Barack Obama throws support behind outsourcing

In India this week, President Barack Obama reshaped offshoring as part of international trade. Instead of complaining of jobs moving to Bangalore, the president's message to India's leaders was soothing, emphasizing instead how trade works both ways.


A few months ago, Congress raised the fees on H-1B visas, and mid-term election candidates pummeled opponents over offshore outsourcing. These actions had the India government and its IT industry on edge and worried about new restrictions on the visa.

In India this week, President Barack Obama reshaped offshoring as part of international trade. Instead of complaining of jobs moving to Bangalore, the president's message to India's leaders was soothing, emphasising instead how trade works both ways.

Said Obama: "I want to be able to say to the American people when they ask me, well, 'why are you spending time with India, aren't they taking our jobs?' I want to be able to say actually, you know what, they just created 50,000 jobs. And that's why we shouldn't be resorting to protectionist measures; we shouldn't be thinking that it's just a one way street. I want both the citizens in the United States and citizens in India to understand the benefits of commercial ties between the two countries."

Indian IT business leaders seemed pleased with Obama's remarks and India Prime Minister Manmohan Singh added his own point as well. "As far as India is concerned, India is not in the business of stealing jobs from the United States of America," he said. "Our outsourcing industry I believe has helped to improve the productive capacity and productivity of American industry," he said.

Obama's message is in sharp contrast to what has been going on in the US. Senator Barbara Boxer (D-California) slammed her Republican challenger, former Hewlett-Packard CEO Carly Fiorina, for layoffs and offshoring during her years at HP. Boxer won reelection.

In Ohio, Democratic Governor Ted Strickland went so far as to sign an executive order in August prohibiting state agencies from contracting with any company that offshores a state service. Strickland lost his reelection bid to Republican John Kasich. Strickland's executive order loses force once he leaves office.

US Senator Harry Reid (D-Nevada) made a last minute attempt to provide tax breaks to companies that hire US workers. He won reelection.

Obama may have signalled to the Indian government a willingness not to start piling restrictions on the H-1B visa and on offshoring generally. But much depends on what Congress does, and it is possible that the lame duck session could offer H-1B supporters an opportunity to make gains, particularly through amendments tacked on to some pending appropriations bills.

India is seeking a number of things from the US, including creation of a service visa apart from the H-1B visas that could be used by firms that engage in IT services work. The Indian government is also seeking a totalisation agreement, similar to agreements the US has in Europe that would end the need for Indian visa workers to pay Social Security and Medicare taxes. Unless they become permanent residents, those workers will not see benefits from those payments.

If Congress acts to increase the cap on H-1B visas, then Obama is likely to support it. Obama supported an H-1B cap increase of up to 180,000 from 85,000 as a senator in 2007. The Obama administration has said little about the visa generally, except in legal papers where it highlighted the visa's importance to US industry and said that lack of access to the visas creates a "competitive disadvantage" for US companies.

What the Obama administration did in India is it relaxed some of the export controls that should make it easier for US firms to sell defence and homeland security-related products to the Indian market, said Sanjay Mullick, an attorney who specializes in export controls and economic sanctions at the law firm Pillsbury Winthrop Shaw Pittman LLP. He said the change in export controls is significant.

"We're sitting here with 10% unemployment and the best technology in the world," Mullick said. "When we have export control restrictions that are as outdated as they were, what we're doing is basically compromising the ability of US firms to play in this fantastic opportunity," he said.

The agreement on export controls is "helpful in sending a message that the relationship is on a new level now, a level of presumption of trust," Mullick said.

Ron Hira, an associate professor of public policy at the Rochester Institute of Technology, said Obama accomplished what he set out to do in India, which was to "appease business leaders both in the US and in India. "

"This shouldn't have taken anyone by surprise, since Obama and his economic team has never taken offshoring seriously," Hira said. "He's been in office two years and took no actions on offshoring in spite of a few speeches," he said.

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