Silicon Valley: Despite stiff opposition from local businesses, the California Senate has passed a controversial bill banning State agencies from contracting services to companies that use overseas labour.

The bill, sponsored by the Assembly member Carol Liu, will now go back to the Assembly for a vote on several Senate amendments.

With the Assembly expected to concur, Governor Arnold Schwarzenneger faces a choice between vetoing the measure to please business lobbyists or signing it to appeal to a populist demand for job protection, San Jose Mercury reported today (Aug 25, 2004).

The Governor's office said he had not taken a position on the bill, which was cleared by the Senate 21-14.

"If this State wants to retain business and jobs in California, then we need to set an example by utilising domestic business rather than sending work overseas,'' Liu said.

"Jobs pump money back into the economy via income and sales tax revenue and reduce the number of people who need public assistance to survive. Offshoring may save money in the short term, but it will cost us more in the long run as more and more Californians find themselves jobless.''

Earlier, a coalition of business associations, led by the California Chamber of Commerce, had strongly opposed the legislation, saying the regulations aimed at protecting California jobs and privacy rights could raise the cost of State services to taxpayers and invite retaliation by trading partners.

California is one of 34 States where legislation has been introduced seeking to restrict work on State agency contracts from being performed overseas, or impose regulations on offshoring practices to safeguard the security of medical and financial information. Legislation in two other States was passed but was vetoed.

Offshoring has became a hot political issue during the 2004 Presidential campaign, as critics complain of laggard job growth because of the Bush administration's economic recovery plan.

Jobs have been "offshored'' in the manufacturing sector for decades as other countries became more competitive with lower wages, but a political crisis emerged once well-paying jobs in the service sector including software and computer engineering jobs in Silicon Valley were outsourced to India and other countries.

"We're one step closer to putting this bill on the Governor's desk,'' said Angie Wei, legislative analyst with the California Labor Federation. "This Government is always talking about jobs, jobs-good jobs. Now we'll see whether he wants to keeps some of the jobs that we already have.''