U.S. Discrimination against Foreign Call Centers: Sen. Schumer’s Personal Trade War

Posted June 30, 2010 by   · Print This Post Print This Post

Call center operations can be conducted anywhere in the world without U.S. regulation, unless the activities involve regulated business services such as mortgage banking, consumer credit and lending, broker-dealer securities brokerage, life insurance sales and the regulated professions such as public accounting, the practice of law, engineering and architecture. The Democrats and the Obama Administration appear to want to control call center operations more than the mere directive in the TARP program, which forbids the use of any federal funds by TARP stimulus recipients for foreign call centers. Now comes Sen. Charles Schumer (D., N.Y.) with a proposal to tax all foreign call center calls at $0.25 per call, but exempt all U.S. call center calls from this tax.

Schumer’s Discriminatory Foreign Call Center Bill. By Press Release dated June 2, 2010, Sen. Schumer unveiled a “bill to rein in outsourcing of call center jobs to foreign countries” and to “maintain thousands of jobs in New York and the U.S.” and “provide incentive for jobs to return” home. The bill would have two key features:

o Disclosure of Foreign Call Center Activity. Call center agents at the other end of the line would have to disclose to the caller what country they are from, as well as in which countries the confidential customer data of American customers is kept. The disclosure requirement also forces companies to annually certify to the Federal Trade Commission (FTC) that they are complying with this requirement. Companies that fail to certify they are fully disclosing call transfers would be subject to civil penalties that the Federal Trade Commission (FTC) would prescribe.

o Taxation of Foreign Call Centers. Companies that transfer domestic calls to foreign countries would have to pay a per-call excise tax. US companies would be required to disclose quarterly, and in their annual reports, how many customer service calls they received, and how many are sent overseas.

“If we want to put a stop to the outsourcing of American jobs, than we need to provide incentives for American companies to keep American jobs here,” said Schumer. “This bill will not only serve to maintain call center jobs currently in the United States, but also provide a reason for companies that have already outsourced jobs to bring them back.” He noted that exported call center activity is most prevalent in India, Indonesia, Ireland, Canada, the Philippines, and South Africa.

“This bill will go a long way toward keeping American jobs right here at home,” continued Schumer. “If we want to stop the exporting of American jobs than we need to make it less beneficial for companies to layoff American workers and send jobs overseas and we can do that by providing disclosure as to where calls are being routed and less financially more beneficial to send them abroad.”

Sen. Schumer’s press release omitted any statistics of the number of jobs affected, the proportion of call center agents that handle foreign local customers, the turnover (attrition) rates for domestic vs. foreign call centers, or the types of services rendered by domestic vs. foreign call centers. According to the Associated Press (May 30, 2010), a 2007 Cornell study found that most call centers servicing American customers were located in the United States. The omission of any statistical analysis underscores how emotional this issue has become.

Smoot-Hawley and WTO. Sen. Schumer has taken a position that clearly violates American trade obligations. Indeed, House Financial Services Committee Chairman Barney Frank (D., Mass.) said as much of this proposal to prohibit TARP recipients from increasing their use of foreign call centers. Rep. Frank’s comments underscore that Sen. Schumer’s policies are not universally accepted, and that Congress should think twice.

But I do want to point out a difficulty that Members of this House should contemplate. We run the risk here that this may violate our obligations under the World Trade Organization. As someone who voted against joining, and I say that without any embarrassment, I would say to Members who will be joining, I believe, virtually every Member of this House in supporting the gentlewoman’s amendment that perhaps it should lead them to rethink to having so enthusiastically subscribed to the WTO agreement without some changes. It certainly seems to us that while we do know the government is directly involved, spending its own money, you can have a requirement for domesticity. It is unclear what the interpretation will be here. The interpretation [might] be not be purely an American one. It will be in the dispute resolution procedures of the WTO.

So as we go forward in this Congress and we are told about the advantages of a multilateral approach to trade, and I agree that, properly done, that is very advantageous, I hope Members who more enthusiastically than I embraced this principle will stop to think about it.

Some of us who were worried about the job impact of international economic relations have been derided as the reincarnation of Smoot and Hawley. Well, I guess Smoot and Hawley would have been with us on this one because it says companies who do business in America cannot go overseas for hiring. That’s not trade in the old way because they didn’t have the option of doing this in the old way with technology. But it is a restraint on international economic activity. It is the government’s saying to the market you may not do this because it will have a negative impact on our employment.

Now, I think that’s legitimate, especially here, since it will only apply to companies that are receiving this assistance. But understand the principle. Those who say it’s always a good thing to allow the market to totally run because it will enhance capacity are agreeing that in this case, because we have the hook on which to hang it, we can undercut that.

But the fact that we have the hook in the TARP doesn’t change what the economics would be. So I welcome what I think is a renewed recognition for some and a belated recognition for others that a regime in which none of these considerations of local employment can be considered is not necessarily in our best interest. SOURCE: Cong. Rec. p. H 408 (Jan. 21, 2009), on debate on Tarp Reform and Accountability Act Of 2009.

GATS. Senator Schumer appears not to have reviewed the policy of “national treatment” under Article XVII of the General Agreement on Trade in Services (GATS), a WTO agreement that is legally binding on the U.S. by reason of American ratification under President Bill Clinton. That text states:

“In sectors described in its schedule [of adhesion to the agreement], and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favorable than it accords to its own like services and suppliers.”

Clawback. Protectionist laws lead to counter-protectionist laws by trading partners. History has many examples of trade retaliation where the producers of apples suffer new foreign retaliatory tariffs because producers of oranges got a protectionist deal by having a $0.25 per unit excise tax advantage. Those of us American who sell services — such as professional services, consulting services, business advisory services, customer service, IT service, etc – and those who export goods or licensed technologies — will be exposed to retaliation by foreign countries who believe such an excise tax violates the US obligations under GATS. In other scenarios, U.S. producers of unrelated services and goods could be the subject of retaliatory and discriminatory foreign tariffs and taxes. This is old news (click here to read more on this subject).

Rule of Law. Sen. Schumer’s approach to legislation is an abuse of international public law. If Sen. Schumer wants to abrogate U.S. treaty obligations, he should say so and simply seek to abrogate the WTO agreements that give U.S. exporters national treatment in foreign markets. Such an idea may be permitted under U.S. constitutional provisions that allow a later law to abrogate a prior treaty.

Fair Trade. Hillary Clinton, as a Presidential candidate in 2008, actually had a more novel approach that explains why she is Secretary of State. She proposed “Fair Trade,” not “Free Trade.” She promoted a bilateral review of trade benefits (contrary to the multilateral approach of the WTO) and a renegotiation of U.S. trade obligations and termination for those countries that breached their WTO obligations of openness, transparency and national treatment. Sen. Schumer’s protectionist approach would not bother with such formalities, without mentioning the probability of foreign disrespect for American trade rights. Hillary Clinton was smarter about “fair trade” in her campaign. She at least understood existing law.

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