Anti-Offshoring Legislation and United States Federalism: The Constitutionality of Federal and State Measures against Global Outsourcing of Professional Services

Article excerpt

This paper seeks to build upon earlier works analyzing U.S. federal and state legislation that conflict with the United States' obligations under international agreements. Several of these earlier works conclude that such conflicting legislation violates the Constitution on a variety of grounds and is therefore legally invalid. An analysis of the relationship between state laws, federal laws, and international agreements reveals many areas of legal uncertainty and ambiguity. The findings of this paper both validate and undermine the results of these earlier works.

This paper is divided into six parts. First, it details the emergence and effect of offshoring of professional services on the U.S. economy. Second, it explores the economic and public policy concerns which surround offshoring. Third, it addresses federal and state government responses to offshoring. Fourth, it examines the constitutional implications of state offshoring restrictions against government contracts and private entities. Fifth, it focuses on federal legislation against offshoring, and potential conflicts with international agreements. Finally, it concludes with an assessment of the effectiveness of trade dispute settlement mechanisms for services.

I. INTRODUCTION

Offshore outsourcing, or "offshoring," is a business practice that involves shifting the production of goods and services abroad in order to increase efficiency of labor, energy, and other resources of a firm.1 In recent years, such practice has evolved to include offshoring of relatively high-wage professional services. Offshoring has contributed to overall global economic interdependence and growth. In parallel, nations have entered into international trade agreements that seek to eliminate barriers to providing services across national borders.2 The resulting changes to local economies and public policy concerns have led to significant opposition to offshoring.3 The conflicting economic and political agendas arising from such disparate points of view create a legal quagmire for democratic countries such as the United States, as its federal system recognizes the dual sovereignty of both its national and state governments. At the same time that the U.S. government is entering into international trade agreements, state and federal legislators are proposing and enacting laws that conflict with these agreements.4

Several earlier works examining this issue have concluded that conflicting state legislation violates the U.S. Constitution on a variety of grounds and is therefore legally invalid.5 This paper attempts to build upon and question the validity of some of these conclusions.6 An analysis of the relationship between state law, federal law, and federal trade agreements7 reveals areas of legal uncertainty and ambiguity. Part II of this paper details the emergence and effect of offshoring professional services on the U.S. economy. Part HI explores the economic and public policy concerns surrounding offshoring. Federal and state government responses to offshoring are addressed in Part IV, while Part V examines the constitutional implications of state offshoring restrictions against government contracts and private entities. Part VI focuses on federal legislation against offshoring and potential conflicts with federal trade agreements. Part VII concludes with an assessment of the effectiveness of trade-dispute settlement mechanisms for services.

II. OFFSHORING OF PROFESSIONAL SERVICES

Throughout the past half century, U.S.-based businesses have engaged in offshoring across a wide range of industries.8 Initially, offshoring occurred primarily in the manufacturing industry, as producers sought lower-wage, nonunionized labor and lower fixed costs in Latin America and Asia.9 The end of World War II also spurred U.S.-based businesses to establish foreign affiliates in Europe, as these businesses were eager to profit from the postwar rapid expansion in economic activity and the formation of the European Economic Community. …