A study, conducted by the National Foundation for American Policy to analyse state and federal legislation aimed at restricting US companies and government agencies from outsourcing work overseas, has warned that any restrictions on global outsourcing will harm the American economy and American taxpayers.

The study, 'Creeping Protectionism: An Analysis of State and Federal Global Sourcing Legislation,' warns that "the bills (to curb outsourcing) introduced to date share the same false assumptions: free trade in services is bad and protectionism is good and without cost."

• India and Outsourcing: Complete Coverage
• Click here to take today's poll

"In fact, restrictive global sourcing legislation stifles innovation, reduces the competitiveness of US firms, and cost American taxpayers money."

The report's author Stuart Anderson, executive director of National Foundation for American Policy, said: "Putting an end to the type of protectionism these measures represent would benefit Americans and the US economy overall."

The study notes that state and federal legislation to restrict global sourcing is a growing threat to American competitiveness.

A state government effort to prevent a call centre for unemployment services from re-locating to India resulted in New Jersey taxpayers paying, on top of the original contract cost, an additional $900,000 for 12 jobs.

'Saving' 1,400 such jobs in the future, the study notes, would cost the state an extra $100 million. A similar cancellation of a state contract to Tata Consultancy Services by Indiana Governor Joe Kernan will likely cost Indiana taxpayers more than $8 million and result in fewer services provided for the unemployed.

"Global sourcing allows US companies to remain competitive by concentrating on core functions, innovating and developing new products, lowering costs, and limiting risks," the study said.

In addition, outsourcing globally enables an American company in information technology or financial services to operate 24 hours a day to meet the needs of a worldwide customer base, something that wage rates and work practices generally make prohibitive with US-based employees alone, the study said.

The study said that legislation against global sourcing (also known as overseas outsourcing or offshoring) has taken three forms:

1. First, restrictive state legislation emerged in North Carolina, Indiana, New Jersey, and Michigan. In North Carolina and New Jersey, state legislators have sought to restrict overseas call centers by regulating calls that involve residents of their states.

A patchwork of state laws would make employing overseas call centers prohibitively burdensome and expensive, which appears to be the aim of the legislators.

Claiming it will save American jobs, Democratic Presidential candidate John Kerry has introduced federal call center legislation. Surprisingly, the bill's premise appears to be that American jobs would be saved when intolerance results in Americans hanging up or protesting if an operator at an international call center discloses he or she is a foreigner. Such disclosure is required under the bill.

Ironically, the study points out, the "Do Not Call" legislation passed by a near unanimous vote of the US Congress may eliminate up to 2 million US call center jobs, according to the telemarketing industry.

Another avenue of restriction at the state level in Indiana and Michigan is to allow only US-based employees to work on any outside contract from a state agency, effectively preventing an American company from fulfilling a contract even in part with work done overseas, the study said.

2. Second, at the federal level, legislation has sought to require that federal contractors perform work exclusively, or almost exclusively, in the United States, the study said.

For example, the Thomas-Voinovich amendment to H.R. 2673 would prohibit any private company awarded a federal contract under the revised Office of Management and Budget Circular A-76 to perform any of the work outside the United States, the study said.

3. Third, bills have emerged in Congress to restrict US companies from using L-1 (intracompany transfer) visas under the belief that some L visa holders have been involved in outsourcing that affected US jobs, according to the study.

"This protectionism threatens to interfere with the technological revolution and international division of labor that have led to new products and services to improve the lives of Americans and others around the world," said Stuart Anderson.

"The more we try to protect certain jobs, the more we stifle job creation and make US businesses less competitive and less able to be sufficiently profitable to employ individuals throughout their companies."

Started in 2003, the National Foundation for American Policy is a non-profit, non-partisan organisation dedicated to public policy research on trade, immigration, education, and other issues of national importance.

Its advisory board members include Columbia University economist Jagdish Bhagwati, Ohio University economist Richard Vedder, Rep. Guy Vander Jagt (ret.), Cesar Conda, until recently Vice President Dick Cheney's chief domestic policy adviser, and other prominent individuals.