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US outsourcing ban legally valid: experts
June 16, 2003 17:30 IST
The controversial legislations in several American states, including New Jersey, banning outsourcing of state contracting of services would be legally valid under the WTO's General Agreement on Trade in Services, according to US legal experts.
And that perhaps explains Deputy Prime Minister L K Advani's reluctance to take up the issue with President George W Bush during his recent visit to Washington.
Asked about it at a press conference, Advani said he had not raised the issue at his meeting with Bush because it was not a problem for India, but a concern for American companies, which are seeking to cut costs to remain competitive.
That, he said, was something that American companies have to deal with.
There is a need to distinguish between law and public policy when dealing with the outsourcing ban legislation, said William Bierce of the New York law firm Bierce & Kenerson.
Under WTO's GATS, "It would appear valid for government procurement of services,'' he said. "Such 'Buy America' or 'Buy Local' laws are illegal under GATS when they relate to purchases by private buyers. But for government buyers of services, the GATS allows such favouritism to local service providers," Bierce said.
''As a beggar-thy-neighbour policy of keeping jobs at home, such legislation would help generate employment at a time of economic decline, reducing the costs of public welfare and other social costs,'' he said.
However, such legislations would not be good public policy, Bierce added.
''Such legislations would deprive local governments of purchasing services at the cheapest price. It would hurt local taxpayers as consumers of government services.''
It was New Jersey which gave the lead in introducing anti-outsourcing legislation when in March 2002, New Jersey State Senator Shirley Turner introduced a Bill that would impose a 'Buy American' rule on all purchases in the state.
Under the Bill's provisions, for every state contract for services only US citizens and legal resident aliens shall be employed.
The Bill was inspired by the fact that recent published reports have indicated that telephone inquiries by welfare and food stamp clients under New Jersey's Families First Program were being handled by operators in Mumbai, after the contractor moved its operations outside of the United States as a cost-cutting measure.
The Bill was intended to ensure that State funds are used to employ people residing in the United States and to prevent the loss of jobs to foreign countries.