In the first Federal law against outsourcing, the U.S. Senate has passed a law barring doling out subcontracts to India and other countries by American companies seeking to cut costs. The legal measure, originally sponsored by Republican Senator from Ohio George Voinovich and others, was included in a $328-billion spending bill passed by the Senate.

Under the measure, when the U.S. government gives contracts to an American firm—as it has to on public money—that firm cannot subcontract any of it to any source outside the U.S. The measure avoids challenging the government’s right to give projects to contractors. But what it does provide is that contract cannot be subcontracted out by the outsourcing mechanism to India or other countries like China, Russia to cut costs.

Generally, what is included in such “omnibus” bills adopted in a hurry when a budget measure is long overdue, as in this case, is not changed later and the President does not veto it. The provision is the first Federal law that limits companies from performing contracted work outside the U.S. ever since outsourcing became a potent political issue in the U.S. a year ago. The Chambers of Commerce and other business groups said that the move would undercut the ability of U.S. companies to compete with their overseas rivals.

Terming the passage of a U.S. federal law barring outsourcing of government contracts to other countries, including India, as “unfortunate and unwarranted,” the Confederation of Indian Industry expressed the hope that President George W Bush would reconsider it before signing.

“This is unfortunate and unwarranted. Although normally such provisions are not changed, perhaps the U.S. President would reconsider this before signing the bill,” Anand Mahindra, president, CII, says.

“CII believes that India is taking examples from the U.S. and other developed countries on its path of liberalization and reforms. However, such anti-liberalization measures when adopted by developed countries, particularly the U.S., which target developing countries would lead to greater protectionism and thus impact global trade flow,” he observes.