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WTO Gets It Right on Offshore Outsourcing

In its annual trade report, issued last week, the World Trade Organization concluded what many advocates of offshore outsourcing have been saying for some time: that offshoring is good for both buyers and sellers of IT and business-process services--and the countries in which they operate.

To the argument that offshoring kills off good jobs and generally harms the economies of nations importing IT services, the WTO notes that offshoring's impact "on production, employment, and trade patterns is significantly less than suggested by press reports or popular perceptions." The trade body further points out that the United States enjoys an overall trade surplus in business services that's larger than that enjoyed by India. The upshot of that nugget is that the United States would be more harmed than helped by some politicians' calls for protectionism around business and IT services.

Further, according to the WTO, a number of tangible benefits flow to countries, including the United States, that import low-cost, basic IT services from well-stocked suppliers. "Importing countries are able to release resources for more efficient uses elsewhere," the report says. In other words, businesses here can deploy their top programming talent to projects that will give them a competitive edge--say, the development of an online ordering system that's twice as fast and easy to use as a competitor's. At the same time, generic activities such as E-mail integration can be farmed out to the lowest competent bidder.

That, in fact, is what's happening: "Evidence from India suggests that most of the recent growth in offshoring services has not been at the high-skill end of the IT sector," the WTO report says. Meanwhile, for developing countries like India and China, offshoring offers the opportunity for "employment creation, capital inflows, a new channel for technology transfer, and an opportunity to enter new industries," according to the WTO. In other words, offshoring is a win-win for both the importing and exporting countries.

It's hard to argue with the WTO's conclusions. While big layoffs by companies that import IT services grab headlines, what's not so widely reported is all the new job-creating business startups, product launches, and service enhancements that occur almost every day in the United States that, at least in part, owe their existence to the availability of low-cost IT resources. The WTO can see this; why can't Lou Dobbs?

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