I’ve got my reading material for the week

The World Trade Organization has just issued its annual trade report. Beyond an update of recent trade developments, the document — like its IMF and World Bank counterpart — also provides more extensive analytic essays on various trade topics. According to the executive summary, “The core topic in this year?s report is standards and international trade.” Hmmm… yes, yes, I do believe I would find that topic interesting. Oh, and there’s also a shorter essay of offshore outsourcing. In which you can find the following:

The most curious aspect of this heated debate is that all the expectations and fears of offshoring and the backlash against it in the high income countries are based on very partial, selective information, mostly from private sources or anecdotal evidence. It has proved difficult up to now to glean hard evidence from official balance of payments data or employment records. Recently, a number of studies and new statistical information have pointed to the ?modest? size of the services offshoring trend if viewed from a macroeconomic perspective. The annual growth rates cited alone might look impressive, but as a percentage of total inflows and outflows in the relative labour markets, or as a percentage of total services trade, the numbers are far less impressive…. At the firm level, there are technical, strategic and managerial limits to offshoring. Technical limits relate to the extent to which services are separable from the core activities of the firm in question. Strategic limits relate to the need of companies to control strategic assets, while managerial limits relate to managerial capability and the costs of dealing with foreign suppliers. Market forces apply to offshoring in much the same way in every sector. If demand for IT skills and English-speaking workers increase sharply in services-exporting countries, wages will start to rise and the price gap between local and imported services will narrow. As shown by Bhagwati et al. (2004) the supply of skilled workers in India is scarce, and is likely to remain so in the foreseeable future. In other words, the situation is not one of an almost unlimited supply of adequately skilled workers. A rise in demand is therefore likely to drive up wages…. While the general perception among the US public appears to be that the United States is importing more services from India than it is exporting, US balance of payments statistics report a surplus in favour of the United States. The most detailed sectoral breakdown of US data by country (which covers both affiliated and non-affiliated trade) refers to the category ?Other private services,? which is defined as total private services less travel, transport and royalties and license fees. At this level, US services exports to India stood at $2.1 billion, while imports amounted to $1.1 billion in 2003. Throughout the 2000-03 period, the United States consistently reported a bilateral trade surplus. It may be concluded that the US BOP data provide a more positive picture for US services trade than might be gleaned from the discussion of US job losses attributed to offshoring services to India…. The strength in the rebound in [IT] employment in 2004, and the resilience of wages of computer occupations, do not support the view that offshoring services of high-skilled IT specialists had a marked impact on overall US employment in these occupations up to the end of 2004?. It is interesting to note that at $60,000 in FY2002 and FY2003, the median annual earnings of H-1B beneficiaries in computer-related occupations closely match the average wages paid domestically in this occupation (see Appendix Table 9 and annualized hourly wages given in Appendix Table 6). Onshore outsourcing by US firms of IT services to domestic providers of IT services employing H-1B beneficiaries is therefore unlikely to be driven by wage cost considerations. It seems more likely that persistent skill shortages in the US economy play the most prominent role in approvals of H-1B visas. (emphasis added)

Yeah, I’m not interested in this report at all. Frances Williams has a nice summary of the offshoring sections of the WTO report in the Financial Times.