Karthikeyan Ramadoss - University of Arizona

UNIVERSITY OF ARIZONA 

Legality of Anti-Outsourcing Bills and Acts across 

the World 

Karthikeyan Ramadoss 

karthik85@gmail.com 

Copyright 2012, Karthikeyan Ramadoss. All Rights Reserved. For copyright permissions, contact 

the author directly or Professor Amar Gupta at The University of Arizona (agupta@arizona.edu.)

Abstract 

Outsourcing has been a major innovation that the market had made in the last two decades which 

has resulted in numerous benefits for the consumers as well as the economy of several countries. 

But this has also been accompanied by several hurdles that have been placed by governments all 

over the world. These hurdles have been made by means of legislations, bills, acts and directives. 

This paper tries to discuss the conflicts that these acts pose with respect to superior bodies like 

the WTO. Each country has a commitment to the WTO that they will promote free trade and will 

not discriminate against companies from other countries. These legislations are in direct conflict 

of this commitment. The paper also attempts to explain the partial treatment of organizations 

when it comes to implementing these acts and legislatives. In the US, the laws passed at the state 

level are in conflict with the constitutional duties of the federal government and the directives of 

the WTO. In the European Union, the directive to protect private data has several ambiguous 

statements and involves a complicated process for third countries to be approved for outsourcing. 

There have also been several laws and directives passed by other countries to retain data within 

their borders, while some of the major data breach incidents have happened within their own 

countries. This paper discusses all these in detail and tries to throw light on the disadvantages of 

prohibiting outsourcing. 

Keywords - Anti-offshoring legislation, impact on domestic IT workforce; constitutionality of 

restrictions on offshoring; offshoring of services; World Trade Organization;

Introduction 

Outsourcing is the concept of contracting a particular segment of work to an external entity. 

When this external entity is from another country, the same concept is called offshoring. This 

concept of outsourcing/offshoring has been in practice in the global business environment for a 

very long period of time. Offshoring has also been one of the primary reasons behind the 

economic improvements in many developing countries. Even though offshoring is also done for 

manufacturing, the most common practice is to offshore activities such as pay roll, call center 

activities, design, software development, testing etc. This paper concentrates primarily on the 

offshoring of services and the legal hurdles that are faced by companies in doing so. Typically 

the mechanism for offshoring happens in the following manner – the source company provides 

the specification and requirement of the work to be done and the destination company uses those 

specifications to develop the product over a period of time and sends it back to the source 

company. This process is continued in an iterative manner until a satisfactory product is 

produced.

Major countries involved in offshoring 

Traditionally, majority of the offshoring work has originated from the United States of America 

and some of the developed countries in Europe. The following table lists the major countries 

from which offshoring work originates. This list is based on the amount that is spent on 

outsourcing work to other countries. It is easily seen that these countries are all developed 

countries with a strong economy which allows them to take advantage of the offshoring 

mechanism (UK no longer biggest outsourcing market outside US, 2010) 

• US 

• UK 

• France 

• Germany 

• Sweden 

Similarly the list of top destinations for outsourcing includes several developing countries which 

have seen their economy improving as a result of receiving outsourced work from the developed 

nations 

• India 

• China 

• Malaysia 

• Egypt 

• Indonesia

Reasons for Outsourcing 

There are several reasons behind why companies decide to outsource their work. The economic 

benefit is inarguably the biggest, but there are more compelling reasons behind companies’ 

desire to offshore their work to another company (Top 7 Outsourcing Advantages). 

Focus on core activities – Most of the companies that do outsourcing work have a strong 

competency in that particular area of expertise. As a result of this, they are able to place more 

focus on the job at hand and reduce cost and improve efficiency. 

Reduced Overhead – When companies outsource their work to other companies, it helps them 

reduce overhead by concentrating on their core and avoiding the fringe activities. 

Staffing flexibility – Outsourcing allows companies to add or reduce the number of employees 

required to complete the work that has been outsourced. They can do this without having to 

worry about staffing issues. 

Develop internal staff – When the company’s staffs interact with the destination company’s 

employees to get the work done, the skill set of the internal staff is greatly improved. 

Time zone difference – The difference in time zone between the two countries could prove 

beneficial in situations like call center jobs where customer service can be provided round the 

clock 

Reduced risk – There is a great reduction in risk levels as the destination company takes upon 

itself the task of handling most of the risk.

Hurdles 

In spite of the various advantages that are associated with outsourcing and offshoring, the 

industry faces several hurdles. Some of these hurdles are man-made while some of them are 

natural. While the natural hurdles have been addressed by advancements in technology, the man- 

made hurdles prove to be a major challenge to the industry. 

• Geographical Distance 

• Time Difference 

• Cultural Differences 

• Rising Cost in developing nations 

• Legal Boundaries 

Advancements in communication, travel have more or less made the distance, time and cultural 

hurdles a non-issue. While rising cost in the developing nations has made companies rethink 

their outsourcing strategy, the rise is not acute enough for companies to totally abandon the idea 

of outsourcing. The biggest hurdles that companies are facing right now are the legal ones. The 

economic slowdown in most companies has resulted in a rapid increase in unemployment levels. 

Governments have started taking measures to retain the jobs that were previously being 

outsourced to other countries. This has resulted in numerous legislatives and directives being 

introduced in these countries which either prohibit or discourage companies from outsourcing 

their work to companies in other countries. While the US is trying to retain the jobs within its 

national boundaries, the EU is taking several steps to ensure that the jobs do not go to countries 

outside the European Union member countries.

Legal Boundaries 

Two of the major markets for outsourcing are USA and the EU. Legislations and directives have 

been introduced in both these places which make it extremely difficult for companies to 

outsource their work to companies in other countries. In some cases these legislations totally 

prohibit the outsourcing of work. 

United States of America 

The legal structure of United States of America has two levels – the state legislations and the 

federal laws. The federal laws supersede the state laws when there are conflicts between the two 

(Gupta & Sao, 2012). Every state has passed some kind of legislation that discourages 

companies from outsourcing their work to foreign countries. 

State Legislations 

Many states have tried to pass bills which do not directly prohibit the outsourcing of work to 

other countries, but instead discourage companies from outsourcing by placing one or several of 

the following restrictions (Gupta & Sao, 2012). 

• Ban or Restriction on State Contract Work and/or Authorized U.S. Worker Requirement 

These legislations are drawn to prevent companies that try to get state contracts from 

recruiting workers who are not permanent residents of the state. This would prevent the 

government from awarding the contract to companies which have a major portion of their 

operations outside the state. 

• Call Center and Consumer Data Transfer Restrictions 

These legislations deal with work related to call centers. The legislations either prevent 

the call center jobs from leaving the state boundaries or mandate the call center 

employees to reveal their geographical location when required.

• In-state and/or U.S.-based Preference in State Contracts 

These legislations require the state to give preference to companies that are based within 

the state or within US while awarding contracts for work related to the state government. 

• Ban Against State Officials Signing on to Trade Agreements 

These set of legislations are focused towards preventing the state officials from signing 

any trade agreements that would make outsourcing of work easier for companies. These 

legislations are sometimes directly in conflict with the mandates of the World Trade 

Organization 

• State Tax / Funding / Studies on Outsourcing effects on State 

These legislations are geared towards preventing companies from receiving any kind of 

tax benefits or funding from the state government if they outsource their work. These 

bills do not completely prohibit outsourcing but place the companies at a distinct 

disadvantage if they decide to do so. 

While the states do have the power and authority to decide what kind of companies can be 

awarded state contracts, some of these legislations extend into international realms. According to 

the constitution of the US, this is an area that has to be governed by the Federal government and 

these legislations by the state government can be seen as a direct conflict with the powers of the 

Federal government. The constitution clearly states that the states have jurisdiction regarding 

matters that concern the health, safety and the life of the public. Any issues regarding 

international relationships and trade are to be solely handled by the Federal government. More 

over the US has free trade agreements (FTA) with several countries which affect trade in goods 

and services, and protections for investors and intellectual property rights, among other topics.

The state legislatives are in conflict with all these agreements and hence will have to be looked at 

to understand their legality. 

Some of the pending bills in several states are listed in the following table 

State Ban or 

Restriction 

on State 

Contract 

Work 

and/or 

Authorized 

U.S. 

Worker 

Requireme 

nt 

AL HB312(2012 

) : Under 

existing law, 

there are no 

prohibitions 

against the 

state 

contracting 

with 

companies 

that ship the 

work to be 

performed 

offshore. Thi 

s bill would 

prohibit 

work on 

certain 

contracts 

from being 

performed 

outside of 

the United 

States 

Call Center 

and 

Consumer 

Data 

Transfer 

Restriction 

s 

In-state 

and/or U.S.based 

Preference 

in State 

Contracts 

HB216(2012) 

: This bill 

would require 

each 

awarding 

authority of 

certain public 

works 

contracts to 

give 

preference to 

a bidder who 

has a 

workforce 

that consists 

of at least 50 

percent of all 

workers to be 

employed on 

the public 

works project 

who hold an 

Alabama 

driver's 

license or an 

identification 

card issued 

by the 

Ban Against 

State Officials 

Signing on to 

Trade 

Agreements 

State Tax / 

Funding / 

Studies on 

Outsourc-ing 

effects on 

State

CA AB1543(201 

2) : any 

public officer 

or person 

charged 

with the 

letting of 

contracts for 

the 

construction 

, alteration, 

or repair of 

public works 

or for 

purchasing 

materials for 

public use to 

only let 

those 

contracts to 

a person 

who agrees 

to use or 

supply 

materials 

produced or 

manufacture 

Alabama 

Department 

of Public 

Safety,

d in the 

United 

States, as 

prescribed 

FL HB549( 

2012) : 

Requires all 

state 

contracts of 

more than 

certain 

amount to 

require any 

call-center 

services to 

be staffed 

by persons 

located 

within U.S. 

CS/CS/HB 

673 (2012) : 

Authorizes 

agency, 

county, 

municipality, 

school 

district, or 

other political 

subdivision of 

state to 

provide 

preferential 

consideration 

to Florida 

business in 

awarding 

specified 

competitively 

bid contracts 

to purchase 

construction 

services 

HB153 

(2012) : 

requires 

agency, 

county, 

municipality, 

school 

district, or

other political 

subdivision of 

state to grant 

specified 

preference to 

vendor 

located within 

state when 

awarding 

contract for 

printing

IL SB2186 (2011) 

: Provides that 

companies that 

lose 100 or 

more 

employees due 

to outsourcing 

of jobs are 

ineligible to 

receive 

procurement 

contracts with 

the State, units 

of local 

government, or 

school districts 

and to receive 

government 

grants, loans, 

tax incentives, 

or other 

economic 

incentives. 

HB1624(2011) 

: Provides that 

companies that 

lose 100 or 

more 

employees due 

to outsourcing 

of jobs are 

ineligible to 

receive 

procurement 

contracts with 

the State, units 

of local 

government, or 

school districts 

and to receive 

government 

grants, loans, 

tax incentives, 

or other 

economic

MA H3684(2011) 

: The state 

purchasing 

agent shall 

give 

preference, 

as far as may 

be 

practicable 

and to the 

extent 

permitted by 

the General 

Laws, federal 

law, and 

federal treaty, 

to products or 

incentives.

services 

manufactured 

or produced 

in the United 

States 

NJ A697(2012) 

: Prohibits 

businesses 

that 

outsource 

jobs 

overseas 

from 

receiving 

State 

contracts or 

grants; 

prohibits 

investment 

of State 

funds in 

such 

businesses. 

NY A3713(2011) 

: Enacts the 

New York 

consumer 

and worker 

protection act 

A3912 (2012) : 

Prohibits state 

funding to 

business 

entities that 

outsource jobs 

S1244(2012) : 

Prohibits state 

funding to 

business 

entities that 

outsource jobs 

A5163(2011) : 

Relates to 

enacting the 

financial 

incentives 

protection act

OR House Joint 

Memorial 

23(2011) : Urges 

President of 

United States to 

direct United 

States Trade 

Representative 

not to enter into 

South Korean, 

Colombian and 

Panamanian free 

trade 

agreements. 

Urges Congress 

of United States 

to oppose South 

Korean, 

Colombian and 

Panamanian free 

trade 

agreements. 

Senate 

Memorial(2012) : 

request that the 

United States 

Congress 

reintroduce and 

pass the Trade 

Reform, 

Accountability, 

Development 

and Employment 

(TRADE) Act of 

2009, and that 

the President 

sign the Act into 

law

TX SB1864(2011 

): require 

TxDOT to 

give 

preference to 

private sector 

providers 

whose 

principal 

place of 

business is 

located in the 

state of 

Texas. It 

would only 

apply to 

contracts 

relating to 

transportation 

projects for 

which the 

entire funding 

comes from 

either state 

funds, local 

funds, or a 

combination 

of state and 

local funds 

HB 785(2011): 

RESTRICTING 

STATE 

INVESTMENT 

IN AND 

PROVISION 

OF 

TAX BENEFIT 

S TO 

ENTITIES 

THAT 

OUTSOURCE 

JOBS TO 

FOREIGN 

COUNTRIES

WV SB115(2012 

) : requiring 

all work 

performed 

for the state 

by 

contractors 

be 

performed in 

the United 

States; 

making 

legislative 

findings; 

permitting 

the state to 

seek 

damages 

and void 

contracts for 

work done 

outside the 

country 

HB3120(201 

2) requiring 

all work 

performed 

for the state 

by 

contractors 

be 

performed in 

the United 

States; 

making 

legislative 

findings; 

permitting 

the state to 

seek 

damages 

and void 

contracts for 

work done 

outside the

country 

HB4290(201 

2) : 

prohibiting 

public 

agencies 

from 

awarding 

contracts to 

vendors 

who perform 

that work 

outside the 

United 

States; 

requiring 

vendors to 

certify that 

no work will 

be 

performed 

outside of 

the United 

States

Federal Legislations 

There have been several instances when the WTO had to intervene and rule against laws passed 

by countries if it was proven that the law was against the general principles of the WTO. The 

following is an instance of the WTO over ruling an 82 year old US law (United States — Anti- 

Dumping Act of 1916). 

The European communities and Japan brought about a complaint on the US government’s 82 

year old anti-dumping law as they believed that the law was illegal under the WTO chapter. The 

WTO ruled that the law was indeed illegal and stipulated that the US government needed to take 

actions to resolve the issue. The US government had to accept the stipulation of the WTO due to 

its supremacy over individual government regulations. The US government in 2004 passed the 

Pub. L. 108—429, which repealed the antidumping provision of the Revenue Act of 1916. This 

example clearly shows that the WTO has a higher authority when it comes to settling 

international issues. 

With regard to outsourcing, there have been two distinct efforts by the federal government to 

pass laws which would make life difficult for companies that choose to outsource their work 

(Laws Against Outsourcing - Are They Necessary?, 2008). The call center consumer right to 

know act of 2003 stipulates that the call center employee should reveal their geographical 

location if the consumer asks for the information. This act was targeted at reducing the number 

of jobs being lost to other countries as the proponents of the law believed that the consumers 

would not like to talk to a call center employee from another country. This was a baseless 

assumption which could result in economic trouble for companies involved in call center 

operations.

The second legislative was the Thomas- Voinovich amendment which was aimed at preventing 

state contracts being awarded to a company that had its location outside the US. This is in direct 

conflict with the Government Procurement Agreement (GPA) which is part of the WTO 

agreement. The signatories have agreed that suppliers of goods and services in other signatory 

countries will be treated no less favorably than domestic suppliers in procurement covered by the 

Agreement, and that their laws, regulations and procedures relating to government procurement 

will be transparent and fair. The US law in effect violates this agreement by stating that 

companies located outside the country would not be considered for awarding state contracts. 

Bill Nr Year Description 

Call Center Consumer’s Right to Know Act 

Would require employees at a call center who either initiate 

or receive telephone calls to disclose the physical location of 

s.1873 2003 such employees 

HR.2989 2004 

Appropriations for the Departments of Transportation and 

Treasury, and independent agencies for FY 2004. Senate 

version of bill includes a Thomas-Voinovich amendment that 

states “An activity or function of an executive agency that is 

converted to contractor performance under Office of 

Management and Budget Circular A-76 may not be 

performed by the contractor at a location outside the United 

States except to the extent that such activity or function was 

previously been performed by Federal Government 

employees outside the United States.”

European Union’s Data Adequacy Act 

While the US has been passing acts and legislations that either directly or indirectly prohibits 

outsourcing, the European Union had passed a major directive regarding protection of 

consumer’s personal data which in effect makes it extremely difficult for companies to outsource 

their work to companies outside the EU’s member countries. The data adequacy act of the EU 

stipulates that any company that outsources its work to companies outside the EU has to ensure 

that the destination country or territory ensures an adequate level of protection for the rights and 

freedoms of data subjects in relation to the processing of personal data. Even though this sounds 

like a reasonable directive on the outset, the process involved in getting a country approved by 

the European Union is a long drawn out process which involves a lot of complexity. Also the 

directive that has been laid down by the union is very ambiguous in terms of defining security 

and the framework to handle any violations. 

Complete steps involved in the approval process for a third country outside the EU (RINGOU, 

2009) 

1. The third country initiates the request to EU 

2. Official Request is addressed to the EU commission 

3. Analysis by the EU commission 

4. Dialogue with the third country about the information of Article 29 working party 

5. The Article 29 Working party's opinion is sought 

6. EU commission prepares a draft on the adequacy decision

7. Translated into 23 EU languages 

8. Opinion of representatives of member state under article 31 is sought 

9. 30 days of scrutiny by the European parliament 

10. Decision by the EU commission 

Beyond the member countries there have been very few countries which have been successfully 

approved by the commission as having acceptable security standards. The approved third 

countries are (Data Protection Bodies) 

Third Countries 

Australia 

Canada 

Guernsey 

Hawaii 

Hong Kong 

Isle of Man 

Israel 

Japan 

Jersey 

New Zealand 

South Korea 

Taiwan 

Thailand 

USA 

Even though the European Union claims to be impartial to the different third countries, the Safe 

Harbor agreement that has been formed with US indicates differently. US did not undergo the 

usual process to get approved by the commission. Instead a special safe harbor agreement was 

formed between the European Union and the U.S. Department of Commerce. The safe harbor— 

approved by the EU in 2000—is an important way for U.S. companies to avoid experiencing

interruptions in their business dealings with the EU or facing prosecution by European 

authorities under European privacy laws. Once again, this is in violation of the WTO stipulations 

which state that different countries should not be measured with different yard sticks while 

forming trade agreements. 

Actions by Countries outside the US and EU 

Apart from the EU and the US, several countries have passed acts and legislations that prevent 

the data from being transferred across borders (International Privacy Laws ). Most of these laws 

have been enacted to protect the privacy of consumers. But the original intent of these acts seems 

to be to discourage outsourcing of operations. 

In 2009, when the credit card information of a few hundred consumers were compromised by a 

call center in India, the issue was blown into great proportions and highlighted on all major 

media channels. The same can be told about multiple instances in several developing countries 

which have outsourcing as a key driving factor in their economic development. But when a 

similar incident happened in the developed countries, the attention that is given to the story is not 

as exaggerated. It also has to be noted that the incidents that happen in the developed countries is 

several magnitudes larger than the ones in the developing countries. It can be concluded that 

these data protection acts are being framed purely to prohibit countries from outsourcing their 

work. Listed below are some of the major data breaches that have happened in recent years 

(Largest Data Loss Incidents).

Country Company 

Name 

Description Year Affected 

Number of 

consumers 

US Epsilon Epsilon, the world’s largest provider of 

permission-based email marketing, has 

suffered a huge data breach. That 

means hackers may have swiped 

customer data belonging to the world’s 

biggest brands. 

China Shanghai 

Roadway 

D&B 

Marketing 

Services 

Co. Ltd 

US Heartland 

Payment 

Systems, 

Tower 

Federal 

Credit 

Union, 

Beverly 

National 

Bank 

US TJX 

Companies 

Inc 

US TRW, 

Sears 

Roebuck 

Firm may have illegally bought and sold 

customer information 

Malicious Software/Hack compromises 

unknown number of credit cards at fifth 

largest credit card processor 

Credit card numbers and transaction 

details. 

Hackers access credit-reporting 

database. 

2011 40 billion 

emails 

2012 150 million 



1984 90 million

US Sony 

Corporatio 

n 

US CardSyste 

ms, Visa, 

MasterCar 

d, 

American 

Express 

Names, addresses, email addresses, 

birthdates, passwords and logins, 

handle/PSN online ID, profile data, 

purchase history and possibly credit 

card info. 


Major card processor breached 2004 40 million 

China Tianya Forum members' usernames and cleartext 

passwords leaked online by 

hackers 

Korea SK 

Communic 

ations, 

Nate, 

Cyworld 

US Steam 

(Valve, 

Inc.) 

US RockYou 

Inc 

US U.S. 

Departmen 

t of 

Veterans 

Affairs 

Great 

Britain 

HM 

Revenue 

and 

Customs, 

TNT 

Names, email addresses, phone 

numbers, encrypted resident 

registration numbers and passwords 

accessed by hacker 

User names, passwords, game 

purchases, email addresses, billing 

addresses and encrypted credit card 

information 



2011 35000000 

User names and passwords 2009 32 million 

Names, Social Security numbers, and 

dates of birth of veterans 

Two missing CDs with addresses, dates 

of birth and National Insurance numbers 

of the entire HMRC child benefit 

database as well as 7 million banking 

details 

2006 26.5 

million 

2007 25 million

US Zappos Email addresses, billing and shipping 

addresses, phone numbers, the last 

four digits from credit cards, and 

passwords. 


China 7k7k Data for game site users 2011 20 million 

US Care2 Forced password reset. 2011 18 million 

German 

y 

T-Mobile, 

Deutsche 

Telekom 

Canada Canada 

Revenue 

Agency 

Korea Nexon 

Korea 

Corp 

US LaSalle 

Bank 

Customer data. 2008 17 million 

Vital records of 1985 Canadian 

taxpayers stolen from Toronto's District 

Taxation Center. 

Names, usernames, encrypted resident 

registration numbers and, passwords. 

Backup tape of BNY Mellon 

Shareholder services containing names, 

Social Security numbers, and possibly 

banking information. 



2008 12.5 

million 

Conclusion 

Free trade agreement between countries has resulted in economic development throughout the 

world and outsourcing is an extension of that principle in the modern world. Any attempt to stifle 

outsourcing will result in economic slowdown throughout the world. Even though the 

governments introduce these legislations in order to protect the domestic workers and improve 

the economy of the country, in the long run this will result in steep increase in prices and an 

inflated economy. This is certainly not a good method to improve the job market in any country. 

The bills that have been discussed in this paper are too broad and generic and leave it up to the

implementing body to interpret it in the way they want. This is a dangerous precedent in the legal 

institutions. Outsourcing helps companies to improve efficiency, reduce cost and be innovative 

in their core competency. Companies which indulge in outsourcing pass on a portion of the 

benefits to the consumer in ways of cost reduction. Prohibition of outsourcing will result in the 

industry losing out on all these benefits. Governments have to invest their resources in creating 

more jobs for the work force instead of trying to stifle the innovations of the market. 

Works Cited 

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http://www.nfap.net/researchactivities/studies/creepingprotect.pdf 

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http://ec.europa.eu/justice/data-protection/bodies/index_en.htm 

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http://www.informationshield.com/intprivacylaws.html 

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79666A19460C/21169/DataProtectionIsrael.pdf 

Top 7 Outsourcing Advantages. (n.d.). Retrieved 5 2, 2012, from About.com: 

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United States — Anti-Dumping Act of 1916. (n.d.). Retrieved 5 2, 2012, from World Trade Organization: 

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