from Renewing America

India's Landmark WTO Challenge to the United States

March 15, 2016

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In the midst of a xenophobic U.S. presidential campaign in which candidates in both parties have harangued China and Japan over their trade policies, and leading Republicans have called for a "great wall" to keep out immigrants from Mexico and Central America, one country has quietly refused to take it any longer.

The government of India filed suit on March 3 in the World Trade Organization (WTO) seeking to overturn a new U.S. tax on high-skilled migrants that India says discriminates against its citizens and would damage some of its most successful companies. The case marks the first time that a country's immigration laws have been challenged using the rules of a trade agreement. And despite the logic of India's action, it may well be the last such case.

With tariffs on imports already very low in most countries, economists have argued that easing restrictive immigration laws in advanced countries would now do far more than additional trade liberalization to boost global growth. Michael Clemens of the Center for Global Development has written that immigration restrictions are the "greatest single class of distortions in the global economy," amounting to "trillion dollar bills on the sidewalk" if such distortions could be eliminated.

Yet while trade liberalization has proceeded apace for more than half a century, cooperation on reducing barriers to migration has been scant. All advanced countries maintain quotas on immigrants and guest workers that they set unilaterally, with little or no consultation with the countries affected. None has agreed that migration rules should be subject to the same binding international agreements that now govern most trade.

The only exception is a handful of trade agreements in which many countries, including the United States, have agreed to allow a small number of skilled workers to accompany their firms as they expand overseas. These provisions were first written into the services rules of the 1995 Uruguay Round agreement, on the logic that trade in services - such as banking or architectural design - was an "export" that often required a company's employees to be present in the importing country in order for the service to be delivered. As part of the agreement, the United States committed to admit at least 65,000 skilled foreign workers each year - still the current level set by U.S. law.

It is unlikely that the United States ever imagined it would face a WTO dispute on the issue. But over the past five years, the U.S. Congress has been raising the fees charged to certain companies that employ these workers, including a $4,000 per worker increase passed in December, 2015 that basically doubled the cost. The target of those taxes has been a group of large Indian companies - including Infosys, Tata, and Wipro - that are collectively known as outsourcing companies.

The outsourcing model, which was scarcely envisioned in 1995, involves persuading Western companies to hire Indian firms to handle such labor-intensive jobs as writing basic computer code and upgrading software. With its surplus of information-technology engineers, India is the global giant in outsourcing, which accounts for about 20 percent of all Indian exports and provides a path for millions of India's workers to enter the middle class. In order to service those accounts, the companies also send tens of thousands of employees to the United States each year under the H-1B and the similar L-1 visa.

The success of that model has generated a political backlash, however. American IT workers complain, with some justification, that they are being replaced by lower-wage Indian imports. The New York Times last year broke the story of some 250 Americans who were fired by Walt Disney World in Florida and required as a condition of severance to train replacement workers brought in by the outsourcing companies Cognizant and HCL. Republican front-runner Donald Trump, citing the Disney case, has said he would "end forever the use of the H-1B as a cheap labor program, and institute an absolute requirement to hire American workers first for every visa and immigration program."

Congress hasn't gone that far, but the Indian companies argue that the $4,000 fee could have the same effect. The fee only applies to large companies that use the H and L visa programs to hire more than half of their U.S.-based workers. While seemingly neutral, the only companies that fit that description are the Indian outsourcing firms. Nasscom, the Indian IT industry association, says the new fees could cost its companies as much as $400 million annually.

The case will be a fascinating one. In trade, such discriminatory taxes on goods have been found to violate the core principle of national treatment - that foreign companies should be treated no less favorably than domestic ones. Since inexpensive, well-educated engineers are an Indian comparative advantage, there is a reasonable case to be made before the WTO that Congress' intent was a protectionist one of insulating U.S. workers from legitimate competition. Yet the United States will likely argue that the fee in no way violates its actual WTO obligations - the H-1B program has long been oversubscribed, and the United States issues well over 65,000 visas each year.

The decision by the WTO may also determine whether future efforts will be made to negotiate binding migration rules. The United States, after accepting some similar provisions in trade deals with Singapore and Chile, has refused for the past decade to even discuss any migration-related provisions because of congressional opposition. The recent Trans-Pacific Partnership (TPP) trade agreement, for example, has labor-mobility provisions, but the United States was alone among the 12 participants in making no commitments at all.

The trillion dollar bills from freer global migration may be lying there on the ground, but they are getting harder and harder to pick up.

This article originally appeared on asia.nikkei.com.

 

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