India Claims New Law Violates WTO Agreements

As I discussed last week, the $600 million that congress wasted on additional Border Security was paid for entirely by raising visa fees on companies(primarily India-based) whose main purpose is importing cheap labor using H1-b and L-1 visas.   India is not taking this lying down.  They are claiming that it violates our WTO treaties.

India’s Commerce Secretary Rahul Khullar told reporters in Delhi on Tuesday that the visa fee hike is incompatible with the WTO.

Nasscom’s president Som Mittal warned on Monday in an interview that the hike in visa fees could lead to a trade spat, and could also affect U.S. companies that are negotiating access to Indian markets.

The WTO is an organization of several countries dedicated to free and open trade.  Joining the WTO requires not just agreeing to 1 agreement, but almost 60.

The WTO oversees about 60 different agreements which have the status of international legal texts. Member countries must sign and ratify all WTO agreements on accession. A discussion of some of the most important agreements follows. The Agreement on Agriculture came into effect with the establishment of the WTO at the beginning of 1995. The AoA has three central concepts, or “pillars”: domestic support, market access and export subsidies. The General Agreement on Trade in Services was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade. The Agreement entered into force in January 1995. The Agreement on Trade-Related Aspects of Intellectual Property Rights sets down minimum standards for many forms of intellectual property (IP) regulation. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994.

The Indian government is claiming that the visa fees unfairly target foreign companies.  The specific agreement that it claims is being violated, according to The Hindu Business Line,  is Article VI of the General Agreement on Trade in Services(GATS).

They said Article VI of the WTO’s General Agreement on Trade in Services specifies that domestic regulations of all countries should be administered in a reasonable, objective and impartial manner. The sources said domestic regulations also should not be more burdensome than necessary to ensure the quality of the service, adding that they should also not cause restriction on the supply of the service.

Here is Article VI of the GATS:

 

1.        In sectors where specific commitments are undertaken, each Member shall ensure that all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner.

2.        (a)        Each Member shall maintain or institute as soon as practicable judicial, arbitral or administrative tribunals or procedures which provide, at the request of an affected service supplier, for the prompt review of, and where justified, appropriate remedies for, administrative decisions affecting trade in services. Where such procedures are not independent of the agency entrusted with the administrative decision concerned, the Member shall ensure that the procedures in fact provide for an objective and impartial review.

(b)        The provisions of subparagraph (a) shall not be construed to require a Member to institute such tribunals or procedures where this would be inconsistent with its constitutional structure or the nature of its legal system.

3.        Where authorization is required for the supply of a service on which a specific commitment has been made, the competent authorities of a Member shall, within a reasonable period of time after the submission of an application considered complete under domestic laws and regulations, inform the applicant of the decision concerning the application. At the request of the applicant, the competent authorities of the Member shall provide, without undue delay, information concerning the status of the application.

4.        With a view to ensuring that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services, the Council for Trade in Services shall, through appropriate bodies it may establish, develop any necessary disciplines. Such disciplines shall aim to ensure that such requirements are, inter alia:

(a)        based on objective and transparent criteria, such as competence and the ability to supply the service;

(b)        not more burdensome than necessary to ensure the quality of the service;

(c)        in the case of licensing procedures, not in themselves a restriction on the supply of the service.

5.        (a)         In sectors in which a Member has undertaken specific commitments, pending the entry into force of disciplines developed in these sectors pursuant to paragraph 4, the Member shall not apply licensing and qualification requirements and technical standards that nullify or impair such specific commitments in a manner which:

(i)        does not comply with the criteria outlined in subparagraphs 4(a), (b) or (c); and

(ii)        could not reasonably have been expected of that Member at the time the specific commitments in those sectors were made.

(b)        In determining whether a Member is in conformity with the obligation under paragraph 5(a), account shall be taken of international standards of relevant international organizations(3) applied by that Member.

6.        In sectors where specific commitments regarding professional services are undertaken, each Member shall provide for adequate procedures to verify the competence of professionals of any other Member.

I’m not a lawyer or an expert on international law, so I’ll have to let somebody else tell you whether or not these threats are real or idle.  I will offer this though, the case to me doesn’t appear to be a slam dunk for either side which means that the proceedings could drag out for years.

Of course this could seriously put off track the border control bill.  If the visa’s are found to violate WTO, congress would either have to borrow the money for the extra border control, find another way to fund it, or rescind the law.  Of course, one way that it could remove the burden could be to lower the fee, but extend it to all H1-b and L-1 visas.  If it targets all companies and visa holders, then India can’t claim the United States is playing favorites.

Of course if India does take legal action, India isn’t exactly guilt free when it comes to free and open trade.  Several companies are having some trouble with providing Internet services there.  (see here and here).  This customs & border bill keeps getting more and more interesting.

Border Secuirty and Jobs Bills Pass

As I predicted last friday, the house has passed the “let’s flush $600 million down the toilet in the name of border security” bill.  I won’t rehash why the money is being wasted.  From Reuters:

The U.S. Congress on Thursday passed legislation to strengthen security along the border with Mexico, trying to tackle the politically sensitive issue of illegal immigrants ahead of November congressional elections.

Final legislative action came as the Senate passed the bill on a voice vote, one day after the House of Representatives interrupted a six-week recess to pass the bill.

The only good thing to come out of the bill is it’s funding mechanism.  In order not to add to the deficit congress had to either cut spending or increase revenue.  In this case they mostly chose to raise revenue.  However, instead of a general tax increase they targeted towards companies that make a business model out of importing cheap labor into the company.

The plan is financed by imposing higher visa fees on some Indian technology companies operating in the United States, prompting a protest from the government of India.

Senate aides said the Indian companies had been targeted because they take advantage of a U.S. law to import a high percentage of their workers from abroad. They said four Indian companies would be affected: Tata (TCS.BO), Infosys (INFY.BO), Wipro (WIPR.BO) and Mahindra Satyam (SATY.BO).

It may strange that congress would pass a bill that hits only 4 companies.  However, that’s because they are the only 4 large companies whose majority of state-side employees hold temporary visas.  Fee qualification is explained over at NDTV:

The Bill proposes to increase visa application fees by at least USD 2,000 for the next five years to raise nearly $550 million to help fund the $650 million plan for increasing security along the US-Mexico border. These fee increases will apply only to companies with more than 50 employees and for whom the majority of their workforce are visa-holding foreign workers.

Indian software firms, including IT biggies like TCS, Infosys, Wipro and others, use H-1B and L-1 visas to fly their employees to the US for working at their clients’ locations as on-site engineers.

The bigger news is that congress also passed a so-called “jobs” bill.

House Democrats on Tuesday pushed through a $26 billion jobs bill to protect 300,000 teachers and other nonfederal government workers from election-year layoffs, while sending $16billion to help cash-strapped states with rising Medicaid costs.

The bill would be paid for mainly by closing a tax loophole used by multinational corporations and by reducing food stamp benefits for the poor. It passed mainly along party lines by a vote of 247-161.

I’m all about closing tax loopholes, and I’m also glad that we’re going to keep more teachers in the classroom, and police on the streets, but I am a bit concerned about cutting food stamps during the worse recession in 70 years.  Cutting the food stamps keeps the bill “budget neutral”.  However, it’s likely just smoke and mirrors anyways.  The food stamp funding will likely be restored in next years budget.  It’s hard to vote against giving food to the poor.

Under the bill, effective March 31, 2014, food stamp benefits would return to the levels that individuals would have received under pre-Recovery Act law. This modification is estimated to save $11.9 billion over 10 years. House Democrats plan to work to restore this funding before the cuts are implemented in 2014, however.

President Obama signed the Teacher and Police jobs bill into law yesterday and will be signing the border security bill into law today.  All this when the congress is supposedly on their “august break”.

Indian software firms, including IT biggies like TCS, Infosys, Wipro and others, avail H-1B and L-1 visas to fly their employees to the US for working at their clients’ locations as on-site engineers.