rights under trade remedy laws, to strengthen enforcement of United States intellectual property rights and health and safety laws at United States borders, and for other purposes.”
o This is also a side show to President Obama’s projected $850 billion stimulus package. If the terms of financial assistance will include banning new work for offshore call centers and offshore customer service functions, the U.S. can expect no mercy by foreign governments in retaliation against U.S. services.
Impact on U.S. Business and Workers. American businesses and even workers should consider the possibility of foreign retaliation. If the terms of U.S. governmental financial assistance will include banning new work for offshore call centers and offshore customer service functions, the U.S. can expect no mercy by foreign governments in retaliation against U.S. services. That could be another Smoot-Hawley wall-building exercise.
Valid Alternatives. There might be alternatives that do not violate the WTO rules. Consider (i) amending the terms of American accession to the WTO agreement, involving restructuring the global economic system, or (ii) adoption of special shareholder rights giving the government some rights in management, or (iii) identifying a justification under WTO rules for taking such action. But legislation like this TARP encrustation could raises concerns globally about the willingness of the U.S. to enter into the hard dialogues that need to be addressed to deal with these political issues consistent with existing U.S. multilateral obligations. Incidentally, the U.S. Trade Representative, who represents the President, is authorized to negotiate international trade agreements, not Congress. Of course, Congress approves trade agreements, so maybe this is just an opening invitation by Congress to have the USTR start some negotiations.
For info on U.S. obligations under WTO, see the General Agreement on Trade in Services and Government Procurement Code of the World Trade Organization www.wto.org.