Between the lines
SEBASTIAN PT, Nov 01, 2008

Obama wants to stop American jobs from being outsourced. McCain is all for free trade. But it’s the economy that will drive the decisions of the next American President

Come November, the US will elect a new president to take over from George W

STAYING HOME? Obama may force US companies to reconsider outsourcing jobs

Bush. With Democratic candidate Barack Obama and his Republican counterpart John McCain running almost neck and neck in opinion polls, it's hard to predict who will occupy the oval office from January next year. Regardless of who does become the 44th President of the United States, one thing is certain: the new man will have his hands full in trying to tide over the spiralling crisis confronting the US and world economies. For Indians, the question is: who is better for India?

The recently concluded Indo-US nuclear pact would be a good place to start gauging their India policies. The Bill was passed by an overwhelming majority by both US Houses. Obama and McCain both backed the deal, though Obama had initially opposed it, introducing a killer amendment to the Hyde Act in 2006, to keep India from building strategic fuel reserves for its imported nuclear reactors. However, the amendment was defeated.

And, with bipartisan support for the deal rising, Obama changed his stand, even reassuring Indian-Americans about the deal's future. "When there were anxieties that the nuclear deal may not be clinched during the Bush tenure due to domestic political issues in India, Senator Obama had assured Indian-Americans who met him that he would not seek any changes in the deal if elected," says New York-based hotelier Sant Chatwal. Incidentally, Obama's running mate Joe Biden, who chairs the Senate Foreign Relations Committee, has always been a die-hard supporter of the deal.

In spite of the nuclear bonhomie, relations with India may not be a priority; a tottering economy will be. Even after the passage of the $700 billion (approximately 70% of India's GDP) bailout, US markets continue to fall, sending shockwaves around the world. In fact, McCain may face some anti-incumbency, because this state of economic distress has come about under Republican rule. Over 760,000 people have lost their jobs in the last year alone. With an economy in the doldrums, Obama's appeal for change is striking a chord with many Americans. And he has been subtly tapping into this discontent.

The outsourcing conundrum
During the Democratic primary race, Obama had spoken out against the flight of American jobs to foreign shores. Since winning the nomination, he has toned down that rhetoric, conceding in a speech delivered in North Carolina that migration of jobs due to globalisation can't be reversed as "revolutions in communication and technology have sent jobs wherever there's an Internet connection; that have forced children in Raleigh and Boston to compete for those jobs with children in Bangalore and Beijing". His position now is that the US will have to build a highly skilled workforce to take on the competition from India and China.

Nuclear deal: Introduced a killer amendment to the Hyde Act, opposing India's right to build strategic fuel reserves for its imported reactors. Later supported and voted for the deal.

Outsourcing: Opposes IT. Intends to end tax breaks for companies that send jobs overseas; instead, will give sops to companies that retain or hire Americans

Bilateral ties: Endorses a close relationship with India to help combat Al Qaeda. Carries a small Hanuman statue and has great admiration for Mahatma Gandhi.

Trade: Backs free trade, but not keen on FTAs. Says he would ensure that all FTAs signed by the US would protect the labour rights of not just workers, but also consumers.

However, Obama still intends to end tax breaks for companies that send jobs overseas. In his manifesto, he says that companies should not get tax deductions if they move operations overseas. Specifically, he aims to amend US tax provisions that allow them to defer paying corporate tax (35%) on profits made outside the US. Currently, this provision allows a company to increase profits reported to shareholders, and permanently defer paying taxes on foreign profits generated in low-tax jurisdictions.

Obama, in fact, co-introduced the controversial Patriot Employer Act of 2007 to reward companies that create jobs with good benefits for American workers. The legislation, if passed, would provide tax credits to companies that, among other things, maintain or increase the number of full-time workers in the US relative to those outside it. Obama wants to ensure that public contracts are awarded to companies "committed to American workers".

A different approach
McCain, on the other hand, believes in pursuing a hands-off policy. He supports outsourcing and believes the least-cost advantage inevitably helps the economy. "The economists that I know and trust and the history that I study... says that free trade is the best thing that can happen to our nation. When we have practiced protectionism, it has had devastating consequences," he said in February in Ohio.

McCain says he will enact a 'jobs for America' economic plan that "creates jobs, helps small businesses, expands opportunities and opens markets to American goods". In fact, McCain is criticised for letting corporations that ship American jobs claim tax breaks. For instance, he drew flak for "scuttling a deal" that resulted in Boeing losing a $35 billion Air Force tanker contract to the parent company of European aviation giant, Airbus. The contention being that Boeing missed out on a deal that it claimed would support 44,000 new and existing jobs at the company and suppliers in 40 states.

Nevertheless, with a recession looming large, there are fears that the next president, regardless of who it is, will be under pressure to put restrictions on outsourcing. However, experts feel otherwise. "I don't expect any real action on outsourcing," says Teresita C Schaffer, former Deputy Assistant Secretary of State for South Asia. "The main potential actions are at the state level. Over the past two decades, many state laws have been introduced but none have been implemented," she says.

Obama says he will act tough on Nafta, going so far as to make a withdrawal from the treaty

"Outsourcing is now a jaded issue—it is accepted as a paradigm of economy by most. Although at times, especially during elections, the rhetoric may rise, there will be nothing much beyond that," feels Robinder Sachdev of Imagindia Institute, an Indian lobby group. He points out that although states like New Jersey had introduced bills banning outsourcing of government contracts to entities outside the US, most such bills have failed to gain much.

Championing free trade
Instead, says Sachdev, "we can expect steps from the next US administration on WTO and FTAs, with more rhetoric on the latter. What is more important for India in the next four years is how the US engages with the world at large, and with multilateral institutions."

As far as trade is concerned, McCain is again all for letting things take their own course. Way back in 1999, he had remarked: "If I were President, I would negotiate a free trade agreement with almost any country." He is for the US engaging in multilateral efforts "to reduce trade barriers so that Americans are provided with more opportunities to sell their goods and services abroad". McCain supports the Nafta, the US-Dominican Republic Central America Free Trade Agreement (DR-CAFTA) and supports implementing the US-South Korean FTA. He has voted for normalising trade with Vietnam and China, and supports expanding trade to developing countries. Seeing the potential of a billion consumers in India, McCain is for institutionalising economic partnerships with India.

Obama, too, believes free trade is the way to go. However, while he maintains that "we can't or shouldn't put up walls around our economy", he isn't for trade agreements "that hand out favours to special interests and do little to help workers who have to watch their factories close down." So, Obama opposes Nafta, playing on the discontentment on the trade pact that is said to have displaced many American manufacturing jobs. He says he will ensure that "every (trade) agreement has labour, environmental and safety standards that protect not just workers, but also consumers." He says he will "act forcefully" on Nafta, including a potential withdrawal from the treaty, to ensure labour and environmental sidebar agreements are enforced effectively. That may affect the plans of Indian companies to gain entry into the US through lower-cost Nafta signatory countries.

Nuclear deal: Always backed the deal. Says it will also allow the US and India to co-operate in taking advantage of new technologies and provide energy without relying on fossil fuels

Outsourcing: Believes outsourcing and globalisation strengthen the economy. Has faith in free trade, and believes the least-cost advantage helps the economy and consumers.

Bilateralties: Terms India a responsible democracy and supports its entry into the G8. Believes the United States should build economic partnerships with India.

Trade: Backs free trade and FTAs. Wants institutionalisation of the new security partnership among major Asia-Pacific democracies: Australia, India, Japan, the US.

With about 159,000 jobs vanishing in September alone in the backdrop of the financial crisis and economic slowdown, and the labour class against FTAs, pressure seems to be building towards protectionism. If the economy doesn't recover fast, even McCain may be forced to make a policy shift.

"The hollowing out of the US manufacturing sector started with jobs going to China and hi-tech jobs to India. There has been a fairly protectionist wind blowing in the US over the last few years. This sentiment could be a threat to emerging economies like India, and has to be resisted," says Rajiv Kumar, Director and Chief Executive of the Indian Council of Research in International Economic Relations (ICRIER).

Domestic compulsions
What does all this mean for India at the WTO? Unlike the nuclear deal, where they worked in unison, the two countries have been at loggerheads at the Doha talks. "The politics of trade in the US was already awful before the financial meltdown. It hasn't become any better. I expect the Doha Round to remain in limbo. In any case, from the US perspective, Doha won't move until India reconsiders its position," says Shaffer. However, Kumar points out: "It may be misplaced to single out India given the current US political cycle and the economic malaise it is in."

Again, while the Republicans and Democrats are unanimous about bolstering ties with India, this doesn't mean the next President will back India's demand for a permanent seat on the UN Security Council. "For the US, the UN is a difficult forum even with the current Security Council; India votes with the US only 14% of the time, so adding a permanent member with that kind of track record would be difficult," says Schaffer. The G8, strangely enough, would be easier. It's a small group; India's voice in the 'G8 plus' deliberations has been constructive; it doesn't require getting a whole international organisation to go along, she adds.

Regardless of who gets elected, the Indian-American community is upbeat on Indo-US ties touching new highs. "The community played a big role in the last three years in lobbying for the nuclear deal and getting bipartisan support. Indo-US relations will move forward irrespective of who is in White House," says Chatwal.

Ultimately, it is ground realities that will dictate the policies of the next President. In 1999, when he was asked to name the Chief Executive of Pakistan and the Prime Minister of India, the Republican candidate was clueless as to who they were. That same man almost single-handedly pushed the Indo-US nuclear deal through and signed it into law. So, regardless of their posturing and election rhetoric, Obama or McCain may both take Indo-US ties to the next level. Then again, they may not. It all depends on how the US economy shapes up.