More trade tensions

India and US spar over trade, work visas

The temperature in India-US trade relations has suddenly risen. First, the World Trade Organization (WTO) ruled in favour of the US which challenged India's norms for local content in imported solar power equipment under its subsidy programme. Right after that, India complained against the US to the WTO for doubling fees for issuing non-immigrant temporary work visas like H-1Bs, widely used by Indian software companies to send workers to the US to work on projects there. What is more, the US president, Barack Obama, has said that "we can't have other countries cheating" and "we have just won a case against India." The temperature within the US has also risen with both Democratic (Bernie Sanders) and Republican (Ted Cruz and Donald Trump) presidential aspirants targeting the US visa regime for allowing the import of cheap labour which they claimed was taking away jobs from US workers. The importance of the issue can be gauged from the fact that Mr Trump first spoke in favour of giving more visas to highly skilled foreign workers during a presidential debate - but right after that issued a statement which called the H-1B visa "a cheap labour programme" which was "rampant with abuse" and pledged to ensure that American workers were hired "first" for "every visa and immigration programme".

The Indian concern, articulated by Nasscom, the software industry association, is that the doubling of visa fees will add $400 million in annual costs to the industry and reduce profit margins of leading companies by 50-60 basis points. Indian temporary workers pay a billion dollars a year in social security contributions whose benefits they are mostly unable to use. WTO rules prohibit imposing fees to restrict the number of temporary workers. Fees should not serve as an independent form of restriction but be levied only to recover costs. The upshot of this will be that the US, as a result of the doubling of visa fees, will be treating Indian workers in the US less favourably than their American counterparts. What is most irksome is that the way the higher visa fees have been made applicable - to companies with more than 50 employees or more than 50 per cent of their US employees on H-1B and L-1 visas. This means they will not be payable by an IBM but by an Infosys.

The fundamental concern for India is that under the WTO's trade and investment liberalisation regimes, just as India has to lower entry barriers for goods and investment, its export of services through the movement of natural persons or temporary workers should not face entry barriers. However, the Doha round of trade negotiations which should have addressed such issues has not moved forward - in large part due to Indian intransigence. The only long-term solution which satisfies issues of both equity and economics is for workers in developed countries to move to jobs requiring higher skills, thus leaving jobs requiring lower skills for workers from poorer countries.