America’s tighter visa regime helps no one

With over 60 per cent share in India’s export of IT & ITeS, the US remains the most lucrative market for top IT firms. However, their operations are increasingly being constrained by a restrictive visa regime that caps the number of workers who can relocate to the US on short-term H1B visas at 65,000.

Last December, the US doubled visa fees to $4,000 for H1B and $4,500 for L1B. Fee hike applies to companies that have either 50+ foreign employees or have more foreign employees than local employees. Obviously, the move seems to be targeted against Indian IT companies.

Nasscom opposed the move saying that it would cost its member-companies over $400 million annually. Visa fee hikes also prompted India to lodge a formal complaint to the WTO. This is the first time the immigration rules of a country have been challenged by another country.

In its complaint to WTO, India has contended that US visa regulations result in ‘less favourable’ treatment of Indian companies in the US. Hence such measures are protectionist, and violate ‘national treatment principle’ as envisaged under WTO trade rules.

Most advanced countries impose quotas on number of immigrants or guest workers with no consultation with countries affected. None of them has ever agreed to any internationally binding commitments on immigration, though rigid immigrations rules cost global GDP trillions of dollars a year. An estimate shows gains from removing barriers to labour mobility can be as high as 50-150 per cent of world GDP. Yet, barriers to immigration are increasing all over the world. The US, supposedly the strongest votary of free trade has not made any commitment on immigration even under its latest trade pact TPP.

IT companies also suffer from high rejection rate for L1B visa applications. The denial or rejection rate for L-1B applications increased from 6 per cent in 2006 to 35 per cent in 2014.

Increase in rejection rates have also been accompanied by high rates of Request for Evidence or RFEs — 65 per cent of Indian (compared to 3 per cent for Canadian) L-1B petitioners experienced a request for evidence. IT companies say that RFEs adversely affect their ability to fulfil terms of contracts. As a result, they lose millions of dollars in project cost overruns and penalties for delays.

Supporters of tighter immigration regulations say H1B visas are used by staffing companies to replace US workers by cheaper imported workers.

Many a time, specialist workers coming under H1B or L1B may be more expensive in a tight market for talent. And the reason for replacing an American worker may be skill or age, and not nationality. Imported younger workers may be better skilled or more open to upgrade their skills.The movers and shakers of Silicon Valley say they are constrained by shortage of skilled workers. Do tighter immigration laws protect jobs or kill them?

A CII-Grant Thornton report says 100 Indian companies have invested over $15 billion in the US and employed 91,000 people, including 9,278 people (New Jersey), 8,937 (California), 6,230 (Texas), 4,779 (Illinois), and 4,134 (New York) in 2014.

Indians working in the US on short-term visas (or their employers) are required to contribute to social security. However, such workers can’t take any benefit out of that before they complete 10 years working in the US; that rarely happens as L1B is issued for three years while H1B can’t be stretched beyond 6 years.

In the absence of a bilateral social security pact — or what is called totalisation agreement — India has been losing over US$4 billion a year.

Totalisation agreements exempt foreign workers from making contribution to US social security if they are employed in US for less than five years.The US has already concluded totalisation agreements with 25 countries including those with Australia, Chile, Japan and South Korea.The absence of totalisation agreement increases the cost for Indian IT companies and affects their ability to bid for contracts successfully.

One can safely conclude that tighter immigration rules and/or their discriminatory use hurt Indian IT companies. At the same time, they are not helping the cause of job creation within the US. Thus, they are more about politics and have no economic logic.

Experts believe that the US is trying to push India to agree to WTO plus rules on IPR and investment before agreeing for a bilateral totalisation agreement. Since the matter is now in WTO, let us see how India and the US play their cards.

Meanwhile, Indian IT companies will continue to suffer. With Donald Trump dominating discourse on immigration, it’s a tough time ahead for Indian IT companies.

The writer is a corporate economic advisor in Mumbai. The views are personal.

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