Indian IT group says H-1B fee hike will hurt U.S. hiring

NASSCOM warns of protectionism, trade challenges and job losses

A U.S. Senate plan to pay for new border protection along the Mexican border by hiking H-1B fees on offshore firms was met with sharp criticism by India's largest IT group.

But what may have really inflamed offshore providers was Sen. Chuck Schumer's (D-N.Y.) characterization of their industry.

"There is a part of H-1B that is abused, and it is by companies that are not American companies or even companies that are making something," Schumer said Thursday on the Senate floor. "Rather, they are companies that take foreign folks, bring them here, and then they stay here for a few years, learn their expertise, and go back. We think we should increase the fees when they do that," he said.

India's largest IT industry group, the New Delhi-based National Association of Software and Services Companies (NASSCOM), is moving quickly to spell out the ramifications the Senate's action. It called the fee hike an "indirect form of protectionism" and said it may violate trade agreements.

"It clearly seems to be an election-driven, political move," NASSCOM President Som Mittal said in a telephone interview.

The Senate approved a $2,000 fee increase on H-1B visas to offset the $600 million cost of Mexican border security improvements. The Senate's action has to be reconciled with a similar bill in the House, which doesn't have an H-1B or L-1 fee hike.

The fee hike takes aim at foreign firms by stipulating that it only applies to those that have 50% or more of their U.S. employees on H-1B and L-1 visas. That directly hits the business model of offshore providers.

Mittal said the fee increase is closer to $4,000 per visa based on the bill's language, and it may well push offshore firms to try to move more work overseas. But Mittal's major point is that the fee is discriminatory against foreign firms -- and as U.S. firms start looking at business overseas in pursuit of President Barack Obama's goal of doubling U.S. exports, the increase could "trigger counter protectionism."

"It seems odd that foreign companies should pay for protecting U.S. borders," said Mittal, who said there was no discussion or debate about the change - "nobody ever got a chance to present a view."

Mittal said offshore firms will now have to change their business models. Most offshore firms use what is called the 80-20 model, meaning 80% of a customer's work is done offshore and 20% on-shore. As the cost goes up, the offshore firms will try to have more work completed offshore, he said.

It could also reduce investment by offshore firms in U.S. facilities and the hiring of American workers, said Mittal.

There isn't data on how many U.S. workers have been hired by offshore firms, but the numbers are likely small. Tata Consultancy Services in April reported that it employed 141,000, of which more than 93% were Indian. The company employs 10,700 that are nationals in other countries. Of that number, only about 12% are Americans.

The offshore firms still face a threat of the so-called "50/50" provision that limits the number of H-1B or L-1 visas to 50% of the U.S. workforce. This provision was introduced in legislation last year by Sens. Dick Durbin (D-Ill.) and Charles Grassley (R-Iowa), and may turn up in a comprehensive immigration bill.

Schumer is leading the immigration reform effort, but has not released a bill. However, he has proposed giving Green Cards for science and engineering advanced degree graduates. In comments yesterday, Schumer said: "I like the H-1B program, and I think it does a lot of good for a lot of American companies. In fact, in the immigration proposal I made ... we expand H-1B in a variety of ways."

NASSCOM estimates that the fee increase will cost its member firms $200 to $250 million. This calculation is based on the estimate that the $2,000 increase will be added to the $320 H-1B filing fee, as well another $2,000 added to the $500 antifraud fee. Companies also pay $750 to $1,500 to support training of U.S. workers. That fee depends on the size of the company. NASSCOM is using a base of 45,000 to 50,000 L-1 and H-1B visas annually, but that includes new ones, transfers and renewals.

It said the need for new ones is partly due to people returning to India.

Mittal also argued that the fee increase might deter foreign students from enrolling in the U.S. "The ... U.S. is saying 'foreign talent is not welcomed,'" said Mittal.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov or subscribe to Patrick's RSS feed . His e-mail address is .

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Copyright © 2010 IDG Communications, Inc.

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