Anti-Offshoring Fever in Senate

The presidential campaign season heated up in the U.S. Senate Thursday during a dispute over an offshoring amendment that led to charges of election-year grandstanding between Republicans and Democrats.

As the Senate began to consider a corporate tax bill critical to U.S. exporters late Wednesday afternoon, Democrats, led by Connecticut’s Christopher Dodd, moved to add an amendment to the legislation prohibiting federal contractors from moving government-funded IT contracts overseas.

Dodd’s amendment and the subsequent floor debate were unwelcome delays to the Republican leadership anxious to pass legislation aimed at addressing European Union trade sanctions that went into effect March 1, when the EU began collecting a five percent penalty tariff on a wide variety of U.S. goods. The penalty increases by one percent per month over the next year.

The legislation followed a ruling last year by the World Trade Organization (WTO), which called the annual $5 billion tax break given to U.S. exporters an illegal export subsidy. The WTO set a March 1 deadline for Washington to change its tax code or be penalized. The Senate fix is called the Jumpstart Our Business Strengths Act (JOBS), which alters portions of the corporate tax code in order to satisfy the WTO and redistribute the tax breaks.

The Democratic amendment to the bill forced senators to suspend debate over the JOBS measure while crafting a compromise to Dodd’s amendment. While staffs worked out the details, Republicans accused Democrats of election-year grandstanding and warned of trade wars and sanctions.

“What are we going to do, have every country in the world retaliate against us?” asked Utah Republican Orrin Hatch. “This legislation will only create more angst and cost more jobs.” Judd Gregg (R-N.H.) called the Dodd amendment a “move toward protectionism.”

Democrats, for their part, spent the day quoting as often as possible President Bush’s chief economic advisor, Gregory Mankiw, who recently said offshoring of American service jobs is a “good thing” for the U.S. economy.

“Workers in Connecticut and across the nation are first-rate. It simply doesn’t make sense to export their jobs and futures half way around the world to save a few pennies,” said Dodd. “This administration needs to get its priorities straight, and use taxpayer dollars to invest in America — American workers and small business owners. This legislation is a step toward stopping the needless export of American workplaces.”

But by mid-afternoon, Dodd had agreed to substantive changes in his amendment language. If ever actually enacted, the amendment extends indefinitely a congressional moratorium requiring that government jobs shifted to private contractors have to stay in the United States.

However, significant exemptions allow federal contractors to continue offshoring with the 28 mostly developed European Union and Pacific Rim nations that are members of the WTO’s government procurement code. Neither India nor China is a member of the WTO code.

In addition, waivers are included for contracts involving national defense and homeland security, since some military systems incorporate parts made overseas.

In any event, Republicans insisted on and won language requiring the Commerce Department to prove the amendment won’t harm the economy or lead to more job losses before it can be enacted.

That left little to actually ban and no fears of WTO sanctions. By 70-26 vote, the Senate approved the measure.

“I’m ready to admit there are a lot of good people who believe outsourcing is a good thing,” Dodd said Thursday afternoon. “I just don’t think it’s good policy to do it with taxpayer dollars.”

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