Tag Archives: Congress

Proportional Outsourcing

Although offshore outsourcing is a concept commonly identified with the Western world, the highly-criticized business practice serves as a prevalent issue in the 21st century across the globe. Outsourcing is considered unfavorable by many, predominantly due to its association with job loss. Canada, Australia, Singapore and the United States are among the world’s top outsourcing countries. As a result, outsourcing has contributed to an increase in unemployment in many of these nation states. The Australian corporation, Telstra, has singularly moved 10,000 of its 38,000 jobs overseas, leaving thousands of Australians unemployed. Since Canada began offshoring call-center jobs to India in the 1900’s, the telecommunications industry has reclined 10 percent. Not to mention, the United States alone saw an elimination of one million jobs from the workforce between 1999 and 2010 solely as the result of outsourcing.

However, offshore outsourcing has provoked many negative effects on the receiving end as well, specifically in regards to environmental regulations. Since the signing of NAFTA, Mexico has greatly relaxed their environmental standards to be a competitive recipient of foreign jobs against China. As well, given the tax holidays that IT divisions receive in India, many North American industrial companies have rerouted their income through their IT departments while outsourcing the industrial work to India. As a result, India has been subject to an increase in pollution. Aside from environmental upheaval, India has also become the home of call centers for many corporations. Although this is not disadvantageous to the Indian people, the language barrier has proved ineffective for many companies, ensuing a decline in customer satisfaction. These disadvantages to outsourcing are among many others such as the discouragement of innovation at the state of origin and a drop in the number of people majoring in high-technological studies.

Still, many proponents of outsourcing contend its benefits such as the low costs of manufacturing externally. This ultimately allows for higher wages in other non-manufacturing positions internally. As well, it is claimed that outsourcing serves as a resourceful way to capitalize on modern technology by easily contacting talent across the world that is not readily available at home. Therefore, as the number of businesses taking part in outsourcing grows daily, it is necessary to promote global policy that considers the benefits of the practice while introducing regulations to prevent further negative economic and environmental repercussions. Various bills have been proposed in recent years to attempt to regulate the outsourcing process. The two bills put forth by the United States, the “Stop Outsourcing and Create American Jobs Act of 2010” and the “Bring Jobs Home Act”, were refused by the U.S. Congress. Both bills sought to phase out outsourcing to ameliorate domestic issues such as unemployment and tax evasion. Still, the U.S. has yet to propose a bill that seeks a solution for all global participants.

Conversely, the E.U. “Services Directive in the Internal Market” was passed to embrace a more inclusive approach, considering both the sender and the receiver in the outsourcing process. The purpose of the law was to “liberalize freedom of establishment of E.U. enterprises and trade in services among E.U. Member States.” The directive facilitates the process for an enterprise incorporated in one E.U. state to operate in another by simplifying the procedures and formalities involved in outsourcing. However, it is accompanied by many standards and principles. For one, it requires a nondiscriminatory process for all nation states as to eliminate the possibility of antitrust. The “proportionality” principle also requires that local legislation on outsourcing must comply with minimal set standards in the Services Directive. This is favorable because the directive calls for a high level of consumer protection for businesses and individuals who serve as Service Recipients. The law further obliges all Member States to remain subject to their own labor laws while operating in foreign countries. Overall, the law removes adamant legal and administrative barriers to encourage outsourcing while still providing regulations in consideration of all participating parties.

If applied on an international level, the solutions developed by the European Union could eliminate many issues associated with outsourcing worldwide. Requiring companies to comply with their own domestic laws abroad would reduce extraneous outsourcing because corporations would no longer move operations overseas for the sole purpose of tax evasion or low environmental standards. This serves as a win-win situation because it would prevent companies from curtailing environmental standards abroad, as with Mexico, and it would concurrently maintain some employment back home. Likewise, the implementation of a comparable “proportionality” principle would prohibit companies from applying their own relaxed domestic codes in foreign nations with stricter laws. In this way, minimal standards would prevent issues as in the case, Sumitomo Shoji Am v. Avagliano, in which a Japanese subsidiary attempted to evade U.S. discrimination laws by calling upon Japan’s lower set standards. Provisions of the like could be employed in multiple ways transnationally, as with FCN Treaties or other forms of international legislation. As it stands, many companies worldwide are taking advantage of the minimally-regulated outsourcing process. While living in a time when globalization is rapidly expanding, it is crucial to connect with foreign nation states through outsourcing. But at the same time, regulations must be applied to prevent a manipulation of the system.

When IP laws hinder healthcare

In my last blog post, I discussed the development of intellectual property law within the trade industry. With TRIPS (the Trade-Related Aspects of Intellectual Property Rights) as a minimum standard for IP protection, the United States has broadened IP laws even further through a combination of bilateral and multilateral free trade agreements (FTAs). This protection is specifically crucial for the pharmaceutical industry, considering that 10-30% of drugs in developing states are counterfeit. But the balancing act of enacting IP protection is especially important in these nations because too stringent of laws may serve as a great obstacle to growth.

The Trans-Pacific Partnership (TPP), which is currently the largest U.S. FTA to date, was just agreed upon by 12 Pacific Rim nation states. In addition to eliminating barriers to free trade and heightening environmental standards between and across these nations, the TPP calls for stricter standards for intellectual property. The United States government claims that, “TPP’s Intellectual Property (IP) chapter will help Americans take full advantage of our country’s innovative strengths and help to promote trade and innovation, as well as to advance scientific, technological and creative exchange throughout the region.” This statement is accurate, as existing United States’ intellectual property law is used as a foundation for the agreed-upon provisions in the TPP. However, many of the nations that are parties to the agreement are unlikely to be able to execute the high standards set by the U.S. This is especially true for Vietnam, the weakest and poorest party to the partnership.

The TPP sets a 5-8 year data exclusivity standard for biologics and allows for the process of evergreening, which occurs when drug companies request patents for new uses of old drugs. These are only a few of the strict IP provisions presented in the TPP. Judit Rius Sanjuan, a legal adviser to Médecins Sans Frontières has said, “I am sure it will increase the prices of medicine. It will take components of US law and export them to other countries, and create a new global norm that will change the way the TRIPS agreement was negotiated.” This was exactly the case in Guatemala after the Central American Free Trade Agreement was ratified. Whereas many drugs in the US had already become available in generic forms, Guatemalans were still paying high prices for name brands.

Because it controls the majority of intellectual property worldwide, there is great incentive for the United States to require heightened IP standards. And actually, in many fields such as the tech and film industries, these strict standards are satisfactory. But where human health is involved, it has for a long time been common practice to loosen IP laws. The U.S. has previously relaxed IP requirements in bilateral FTAs with Colombia, Panama and Peru, even including the use of compulsory licensing. If the TPP is ratified, drug prices will likely surge throughout developing nations around the globe, at which point the US will be called upon to help pick up the pieces. This should have been of consideration within negotiating the TPP, among other pitfalls that will come to light if the agreement is approved by Congress.


Read the full text of the TPP at the USTR website here.


A video from June, 2013 that speaks to more issues within the IP chapter of the TPP: