Potential Problem with Kerry's Outsourcing Solution

[Pangloss]

We had a discussion here recently in which someone tried to suggest that only the United States has violated the WTO. Which is, of course, ridiculous, but after I demonstrated that it's not the case, I got to thinking about Kerry's plan to stop outsourcing in America.

 

The basic idea is that he wants to provide tax incentives to companies that keep jobs in the US instead of sending them overseas.

 

Now, setting aside for the moment the obvious flaw that every company in the country will immediately apply for these incentives, claiming outsourcing pressures (sigh), another thought occurs: Wouldn't this be a violation of the WTO? Obviously this would only apply if said company exports goods to members of the WTO, but since that's most countries who buy our goods, it sounds like a valid concern.

 

And the WTO has already stated, in the Boeing case, that tax incentives can be ruled to be in violation. So we know they're capable of going into that territory.

 

I'm just not sure at this point what other factors might apply. Your input is invited.

[bloodhound]

you are probably referring to me , but if u go read my posts in the other thread i never implied that USA was the ONLY one to have violated the WTO

[budullewraagh]

outsourcing is a double-edged sword. on one hand, you're helping smaller nations develop by sending them jobs. the company pays them less, and pay less in taxes. on the other hand, you are taking away potential american jobs. personally i believe that companies that outsource should be taxed much more than companies that do not outsource.

[Pangloss]

But does that constitute a trade violation?

 

The WTO ruled in Boeing's case that it did. The question there was regarding tax incentives given for a slightly different reason, but isn't the effect the same?

[jattaway]

This site seems to have a lot of research done, I have not attempted to verify most of it, but should make for interesting discussion.

 

http://townhall.townofchapelhill.org/archives/agendas/ca000508/5a-Information%20Report%20--%20World%20Trade%20Org.htm

[atinymonkey]

Now' date=' setting aside for the moment the obvious flaw that every company in the country will immediately apply for these incentives, claiming outsourcing pressures (sigh), another thought occurs: Wouldn't this be a violation of the WTO? Obviously this would only apply if said company exports goods to members of the WTO, but since that's most countries who buy our goods, it sounds like a valid concern.[/quote']

 

It depends on the implentation of such a plan. The WTO is not a device to undermine a countrys resident industry, measures to protect the GNP of a country in regard to employment are viable and expected.

 

If the plan were to use the tax breaks to create a situation where the govenment was underwriting the cost of using local labour then there may be a case for complaint. However the US taxes more than almost every counrty on earth, so a reduction in tax could only bring companys in line with the rates charged via tax to competing countries labour. A a tax break, in essence, would level the playing feild.

 

The proposed measure is a common approach to combating outsourced labour. Another approach is to abolish tax on construction materials or tax on land sales for industrys. It's encouragement for the trades to stay national rather than a prevention of outsourcing to international sites.

 

In point of fact, in regard to you random WTO remark, the US has violated the WTO on a number of occasions. It surpresses free trade in a suprising amount of countrys, not least to provide the cheap coffee imports that are a billion $ trade in the US. I appreciate you may not be aware of it, but in reality:-

 

http://www.ipsnews.net/interna.asp?idnews=25307

http://japan.usembassy.gov/e/p/tp-20040901-09.html

http://www.progress.org/corpw29.htm

http://www.findarticles.com/p/articles/mi_m0WDP/is_2003_Nov_24/ai_110461141

[Pangloss]

Yeah there's no question that the US has violated WTO. I wouldn't try to contest that assertion at all.

 

Some interesting points in the two posts above. I've got to run to class here in a few minutes, but I'll try to read your links and respond further, later tonight. Thanks for the input.

[atinymonkey]

Ah, I just read the 'only the US violated the WTO' part. I missed the 'only' when I first read it through. It's less random when I read it all. Sorry about that

[drz]

my opinion is that a company that sends its labor overseas to get it cheaper should be taxed to the point where it isn't any cheaper.

 

In the case where the company is truly helping another country without taking jobs away from america, this should be different.

[john5746]

Companies outsource to increase profits or remain competitive, not to help other countries. Free Trade is a good thing overall, but eventually, we should see a leveling of standard of living. The middle class American worker will need to settle for less and less to become competitive.

 

It is a very serious problem that will escalate. I am afraid the next technology boom may bypass America completely. While we waste our money trying to free the Middle East and our people waste their minds, the tigers in the east are working, working.

 

I think one big problem is the American investor. As an investor, we want the companies chief concern to be maximizing profits. Screw everything else, just get me money - fast. I have read that European companies take workers more into consideration.

 

I am not sure if this is true or not, but seems to me American companies should have the employees welfare right in with the investor profits and consumer as the chief goal for the company.

[Pangloss]

Don't confuse "outsourcing" with "trade", or think that I'm confusing the two at my end.

 

Let me try to rephrase the problem. Let's say you run a company, and your company makes a product. Let's say computer software. And you are considering outsourcing that product to programmers in India.

 

Along comes John Kerry, offering you a tax incentive (through means at this point undetermined, but presumably able to determine for sure that you were about to outsource, and aren't just a shyster looking for a handout). You accept the incentive, and keep the jobs in the US.

 

You go on to make your product, and then one day a salesman comes to you and says, "Hey, I got a great idea! Let's market this software in Germany!"

 

What I want to know is, at that point, have you violated the WTO?

 

It may sound silly, but in the case of Boeing, that's more or less exactly what happened. The WTO found the US to be in violation because of tax incentives given to Boeing for a plane that was to eventually be marketed overseas. (In fact the plane hasn't even finished development yet -- it's the 7E7.)

 

Am I making myself more clear now? It's a fairly complicated issue, and I suspect that I can't be right about this because if I were then there would surely be thousands of entries on the WTO's violations page instead of dozens. But why? Maybe there are just more terms to the WTO than I realize.