Tulsa World: Study blasts trade deals involving outsourcing

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Study blasts trade deals involving outsourcing

By D.R. STEWART World Staff Writer
Published: 5/4/2008 1:41 AM
Last Modified: 5/4/2008 3:51 AM

A study by a think tank has found that trade deals involving outsourcing provisions between domestic and foreign companies have cost the U.S. economy thousands of jobs and billions of dollars in lost production annually.

The study, "Offsets and the Lack of a Comprehensive U.S. Policy: What Do Other Countries Know That We Don't," was prepared by the Economic Policy Institute, a nonprofit, nonpartisan think tank in Washington, D.C.

The study's author, Owen E. Herrnstadt, says trade offsets are the transfer of technology and/or production from a U.S. company to another country in return for a sale of U.S. goods to that country.

Herrnstadt is director of the Trade and Globalization Department of the International Association of Machinists and Aerospace Workers.

Because there is no comprehensive national policy on such trade provisions, Herrnstadt says, offsets often are not reported by private companies, which seek to maximize short-term profits at times without regard to work-force or security concerns over the long term.

"Over the 14-year period 1993-2006, U.S. companies reported over 8,500 transactions, valued at $42 billion, that involved the transfer of production and technology to 42 countries," Herrnstadt says in his study. "A U.S. government report concludes that over 16,000 jobs were lost each year over the 2002-2005 period due to offset transactions in the defense industry.

"Instead of developing policies to foster and strengthen key industries, policy

makers relegate decisions to major companies in the private sector, where a short-term focus on individual firms' profits has devastating results for the overall economy and national security."

In addition to the transfer of technology and production to foreign countries and companies, trade offsets can involve outsourcing, licensing procurement, subcontracting, research and development, foreign investments, countertrade, financing and co-production, Herrnstadt says.

"It's pretty serious," Herrnstadt said in a telephone interview. "It's something that is growing, and it's something we need to shine a bright light on. There are long-term implications. You lose jobs; you lose production. You also create competitors that come back to us and make things more difficult. You also lose innovation, which spurs growth in other industries."

An aerospace industry official, who did not want to be quoted because he is involved in an international trade deal involving offsets, said U.S. companies would prefer not to use offsets.

"We don't like offsets; they are market distorting," the official said in a telephone interview. "But they have become the practice of a lot of foreign companies, and ... our competitors do it more than we do. And, we can't disarm unilaterally.

"When it comes to offsets, a lot of our production lines are being kept open by foreign sales. You have to count jobs sustained because of them."

In 2007, according to the Aerospace Industries Association, the trade group representing U.S. aerospace manufacturers, aerospace industry exports rose to $97 billion, a 14 percent increase over the $85 billion in aerospace exports in 2006. The aerospace industry's success propelled its surplus trade balance to $60.4 billion.

"The sustained growth in aerospace trade is a good sign not only for our industry, but the U.S. economy as a whole," AIA President and CEO Marion Blakey said in a prepared statement. "Our industry's track record as a major net export earner for the United States helps to offset the nation's chronic trade deficit."

A 1992 amendment to the Defense Production Act of 1950 requires an annual report to Congress by the Department of Commerce on the impact of offsets in the defense industry. The department's Bureau of Industry and Security compiles the reports.

In the BIS's 12th annual report to Congress in December, the agency reviewed offset transactions reported by U.S. companies in 2006. BIS says offsets may be direct, indirect or a combination of both. Direct offsets refer to compensation, such as co-production or subcontracting, directly related to the system being exported. Indirect offsets apply to compensation unrelated to the exported item, such as foreign investment or countertrade.

"In 2006, U.S. companies reported 653 offset transactions in 29 countries, compared with 611 transactions in 30 countries in 2005," the BIS reported. "Offset transactions reported by U.S. companies were valued at $4.69 billion in 2006, compared with the $4.71 billion reported in 2005 (the highest level recorded during the 14-year reporting period).

"In 2006, indirect offsets (transactions that are primarily non-defense related) accounted for 63.6 percent of the value of offset transactions, compared with 61.8 percent in 2005. Direct offset transactions accounted for 36 percent of the value of offset transactions in 2006, compared with 38.2 percent in 2005....

"Today, virtually all of the defense trading partners of the United States impose some type of offset requirement. Countries require offsets for a variety of reasons: to ease the burden of large defense purchases on their economy, to increase or preserve domestic employment, to obtain desired technology and to promote targeted industrial sectors."

D.R. Stewart 581-8451
don.stewart@tulsaworld.com

By D.R. STEWART World Staff Writer

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Justin, Tulsa (5/7/2008 12:38:05 PM)

The "Economic Policy Institute" always likes to claim they are non partisan, but they are some of the biggest leftists out there. All of their founders are hard core, extreme leftists, and all of their opinions don't let a little thing like facts get in the way of their supporting hard core, extreme leftist ideology. Hardly non partisan. Like calling the Vatican "non religious."

Oh yeah, and "non profit" actually just means "doesn't pay taxes." That's all, nothing more, nothing less.

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