U.S.-India Trade at Risk?

Indian authorities are taking umbrage at a U.S. Senate probe of outsourcing firms' use of H-1B visas

Tensions are rising as an inquiry into how Indian outsourcing firms operate in the U.S. threatens to escalate into a broader trade dispute between the two countries.

In recent weeks two Midwestern senators, Richard Durbin (D-Ill.) and Charles Grassley (R-Iowa), have been investigating whether Indian outsourcers such as Infosys Technologies (INFY) and Wipro (WIT) are abusing a U.S. program for temporary workers. Now, Indian authorities are taking issue with the probe, arguing that it undermines the principles of free trade.

The latest volley came on May 30 from Nasscom, the trade group that represents India's software and services companies. In a letter to Durbin and Grassley that was made public, the organization pointedly noted that any impression that trade between the U.S. and India flows in one direction is "mistaken." Rather, Nasscom said, India's tech industry buys products from Hewlett-Packard (HPQ), Dell (DELL), Microsoft (MSFT), Oracle (ORCL), and others. The country also buys "a whole host of U.S. goods and services, including aircraft, wheat, branded garments and accessories, etc."

A "Negative Message"

A Nasscom spokesman declined to comment beyond the statement. But the implication is that any effort to stop Indian companies from selling their services in the U.S. could result in limitations on U.S. companies being able to sell into India. Nasscom said the tighter restrictions on foreign workers in the U.S. that Durbin and Grassley are advocating are "protectionist" and that it hopes "the U.S. will not specifically penalize non-U.S. firms and continue to promote free and fair trade."

India's tech companies appear to have the support of the government. Kamal Nath, India's minister of commerce and industry, said earlier this month that the Durbin and Grassley probe sends a "negative message." The U.S. actions, he said, could undermine the latest round of negotiations at the World Trade Organization, potentially harming the movement toward more open global trade.

"Such statements by responsible U.S. policymakers certainly impact the climate for negotiations because of uncertainties and lack of future predictability," he said (see BusinessWeek.com, 5/18/07, "India Links Visa Flap with Doha Talks").

Top Firms Targeted

The Durbin-Grassley inquiry has prompted a particularly strong reaction in India, where the probe has received prominent treatment in daily newspapers and on television news shows. One reason is the perception that the senators are singling out the nation's most prominent, successful companies and questioning their ethics. "This is really insulting to India," says Ron Somers, president of the U.S.-India Business Council, an advocacy group that represents 250 of the largest American companies investing in India, as well as global Indian companies. "You're challenging the integrity of India's modern-day heros."

Two weeks ago, Durbin and Grassley requested information from nine Indian companies about how they use a program for temporary work visas, known as H-1B visas. The Indian companies include Infosys, Wipro, Satyam Computer Services, and Tata Consultancy Services, all of which provide outsourcing services. The senators say they want to find out whether the Indian companies are using the U.S. visa program to facilitate the outsourcing of American jobs.

"I am afraid it is being abused by foreign companies to deprive qualified Americans of good jobs," Durbin said earlier this month (see BusinessWeek.com, 5/15/07, "Crackdown on Indian Outsourcing Firms"). The senators asked for responses by May 29, but they have not yet made any information public.

In the Name of Immigration Reform

The H-1B program was originally established as a way for U.S. employers to recruit highly skilled employees from abroad. The idea was that technology companies, educational institutions, and others could bring in workers with specialized skills when they couldn't find qualified American workers. Since that time, however, outsourcing companies have become some of the most active users of the visa program. According to figures released by Durbin and Grassley, Infosys and Wipro received the most H-1B visas in fiscal 2006, with 4,908 and 4,002, respectively (see BusinessWeek.com, 5/18/07, Table: "Who Gets Temp Work Visas").

In fact, 10 of the top 20 users of the H-1B visa program are Indian outsourcing companies (see BusinessWeek.com, 2/8/07, "Work Visas May Work Against the U.S."). Also among the active participants are U.S. companies with substantial outsourcing operations, including Cognizant Technology Solutions (CTSH) and IBM (IBM).

The issue is coming to a head now because of a broader debate in Washington over how to reform the U.S. immigration system. President George W. Bush and a bipartisan group of legislators have been pushing for comprehensive reform, affecting both highly skilled workers such as those from India and those with low skills, including many from Mexico. A group of Democratic and Republican senators introduced one immigration proposal on May 17 (see BusinessWeek.com, 5/18/07, "A 'Troubled' Immigration Reform Proposal").

A Fierce Debate

Tech titans from Microsoft and Oracle to Intel (INTC) and Motorola (MOT) have long argued that the U.S. should do what it can to attract more skilled workers. Industry executives say the cap on H-1B visas should be raised from 65,000 to 115,000 and that more green cards should be available for talented employees. Microsoft Chairman and co-founder Bill Gates even went to Washington to make the case (see BusinessWeek.com, 3/8/07, "Gates to Senate: More Visas").

But Durbin and Grassley have now stirred up a fierce debate, arguing that the criteria for letting workers into the country should be tightened. Some of their ideas have been included in the immigration reform proposal now under consideration in Washington. Among other things, these ideas include requiring any employer who wants an H-1B visa to try to hire an American worker first and increasing oversight of employers that use the program.

The proposals have drawn the ire of both Indian and American tech companies, which consider them too bureaucratic and burdensome. But high-tech workers and engineering groups have applauded the moves.

Unforeseen Consequences?

The escalation in tensions between the U.S. and India comes at a delicate time. The U.S. and India have largely worked together in promoting free trade around the world in recent years, and both have benefited substantially. India's leading tech companies, such as Infosys and Wipro, have grown rapidly by selling their services abroad, and U.S. companies, including Boeing (BA) and Caterpillar (CAT), have profited from selling into the fast-growing Indian market. Bilateral trade hit $32 billion last year and is growing about 20% per year. The office of the U.S. Trade Representative declined to comment on Durbin and Grassley's requests of the Indian firms and on Nascomm's response.

The question now is how far the dispute over Infosys, Wipro, and India's other outsourcing companies will go. Susan Cohen, an immigration attorney for the law firm Mintz, Levin, Cohn, Ferris, Glovsky & Popeo in Boston, says she doesn't think "this will escalate into a major trade battle." But others are more concerned. Somers, of the U.S.-India Business Council, says, "questioning the integrity of these icons of India may result in consequences that no one could have foreseen."

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