A look at the recession US-India TIS dispute 2.3
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Transcript of A look at the recession US-India TIS dispute 2.3
A Look at the Causes and Consequences of the Recession in
Global IT:
The Sources of Immigration Restriction in U.S.-India Trade in
Services, 2007-2010
Non-Tariff Barriers to Trade in Services (NTB-
TIS) Issues in U.S. Business Immigration
The State of U.S.-India Trade in Services and the Domestic Sources
of a Rising Trade Dispute 2007-
2010
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Non-Tariff Barriers to Trade in Services (NTB-TIS) Issues in U.S. Business Immigration
This Draft October, 2010
Updated January 2013
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Contents Executive Summary (Part 1): ................................................................................................................... 8
PART I: Indian H-1B Consulting Firms or U.S.-based Multinational Corporations – Which is the Primary Source of IT Sector Unemployment in the U.S.? ................................................................... 13
1. The Two U.S. Economies and the Dual International Trade Systems ............................................. 13
1. How U.S.-Based Multinationals Control the Overall Pace and Location of Global Hiring in the IT Sector ...................................................................................................................................................... 15
2. U.S.-India Terms of Trade: Small and Relatively Stable .................................................................. 29
Table 1. Top Ten Countries with which the U.S. has a Trade Deficit .......................................... 29
For the month of June 2010............................................................................................................ 29
Table 2: US EXPORTS OF GOODS AND SERVICES TO INDIA (Q1 2009-Q1 2010) ....... 31
Table 3: US IMPORTS OF GOODS AND SERVICES FROM INDIA (Q1 2009-Q1 2010) . 32
Table 4: US EXPORTS OF SERVICES TO INDIA (HISTORICAL) ............................................. 34
Table 5: US IMPORTS OF SERVICES FROM INDIA (HISTORICAL) ....................................... 34
3. Growth Trends in the U.S.-India Services Trade ......................................................................... 35
4. Increasing U.S. Deficits in Global Trade in Goods ........................................................................... 39
Key EU Trade and Investment Data and Trends ........................................................................ 41
5. Tier One – The Multinationals at the Top of the Global Food Chain .............................................. 42
Illust. 1: U.S. Information Sector Unemployment, 01/00 – 07/10 .................................................. 44
6. Portrait of the Disappearing Indian H-1B Worker, and the Negligible Impact of Foreign Workers on the U.S. Labor Market ........................................................................................................................ 49
Direct and Indirect Benefits to the U.S. from Value-Added by Indian H-1B Workers ....................... 53
7. FY 2009 H-1B Report Shows Continuing Trends ................................................................................. 54
8. H-1B Highlights (FY 2009) .................................................................................................................... 56
9. Characteristics of H-1 Workers (FY 2000-2009) .................................................................................. 57
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11. The Perils of Growing U.S. Trade Protectionism ......................................................................... 62
12. The Role of the MNCs in U.S. and Indian IT Industry Unemployment ........................................ 64
13. IBM: A Case Study in Planned Globalization by a U.S.-based Multinational, and the Botched U.S. Regulatory Response ....................................................................................................................... 68
Illustration 2. IBM Global Staffing and Wages Projection (2005-10) ........................................... 70
14. Other Long-term Effects of U.S. Regulatory Excess .................................................................... 72
15. A Misdirected U.S. Policy Response Foreshadows a Bigger Conflict with Global Corporate Governance, with Serious Economic Consequences for All to Come ..................................................... 74
16. PART 1 Conclusion ...................................................................................................................... 77
APPENDIX I: ................................................................................................................................................ 78
Table 1. Private sector gross job gains and losses, seasonally adjusted ................................... 78
Has U.S. Immigration Law Become an Impermissible Non-Tariff Barrier to Trade Under the WTO General Agreement on Trade in Services (GATS)? .............................................................................. 80
Executive Summary ......................................................................................................................... 81
BACKGROUND .................................................................................................................................... 83
UNDUE RESTRICTIONS UPON L-1 INTRACOMPANY TRANSFERS UNDER GATS MODE 3 .............................................................................................................................................................. 91
SOME USCIS DE FACTO RULES AND PRACTICES VIOLATE SPECIFIC GATS COMMITMENTS .................................................................................................................................. 98
Unlawful Restrictions on Mode 3 Commercial Presence (L-1 Intracompany Transferees) .. 98
Restrictions on Mode 4 Service Providers (H-1B Specialty Workers) - Less Clearly Discriminatory ................................................................................................................................. 103
Specialty occupation aliens and their employers must be in compliance with all labour
condition application requirements that are attested to by the established employer. ........ 105
B-1 Short-Term Visitors for Business .............................................................................................. 110
CONCLUSION: ....................................................................................................................................... 112
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*** .............................................................................................................................................................. 113
APPENDIX I: Neufeld Memo Documentary Requirements ............................................................ 113
FAQs - FREQUENTLY ASKED QUESTIONS ABOUT ISSUES OF EMPLOYER “CONTROL” OVER H-1B WORKERS ................................................................................................................... 115
Q. What are the attestations and/or documents that now need to be filed with H-1B petitions to demonstrate control? ..................................................................................................................... 115
A. The memo signals that new filings of H-1B petitions will have to attest to, and where
applicable, be accompanied by the following types of documents: ............................................ 115
Q. What is the basis for the above list of required attestations and requirements? ............... 120
*** .............................................................................................................................................................. 122
APPENDIX II: Significant Articles in the GATS Agreement ............................................................ 122
APPENDIX III: SCHEDULE OF SPECIFIC U.S. COMMITMENTS AND RESERVATIONS TO THE WTO GATS TREATY ................................................................................................................... 144
APPENDIX IV: Significant Trade Disputes and Related Events Involving National Legislation325
HISTORICAL HIGHLIGHTS AND HISTORY OF WTO-MEDIATED TRADE DISPUTES INVOLVING US LEGISLATION, OR FOREIGN LEGISLATION ................................................ 325
OTHER SIGNIFICANT GATS/GATT DISPUTES ......................................................................... 327
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OVERVIEW
Part 1 of this report explores the causes and effects of the recent recession and lingering effects that severely impacted the U.S. IT industry and workforce during the period 2007-2010. We discuss several related trade and economic-related issues, beginning with the affects of Indian IT consulting and outsourcing firms on the domestic U.S. economy, the role of U.S.-based Multinational Corporations (MNCs), and their historical dominance of employment in the domestic technology and business services sectors, and approaches to removal of lingering regulatory Non-Tariff Barriers to Trade in Services (NTB-TIS) that continue to strain trade relations between the U.S. and India.
This study applies a balance of trade approach to study the impact of competition from the Indian tech sector and “H-1B workers” on the US economy and U.S. immigration policy. We find that the numbers of H-1B petitions approved for Indian nonimmigrant IT specialty workers declined dramatically between FY2007 and FY2008, and that they had little or no net impact on the rise in U.S. unemployment during that period. Looked at in terms of sheer numbers, approximately 200,000 Indian H-1B workers would have minimal impact under any circumstances on employment levels in the four million worker U.S. IT industry. The number of Indian workers in computer-related occupations during the crisis amounted to less than four percent. We show that H-1B workers actually have a positive effect on the bottom-line for U.S. firms, their third-party clients, and the overall U.S. economy, which translates into reduced unemployment and a faster recovery than would have otherwise occurred in this sector. We additionally find that H-1B workers allow third-party U.S. client firms to access some of the enhanced value-added market long enjoyed by large MNCs, a competitive advantage in tradable goods and services which the data shows the overall employment gains in high value-added industries amount to a fifty percent increase in overall employment compared to the low value-added sector.
Specifically, when we apply a value-added measure of the effect of H-1B on the balance of trade in services between the U.S. and India, we see that H-1B workers actually have no real net impact on that balance in the IT sector. We find that since the beginning of the last decade about half of the Indian H-1B temporary workers working in
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computer occupations are actually employed by consulting firms with corporate headquarters in India with the remainder working for U.S. firms. The value-added of Indian H-1B workers is thus split about 50-50 between the two countries. Therefore, we conclude, the presence of Indian H-1Bs working in the US has had no appreciable effect on the US-India balance of trade in services. However, since many U.S. third-party client firms benefit from this labor and expertise, the overall effect in economic terms has been GDP gains, enhancement of firm profitability and global industrial competitiveness that accrues to U.S. industry from continued operation of the H-1B visa program. The bottom-line lesson is that even at a time of rising U.S. unemployment and economic crisis, H-1B is beneficial in terms of GDP, profitability of firms, and maintaining US employment.
We look at a variety of U.S. Government (USG), Government of India (GOI), and OECD data sets, and find that the effects of Indian nonimmigrant workers in domestic industry have had a political impact that is disproportionate and contradictory to their net positive domestic employment and economic effects. We discuss the implications that has had for U.S. trade and immigration policy, which is to reinforce de facto restrictionist immigration measures aimed at India, in particular, complicating bilateral trade relations and impeding liberalization in Trade in Services (TIS) and the ability of U.S. firms to access and conduct global trade and operate profitably in the U.S. market, more generally. Furthermore, we locate the primary source of the actual recent displacement and downsizing of US workers in the IT sector. We find large U.S.-based Multinational Corporations (MNCs) have historically played the dominant role in determining employment levels in the U.S. and global IT sector and are a major influence in the overall steep decline in employment in the U.S. economy during the period 2007-2010. U.S. Commerce Dept. Bureau of Economic Analysis (BEA) data shows the MNCs employ about one-in-five U.S. workers, overall, and about 30 percent of employment in the IT industry, and were the source of lay-offs of U.S. workers at a rate three times that of the national average during the recession that officially began in December 2007 and ended in June 2009, according to the NBER. BEA report shows that between 2007-2008, MNCs sharply reduced payrolls in the US. Domestic layoffs were greatest by U.S.-held multinationals in the non-financial sector,1 with cuts in US R&D of over 2% while simultaneously employment and investment in foreign affiliate R&D increased by 1.1%, most of that increase in
1 See, Barefoot, K. and Mataloni, R.J., “U.S. Multinational Companies Operations Abroad and in the United States”
2008”, (BEA, August 2010), 205-230, 206, http://www.bea.gov/scb/pdf/2010/08%20August/0810_mncs.pdf
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investment in foreign affiliates occurring in India and the BRIC countries. The benefit to India of picking up business due to losses in US employment is also found to be minimal, and the recession has instead had a major negative impact upon the revenues of Indian IT firms during that period. Finally, Part 1 concludes with a discussion of how the U.S. can leverage its continuing advantages in terms of Trade in Services globally by more rational trade-focused regulation of its immigration programs, and how U.S. and Indian policymakers can deal more effectively with the economic and employment effects of MNCs in both markets. Part 2, that follows, explores more closely the recourse that the Government of India (GOI) and India-based IT consulting industry stakeholders have under WTO trade rules to challenge U.S. immigration and labor restrictions on Indian firms and service workers. In this section, we look at the specific bases under WTO rules and precedent decision that would support a complaint by India of preferential and national treatment made before the WTO Dispute Settlement Body (DSB) showing that U.S. immigration law has become an impermissible barrier to trade in violation of the General Agreement on Trade in Services (GATS). We demonstrate how a strong case can be made that the USG has violated its treaty commitments under GATS Modes 3 and 4 by imposing improper regulatory and other Non-Tariff Barriers (NTB) to the entry and commercial presence of Indian companies and Indian national specialty workers in the U.S. Specifically, we identify grounds for a complaint in administrative measures taken in recent years by the USG to restrict visa issuances in the L-1 and H-1B categories. These have had disproportionate economic impact upon India-based consulting firms, and that this along with discriminatory application of fee surcharges, are properly the subject of a consultation process recently started at the WTO by India. Beyond the familiar controversy over H-1B are restrictive measures and de facto discriminatory rules that the U.S. has imposed to withhold L-1 visas needed by multinational companies to do business in the United States. This is an area of concern shared by all multinationals, U.S.-based and Indian companies, alike, and an area of potential common purpose in a dual-track approach to pursuing equitable solutions before the WTO and in the U.S. courts, along with whatever relief may be possible through a deadlocked U.S. political process.
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Part 2 continues with an analysis of the cross-cutting interests held by MNCs and India-based firms and MNCs with U.S. affiliates. This analysis of stakeholders suggests a common strategy toward addressing and countering restrictive administrative measures. In addition, we conclude that U.S. Trade and Immigration policy-makers seem to lack an awareness of the impact that each have on the other, and as a result U.S. agencies and policies sometimes appear to work at cross-purposes. Both areas of policy need to be considered together and a common analytical framework developed that considers economic effects as well as political and institutional interests at stake. This monograph identifies these Non-Tariff Barriers to Trade in Services (NTB-TIS) in U.S. Immigration regulation and identifies some features of a unified conceptual framework based in a more realistic economic analysis of the benefits and costs of foreign workers. We look at US Immigration law and policy with a view toward better conformity with the WTO DSB rulings and the WTO processes and trade rules, and examine US court cases that are relevant and valuable to WTO trade decisions. Finally, the debate over reform of U.S. business Immigration has long been conceptually paralyzed and politically deadlocked within domestic interest group politics. The paper shows how trade law and economics provides a set of practical policy tools, a quantifiable issues-framework, and organized solutions to trade issues that can be applied to immigration to unlock that deadlock. As a cross-disciplinary policy tool, the NTB-TIS framework identifies the linkages and common steps to be taken in efforts to reform both trade and business immigration as part of a comprehensive program of elimination of NTB barriers and harmonization of U.S. Trade in Services with GATS requirements.
***
Executive Summary (Part 1):
At the second anniversary of the Wall Street meltdown of September 2008, the United
States continued to experience its most prolonged period of high unemployment since
the Great Depression. In Q3 2010, joblessness in many sectors of the U.S.
economy, including IT, was still typically double what it was in 2007.
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In a country that has long had what many view as the least adequate social safety net
among the developed western nations, there is undeniable widespread suffering for the
unemployed, as millions of jobless Americans face foreclosures and decline into
poverty. A record 40.8 million Americans are on food stamps and 45% of the
unemployed having been seeking employment for 27 weeks or more, another record
high. The increasingly bleak prospects have made many desperate, fearful, and angry;
it is not surprising that elected officials in both U.S. political parties are seeking a
convenient scapegoat to deflect a growing public discontent with unemployment
and trade policy.
As is the pattern in western countries -- the targets of convenience are immigrants and
foreign-owned companies. In America, public wrath has overwhelmingly focused
on one country, India, and one alleged cause of displacement of U.S. workers:
Indian H-1B temporary workers in the global IT industry, a valuable and growing
market sector where India is challenging historical U.S. dominance.
The policy chosen by the U.S., to restrict foreign temporary workers, actually
exacerbates and accelerates two much larger economic problems: the country’s
enormous deficits in trade and balance of payments, and the planned exit
strategy of Multi-National Corporations (MNCs) to offshore supply-chains,
increase R&D outside the U.S., and otherwise relocate global headquarters
overseas. U.S.-India trade in services and immigration is also a captive of larger trade
and political issues, such as pressures and incentives to India that date from the Bush
Administration pushing India to reinvest some of its growing dollar-denominated foreign
exchange surpluses into the purchase of big-ticket U.S. goods, particularly nuclear
plants and military arms, as well as efforts to open its growing consumer market to large
U.S.-based retailers, particularly Walmart. There is also major pressure applied by U.S.
agricultural interests and other exporters to get India to relax its protection of domestic
farmers and open its markets for goods and services, which remain among the most
restricted by a myriad of complex regulatory barriers of any major U.S. trade partner.
How these larger issues play out in the years to come will to a large degree determine
whether the U.S. again opens its doors to Indian consulting firms and large numbers of
Indian service providers, as it did in the middle of the past decade under the Bush
Administration.
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At present, however, the balance of payments in services, while enormously important
to India, has little overall impact upon the U.S. economy. India accounts for only a tiny
percentage of the overall U.S. trade deficit, and the U.S. actually maintains a huge
global surplus in Trade in Services, including a sizable surplus in computer
services. The US continues to enjoy a large Trade in Services surplus with most of its
primary global trading partners, along with a global surplus in computer services of
$12.6 billion. The total U.S. private services deficit with India, the most effective
global competitor to the U.S. in the IT-BPO sector, is small and declining, only
$159 million in Q1 2010, according to the latest Commerce Dept. data. That
amount is insignificant compared to the quarterly Trade in Goods deficit with
China, which stands at nearly $60 billion.
If the anger of the American people at trade deficits were proportional to their actual
size, we would be more than twice as enraged at Ireland, which currently enjoys an
overall surplus of $11 billion in its trade with the U.S.; Ireland’s Information sector
also receives a disproportionately large share of U.S. Foreign Direct Investment
(FDI), about $5 billion last year in an information sector that employs only 73,000
people, compared to a U.S. FDI of a mere $191 million in an Indian IT services
industry that employs more than two million.
Trade in Services, including computer services, is a long-term winner for America. The
balance of imports to exports of goods, particularly the quarter-trillion dollar annual
deficit in trade in manufactured goods with China and the $43 billion industrial
deficit with Germany, have the heaviest negative impact upon the U.S. economy
and joblessness, which U.S. policy-makers must address, but have thus far failed
to do so with a coherent, sustained industrial strategy. This paralysis is due to
conflicts of interest and the influence wielded in Washington by MNCs and global
banks that are heavily invested in China and other offshore manufacturing
centers.
Since the start of the recession in Q2 2008, MNCs have laid-off U.S. workers at a
rate two to three times greater than other companies. This also has a deleterious
effect on the U.S. balance of trade. In the technology sector, in particular, strategic
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decisions made by U.S.-based multinational corporations have an overwhelming impact
upon U.S. jobs, and the pattern in recent years has been for every plant closed and job
lost here – and there were about 200,000 net U.S. jobs shed in the Information sector in
20092 -- has been expansion of employment abroad by these same companies, but,
notably, not a full one-for-one substitution of jobs. Overall since the recession started in
late 2007, U.S.-based MNCs, which employ one-in-five U.S. workers, have shed more
than two million jobs here, most of them in manufacturing, and more than 150,000 in the
Information sector, while creating some 1.3 million positions offshore. The net result
has been major downsizing of U.S. employment by these same companies with some
offsetting jobs expansion abroad. The result is a significant cut in global payroll costs
and attendant rise in bottom-line corporate profitability. This would appear to indicate
that these same corporations have taken the opportunity of the general economic
decline to carry out global restructuring and downsizing with the intent of enhancing
profitability and retained earnings, largely at the expense of reduced U.S. workforces.
Nonetheless, the trade data shows India did not appear to benefit directly and immediately in jobs or in revenue gains from the massive U.S. layoffs that followed the Wall Street meltdown. As layoffs accelerated to record levels in U.S. industry during 2008-2009, the balance of Trade in Services with India remained almost even. That contradicts the common misconception that during this crisis, American layoffs have resulted in mass substitution by Indian labor in the U.S. and in India.
The number of Indian nationals working in the U.S. IT industry has steeply declined for several years, about a 50 percent drop in new H-1B approvals since 2007. At the same time, contrary to some claims, growth in revenues for the Indian service sector did not swell during the great waves of global layoffs that occurred in early 2009, but actually declined. While the major MNCs consolidated and restructured to shore up their profitability at the bottom of the recession, employment at Indian firms along with U.S. employment were cut.
The trade in services deficit with India, never very large, has practically disappeared in the first half of 2010, a time that one would expect to see rapid expansion of employment in India if there were an actual practice of immediate
2 See, Bureau of Labor Statistics, Table 3: Private sector gross job gains and losses by industry, seasonally adjusted,
http://www.bls.gov/news.release/cewbd.t03.htm,
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offshoring and job transfers. One will have to look at this data in the future to see the longer-term effects and for evidence of an overall transfer of jobs to India.
Even though the trade and jobs data does not support it, the misperception persists that
the Indian consulting industry took unfair advantage of layoffs in the American economy
to gain market share, a myth that generates resentment and is invoked to justify
legislative and regulatory restrictions on its firms and nonimmigrant workers in the U.S.
2009 new hires by Indian IT firms, about 100,000, were fewer than the number of
U.S. positions hired back during the upsurge in domestic IT re-employment of
mid-2009. Overall, Indian IT picked up less than 3500 net positions in its trade
with the US, about one-tenth of one percent of the U.S. Information sector
workforce.
Instead of predatory or opportunistic behavior by Indian firms, the data instead shows
the largest contributor to historically high levels of prolonged IT joblessness is offshore
outsourcing by large U.S.-based Multinational Corporations. In both cases, a major
factor contributing to corporate decisions to move jobs offshore is the declining
revenues and rising costs in the U.S. market due to regulatory restrictions and
increasing compliance risks and costs attendant to a much harsher USCIS and
USDOL enforcement regime. If jobs attached to global supply chains cannot be kept
here, because immigration rules restrict the movement of essential personnel across
borders, then these corporate functions will be – and are – being moved increasingly
offshore by companies established in the U.S, that maintain a U.S. identity for tax and
other reasons. As far as U.S. workers are concerned, offshoring is essentially a
phenomenon of U.S. companies, not one created by foreign competitors.
Globalized supply chains and corporate operations are a fact of life. If companies
cannot continue to provide goods and services in a competitive, cost-effective way in
the U.S., they will and increasingly do relocate offshore. Increasingly, we are seeing
that even high-order Research & Development (R&D), executive, and professional
support functions are now offshored, and this will continue until policies change
and the US is again perceived as a favorable business environment for global
enterprise. The H-1B program allows U.S. firms to compete with large
multinationals on a more even basis, which is also a good thing for U.S. workers.
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PART I: Indian H-1B Consulting Firms or U.S.-based Multinational
Corporations – Which is the Primary Source of IT Sector Unemployment
in the U.S.?
1.1 The Two U.S. Economies and the Dual International Trade
Systems
During 2009, there were some encouraging signs of an U.S. economic
turnaround. However, full recovery has proven elusive, uncertain and highly uneven.
Despite some income gains since the financial sector meltdown, 2010 total American
household net worth remains, at $54.6 trillion, 20 percent less than its 2007 peak3,
leaving disparities in wealth in the United States at the worst levels since the 1930s.
Increasingly, joblessness and declining incomes are claiming highly-educated
professionals and managers, and jobs creation in upper incomes has slowed
disproportionately, with concurrent net job loss in professional and technical services.4
This crisis placed strains upon the U.S. political system, leading to destabilization and
increasingly extreme policy responses, including discriminatory trade measures and
restrictions on business immigration.
3 See,
http://online.wsj.com/article/SB10001424052748704312104575298652567988246.html?mod=WSJ_business_whatsNews 4 See, National Employment Law Project, “A First Look at Private Industry Job Growth & Wages in 2010”,
http://www.nelp.org/page/-/Justice/2010/WhereTheJobsAreAugust2010.pdf?nocdn=1
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Restrictive measures on business and highly-skilled immigration – particularly,
curtailment of the H-1B program -- until recently the marginalized agenda of some
organized labor groups and fringe activists, are now heard from top Congressional
leaders. On August 11, 2010, NY Senator Charles Schumer delivered a speech in
support of a drastic surcharge in filing fees imposed upon L-1 and H-1B visas. In that
speech, he stated that the purpose was to undercut the competitive advantage enjoyed
by India based “chop shops”, as he termed them, over US MNCs in the same industry.5
The measure passed by unanimous consent, and fees were raised by thousands of
dollars. Whether he realized it or not, that message delivered the clearest possible
evidence that the US was deliberately imposing discriminatory measures that
disadvantage Indian firms in direct violation of the WTO General Agreement on Trade in
Services (GATS). In Part 2, below, we discuss how this and similar restrictive U.S.
immigration measures violate GATS and may lead to WTO sanctions and countervailing
measures.
The widening calls for further restrictions on immigration and the employment of
non-immigrant workers is symptomatic of political stresses that have little to do with
displacement of U.S. workers, but are actually caused by the business operations of
U.S.-based multinational corporations (MNCs), which for decades have been offshoring
an increasing percentage of their operations and high-value added functions, as well as
growing alarm at a staggering half-trillion dollar annual deficit in trade in goods with
major trade partners.
Meanwhile, despite a dramatic drop in demand for imports after the Q3 2008 financial markets blowout, the U.S. continues to suffer worsening international trade deficits6. For the year ending June 2010, imports of goods are almost a 2:1 ratio to exports. This is due to a long-term and growing visible trade deficit in the export of manufactured goods, as corporations have been slow to staff up plants and factories and rehire in the U.S. market.
5 See, Statement of Sen. Charles Schumer, Chairman, Senate Immigration Subcommittee, August 11, 2010, Senator
Charles E. Schumer's speech on border Security bill and ...; related, Ariana Unjung Cha, “Indian Gov’t Calls H-1B Fee Hike ‘Discriminatory’”, Washington Post, (Aug. 11, 2010), http://voices.washingtonpost.com/political-economy/2010/08/indian_government_calls_h1b_vi.html 6 See, http://www.census.gov/indicator/www/ustrade.html
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After a drop-off following the 2008 crash, imports and the combined trade deficit have started to trend upward again. In June, 2010 the combined trade deficit rose to $50 billion, the highest level since the Wall Street meltdown. This was offset to a significant degree, however, by the continuing overall surplus the U.S. has long maintained in Trade in Services.
1.2 How U.S.-Based Multinationals Control the Overall Pace and
Location of Global Hiring in the IT Sector
Long-term Competitive Advantages of MNCs in Tradable Goods Has Not
Translated into Gains in U.S. Employment
It is not surprising that large multinational corporations continue to enjoy
international trade advantages over their smaller rivals and national-based
competitors. That has been the case as long as there have been MNCs, which has
been for more than a century in industries such as mining, petrochemicals,
automobile manufacturing, and other capital, technology and labor-intensive
industries. A study by Nobel Laureate Michael Spence and Sandile Hlatshwayo tracks
trends in employment, value added, and value added per employee in the American
economy from 1990 to 2008 and shows that these trends are closely connected with
complementary trends in the size and structure of firms. Scrutinizing historical time
series data from the Bureau of Labor Statistics (BLS) and the Bureau of Economic
Analysis (BEA), U.S. industries are separated into internationally tradable and
nontradable components. Following the trade and employment data, they find:7
Value added grew across the [U.S.] economy, but almost all of the incremental
employment increase of 27.3 million jobs was on the nontradable side. On the
nontradable side, government and health care are the largest employers and provided
the largest increments (an additional 10.4 million jobs) over the past two decades.
7 Spence, M. and Hlatshwayo, S., “The Evolving Sructure of the American Economy and the Employment
Challenge”, The Brookings Institution, Working Paper, (March 2011), http://www.cfr.org/industrial-policy/evolving-structure-american-economy-employment-challenge/p24366
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This points to structural causes of growing U.S. unemployment in a global economy
increasingly dominated by extremely large multinational firms operating in many
jurisdictions. These large MNCs are able to arbitrage labor costs more effectively than
their competitors, and thus reap the benefits of innovations and process improvements
by being the first to offshore new production processes and an increasing percentage of
firm operations to lower-wage affiliates abroad. This process of offshoring tradable
goods and services production, along with central corporate functions such as R&D,
leaves older economies, such as the U.S. holding onto non-tradable sectors and lower
value-added jobs, which result in a significantly slower growing, less profitable, and less
employment-intensive economy, with particular negative and mounting downward push
upon middle-class jobs and earnings. The result, according to the authors:
The trends in value added per employee are consistent with the adverse movements in the distribution of U.S. income over the past twenty years, particularly the subdued income growth in the middle of the income range. The tradable side of the economy is shifting up the value-added chain with lower and middle components of these chains moving abroad, especially to the rapidly growing emerging markets. The latter themselves are moving rapidly up the value-added chains, and higher- paying jobs may therefore leave the United States, following the migration pattern of lower-paying ones. The evolution of the U.S. economy supports the notion of there being a long-term structural challenge with respect to the quantity and quality of employment opportunities in the United States. A related set of challenges concerns the income distribution; almost all incremental employment has occurred in the nontradable sector, which has experienced much slower growth in value added per employee. Because that number is highly correlated with income, it goes a long way to explain the stagnation of wages across large segments of the workforce.
The Declining Value-Added Per Person (VAP)
Trade economists have looked at value-added and employment data and arrived at
estimates for Value Added per Person (VAP) for various occupations, as well as entire
industries, and the national economies in both tradable and nontradable sectors.
In 1990, value added per person employed (VAP) in the tradable and nontradable sectors was rather similar, the tradable sector at almost $80,000, roughly $10,000 above the nontradable figure (see figure 15). But the value added per person
The State of U.S.-India Trade in Services and the Domestic Sources
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employed on both sides diverged slowly during the 1990s and then rapidly after 2000. VAP in the tradable sector grew at an average of 2.3 percent per annum, and the nontradable sector at 0.7 percent. By 2008, VAP in the tradable sector was just over 50 percent above that for the nontradable sector.
For a long time, recognition of the importance of immigration to trade was
delayed by conceptual peculiarities of traditional neoliberal economic theory, which held
that migration, trade, and FDI were substitutes for each other. It was long held that an
increase in one would likely preclude a decision by firms to invest in another, a sort of
zero-sum game, which escaped serious challenge until recently. More recent literature
has started to focus on the costs to business and trade of regulatory impediments to
immigration and the free movement of cross-border service providers. Aubry, et al.,
summarize the change in view as follows:8
Standard neoclassical trade theory models trade, migration and FDI as substitutes in the sense that factor movements reduce the scope for trade and vice versa. This neglects the potential for migration to favor trade and FDI through a reduction in bilateral transaction costs, as emphasized by recent literature on migration and diaspora networks.
Those investigators identify a number of studies that identify the categories of
factors for which data exists measuring factors that increase costs of trade measured
for 203 countries. They then applied regressional analysis to develop a theoretical
framework for establishing correlations between these factors, from which this table in
particular emerges:
Table A.2: 2001-2006 Average Trade, No Migration
8 See, Aubry, A., Kugler, M. and Rappaport, H., “Migration, FDI, and the Margins of Trade”, Project of the
"Migration, International Capital Flows and Economic Development" program based at the Harvard Center for International Development and funded by the MacArthur Foundation’s Initiative on Global Migration and Human Mobility. http://econ.biu.ac.il/files/economics/seminars/amandine_aubry.pdf
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(1)
Ind(trade)
Probit
(2)
ln(trade)
ols
(3)
ln(trade)
benchmark
(4)
ln(trade)
nls
(5)
ln(trade)
Polynomial
(6)
ln(trade)
bin 50
(7)
ln(trade)
bin 100
(8)
ln(trade)
firm heterogeneity
(9)
ln(trade) firm
selection
ln(distance) -0.0521∗∗∗ -1.663∗∗∗ -1.663∗∗∗ -1.052∗∗∗ -1.176∗∗∗ -1.154∗∗∗ -1.144∗∗∗ -0.955∗∗∗ -1.732∗∗∗
(0.0028) (0.031) (0.031) (0.063) (0.045) (0.050) (0.050) (0.049) (0.031)
Common border -0.0182 0.725∗∗∗ 0.725∗∗∗ 0.859∗∗∗ 0.847∗∗∗ 0.859∗∗∗ 0.844∗∗∗ 0.884∗∗∗ 0.662∗∗∗
(0.0221) (0.132) (0.132) (0.139) (0.129) (0.128) (0.128) (0.131) (0.134)
Currency union 0.0221∗∗ 0.842∗∗∗ 0.842∗∗∗ 0.491∗∗ 0.516∗∗∗ 0.500∗∗ 0.502∗∗ 0.433∗∗ 0.935∗∗∗
(0.0059) (0.202) (0.202) (0.193) (0.195) (0.196) (0.196) (0.195) (0.205)
Free trade agreement 0.0275∗∗∗ 0.897∗∗∗ 0.897∗∗∗ 0.551∗∗∗ 0.695∗∗∗ 0.675∗∗∗ 0.667∗∗∗ 0.495∗∗∗ 0.881∗∗∗
(0.0034) (0.085) (0.085) (0.097) (0.081) (0.082) (0.082) (0.083) (0.086)
Country is landlocked -0.0139∗ -0.647∗∗∗ -0.647∗∗∗ -0.478∗∗∗ -0.475∗∗∗ -0.477∗∗∗ -0.486∗∗∗ -0.454∗∗∗ -0.673∗∗∗
(0.0077) (0.128) (0.128) (0.124) (0.126) (0.127) (0.127) (0.127) (0.128)
Same legal sytem 0.0075∗∗∗ 0.359∗∗∗ 0.359∗∗∗ 0.262∗∗∗ 0.301∗∗∗ 0.296∗∗∗ 0.298∗∗∗ 0.246∗∗∗ 0.359∗∗∗
(0.0024) (0.046) (0.046) (0.046) (0.046) (0.046) (0.046) (0.046) (0.046)
Same official language 0.0237∗∗∗ 0.819∗∗∗ 0.819∗∗∗ 0.431∗∗∗ 0.478∗∗∗ 0.469∗∗∗ 0.463∗∗∗ 0.372∗∗∗ 0.869∗∗∗
(0.025) (0.065) (0.065) (0.074) (0.069) (0.070) (0.070) (0.069) (0.066)
Colonial tie -0.2913∗∗ 0.541∗∗∗ 0.541∗∗∗ 1.744∗∗∗ 1.451∗∗∗ 1.494∗∗∗ 1.515∗∗∗ 1.932∗∗∗ 0.479∗∗∗
(0.199) (0.175) (0.175) (0.245) (0.168) (0.174) (0.173) (0.176) (0.182)
Time (days) to start a business -0.0955∗∗∗ 0.036 δ
(0.0253) (1.058)
1.126∗∗∗
z
(0.100)
3.250∗∗∗
1.330∗∗∗
(0.527) (0.070)
z2 -0.493∗∗∗
(0.159)
z3 0.028∗
(0.016)
η 0.543∗∗∗
(0.125)
1.810∗∗∗
(0.263)
0.749∗∗∗
(0.118)
Observations 19547 15800 15800 15800 15800 15800 15800 15800 15800
R2 68.7 68.7 69.3 69.5 69.6 69.7 69.3 68.8
Standard errors in parentheses.They are clustered by country pair.
∗ p<0.1, ∗∗ p<0.05, ∗∗∗ p<0.01
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These insights and changing view about the importance of immigration to high
value-added positions and global trade to the overall vitality of firms and the economy
has several implications that suggest the H-1B program actually has significant
advantages in terms of overall job creation, regardless of transient changes in
employment levels. This suggests a set of conclusions and policy approaches as
follows:
First, since employment of H-1B workers convey high value-added along
with the advantages of globalized supply chains and networks to their U.S.
clients, these workers and firms represent a degree of net positive to the
U.S. economy and indirect jobs creation.
H-1B and outsourcing convey competitive benefits and value-added for
U.S. firms that are roughly proportionate, if not equal to, the overall
advantage enjoyed by MNCs, which also enjoy advantages of lower
foreign wages and established and closely-held marketing networks and
customer bases in many overseas jurisdictions which are difficult for
smaller and U.S. firms to quickly replicate. We will therefore arbitrarily
assign a downward corrective factor of .20 to our thumbnail estimate
based upon the competitive advantage cited for MNCs.
U.S. immigration policy should operate so as to increase the overall value-
added of U.S. firms, and policymakers should better understand trade
factors and should take value-added and the distinction between tradable
and non-tradable into consideration.
The implication of a trade-based approach is that immigration policy and
programs should permit a freer flow of global talent into positions for firms
that can demonstrate a potential benefit from high value-added in terms of
their competitiveness and potential improvement in carrying capacity for
employment creation, both direct and indirect, from trade.
To some degree, actual H-1B usage by industry closely tracks the rise of
high-value added occupations, and this shows that U.S. companies are
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reacting in a rational manner to increasing need for skills in some
occupations, as shown in the following tables. The following occupations
are shown to be among those found to be most tradable and fastest
growing in the U.S.:
o Computer systems design
o Management, scientific and technical consulting
o Accounting
o Business support services
o Mining
o Other professional services
o R&D
o Adverstising
o Aerospace
Tradable Industry Jobs Gains, 1990–20089
9 Source: Ibid. 18
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H-1B Approvals by Occupation, FY 2008-0910
Table 9A. H-lB Petitions Approved by Detailed Occupation of Beneficiary and Type of Petition (Number): Fiscal Years 2008 and 2009
10
Source: USCIS Characteristics of H-1B Specialty Workers, (FY 2009), Table 9A, http://www.uscis.gov/USCIS/Resources/Reports%20and%20Studies/H-1B/h1b-fy-09-characteristics.pdf
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Occupational Category
All
Beneficiaries
FY 2008 FY 2009
Number Number
Initial
Employment
FY 2008 FY 2009
Number Number
Continuing
Employment
FY 2008 FY 2009
Number Number
Total
Occupation known
Occupations in Systems Analysis and Programming
Occupations in College and University Education
Computer-Related Occupations, N.E.C.*
Accountants, Auditors, and Related Occupations
Electrical/Electronics Engineering Occupations
Physicians and Surgeons
Occupations in Biological Sciences
Mise Professional, Technical, and Managerial
Occupations, N.E.C.*
Miscellaneous Managers and Officials, N.E.C*
Mechanical Engineering Occupations
Occupations in Administrative Specializations, N.E.C*
Occupations in Economics
Occupations in Medicine and Health, N.E.C*
Budget and Management Systems Analysis Occupations
Occupations in Architecture, Engineering, and Surveying,
N.E.C*
Civil Engineering Occupations
Occupations in Secondary School Education
Therapists
Occupations in Preschool, Primary School, and Kindergarten Education
Industrial Engineering Occupations
Other Occupations
Occupation Unknown
276,252
275,654
120,673
20,139
11,826
10,455
9,861
7,819
4,835
4,496
4,374
4,838
4,169
4,392
3,751
4,334
3,967
3,479
3,418
2,124
3,482
2,343
40,879
598
214,271
213,671
75,838
17,326
9,527
9,364
8,097
7,252
4,621
4,370
4,267
4,108
4,072
3,975
3,859
3,691
3,515
2,939
2,821
2,765
2,725
2,308
36,231
600
109,335
109,097
52,984
8,891
3,527
3,259
3,168
2,788
2,005
1,505
1,050
1,667
1,526
1,631
1,634
1,815
1,250
1,204
1,468
1,093
1,170
715
14,747
238
86,300
86,059
24,947
8,017
3,396
4,289
3,543
2,777
2,168
1,908
1,812
1,734
1,972
1,862
2,140
1,814
1,483
1,146
1,084
1,485
927
1,030
16,525
241
166,917
166,557
67,689
11,248
8,299
7,196
6,693
5,031
2,830
2,991
3,324
3,171
2,643
2,761
2,117
2,519
2,717
2,275
1,950
1,031
2,312
1,628
26,132
360
127,971
127,612
50,891
9,309
6,131
5,075
4,554
4,475
2,453
2,462
2,455
2,374
2,100
2,100
2,113
1,719
1,877
2,032
1,793
1,737
1,280
1,798
19,706
359
Reexamining Public Subsidies to U.S.-based MNCs
While unemployment and the U.S. deficit in trade in goods continues to receive
enormous attention, and is the source of great and deserved concern, services
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represent nearly 78% of US economic output, and a similar proportion of private
employment. In terms of global trade, the services side of the U.S. economy continues
to be relatively robust, and the US still dominates bi-lateral Trade in Services with most
of its partners. To some extent, this is due to the vast public subsidies that are pumped
into the U.S. financial system much of which flow to MNCs.
However central and necessary they are to the U.S. economy, and they are the
source of development of many key innovations, MNCs have been a central source of
a multitude of problems, leading to the outflow of capital and high value added jobs
resulting in structural unemployment and disinvestment in low value added sectors in
the U.S. While problematic, large MNCs are among the most heavily subsidized entities
in the U.S., which gives them an even greater competitive advantage over smaller
competitors, preferential treatment that offends both free trade principles and basic
fairness.
Net capital outflows by large global firms now present serious long-term
competitiveness problems for the U.S. Foreign Direct Investment (FDI) by U.S.-based
MNCs has escalated steadily in recent years, climbing from $2.4 Trillion to $3.5 Trillion
during 2005-09.11 Globalized firms are flush with cash, both from global earnings and
from massive infusions of federal bailouts12 and stimulus money along with historically
cheap dollars pumped into the system by the U.S. Federal Reserve and other central
11
See, US Dept. of Commerce, Bureau of Economic Analysis (BEA), Operations of Multinational Companies,
http://www.bea.gov/international/di1usdbal.htm, Industry detail (includes all industries), Position on a historical-
cost basis, total financial flows without current-cost adjustment, and income without current-cost adjustment,
2005-2009| XLS
12 One of the biggest beneficiaries of TARP is AIG, which received $180 billion to cover its losses from distressed
assets and its huge portfolio of derivatives. However, as the AIG Congressional Oversight Panel report found (p
159), http://www.gpo.gov/fdsys/pkg/CPRT-111JPRT56698/html/CPRT-111JPRT56698.htm : “AIG, for example,
used part of its bailout funds to repay debts owed through financial trades to other banking institutions,including
$12.9 billion to Goldman Sachs, $11.9 billion to Societe Generale, $11.8 billion to Deutsche Bank, $8.5 billion to
Barclays, $6.8 billion to Merrill Lynch, and $5.2 billion to Bank of America. These payments led some to question
whether the AIG bailout was in fact an AIG creditor bailout. AIG then paid out $165 million in retention bonuses to
executives at AIG FP, the division that engaged in the MBS transactions that brought AIG to the brink of disaster.”
[citations omitted]
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banks. While the U.S. Congress and Treasury have been generous in bailing-out global
financial and industrial firms, policymakers have been lax in attaching explicit conditions
on how and where these funds are spent. Evidence mounts that global banks and
MNCs, some of which received TARP assistance, continue to offshore profits and
refuse to repatriate them until Congress and the Administration grant tax concessions.
The result has been net disinvestment by global firms and an outward drain of capital,
revenues, and jobs.
The Congressional Research Service estimates U.S. multinational firms avoid
anywhere from $10 billion to $60 billion a year in taxes because of loopholes in the tax
code favoring offshore retention of profits. 83 of the 100 largest publicly traded U.S.
corporations have subsidiaries in locations listed as tax havens or financial privacy
jurisdictions. Because of incentives in the US tax code, MNCs have steadily increased
the amount of undistributed foreign earnings they “park” offshore, that doubling about
every five years since the1990s. 13 The total cumulative amount of undistributed
earnings held by offshore affiliates of US-based MNCs amounts to more than $1 trillion.
This has also led to serious revenue and deficit problems. GE and GM, two of
the largest and oldest U.S.-based multinationals reportedly paid no taxes in 2008, due
in large part to reported losses in domestic sales and because of their operations in
offshore tax havens. 14
An analysis of the flow of funds effects of large global firms receiving TARP funds reports, "in 2008, Goldman Sachs, with 29 subsidiaries located in offshore tax havens, reported profits of over $2 billion and paid federal taxes of $14 million, an effective tax rate of just one percent, and less than one third what they paid their CEO Lloyd Blankfein ($42.9 million)."
The offshoring of revenues exacerbates an ongoing imbalance in the flow of
international investment favoring FDI over reinvestment. The U.S. International Trade
13
See,Blouin, J., “Is U.S. Multinational Intra-Firm Dividend Policy Influenced by Reporting Requirements?”, NYU School of Law Conference, (December 11, 2011), http://www.law.nyu.edu/ecm_dlv4/groups/public/@nyu_law_website__academics__colloquia__tax_policy/documents/documents/ecm_pro_068362.pdf 14
See, Congressional research Service, “Large US Corporations and Federal Contractors with Subsidiaries in Jurisdictions listed as Tax Havens or Financial Privacy Jurisdictions“ (December 2008), http://www.gao.gov/new.items/d09157.pdf
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Commission has shown that MNCs are the primary drivers of FDI, and that for decades
US Direct Investment Abroad (USDIA) has exceeded Foreign Direct Investment in the
United States (FDIUS) by about 25 percent. A USITC study concluded15:
[T]he position (stock) of USDIA has exceeded that of FDIUS in every year since 1982.
Preliminary data for 2005 show the total USDIA position at $2.1 trillion, compared with an
FDIUS position of $1.6 trillion. Both USDIA and FDIUS have grown steadily since 1982,
averaging annually 11 percent for USDIA and 12 percent for FDIUS. For the years 2000-
2005, average annual growth has been 9 percent for USDIA and 5 percent for FDIUS.
According to the U.S. census, U.S. capital investment in foreign countries has risen
dramatically from $1.3 trillion in 2000 to $3.2 trillion in 2008. The vast majority of this
FDI is targeted at manufacturing, invested directly or indirectly in expansion of offshore
factories, much of it flowing through intermediary companies in Europe to affiliates in
high-growth, low-wage countries. Only about a quarter goes to offshore investments in
services. From 2005-09, annual FDI by US firms in foreign manufacturing increased
steadily from $431 to $541 billion. By comparison, U.S. investments in the overall
global Information industry is smaller but faster growing, increasing from $103 to $150
billion, of which the subcategory of investment in Internet, Data Processing and Other
Information Services grew from $9 to $25 billion per year over that period.16 In a
different industrial category for Professional, Scientific and Technical Services, foreign
investment in computer systems design and related services by U.S.-based
multinationals went up during this period from $28 to $42 billion, but fell off again to $34
billion in 2009 following the onset of the global financial crisis.17 This drop-off in foreign
investment in this services sector is an important point as we explain, below.
Indian Information firms have not been the major destination for US FDI in recent
years that it is often imagined to be. Looking at a different BEA data subset that shows
the country of destination, we see that of the $248 billion in “U.S. Direct Investment
15
See, Laura Bloodgood, Inbound and Outbound U.S. Direct Investment With Leading Partner Countries, USITA, (2007) http://www.usitc.gov/publications/332/journals/inbound_outbound_investment.pdf 16See, (BEA), Operations of Multinational Companies, http://www.bea.gov/international/di1usdbal.htm, Industry
detail (includes all industries), Position on a historical-cost basis, total financial flows without current-cost
adjustment, and income without current-cost adjustment, 2005-2009| XLS
17 Ibid., Line 195.
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Abroad: Financial Outflows Without Current-Cost Adjustment18, 2009”, $11.7 billion
went into Information worldwide, of which only $191 million were shown to be invested
in the Indian Information sector19. Strangely, by far the single largest U.S. FDI
destination during 2009 in the Information sector in this data set is the $5.9 billion
invested in Ireland20, which has a miniscule Information sector that employs a mere
73,000 workers21 compared to 3.9 million in the U.S. and 2.2 million in India.
Using the same Commerce Dept. data set for Financial Outflows Without
Current-Cost Adjustment, 2009, the most recent trade data shows that FDI outflows
from the U.S. into the global IT sector are again on the rise. According to that
measure, U.S. worldwide FDI in global manufacturing was $47.7 billion, Europe ($30.6
billion), and the ASEAN countries ($5.4 billion), and China (about $6 billion)22 , which
gives us an idea of the relative scale of annual reported FDI outflows, but may not fully
track the flow of funds to various eventual destinations.
We may also compare that with the combined $16.4 billion (2009) of MNC
reinvested corporate earnings in Information23 and professional, scientific and technical
services worldwide.24 Worldwide investments by multinationals in FDI and their retained
global earnings in Information dwarf the U.S. trade deficit in technology-related services
18
The “current cost adjustment” method adds significantly to the stated value of the investment, as it reflects “book value” of the investment rather than the actual outward capital flow. See, http://www.gt-eins.de/Bilder/CER04/cer04.html 19
BEA, U.S. Direct Investment Abroad: Financial Outflows Without Current-Cost Adjustment, 2009 Lines B5, N5 and N79. 20
Ireland appears instead to have become a destination for MNC overseas profits “parking” as well as an intermediary. See, Frank Barry, “Making Sense of the Data on Ireland’s Inward FDI”, Jour, of Stat. & Socio Soc. Of Ireland, Vol. XXXIV, (17 Nov 2004), http://www.tara.tcd.ie/bitstream/2262/8778/4/JssisiVolXXXIV28_65.pdf 21
Central Statistics Office, Ireland, http://www.cso.ie/statistics/empandunempilo.htm
22 2009 Chinese outbound FDI to the US at an estimated $6.4 billion may have exceeded reported inbound FDI
flows. See, http://www.bilaterals.org/spip.php?article17652; however, US investment in Hong Kong matched that figure dollar for dollar. See, [ftn.8], Lines B77, 78. BEA shows 2009 US FDI in China and Hong Kong Information sectors were $38 and $172 million, respectively. 23
Note: The BEA table, 2009 U.S. Direct Investment Position Abroad on a Historical-Cost Basis: Industry Detail for Selected Countries - MNC Direct Investment Abroad category for “Information” includes a number of media and data subcategories, the annual value of which add up to $150 billion. Worldwide, software publishing accounts for $50 billion and Internet, Data Processing, and other Information Services for another $25 billion. 24
See, BEA, US Direct Investment Abroad, Annual Data, Reinvested Earnings without current cost adjustment, 2009.
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with India, which in Q1 2010 stood at a mere $344 million, and the even smaller FDI
outflow from the US to the Indian information sector of $191 million in all of 2009,
according to BEA data.
Barefoot and Mataloni’s BEA study25 shows that during the period 2007-08,
MNCs reduced their US parent payrolls at a rate more than three times that of other US
employers. The MNCs simultaneously increased their nonfinancial acquisitions and
hirings abroad, particularly in R&D and technical services, while cutting U.S. staff in
these areas by a larger amount. The report finds:
Employment
In 2008, employment by nonbank U.S. MNCs decreased 1.1 percent to 31.2 million workers, reflecting partly offsetting changes for U.S. parents and foreign affiliates. The employment by U.S. parents decreased 2.1 percent to 21.1 million; the largest decreases were in “other industries,” in manufacturing, and in nonbank finance and insurance. The decrease in “other industries” was concentrated in “administration, support, and waste management” (mainly temporary employment services); the decrease in manufacturing was largest in transportation equipment, mainly motor vehicles; and the decrease in nonbank finance and insurance was concentrated in nonbank finance. The 2.1 percent decrease in parent employment, which mainly reflected decreases by companies that were parents in both 2007 and 2008, was greater than the 0.6 percent decrease in employment for all U.S. private nonbank industries. Employment by foreign affiliates increased 1.1 percent to 10.1 million. By area, the
largest increases in level were in Asia and Pacific (mainly China and India). By industry,
the largest increases were in “other industries” (mainly retail trade and “accommodation
and food services”) and “professional, scientific, and technical services.”
Meanwhile, these firms cut R&D expenditures in the US26 and UK27 by 2.2% and 14.1%,
respectively. This reflects the ongoing shift abroad of the most highly skilled technical
operations carried out by MNCs:28
In 2008, expenditures for R&D performed by nonbank U.S. parents decreased 2.2 percent to $199.1 billion. In contrast, R&D performed by all U.S. businesses increased 5.2 percent; as a result, the parent share of total private R&D performed in the United States decreased to 70.3 percent in 2008, from 75.6 percent in 2007.
25
Barefoot and Mataloni, Ibid. 220. 26
Ibid., 212. 27
Ibid., 220. 28
Ibid., 214.
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The authors observe about US affiliate R&D hiring in the BRIC countries including
India:29
R&D expenditures in the BRIC countries continued to grow; the share of affiliate R&D
expenditures in these countries grew to 8.1 percent of total affiliate R&D in 2008 from
4.1 percent in 2004. The 2008 increase was partly due to strong growth in India and
Brazil, both of which experienced double-digit growth in affiliate R&D. Indian affiliates’
R&D expenditures increased 52.4 percent or $0.2 billion. By industry, a large portion of
the Indian R&D expenditures were in computers and electronic products manufacturing
and in professional, scientific, and technical services. The growth in R&D expenditures
by Indian affiliates appears to be driven by the expanded capabilities for R&D and
government support in India, which includes the development of an R&D infrastructure,
research funding, and increased education for human resource development.
The overall U.S. trade deficit last year would have been far worse, had not total
imports dropped by nearly $700 billion, about 25 percent, reflecting similar declines in
U.S. household net worth after the Wall Street crash. In terms of trade, however, this
was offset by a $270 billion decline in total U.S. exports in 2009. 30 In most sectors, the
drop in U.S. imports of goods exceeded the decline in U.S. exports.
The U.S. trade deficit receives a lot of attention, but the deficit in domestic
reinvestment and jobs creation by multinational corporations is rarely publicly
discussed. For decades, the balance of U.S. trade has been marked by mounting
deficits in goods as US-based companies have expanded industrial manufacturing and
assembly facilities abroad, exported goods back to the U.S. market, but not fully
repatriating the taxable earnings that might have resulted from those investments. All
the while, many of these same companies have been realizing a smaller, but consistent,
earnings surplus in global Trade in Services. For 2009, the U.S. trade deficit in goods
was $507 billion whilst the surplus in U.S. net services exports stood at $132 billion,
only a slight drop from the previous record year.
The staggering rise in the deficit in trade in goods accompanies the offshoring of
manufacturing jobs by U.S.-based multinational corporations is more widely understood.
29
Ibid.,220. 30
See, Id.
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The net loss in U.S. employment accompanying the move to offshore manufacturing is
estimated to be more than two million U.S. positions resulting in a shift of about 1.3
million jobs abroad since 2007. Based upon Commerce Dept data and analysis, U.S.-
based multinationals employ one in five U.S. workers, 31 but carried out layoffs in 2008
at a rate more than twice all U.S. businesses.32 Our estimate of U.S. jobs elimination by
MNCs may be conservative, given that as many as 11 million U.S. positions have been
eliminated since the start of the current recession in late 2007.33
1.3 U.S.-India Terms of Trade in Services: Small and Relatively
Stable
Overall, U.S. trade with India is not a major factor in the global U.S. balance of accounts
problems. India is far down the list in terms of the total U.S. deficit of trade, at $5.164
billion for the year to date in 2010, it isn’t even close to making the top-ten list -- by
comparison, Ireland has a trade surplus that is more than twice as large:34
Table 1. Top Ten Countries with which the U.S. has a Trade Deficit
For the month of June 2010
Year To Date Deficit in Deficit in Millions Millions Country Name of U.S. $ of U.S. $ China -26,151.50 -119,451.79 Mexico -6,208.23 -33,120.90
31
See, See, BEA, Summary Estimates for Multinational Companies: Employment, Sales, and Capital Expenditures for 2008, April 16, 2010, http://www.bea.gov/newsreleases/international/mnc/2010/mnc2008.htm 32
See, Ibid. 33
See, http://www.investingcontrarian.com/index.php/financial-news-network/a-7-million-increase-in-us-population-results-in-a-labor-force-decline-why-the-us-has-really-lost-11-2-million-jobs-this-recession-2/. 34
See, http://www.census.gov/foreign-trade/statistics/country/index.html
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Japan -5,246.87 -26,634.69 Federal Republic of Germany -3,056.90 -15,129.75 Canada -2,583.61 -16,880.93 Nigeria -2,343.98 -12,828.27 Ireland -2,298.23 -11,884.83 Russia -1,988.07 -9,280.41 Saudi Arabia -1,920.99 -9,516.04 Venezuela -1,695.84 -11,420.88
Instead, India distinguishes itself in its dynamic and growing Information Technology
(IT) and Business Process Outsourcing (BPO) industries, in which it now ranks second
in the world behind the United States.
Overall, the U.S. continues to enjoy a large global surplus in its terms of trade in
services. For 2008, U.S. global exports of business, professional, and technical
services, including computer services, amounted to $125 billion35, which dwarfed the
combined trade deficit with India, and indeed, exceeds the year-to-date deficit with
every other country.36
The 2009 U.S. deficit in trade in goods with India declined by nearly 40 percent
from its peak level the year before of $8.5 billion. After a lull following the financial crisis
of early 2009, U.S.-India trade rebounded sharply later in the year, and has skyrocketed
in early 2010, almost entirely due to a surge in U.S. imports of Indian-made goods from
$5.6 to $6.6 billion.
Meanwhile, the Q1 2010 U.S. deficit in trade in services with India – one of the
few countries where that U.S. account is in the red – which in 2008 stood at $1.6 billion
-- declined, and now stands at a quarterly figure of $159 million.37 [See, Tables 2-5,
below] [NOTE: This data includes income from imports of foreign affiliates of U.S.-
based MNCs. The BEA definition of exports excludes U.S. parents' payments to foreign
affiliates but includes U.S. affiliates' receipts from foreign parents. That definition of
35
See, BEA, Trade in Goods and Services, 1992-present, Table 1a (Excel) 36
See, http://www.census.gov/foreign-trade/balance/c5330.html#2008, (2008, last year for detailed sectoral breakdown) 37
See, BEA, http://www.bea.gov/international/bp_web/simple.cfm?anon=514770&table_id=10&area_id=37, data for US-India trade in goods and services, Table 12, reproduced at Appendix I.
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imports also includes U.S. parents' payments to foreign affiliates but excludes U.S.
affiliates' receipts from foreign parents.]
The most detailed current BEA data for exports and imports of U.S.-India
services is for Q1 2010, which at Table 12, International Transactions Account Data,
shows the U.S. deficit in services with India was a mere $159 million. More specifically,
U.S. exports to India of “Other private services” (Table 2, line 4, below) were $2 billion,
while U.S. imports of same from India (Table 3, line 7, below) were $2.3 billion. This
indicates a current quarter private-sector Trade in Services deficit in Information and
business services (excluding air travel, transportation, royalties and license fees) of
$345 million.38 That figure includes all private-sector consulting and offshoring
services, including financial, business process, educational, legal, as well as Information
Technology, the deficit in which we estimate at slightly less than half of that total figure,
or about $150 million.
Table 2: US EXPORTS OF GOODS AND SERVICES TO INDIA (Q1 2009-Q1 2010)39
U.S. International Transactions, by Area - India 28
[Millions of dollars, not seasonally adjusted]
Li
ne (Credits +; debits -)
1
2009 2010
I II III IV I p
Current account
1 Exports of goods and services and
income receipts
6
6,862
7
7,736
8
8,472
6
6,684
7
7,913
2 Exports of goods and services 6,073 6,725 7,714 6,001 6,982
38
See, BEA, http://www.bea.gov/international/bp_web/simple.cfm?anon=514770&table_id=10&area_id=37 39
Ibid.
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3 Goods, balance of payments basis2 3,323 4,169 5,010 4,007 4,012
4 Services3 2,750 2,556 2,704 1,995 2,970
5 Transfers under U.S. military
agency sales contracts4 1 4 3 3 5
6 Travel 516 888 741 432 523
7 Passenger fares 224 326 292 146 210
8 Other transportation 73 73 87 75 90
9 Royalties and license fees5 177 334 190 165 139
10 Other private services5 1,746 918 1,377 1,160 1,989
11 U.S. government miscellaneous
services 12 13 14 15 14
Table 3: US IMPORTS OF GOODS AND SERVICES FROM INDIA (Q1 2009-Q1 2010)
[Millions of dollars, not seasonally adjusted]
Lline (Credits +; debits -) 1
2009 2010
I II III IV I p
Current account
18 Imports of goods and services and income payments -8,723 -8,365 -9,012 -9,215 -10,163
19 Imports of goods and services -8,291 -7,969 -8,657 -8,805 -9,711
20 Goods, balance of payments basis2 -5,210 -4,969 -5,564 -5,559 -6,582
21 Services3 -3,081 -3,000 -3,093 -3,247 -3,129
22 Direct defense expenditures -4 -1 -5 -4 -4
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23 Travel -641 -489 -590 -682 -631
24 Passenger fares -72 -33 -39 -60 -72
25 Other transportation -29 -18 -39 -27 -45
26 Royalties and license fees5 -22 -32 -28 -36 -36
27 Other private services5 -2,306 -2,420 -2,385 -2,431 -2,334
28 U.S. government miscellaneous services -8 -7 -7 -7 -7
To recap the overall picture in Trade in Services, the U.S. maintains its large
global surplus in its terms of trade in services, and the far smaller deficit with India
continues to drop. For 2008, (the latest date for which this BEA data is broken down by
industry) U.S. global exports of business, professional, and technical services, including
computer services, amounted to $125 billion40, which dwarfed the current combined 6-
month trade deficit with India ($5.2 billion) and the smaller services deficit ($1.6
billion)(2008),41 and the miniscule (by comparison) current (Q1 2010) deficit in all
services of $159 million. The current quarterly deficit (Q1 2010) for other private
services (including IT consulting)42 is slightly larger ($345 million)(Table 3, line 7 minus
Table 2, line 10, above).
According to BEA data, above, the 2008 U.S. annual imports of Services from
India amounted to about $12.2 billion. That is about one-quarter of the total worldwide
Indian Service Exports reported for 2008 by NASSCOM of $48 billion.43
40
See, BEA, Trade in Goods and Services, 1992-present, Table 1a (Excel) 41
See, http://www.census.gov/foreign-trade/balance/c5330.html#2008, (2008, last year for detailed sectoral breakdown) 42
See, See, BEA, http://www.bea.gov/international/bp_web/simple.cfm?anon=514770&table_id=10&area_id=37 43
See, (FY 2010) IT-BPO projected export earnings $50 billion, NASSCOM, (Feb. 4, 2010),
http://www.thaindian.com/newsportal/business/indian-it-exports-to-touch-50-billion-despite-
meltdown_100314786.html#ixzz0zADy1X6k ; (FY 2009) export earnings $48-50B, NASSCOM, (Jul. 29, 2009),
http://www.thaindian.com/newsportal/business/indias-it-outsourcing-revenues-seen-at-63-bn-this-
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OECD data, Tables 3 and 4, below, show the broader historical pattern of US
Trade in Services with India from 1995-200844:
Table 4: US EXPORTS OF SERVICES TO INDIA (HISTORICAL) Data extracted on 26 Aug 2010 19:05 UTC (GMT) from OECD.Stat
Service TOTAL SERVICES
Expression Exports
Units Millions of US dollars
Year 1995
1996
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Country Partner
United States India
.. .. .. .. 2 085 2 588 3 055 3 294 3 837 4 521 5 237 6 740 9 006 10 632 ..
Table 5: US IMPORTS OF SERVICES FROM INDIA (HISTORICAL)45 Data extracted on 26 Aug 2010 19:15 UTC (GMT) from OECD.Stat
Service TOTAL SERVICES
Expression Exports
fiscal_100224753.html ; (FY 2008) export revenues $40.4B, NASSCOM
http://www.financialexpress.com/news/Software-services-exports-rise-29-in-FY08/333411/
44 See, OECD data, http://stats.oecd.org/Index.aspx?QueryName=266&QueryType=View
45 See, http://stats.oecd.org/Index.aspx?QueryName=266&QueryType=View
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Units Millions of US dollars
Year
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
2009
Country Partner
United States India
.. .. .. .. 1 531 1 911 1 836 1 827 2 000 2 887 5 057 7 739 9 668 12 164 ..
1.4 Growth Trends in the U.S.-India Services Trade
According to the OECD data series, above, India became a net provider of
services to the U.S. market five years ago. Nonetheless, the US deficit in trade in
services with India remains relatively small by both the Commerce Dept. and OECD
figures. Total annual U.S. service imports from India were $12 billion, of which we
estimate about 70 percent ($8.4 bil.) can be classified as “other private services”, split
between software development and outsourcing.
Meanwhile, Indian Gov’t statistics for employment divides the IT-BPO sector into
three components, IT services exports, BPO exports and domestic IT industry46:
Direct employment in Indian IT-BPO sector crossed the 2.2 million mark, an increase of
about 226,000 professionals over FY 2008; indirect job creation is estimated at about 8
million. IT services (incl. engineering services, R&D, Software products) exports, BPO
exports and Domestic IT industry provides direct employment to 947,000, 790,000 and
500,000 professionals respectively.
Contrary to some mythology, the Indian IT industry does not solely concentrate on
outsourcing to the U.S. market, and its growth rate has slowed. Most of it serves the
internal market. The entire U.S. market actually makes up only one-fourth of the export
market47 for Indian IT and Business Process Outsourcing (BPO) services, and the
46
See, http://www.indiainbusiness.nic.in/industry-infrastructure/service-sectors/it.htm 47
See, (FY 2009-2010) – total India IT-BPO exports $49.7 billion, source NASSCOM, http://www.thaindian.com/newsportal/business/indian-it-exports-to-touch-50-billion-despite-meltdown_100314786.html; (FY 2008) exports – $40.4 B, (FY 2007) exports – $31.1B,
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fastest growing component in 2009, at 19 percent, was serving the domestic market.
According to data provided by the Government of India48:
Indian IT-BPO grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in aggregate revenue. Software and services exports (includes exports of IT services, BPO, Engineering Services and R&D and Software products) reached US$ 47 billion, contributing nearly 66 per cent to the overall IT-BPO revenue aggregate. IT-BPO exports (including hardware exports) reached US$ 47.3 billion in FY 2009 as against US$ 40.9 billion in FY 2008, a growth of 16 per cent.
Based on these data sets, Indian exports to the U.S. in the combined IT-BPO sector
amounted to some $12 billion in 2009 of the total $47 billion in global service exports.
About 2.2 million workers are employed in the Indian IT-BPO sector. Employment in the
export sector was about 72 percent of that number, some 1.7 million workers. The U.S.
market accounts for approximately one-quarter of all exports in that sector. That
implies that the exports to the U.S. of the entire Indian outsourcing industry and IT
consulting industry – which includes Business Process Outsourcing (BPO), Financial
Process Outsourcing (FPO), and Legal Process Outsourcing (LPO) and Information
Technology (IT) -- is estimated to have had 2009 U.S. revenues of approximately $8.4
billion, and employed about 434,000 workers. Even with IT services exports, this is only
a small percentage of total Indian services exports in 2008-09 that topped $101 billion.49
To put these figures into further perspective, the professional services portion of US
GDP was $1.7 trillion in 2007, of which ten percent was computer systems design and
related services.50 2007 U.S. total exports of services reached $480 billion, of which
professional services exports topped $90 billion.51 U.S. professional services industries
account for about 25 million F/T positions (2007)52, while the IT industry presently
employs some 3.9 million Americans.
http://www.nasscom.in/upload/5216/IT_Industry_Factsheet-Mar_2009.pdf; http://www.financialexpress.com/news/Software-services-exports-rise-29-in-FY08/333411/ 48
See, Gov’t of India, Ministry of External Affairs, ITP Division, http://www.indiainbusiness.nic.in/industry-infrastructure/service-sectors/it.htm 49
See, US Dept of State, Bureau of South and Central Asian Affairs, Background Note, http://www.state.gov/r/pa/ei/bgn/3454.htm 50
Ibid. Fig. 2.1 51
See, US Int’l Trade Commission, Recent Trends in U.S. Services Trade, (July, 2009), http://www.usitc.gov/publications/332/pub4084.pdf 52
Id., Table 2.1.
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We can derive some generalized conclusions from all this data. What stands out is
that the U.S. market for professional services, at $1.7 trillion, is vast and employs a
huge number of American workers, some 25 million. By comparison, the revenues and
employment of Indian-based firms that serve the IT-BPO export market in the U.S. are
relatively insignificant, at $8.4 billion and 434,000 workers. To break the numbers down
further, separating the subsectors, we see the Indian IT export firms had about a quarter
of their workforce and revenues derived from the U.S. market, and the U.S. IT export
market accounted for less than 250,000 Indian workers. Meanwhile, the much maligned
Business Process Outsourcing (BPO) trade employed fewer than 200,000 Indians.
With a five-to-one wage differential, it becomes clear that the actual magnitude of
potential displacement of U.S. employment is really only a miniscule fraction of the U.S.
workforce, perhaps no more than 50,000 U.S. IT workers and some 40,000 Americans
in other business service occupations. This is a small percentage of the total U.S. IT
sector workforce of 4 million53, less than 1 percent, and Indian outsourcing has
practically no net impact upon the 120 million worker U.S. service sector, as a whole.
Reported US IT sector employment peaked at 4 million in November, 2008, and
declined to 3.81 million in September 200954, when BLS counted 380,000 unemployed,
before regaining about half those jobs in 2010, according to more recent BLS statistics
that shows sectoral unemployment has leveled off at about 300,000 (10.6 percent).
[See Illustration 1, below]
Furthermore, U.S. imports of these services is offset to a large degree by U.S.
exports of similar and related services to India. The net number of U.S. jobs at stake is
actually only about 1,900 to 3,500, as estimated above. Therefore, the net loss to U.S.
employment from Trade in Services exchange with India is not economically significant,
and, overall, U.S. GDP benefits substantially from savings and efficiency gains, in the
opinion of most economists. U.S. Trade in Services with India is really a WIN-WIN.
Thus, when looking at the doubling of officially reported unemployment in the
U.S. Information sector to its present 10.6 percent since the beginning of the recession,
53
Includes NAICS 51, Information (2.7 million), http://www.bls.gov/iag/tgs/iag51.htm#about, and Computer Systems Design and Related Services: NAICS 5415 (1.5 million), http://www.bls.gov/oco/cg/cgs033.htm#emply 54
See, Patrick Thibodeau | Computerworld, (January 22, 2010), http://www.infoworld.com/d/adventures-in-it/it-hiring-in-india-outpaces-us-where-job-growth-stalled-110?source=fssr
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we must look somewhere other than the Indian IT consulting and outsourcing firms as
the primary cause. The largest employers in that sector are the U.S.-based MNCs that
account for at least 25 percent of the U.S. IT workforce. Multinationals are therefore the
obvious place to look to determine the principal causes of U.S. joblessness. The current
political focus on Indian H-1B is a distraction that delays the eventual reckoning with the
unregulated power of MNCs that shift employment, investments, and profits as they,
alone, see fit around the world.
In late 2008, the Wall Street meltdown interrupted the 22 percent year-after-year
growth in Indian exports of services to the U.S. May 2009 Indian exports were reported
to have fallen 29.2 percent from the year previous.55 But, the pace of growth in the
most recent quarters of 2010 appears to have returned. However, the BEA figures at
Tables 2 and 3, above, show an equally large upsurge in U.S. Q1 2010 information
sector exports to India of $1.3 billion, following an unexplained decline in Q4 2009.
While returns in India are generally more volatile, recent growth in both markets appear
to largely track each other, likely driven by the same major market players and common
dynamics.
A 2008 NASSCOM study had projected a 10-fold increase in the global revenues
of Indian service outsourcing companies by 2012. The majority of that optimistic growth
forecast, however, was for expansion of the global market outside the U.S. and growth
of the domestic internal Indian market.56 Actual annual revenue growth of the sector
realized an annualized compound gain of about 21.3 percent, from 2000-2008,
according to official Indian Gov’t statistics.57
The U.S. is also currently experiencing a strong expansion in exports of services,
particularly business, professional, and technical services. Worldwide monthly trade
figures from the U.S. Department of Commerce, Bureau of Economic Analysis (BEA)
are current through June 2010. That data show the U.S. has a present monthly deficit
55
See, http://news.bbc.co.uk/2/hi/business/8128449.stm. 56
See, Agency France Press, “India’s Outsourcing Industry Sets $50 billion Target”, (Jan. 28, 2008), http://afp.google.com/article/ALeqM5iaY6a9JSl2zQvTyO-3CwIz_nw1Cg 57
See, The Hindu, “How Significant is IT in India?”, May 31, 2010,
http://www.thehindu.com/opinion/columns/Chandrasekhar/article442421.ece
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in global trade in goods of $62 billion offset by a surplus in Trade in Services of $12.1
billion.58 The BEA summary for U.S. services exports and imports stated59:
The June 2009 to June 2010 increase in exports of services was $4.2 billion. The largest increases were in other private services ($1.6 billion), travel ($1.0 billion), and royalties and license fees ($0.8 billion). Within other private services, the largest increase was in business, professional, and technical services. The June 2009 to June 2010 increase in imports of services was $3.1 billion. The largestincreases were in other transportation ($1.0 billion) and other private services ($0.9 billion). Within other private services, the largest increase was in business, professional, and technical services.
1.5 Increasing U.S. Deficits in Global Trade in Goods
Other recent data trends show the U.S. deficit in trade in goods with India is
beginning to grow again after a sharp decline in 2009 from $8 billion to $4.7 billion,
which by June 2010 had climbed back to $5.2 billion.60 The U.S. deficit with India in
goods remains far larger than the services deficit, even with a sudden decline in U.S.
services exports to India in Q4 2010. That was followed by a rise of nearly $1.3 billion
during the next quarter by U.S. service firms doing business in India, many of which are
the same U.S.-based multinationals which post charge-backs from value-added exports
to subsidiaries and affiliates in India as earnings.
When we look closely at the trade data in conjunction with U.S. service exports to
India, outsourcing by India-based companies simply does not have nearly as great an
impact on the U.S. economy and employment in the U.S. as some have claimed or
imagined. Even in the IT sector, the growth of Indian outsourcing sector has not been
the primary driver of U.S. job losses. That picture is confirmed by BEA statistics, which
further break down trade data into sectors, showing that even at its peak in 2008,
58
See, BEA, Trade in Goods and Services, 1992-present, Table 1a (Excel) 59
See, BEA, http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm 60
See, http://www.census.gov/foreign-trade/balance/c5330.html#2009
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importation of IT and related services from India lagged far behind a large net surplus in
U.S. global exports of similar services.
By comparison, the 2008 US-China balance of trade in goods was in the red by a
staggering $268 billion61, far and away the largest international trade imbalance in the
world. Nonetheless, the U.S. maintained a $6 billion surplus in Trade in Services with
China62 that year, and continues to enjoy a positive balance of Trade in Services, both
worldwide and with most of its primary trade competitors.
The relative weakness of U.S. manufacturing is highlighted by comparison with
another primary industrial competitor, Germany. Industrial growth there is the fastest
since East and West were reunified in 1990. Output by Germany’s export-driven
factories continues to strengthen — even as the American economy slows and anxieties
linger that a continental debt crisis might hamper recovery elsewhere in Europe and in
the UK.
Europe, and Germany in particular, are capturing the lion’s share of Asian export
orders for durable and capital goods. The NYT reports, “In the first five months of the
year, Germany’s trade surplus, driven in large part by demand for machine tools in
recovering Asian economies, rose 30 percent compared with 2009, to about $75
billion.”63
Led by Germany, manufacturing-driven growth, particularly for capital goods,
across the Eurozone is generally strong. The overall European economy grew by 1
percent in the second quarter, according to Eurostat, the European Union’s statistics
office, the fastest in four years. Industrial new orders in the 16 countries sharing the
euro rose 22.6 percent from June 2009.
Q2 German exports rose 8.2 percent, helped by a 12 percent decline in the euro
against the dollar this year. 64
61
See, http://www.census.gov/foreign-trade/balance/c5700.html 62
See, www.ustr.gov/countries-regions/china 63
See, NYT, “Return of the Killer Deficit”, editorial (Aug. 16, 2010), http://www.nytimes.com/2010/08/16/opinion/16mon1.html 64
See, NYT, “Led by Germany, Manufacturing in Europe is Stronger than Expected, (Aug. 24, 2010), http://www.nytimes.com/2010/08/25/business/global/25euecon.html?_r=1
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The most recent annual report by the US Trade Representative captures the
ongoing pattern of poor U.S. performance in exports of goods to the EU area, its
second-largest trade partner, along with ongoing U.S. strength in its positive balance of
American service exports65:
Key EU Trade and Investment Data and Trends
U.S. exports to the EU accounted for 21 percent of overall U.S. exports in 2008. U.S. imports from the EU accounted for 18 percent of overall U.S. imports in 2007. The U.S. purchased 19 percent of all EU exports and supplied 12 percent of all EU imports in 2008.
Trade in goods. The U.S. goods trade deficit with the EU was $93.4 billion in 2008, a decrease of $13.8 billion from $107.2 billion in 2007. U.S. goods exports in 2008 were $274.5 billion, up 11.0 percent from the previous year, and up 149 percent from 1994 (the year prior to the conclusion of the Uruguay Round). Corresponding U.S. imports from the EU were $367.9 billion, up 3.8 percent from 2007, and up 202 percent over the last 14 years.
65
See, http://www.ustr.gov/countries-regions/europe-middle-east/europe/european-union
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Trade in services. The United States had a commercial services trade surplus of $46.1 billion with the EU in 2007 (latest data available).
U.S. exports of commercial services (i.e., excluding military and government) to the EU were $179.2 billion in 2007 (latest data available), up 19.7 percent ($29.5 billion) from 2006, and up 221 percent ($123.4 billion) since 1994. Other private services (business, professional, technical, and financial), royalties and license fees, and travel categories accounted for most U.S. services exports to the EU in 2007.
Sales of services in the EU by majority U.S-owned affiliates were $402.5 billion in 2006 (latest data available), while sales of services in the United States by majority EU-owned firms were $336.0 billion. Intrafirm trading - trade that takes place within the same company - accounts for approximately one-third of total U.S. trade with the EU.
1.6 Tier One – The Multinationals at the Top of the Global Food
Chain
In technology-intensive industries, such as IT and software engineering, R&D expenditures by multinationals in the U.S. are an important snapshot and predictor of the health and vitality of the U.S. economy relative to the rest of the world.
Facing uncertainties in the U.S. market, with its mounting regulatory barriers and operating risks, many global firms have taken the opportunity of the financial crisis to accelerate plans to cutback U.S. business operations, while at the same time expanding highly-skilled scientific and technical employment offshore at a slightly lesser rate. These same multinationals also account for a disproportionate decline in U.S. employment, affecting higher-paid occupations as well as the less-skilled. Overall,
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MNCs have laid-off U.S. workers at a rate twice that of other companies. This also has a deleterious effect on the U.S. balance of trade. These outcomes, as shown in recent BEA data, show in recent years that increasing foreign investment by U.S.-based MNCs displaces domestic employment, capital investment, and tax revenue, reversing a pattern of “complementary” development observed from 1982-2004 by some economists.66
Bureau of Economic Analysis (BEA) figures for U.S. employment by multinationals for 2008, the most recent available, show that as these firms cut-back operations in the U.S. that year they shifted many of those jobs offshore: 67
Worldwide employment by U.S. multinational companies (MNCs) decreased 0.4 percent in 2008, to 33.4 million workers, resulting from mostly offsetting changes in the United States and abroad. Employment in the United States by U.S. parent companies decreased 1.3 percent, to 22.9 million workers. On a comparable basis, total private-industry employment in the United States decreased 0.7 percent in 2008. The employment by U.S. parents accounted for almost one-fifth of total U.S. employment in private industries. Abroad, employment by the majority-owned foreign affiliates of U.S. MNCs increased 1.7 percent, to 10.5 million workers.
The bottom line behind these figures is that U.S.-based multinationals reduced their total US workforce in 2008 by some 300,000, meanwhile their foreign affiliates created about 180,000 positions. While official figures are not yet available specifically for the MNCs, it’s apparent that the pace of U.S. layoffs doubled in the Information sector in 200968, before leveling off and dropping in late 2009. Unemployment in the sector remains at an elevated level of 10.5 percent during most of the first half of 2010. The BLS reports that the total 2009 loss of jobs in the Information sector was 294,000. Reduction in employment in the U.S. by US-based MNCs, as BEA indicates above, was twice the average for all U.S. companies. BLS counted total unemployment in the Information sector is graphed below69:
66
See, e.g., C. Fritz Foley with Mihir A. Desai and James R. Hines Jr. "Domestic Effects of the Foreign Activities of U.S. Multinationals." American Economic Journal: Economic Policy, 1 no. 1 (February 2009): 181-203. 67
See, BEA, Summary Estimates for Multinational Companies:Employment, Sales, and Capital Expenditures for 2008, April 16, 2010, http://www.bea.gov/newsreleases/international/mnc/2010/mnc2008.htm 68
The estimate is based upon the doubling of mass layoff separations reported by BLS in the computer industry in 2009 compared to the previous year. See, BLS, Mass Layoff Statistics, Computer and Electronics Products, Series Id: MLUQS00NN0024004 (1), http://data.bls.gov/cgi-bin/surveymost 69
See, Ibid. Series Id: LNU03032237, http://data.bls.gov/PDQ/servlet/SurveyOutputServlet
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Illust. 1: U.S. Information Sector Unemployment, 01/00 – 07/10
We see from the BLS chart, above, the current U.S. Information sector unemployment rate of 10.6 percent is the same as in April 2009, but joblessness massively increased in Q2-Q3 ’09, before dropping off somewhat later in the year before reaching a sustained elevated level in Q1 2010. Meanwhile, the number of U.S. jobless counted in the Information industry rate has dropped somewhat from a peak of 373,000 to 344,000, 11.5 percent to 10.6 percent over the last year. 70
Assuming that the US-based MNCs employ at least 20 percent of the U.S. IT workforce, and the rate of US layoffs by MNCs was twice the private industry norm, we estimate that U.S.-based multinationals accounted for at least 30 percent of the reported 300,000 RIFs in the U.S. Information sector, or, some 100,000 IT positions in 2009. That is atop the 100,000 IT positions in the U.S. the MNCs shed in 2008. Because MNCs are heavily invested in IT, a more accurate figure for their share of 2009 industry layoffs is probably closer to 150,000. Between seven and 11 million total US private sector jobs have been eliminated since late 2007. Using the same calculations, we estimate that total layoffs in the U.S. by these same U.S.-based multinationals have amounted to between two and three million American positions, these companies offshoring at least 1.3 million, or about 60 percent of them.
This is a major problem for execution of the Obama Administration’s plans to increase exports, rebalance trade deficits and the balance of payments, and bring down
70
See, BLS, Table A-14, Unemployed Persons by Industry, ( Aug, 6, 2010), http://www.bls.gov/news.release/empsit.nr0.htm
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domestic unemployment. The long-term trend by MNCs has been to move much of the supply chain and labor-intensive manufacturing operations offshore, retaining headquarters and higher-level R&D and professional service providers, such as primary legal and financial, inside the U.S. Historically, this has had the effect of raising median domestic wages and skill levels within MNCs above domestic firms, as well as productivity and profit gains. However, if US financial, economic, and political systems continue to destabilize, as they have demonstrated in the last couple years, MNCs have the ability to quickly transfer or expand many of these operations offshore, outside the jurisdiction of U.S. agencies. They remain in the U.S. primarily for easy access to the large U.S. market and what have been historically a relatively hospitable financial, tax and low-risk regulatory and currency risk environment and its predictable, accessible legal and political systems. The recent expansion and strong growth of German and European firms, however, despite their generally higher tax and stricter regulatory regimes, shows that the U.S.-based multinationals, and top level talent, now have attractive, higher-growth alternatives to U.S. locations.
If the U.S. were to lose a sizable number of its MNCs and global talent that would be a devastating blow to the country’s employment, technological, and revenue bases. Large U.S. multinationals have historically been the most dynamic segment of the U.S. economy. According to McKinsey, MNCs accounted for 19 percent of the private sector workforce, and 23 percent of U.S. private sector GDP (or value added) in 2007. The share of exports by US-based MNCs was nearly half of its exports and a third of its imports, resulting in a more favorable trade balance than other U.S. companies. Furthermore, they have made a disproportionate contribution to productivity gains and the overall dynamic growth of the economy and realized gains to shareholders. Multinationals accounted for 31 percent of the growth in real GDP and 41 percent of U.S. gains in labor productivity during the period 1990 to 2008.71
The recent balance of payments implications of Foreign-owned MNCs are not as favorable. The decline in FDI has been dramatic and alarming. Based upon BEA figures, Scott72 found during the period 2001-2005:
The imports and trade deficits of foreign MNC subsidiaries grew more rapidly than their domestic sales (not shown) in this period. Total sales of [foreign MNC] subsidiaries increased 7.2% per year, on average. Their imports increased 8.0%
71
See, http://www.mckinsey.com/mgi/publications/role_of_us_multinational_companies/pdfs/MGI_US_MNCs.pdf 72
Robert E. Scott, Economic Policy Institute, The Hidden Costs of Insourcing: Higher Trade Deficits and Job Losses for U.S. Workers, (August 23, 2007), http://www.epi.org/publications/entry/ib236/
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per year, and the trade deficit associated with these firms grew 11.8% per year. Foreign direct investment in the United States fell from a peak of $321 billion in 2000, to an average of $118 billion per year between 2001 and 2005, and to $109 billion in 2005 (Bureau of Economic Analysis 2007a)73. The growth of sales of foreign-owned subsidiaries fell to 4.9% per year, but their imports continued to grow 8.0% per year.
Overall, multinationals’ share of GDP remained relatively constant from the early 1990s until the 2008 meltdown. They accounted for approximately $3.5 trillion in goods and services in 2006, about 26 percent of GDP, according to the BEA.74 In the same period, however, the share of US employment by multinationals dramatically declined. In 2008, the latest year for which figures are available from the Bureau of Economic Analysis, employment in the United States by U.S. parent companies declined 1.3 percent, to 22.9 million workers. On a comparable basis, total private-industry employment in the United States decreased 0.7 percent in 2008. The employment by U.S. parents accounted for almost one-fifth of total U.S. employment in private industries, while its rate of layoffs was twice the national average. Abroad, employment by the majority-owned foreign affiliates of U.S. MNCs increased 1.7 percent, to 10.5 million workers.75 Altogether, MNCs moved nearly three percent of their global workforce away from the U.S. in 2008.
MNCs Offshoring R&D and Other High-Level Functions
In addition, multinationals have a dominant role in Research & Development (R&D), an area that is critical to the U.S. lead in high-end technology, such as aerospace, biomedical engineering, complex software design, and nanotechnologies. Services and nonmanufacturing industries tended to concentrate their R&D functions in the U.S., which in part accounts for this country’s continuing Trade-In-Services surplus. Without sustained high-end technology development in the U.S. by large multinationals, the U.S. balance-of-payments and unemployment rates would be far worse than they are. That advantage is eroding - the percentage of R&D performed abroad by foreign affiliates of U.S.-based MNCs rose from less than 10 percent in 1994 to more than 25 percent in 2008. The foreign affiliate R&D workforce of US MNCs in 1994 was barely 102,000, but by 2008 that had grown to more than 448,000.
73
See, U.S. Bureau of Economic Analysis. 2007a. Balance of Payments (International Transactions). http://www.bea.gov/international/index.htm#bop 74
See, http://www.cfr.org/publication/21777/us_multinationals_and_tax_reform.html 75
See Bureau of Economic Analysis (BEA), Summary Estimates for Multinational Corporations (2008) , April 18, 2010, http://www.bea.gov/newsreleases/international/mnc/2010/mnc2008.htm
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R&D employment is disproportionately clustered in certain industries. While R&D accounts for only 7 percent of the workforce in all industries, according to the National Science Foundation (NSF) which tracks these things, more than one-in four workers in technology industries are in R&D occupations (figure 1). Topping the list:
Scientific R&D services - (31%),
Communications Equipment (27%),
Computer systems design and related services (25%)
NSF survey further reveals76 (Figure 1 Source Data: Excel file):
These three industries plus semiconductor and other electronic components, software publishers, and pharmaceuticals and medicines accounted for about half of worldwide company-performed R&D expenditures in 2008 (table 1).
The most recent report on R&D from the NSF77 further shows that most high-order Research & Development is still performed in the U.S. About 1.5 million (77%) of companies' 2 million worldwide R&D employees worked in the United States, and 448,000 (23%) worked at foreign locations of U.S. companies in 2008 (table 1). As a group, manufacturing industries reported that 74% of their worldwide R&D employment was domestic, compared with 80% for nonmanufacturing industries.
Only three industries, all in manufacturing, reported domestic R&D employment as a percentage of worldwide R&D employment below 70%: communications equipment, semiconductor and other electronic components, and motor vehicles. This last industry had the lowest domestic R&D employment share at just over 55% in 2008.
Older NSF data shows that the globalization of R&D is a long-term process, as is the upward shift toward employment in high-end occupational categories for multinationals, a trend that goes back to the 1990s. The NSF report for 2002 notes78:
76 See, Francisco Moris and Nirmala Kannankutty, R&D Daily, NSF releases employment statistics from 2008 R&D
survey, July 9, 2010, http://www.rdmag.com/News/2010/07/Policy-And-Industry-Research-NSF-Releases-
Employment-Statistics-From-2008-RD-Survey/
77 See, http://www.rdmag.com/News/2010/07/Policy-And-Industry-Research-NSF-Releases-Employment-
Statistics-From-2008-RD-Survey/ 78
See, http://www.nsf.gov/statistics/infbrief/nsf05302/
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The combined data reveal that since 1994, industrial R&D employment has grown at a faster rate than overall industrial employment in the United States. R&D employment among U.S. multinational corporations (MNCs) is concentrated domestically, but between 1994 and 1999, overseas affiliates of MNCs increased their R&D workforce at a faster rate than did their U.S. parent companies. Overseas R&D employment of U.S. MNCs was concentrated in Europe, but growth was notable in some emerging markets.
U.S. employment in R&D rose about 30 percent between 1994 and 2001 from 757,000 to 1.1 million, while overall U.S. employment in all industry rose at a much slower relative rate from 93.3 To 109.0 million. Wages in R&D occupations also grew at a much higher rate, rising at 7 percent per year (with inflation) during that period, compared to 2.7 percent for general industrial employment. [Ibid.] Domestic and offshore location figures for per employee R&D expenditures in 2008 were estimated to be about $194,000 and $140,000, respectively.
While the 1990s also saw heavy investment in R&D by US-owned MNCs worldwide, that translated into relatively modest jobs growth in U.S. employment by US-owned MNCs in the R&D sector. Most of the jobs growth, both in R&D and overall, during that period for foreign-owned MNCs was in affiliates abroad. Overall growth of worldwide employment by US-owned companies was much greater, almost 5 percent per year:
Between 1994 and 1999 worldwide R&D employment in U.S. MNCs grew at an average annual rate of 1.2 percent, well below average annual growth in both their overall employment (4.9 percent) and their R&D expenditures (6.9 percent). Within U.S. MNCs, however, R&D employment growth differed between parent companies and their foreign affiliates over this 5-year period. Overseas R&D employment grew at an average annual rate of 3.9 percent, compared with just 0.7 percent domestically, an indication of the increasing globalization of innovation and knowledge-based competition.
During the same period, overall worldwide workforce of US-owned foreign affiliates of MNCs grew from 5.7 to 7.8 million, while R&D employment rose at approximately the same rate, from 102 to 123.5 thousand.
Foreign-owned MNCs also account for a sizable number of U.S. R&D jobs and a substantial percentage of R&D outlays. Average salaries for managerial and skilled employees for these companies in the U.S. was recently reported to be $102,000, significantly higher than the median wage for these same occupations.
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According to BEA data, U.S. affiliates of foreign companies employed 141,700 R&D workers in the United States in 2001 (table 3), compared to 1.05 million FTE R&D workers employed by all R&D-performing companies located in the United States.[4] R&D expenditures in U.S. affiliates of foreign companies represented 15 percent of U.S. industrial R&D expenditures in 2001.
1.7 Portrait of the Disappearing Indian H-1B Worker, and the
Negligible Impact of Foreign Workers on the U.S. Labor Market
Currently available USCIS data show for the third year in a row a steep decline in utilization of the H-1B visa program. H-1B issuances to all nationalities peaked in FY2007 with 281,444 petitions (both new and renewals) approved. That number has since dropped off to 214,271 in FY 2009.79 The same source reports that between FY 2008-2009 the number of total petitions approved for nationals of India declined by one-third, from 149,623 to 103,059. Of this number in FY 2009, only 33,961 were initial approvals, half those issued the previous year.80
USCIS does not provide spot estimates for the number of nonimmigrant visa holders present inside the U.S. in this category at any given time, so we must estimate that number based upon annual visa issuances to determine the scale of overall Indian penetration of the U.S. labor market for professional services in the IT field.
Table 3 of the current USCIS annual Report on H-1B Characteristics for FY 2009 gives the following breakdown for total worldwide FY07-09 approvals, while Table 4A partially breaks that down by nationality of the beneficiary worker:
79
See, See, USCIS Report on H-1B Characteristics (2009), p.5, Table 3, http://www.uscis.gov/USCIS/New%20Structure/2nd%20Level%20%28Left%20Nav%20Parents%29/Resources%20-%202nd%20Level/h1b_fy08_characteristics_report_01may09.pdf 80
Ibid., p. 6, Table 4A.
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The number of new H-1B visas issued continues to decline from a peak in FY2007, when initial petition approvals crested at 120,03181, including cap-exempt users such as university and research institute employees.
Initial H-1B petitions approved further fell off to 86,300 (FY09) from 109,335(FY08).82 USCIS does not provide spot estimates for the number of nonimmigrant visa holders in each category. Based upon these figures, and the number of H-1B admissions for Indian nationals, which have also declined in recent years, we estimate the total number of Indian H-1B holders in the United States to be approximately 200-250,000. That assumes a 50% attrition rate among H-1B employees holding visas issued with a maximum initial validity period of three years, with renewals normally possible for a maximum five-year period of validity for that visa category, and annual extensions thereafter for the smaller number of those who are eligible for Immigrant visas. It is likely that the overall number of Indian H-1Bs in the U.S. may actually be somewhat lower as the rate of premature departures accelerated with the industry-wide slowdown in 2008.
USCIS also provides information about the occupations of H-1B workers. About 50 percent of H-1B employees work in Computer-related occupations, such as systems analysts, engineers, and administrators. The top 5 H-1B occupations are as follows:
81
Id., p. 5, Table 3. 82
Id. p.4, Table 1.
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We can draw another important conclusion from this data and the way that H-1B workers operate within the framework of US-India Trade in Services. The Indian H-1B economic impact on the United States labor market is negligible considered in terms of sheer numbers, and its impact on the nation’s economic well-being is a strong net-positive considered in terms of measures of value-added to U.S. companies and their technological base and human capital relative to foreign competitors.
If we just look at numbers, the impact of the H-1B program is not major by the scale of the U.S. technology sector, which numbers 4 million workers. We know that approximately half of all H-1B workers are Indian nationals. The overwhelming majority of Indian H-1B workers (80 percent) work in the Computer-related occupational category. We also know from other sources that about half of all H-1B petitions approved are approved for companies with global headquarters located in India. In 2009, six of the top 10 H-1B firms were India-based, along with nine of the top 20.83
83
See, Patrick Thibodeau, Computerworld, “List of H-1B Visa Employers for 2009, http://www.computerworld.com/s/article/9142152/List_of_H_1B_visa_employers_for_2009.
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We conclude from the above that of some 200,000 Indian H-1B workers currently working in Computer-related occupations the U.S., about half are actually employed by firms with headquarters in India. This has some important implications for H-1B in U.S.-India trade and how any U.S. deficit in services is calculated.
First, if all these Indian nationals were employed by Indian companies, the total value-added by their labor would be credited to the India side of the trade in services ledger. Conversely, if all Indian H-1Bs were employed by U.S.-based companies, all their value-added services would go to the U.S. However, since the split is about 50-50, the presence of Indian H-1Bs in the US has no appreciable effect on the US-India balance of trade in services.
Second, if we look at the impact of Indian H-1Bs just on the basis of numbers, even if one believes their presence within the US workforce to be a one-for-one substitution for U.S. workers, their impact is negligible. Since the U.S. IT sector workforce numbers about 4 million, the Indian H-1B workforce employed by US companies amounts to only 2.5 percent of the total. Even when we add the 50,000 equivalent F/T U.S. positions located in India dedicated to U.S. trade projects in the tech sector (see Sec. 1.3, above), that still amounts to less than four percent of the number of US IT workers. Finally, even if we consider all the Indian national H-1B workers employed in IT by India-based employers to have displaced U.S. workers (which is the least plausible of these three assumptions), the total number comes to 6.5 percent of the American IT workforce. Even under the most radical supposition of one-for-one labor substitution, this simply does not add up to a big enough percentage of the total workforce to have substantial direct impact on U.S. worker employment levels, wages, or working conditions. Furthermore, the other negative suppositions about H-1B workers eroding wages and labor standards are objectively without support. The data shows that H-1B workers are indeed well-qualified and relatively well-paid, and increasingly so over time. [See, Sec. 1.10, below] Nonetheless, the mythology persists that H-1B have flooded the US workforce with “cheap labor”, are unfairly competing for U.S. jobs, and are the source of industry malaise and layoffs in the American tech sector. Those assumptions are shown to be simply false.
1.8 Direct and Indirect Benefits to the U.S. from Value-Added by
Indian H-1B Workers
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Value added. The portion of the goods and services sold or added to inventory or fixed
investment by a firm that or added to inventory or fixed investment by a firm that firm’s
contribution to gross domestic product in its country of residence, which is the value
of goods and services produced by labor and property located in that country.
Compared with sales, value added is a preferable measure of production because it
indicates the extent rather than from production that originates elsewhere.
Sales data do not distinguish between these two sources of production. Value added
can be measured as gross output minus intermediate inputs; alternatively, it can be
measured as the sum of the costs incurred (except for intermediate inputs) and the
profits earned in production. The value-added statistics presented in this article were
prepared by summing the cost and profits data collected in the annual and benchmark
surveys of U.S. direct investment abroad.84
In their recent BEA study of Multinational Corporations, Barefoot and Mataloni
find that large MNCs that operate in multiple countries significantly outperformed
smaller multinational and domestic firms in value-added per employee. They also
observe that during the same period 1990, the “value added of U.S. parents decreased
6.5 percent, and value added of their foreign affiliates increased 9.1 per cent”
1.9 FY 2009 H-1B Report Shows Continuing Trends
In 1998, Congress mandated that INS publish an “Annual Report on Characteristics of Specialty Occupation Workers”. Since then, there is now a full decade of reports on H-1B workers. We find the data tends to disprove claims that have been made that H-1B degrades American jobs and wages, as some critics have alleged.
USCIS has just released the 2010 version, Characteristics of H-1B Specialty Occupation Workers: USCIS Report, FY 2009, and that shows a continuation of a rapid
84
Barefoot and Mataloni, Ibid. at 207.
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fall-off in demand for H-1B visas that started in FY 2007.85 Some of this decline is no doubt a response to a worsening domestic economy. However, the decline in H-1B utilization began well before the general financial collapse of Q3 2008.
The drop in demand for H-1B visas can instead be attributed to a dramatic increase in costs and risks to business immigration users due to increasingly severe USCIS enforcement and compliance pressures. The drop in demand is part of an across-the-board decline in business demand for immigration services86, particularly impacting IT consulting companies that place workers at third-party client work sites.
As issuances of new H-1B visas has fallen off more than 40 percent between FY2007 and FY2009, the pace of corporate outsourcing and off-shoring by U.S. companies has continued to accelerate. This casts one of the key assumptions of the H-1B critics – that the program is directly connected with layoffs of U.S. workers -- into doubt.
Critics have made two major complaints about the H-1B program. First, they allege
that foreign workers holding H-1B visas are low-wage substitutes for US workers, not
the best and brightest of the global talent pool. A further allegation is that H-1B distorts
US labor markets in the sense that they “crowd out” US workers who may be deterred
from embarking on scientific and educational careers because so many H-1B workers in
advanced fields are sponsored as post-graduates by the universities they attend.
A review of data gathered over a decade in the Reports shows that median wages
for H-1B workers have risen overall by more than forty percent to $64,000, while the
percentage of H-1B visa holders with advanced degrees has steadily grown from 41 to
59 percent. The numbers of H-1B employed by cap-exempt universities, colleges, and
professional schools is actually not as great as some believe, less than 23,000 in 2009,
85 Also, see, FY2008 Report,
http://www.uscis.gov/USCIS/New%20Structure/2nd%20Level%20(Left%20Nav%20Parents)/Resources%20-%202nd%20Level/h1b_fy08_characteristics_report_01may09.pdf.
86 See, (2009 Nonimmigrant Flow Report, DHS Office of Immigration Statistics (April, 2010), Table 4)
http://www.ilw.com/immigrationdaily/news/2010,0430-nonimmigrant.pdf
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a decrease of about 2,100 from the year previous87, a number that stood at 27,683 in
FY200588. By comparison, there were 280,000 foreign graduate students enrolled in
U.S. schools in the Fall of 200789, which accounted for about ten percent of U.S.
graduate school enrollment. A total of 780,000 advanced degrees were granted by US
institutions in 2007.90 Foreign student enrollments at many U.S. universities still have
not recovered from the intensive security checks and long delays in student visa
processing that drove away many earlier in the decade, but overall enrollments have
been climbing back.
Second, criticism of the H-1B program has also focused upon so-called bodyshops,
employment agencies which bring H-1B workers into the US intending to farm them out,
has led to allegations about widespread underpayment of H-1B workers and unpaid
layoffs, known as “benching.” Despite massive expenditures by DHS upon new
compliance technologies and investigations programs, there have been few successful
criminal prosecutions of H-1B employers. USCIS and ICE have failed to reveal the sort
of systematic industry-wide fraud that justified creation of a new data-mining program,
the Fraud Detection & National Security – Data System (FDNS-DS) initiated in 2006,
and the worksite audits commenced last year. That USCIS investigative program is
perceived as highly-intrusive and as a deterrent to employment of H-1Bs by U.S.
companies and their clients.
The 2010 USCIS H-1B Report also highlights changes that have occurred since the last annual report.
H-1B Highlights (FY 2009)
The number of H-1B petitions filed decreased 15 percent from 288,764 in Fiscal Year
2008 to 246,647 in Fiscal Year 2009.
87
See, FY2009 Report, p. 19, Table 13A, Ibid. 88
See, FY2005 Report, p. 20, Table 13A, http://www.uscis.gov/USCIS/Resources/Reports%20and%20Studies/H-1B/h1b_fy05_characteristics.pdf 89
See, Findings from the International Graduate Admissions Survey, Phase II, Council of Graduate Schools, (August 2009) http://www.cgsnet.org/portals/0/pdf/R_IntlAdm09_II.pdf 90
See, US Dept of Education, 2009 Digest of Education Statistics, Table 187, http://nces.ed.gov/programs/digest/d09/tables/dt09_187.asp
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The number of H-1B petitions approved decreased 22 percent from 276,252 in Fiscal
Year 2008 to 214,271 in Fiscal Year 2009.
Approximately 48 percent of all H-1B petitions approved in Fiscal Year 2009 were for
workers born in India.
Two-thirds of H-1B petitions approved in Fiscal Year 2009 were for workers between the
ages of 25 and 34.
Forty-one percent of H-1B petitions approved in Fiscal Year 2009 were for workers with
a bachelor’s degree, 40 percent had a master’s degree, 13 percent had a doctorate, and
6 percent were for workers with a professional degree.
About 41 percent of H-1B petitions approved in Fiscal Year 2009 were for workers in
computer-related occupations.
The median salary of beneficiaries of approved petitions increased to $64,000 in Fiscal
year 2009, $4,000 more than in Fiscal Year 2008.
Characteristics of H-1 Workers (FY 2000-2009)91
Some Things Haven’t Changed Much:
H-1B Country of Origin (top 3 countries):
91 USCIS, Characteristics of Specialty Occupation Workers (H-1B)
http://www.uscis.gov/USCIS/New%20Structure/2nd%20Level%20%28Left%20Nav%20Parents%29/Reso
urces%20-%202nd%20Level/h1b_fy08_characteristics_report_01may09.pdf (FY2009);Characteristics of
Specialty Occupation Workers (H-1B): Fiscal Year. (FY2008); Characteristics of Specialty Occupation
Workers (H-1B) .. (FY2005); Characteristics of Specialty Occupation Workers (H-1B):
(FY2003);http://www.uscis.gov/files/article/report1.pdf (FY 2000)
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FY2009
India- 48.1, China – 9.7, Canada – 4.5
FY2008
India – 54.2, China – 8.8, Canada – 3.9
FY2005
India – 49.0, China – 9.1, Canada – 3.6
FY2003
India – 36.3, China – 9.2, Canada – 5.1
FY2000
India – 47.5, China -- 9.3, UK – 3.2
But, Demand for H-1B Visas Is Way Down in Recent Years:
Total H-1B Visas Issued by Country of Origin, including Renewals (Top 3 countries)
FY2009
India- 103,059, China – 20,855, Canada – 9,605
FY2008
India – 149,629, China – 24,174, Canada – 10,681
FY2005
India – 118,520, China – 24,561, Canada – 11,780
FY2003
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India – 79,166, China – 20,063, Canada – 9,605
FY2000
India – 63,900, China – 12,400, UK – 4,400
Median H-1B Salaries Are Steadily Rising:
FY2009 - $64,000
FY2008 - $60,000
FY2005 - $55,000
FY2003 - $52,000
FY2000 - $45,000
As Are H-1B Educational Qualifications:
(Percentage of H-1B Workers with Advanced Degrees)
FY2009 – 59
FY2008 -- 57
FY2005 -- 53
FY2003 -- 49
FY2000 -- 41
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____________________________________________________
1.10 Despite the Negligible Real Impact of H-1B Workers to the
American Labor Market, Barriers to Trade in Services Mount
Despite growing barriers to entry and cross-border establishment of business, the U.S. remains an attractive market for global IT consulting and BPO firms. The U.S. market for services remains the world’s largest, and in some sectors, such as business process consulting, is still among the most lucrative in the world. The U.S. is one of the most globalized of major economies, but increasingly, parts of the U.S. market are being closed off – particularly to Trade in Services -- and business risks due to rising compliance costs in immigration and labor regulations now present formidable obstacles to foreign firm entry and operations.
Recent restrictive immigration measures by the U.S. seem to invite retaliatory restrictions by trade partners. A closing off of foreign markets and trade in services would have a disastrous effect on U.S. balance of payments, given the fact that the U.S. has so long suffered deficits in exports of goods, and is largely dependent upon repatriation of profits from abroad and flow of revenues from U.S. services provided in open global markets.
Meanwhile, federal officials are desperately seeking ways to stimulate domestic hiring. In the third quarter of 2010, and the mid-term elections near, the standard jobless figure stands at near 10%, and the U6 measure of underemployment and involuntary part-time employment is nudging 17%. It is now taking a record 35 weeks on average for out-of-work Americans to obtain reemployment.92 The ratio of unemployed to new job creations now stands at 12-1. The number of unemployed has almost doubled to 15 million since the start of the deepest recession since World War Two, and fully one-in-four U.S. workers have experienced a period of joblessness since
92
See, http://www.bloomberg.com/news/2010-06-04/jobless-wait-record-34-4-weeks-for-work-in-sign-faster-u-s-growth-needed.html; also, see, http://www.businessinsider.com/robert-barro-on-extending-jobless-benefits-2010-8 ; c.f., http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/the-path-of-unemployment-in-the-great-recession.
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the Great Recession started, and most of these are less satisfied with their present employment than the position they held previously.93
Is there any way to reconcile these two seemingly irreconcilable trends, without bolting and double-locking the door to business immigration and starting a mutually-ruinous trade war?
It is in this context of economic and political crisis that we saw Congress pass highly discriminatory legislation targeting foreign H-1B and L-1 firms for a $2,000 fee increase in mid-August. At the time of passage, we heard restrictionist rhetoric from Senate Immigration Chairman Charles Schumer (D-NY) a litany of evils about H-1B “bodyshops” that provide “cheap labor” and unfairly take U.S. jobs.94 Schumer also issued a threat that next term Congress will pass further restrictions on foreign firms that provide service workers to the U.S. market.
Foreign H-1B staffing firms, Schumer claimed, are:
lowering the wages for American tech workers already in the marketplace. Third, it is also discouraging many of our smartest students from entering the technology industry in the first place.
Schumer, who is not normally associated with the populist wing of American politics – as senior Senator from New York, he represents Wall Street, after all, and it is major U.S. corporations that have been the primary users of global offsourcing -- echoed many of the nativist themes sounded for years by Senator Grassley (R-Iowa), but now being heard from Democratic Party leaders.
In his floor speech introducing the Senate Bill for a vote, Schumer implied that foreign-based companies employing H-1B workers are essentially parasitic, don’t “make any new products or technologies”, and account for many of the ills that afflict imbalanced American trade:
The business model of these newer companies is not to make any new products or technologies like Microsoft or Apple does. Instead, their business model is to bring foreign tech workers into the United States who are willing to accept less pay than their American counterparts, place these workers into other companies in exchange for a
93
Washington Post report of Pew Memorial finding. See, http://www.washingtonpost.com/wp-dyn/content/article/2010/09/02/AR2010090204956.html 94
See, Senator Charles E. Schumer's speech on border Security bill and ...
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“consulting fee,” and transfer these workers from company to company in order to maximize profits from placement fees. In other words, these companies are petitioning for foreign workers simply to then turn around and provide these same workers to other companies who need cheap labor for various short term projects.
The President made no reference in his signing statement to objections raised by
the Indian government and trade groups which view the move as discriminatory and
directed at large, successful global outsourcing firms based in that country.95
1.11 The Perils of Growing U.S. Trade Protectionism
Rather than stimulating new business formation and growth of exports of
services, as was the overall policy of the Clinton Administration, or to take constructive
steps to close the huge gap in export of goods, the Obama Administration, following the
lead of the predecessor Bush Administration, has taken measures to curtail imports of
certain service sectors, particularly the entry of IT consultants, with the accompanying
objective of favoring and protecting domestic service industries and workers.
Restrictions on U.S. immigration, particularly the high-profile H-1B program, are
viewed as a cheap and easy symbolic gesture, a political bone thrown to a vocal
constituency, led by populist demagogue Lou Dobbs and the Programmers Guild, which
represents out-of-work American IT sector workers. In recent months, however, sharp
rhetorical attacks have recently become more mainstream. Facing an off-year election
in a depressed economy, attacks by leading Democrats are now heard on the Indian IT
service industry and international staffing firms, such as Chairman Charles Schumer’s
acidic remarks in the Senate before introducing the H-1B/L-1 fee increase in August.
While much of this is political grandstanding, recent changes in U.S. law, including a
95
See, Despite Indian concerns, Obama to sign border security bill, 13 Aug 2010, 0453 hrs IST,PTI,
http://economictimes.indiatimes.com/articleshow/6302669.cms
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punative $2000 fee increases on some non-immigrant petitions, and USCIS rules
restricting off-site assignments of H-1B workers, are clearly discriminatory measures
that harm Indian companies restricting them from access to the U.S. market, a violation
of WTO rules under Mode 4 of the General Agreement on Trade in Services (GATS)
agreement.
Even if confined to U.S.-Indian trade, U.S. restrictions on Indian service
exporters, leading to countervailing measures, are likely to hurt the U.S. services
industries at least as much as they would harm the Indian outsourcing industry. Given
that total U.S. exports to India outweigh the trade deficit in computer services by a 30-1
margin, and that US-India balance in service trade is almost equal, and that U.S. firms
have sizable U.S. direct investments in India, the damage to the national economy
would be disproportionate to any possible benefit from a trade war. Even assuming a 5-
1 greater loss of jobs, an all-out trade war in services between the U.S. and India
threatens to put 100,000 Americans and more than a half-million Indians out of work.
That makes little sense if the benefit sought is restoration of some 3,500 IT sector jobs.
To put this further into perspective, the U.S.-based MNCs have eliminated at least one
million American jobs since 2007, but no one in Washington is talking about imposing
punative measures on them. Quite the opposite, as Senator Schumer’s speech
showed, the Congress – knowing on which side their bread is buttered -- have come to
publicly praise the multinationals, not to bury them. The current deficit in IT-related
services, less than $350 million, really isn’t even enough to build a single computer
assembly plant in Iowa.
If one wants to locate the primary source of the elimination of jobs, one need look
no further than the domestic headquarters of U.S.-based multinationals. The MNCs are
both the primary source of the problem and the potential solution. Further waving of
pointed sticks at India is not going to result in desired response from giant globalized
corporations. If sufficiently provoked in their present unregulated, post-Citizen’s United
form, they could put a lot more Americans out of work, starting with most of the U.S.
Senate. But, if offered a rational set of policy options that they could accept and benefit
from in the long run, the MNCs could be instrumental in putting more Americans back to
work and averting a prolonged and ruinous global trade crisis. A rational and
predictable U.S. regulatory environment, including immigration policy, is the place to
start.
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1.12 The Role of the MNCs in U.S. and Indian IT Industry Unemployment
Since 2007, U.S.-based MNCs have eliminated between one and two million
positions in the U.S., depending upon which methodology for counting unemployment
one accepts. In 2008, these companies cut at least 300,000 F/T positions in the U.S.,
and created some 180,000 positions abroad, according to the BEA baseline estimates.
The pace of layoffs in the U.S. IT industry rose sharply the following year; during 2009,
total U.S. layoffs by the multinationals may have amounted to more than 600,000
workers. Where did these positions go? The assumption held by many is that many,
particularly in the IT industry, were relocated in India, but how many?
Since the US government doesn’t require that MNCs with headquarters here
provide complete data about employment shifts within their global operations, analysts
have to estimate this figure. Publication of government analysis on MNCs, such as that
performed by the BEA, lags two years behind current reporting. Nonetheless, the
Commerce Department does provide monthly figures that show U.S. exports and
imports with India and other countries. According to the Commerce BEA unit, after
several years of growth exceeding 20 percent, the growth of the U.S. trade in services
deficit with India slackened in 2009, the year of an extraordinary spike in layoffs in the
U.S. Information industry. [See, Illust. 1, above, and Appendix I]
It is reported that in 2008 U.S.-based MNCs created 180,000 net new offshore
jobs. In fact, growth in the Indian IT sector slowed that year along with the contraction
in the U.S. and global markets. Revenue growth in FY’08-09 (March 31, 2008-March
31, 2009) dropped to less than half the rate of previous several years that had been
running greater than 20 percent year-after-year. Total job gains within the Indian IT-
BPO sector in FY’08-09 amounted to 226,000.96 The Indian technology industry
actually experienced a flat-lining or contraction from Q3 2008 through mid-2009, when
growth in global markets picked up again. Employment gains for FY’09-10 that ended
96
See, http://www.indiainbusiness.nic.in/industry-infrastructure/service-sectors/it.htm
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March 31, 2010 ended up at about nine percent with an addition of some 100,000
workers among its members, according to NASSCOM. The US Information sector
simultaneously picked up more than 100,000 positions during a hiring surge between
Q2 and Q3 2009, before leveling off, according to BLS. [See, Illust. 1]
With employment losses and gains tracking each other in the U.S. and India,
which have Information sectors of comparable size -- 3.6 mil (US), 2.2 mil. (India) -- it is
clear that India did not reap a disproportionate advantage as a result of the immediate
U.S. economic and jobs crisis. While I.T. employment growth in the United States has
since stagnated along with the rest of the American economy, this is symptomatic of a
wider economic malaise that continues to afflict the U.S. and some other western
countries. Meanwhile, the dynamism of the Indian economy and its dizzying previous
levels of growth have largely returned in 2010.
Expansion of the Indian domestic market and export to other non-US global
markets by Indian IT firms accounted for most of what growth there was in 2008-2009,
which was modest compared to previous years, with global revenue growth for IT
service exports falling to about 13 percent. FY’09-10 sectoral jobs growth in Indian IT
was held to below 10 percent.97 Therefore, the data does not support the assumption
that Indian firms reaped the benefits of the U.S. recession in terms of unusual revenues
and job gains. In fact, quite the opposite has been true, with sectoral growth during the
crisis far below what had become “normal” and expected levels in India in recent years.
NASSCOM, the trade association for the Indian IT and outsourcing sectors,
reports that its members growth was down during the period that MNCs and the rest of
the American economy was shedding IT jobs at the greatest rate. "While growth was
synonymous with industry performance in the past decade, resilience and efficiency
was the thrust in the year 2008-09," said Nasscom chairman Pramod Bhasin. 98 "In the
face of a severe economic downturn in key markets, the industry was able to deliver a
high growth of over 16 percent and retain its position as a strategic global sourcing
destination," he said. At the pit of the recession in Indian IT in March 2009, NASSCOM
reported:
97
See, , http://www.cxotoday.com/story/nasscom-unveils-its-annual-rankings-for-the-it-bpo-industry/ 98
See, India’s IT Outsourcing Industry to Grow 7 percent in 2009-10, http://www.india-server.com/news/indias-it-outsourcing-industry-to-grow-9890.html
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The IT and BPO industries of India is expected to have a growth of over 7% during this
fiscal to log revenues of $64 billion [. . .]
According to the latest forecast of NASSCOM, the IT and outsourcing industry will log an
export growth of 4-7 percent this fiscal to log $48-50 billion in revenues. Domestic
revenue for the industry is expected to grow much faster at 15-18% to touch $13 billion,
the industry lobby said in its annual survey on the sector.
"While growth was synonymous with industry performance in the past decade, resilience
and efficiency was the thrust in the year 2008-09," said Nasscom chairman Pramod
Bhasin.
If, instead, there had been an actual zero sum one-for-one replacement of
American IT positions by Indian workers we would have seen a vast expansion in the
Indian GDP and particularly, employment in its IT sector - with a five-to-one pay
differential, a loss of 300,000 U.S. workers could have paid for the hiring of 1.5 million
positions in India, which would have almost doubled the size of the Indian IT sector in
2008 and 2009. But, that did not happen. The savings in salary costs due to layoffs in
the U.S. market for U.S.-based multinationals – about $300 billion -- went somewhere,
but not to India and they were most pointedly not reinvested in U.S. plants and
operations.
In fact, growth in India’s IT sector slowed to around ten percent in FY’09-10,
amidst India’s own sharp economic downturn during the first half of 2009. Actual jobs
growth in Indian IT during the ’09-10 fiscal year was about 100,000, according to a
report released in August, 2010 by NASSCOM.99 The seven largest Indian IT and BPO
consulting companies together employ some 700,000 in India, and are reportedly
looking forward to a growth rate of 13-15 percent in FY’11. The profits of these bigger
companies far exceed the rest of the technology sector in India that employs about
another 1.5 million workers. This one sector, in turn, props up a nation of more than a
billion people with a GDP one-twelth the size of the U.S with a nominal per capita
annual income of $1,030.
99
See, Silicon India, “IT, BPO exports to increase 13 to 15 percent in FY’11”, August 13, 2010, http://www.siliconindia.com/shownews/IT_BPO_exports_to_increase_by_13_to_15_percent_in_FY11-nid-70604.html?utm_campaign=Newsletter&utm_medium=Email&utm_source=Subscriber
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In 2009, seven Indian firms were listed among the top 15 technology outsourcing
companies in the world. At the end of the 2008-09 fiscal year, annual revenues from
outsourcing operations in India reportedly amounted to US$60 billion, $47 billion of
which was from exports.100 However, that is less than 5 percent of the revenues of the
100 largest U.S.-based MNCs with a collective $7 Trillion in 2008 revenues.101 The
revenues of the Indian IT industry are miniscule by comparison to the larger U.S.-based
MNCs, and virtually irrelevant to the health of the overall US economy. Today, there
are seven Indian firms in the 2010 Fortune Global 500 list, but none of them are IT
sector102:
Country
Rank Company
Global
500
rank
City Reues
($ millions)
1 Indian Oil 125 New Delhi 54,288
2 Reliance Industries 175 Mumbai 41,085
3 State Bank of India 282 Mumbai 28,213
4 Bharat Petroleum 307 Mumbai 26,596
5 Hindustan Petroleum 354 Mumbai 23,881
6 Tata Steel 410 Mumbai 21,582
7 Oil & Natural Gas 413 Dehradun 21,448
8 Tata Motors 442 Mumbai 19,501
100
See, John Ribeiro, IDG News, (April 21, 2009), http://www.pcworld.com/businesscenter/article/163513/indias_revenue_from_outsourcing_could_be_225b_in_2020.html , cites NASSCOM source, claimed revenue figures as of March 31, 2009. 101
See, Forbes Global 500, http://money.cnn.com/magazines/fortune/global500/2008/countries/US.html 102
Ibid.
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From the July 26, 2010 issue
Furthermore, U.S.-based multinationals are moving into the Indian outsourcing
sector, which further skews the balance in favor of the American-based firms. A
number of large US IT firms already have BPO affiliates in India. Offshore operations of
these same MNCs are, the Indians perceive, threatening to again dominate the Indian
economy, as they move into its most lucrative sectors. While Tata Consultancy
Services (TCS), is India’s largest IT services firm and the largest employer with 163,700
staff as on June 30, 2010, IBM, the multinational computer, technology and information
technology consulting conglomerate headquartered in Armonk, New York, has emerged
to be the second largest private sector employer in India, surpassing Infosys and Wipro
and it, along with other U.S.-based MNCs, is reemerging as the largest user of U.S.
nonimmigrant visas.
1.13 IBM: A Case Study in Planned Globalization by a U.S.-based
Multinational, and the Botched U.S. Regulatory Response
IBM’s workforce in India may soon surpass its workforce in the US. For more than a decade, the company has been systematically reducing its US staffing. Globally, IBM now employs more than 400,000 employees. Today, about one in three IBM employees is an Indian. In fact, a number of industry analysts as well as manpower recruitment firms estimate IBM’s present staffing level in India to be around 130,000 compared to 140,000 employees of India’s second largest IT firm Infosys Technologies as on June 30, 2010. IBM’s BPO arm, IBM-Daksh, alone employs some 50,000 professionals in that country. In addition, another 30,000 people are employed by IBM Labs in India, which is an ominous sign for U.S. R&D - higher order scientific research -- 75 percent of which worldwide is controlled by MNCs103 -- is no longer a preserve of U.S. and European research centers.
The unemployment crisis in the U.S. IT field is actually the result of strategic as well as cyclical and systemic causes. No company more than IBM embodies these
103
See, Matthew J. Slaughter, How US Multinationals Strengthen the US Economy, Business Roundtable ( Spring, 2009), http://www.uscib.org/docs/foundation_multinationals.pdf
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issues. It implicates problems in global corporate planning even more than the public policy response, which has been slow to take notice, has been inconsistent and ineffective in response, and finally overreactive in measures, targeting companies that choose to retain operations in the U.S. for stepped up compliance risks and significantly higher fees for immigration.
IBM is a bell-weather of the planned retreat from production in the U.S. market and strategic offshoring of employment, facilities and operations. Once the most iconic of American brands, has been over the course of the last decade in stages broken up and several product lines sold off -- its Thinkbook™ laptops bought by China’s Lenovo, and its technological and development services have moved offshore and are run by several affiliates, including IBM-Daksh in India, which affiliates with GSTechnical Services as a U.S. staffing firm with primary workforce and production development centers in India.
According to IBM’s 2009 annual report, total worldwide employment was just under 400,000, which makes IBM the largest technology employer in the world. Total IBM worldwide employment today is similar to the figure in the late 1980s, when about half of all IBM employees were Americans working in offices and plants in the USA, when IBM dominated the mainframe computer market. During the next decade the company struggled to adapt to technological change and the emergence of net-based distributed computing. It was during this period that total employment dropped to about 220,000, the company restructured, strategically cutting costs and jobs in its U.S. operations. That business plan appears to have paid off. In the midst of the 2008-09 Wall Street crash, IBM share prices declined about 45%, but have recovered in Q2 2010 to near all-time highs,104 and IBM met its stated target distribution to investors of more than $10 per share, despite the meltdown of the U.S. economy. IBM has also socked away more than $80 billion in retained cash since 2002.
Continuing this strategy, IBM’s U.S. workforce declined 5% in 2008 to 115,000, while its workforce in India, China, Brazil, and Russia grew 15% to 113,000. The vast majority of those workers are in India. That trend accelerated with further rounds of cuts
104
See, John Lounsbury, The Street, “IBM Stops Reporting U.S. Employment Numbers”, March 19, 2010, http://www.thestreet.com/print/story/10706503.html
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so that by March 2010, when the company laid off at least 1,052 workers, or about 1 percent, IBM's U.S. work force had declined to 105,000.105
Of course, this hasn’t been a sudden development. By 2000, revenues from the company’s fast-growing Global Services division had nearly matched hardware sales106 as IBM morphed from a U.S.-based manufacturer of computer equipment to primarily a global IT services consulting firm. In 2006, IBM produced a chart, below, illustrating labor costs across its global operations. That chart showed two things: the stark differential in wages between the developed and developing countries, and the projected stagnation of incomes and staffing levels for IT workers in the former with a rapid growth from a very low baseline for the latter, which in terms of sheer numbers continues to expand apace.
Illustration 2. IBM Global Staffing and Wages Projection (2005-10)
105
See, DURHAM, Mar 02, 2010 (The Herald-Sun - McClatchy-Tribune Information Services via COMTEX), “IBM Lays Off 1% of U.S. Workforce,” http://www.tradingmarkets.com/news/stock-alert/ibm_ibm-lays-off-1-of-u-s-work-force-815237.html 106
See, http://www-03.ibm.com/press/us/en/pressrelease/1511.wss
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What the projections in that chart overstated was the company’s intentions to
maintain or expand its 2005 staffing levels in higher-wage western locations. In fact,
IBM Global staffing increased in India far exceeded the 2,000 hires shown. Labor costs
in India have indeed increased, so that the average developer now earns about
$14,000, which works out to $7 an hour, as the chart accurately projected for 2010.
IBM officially stopped revealing the global make-up of its workforce geographically after 2007, when the company had said that it employed around 73,000 workers in India. Ever since, IBM has been maintaining that it is a multinational corporation and, hence, the number of its employees in disparate geographic regions was of little importance. The last breakdown of employee figures released by the company in 2007 (73,000) showed a 40 per cent increase over its employee strength (53,000) the previous year. And from 2007 onwards, on an average, the IT major has hired an estimated 20,000 people annually in India.
The regulatory agency response to the globalization of IBM has been blunt,
ineffective, and without firm basis in U.S. law and written regulations. In 2008, the
USCIS denied hundreds of L-1B specialized-knowledge petitions submitted by a wholly-
owned subsidiary of IBM doing business as a North Carolina IT consulting company.
IBM was the third largest employer of L-1 visa holders in 2006. In Matter of
GSTechnical Services Inc107 the USCIS Administrative Appeals Office (AAO)
determined in its 43-page July 2008 decision that the employee’s two years of
experience with IBM India on two full-cycle SAP projects108 using IBM-trademarked,
proprietary applications was inadequate experience to establish “specialized
knowledge” to qualify for L-1B status as an SAP enterprise resource planning
consultant. The statute requires only one year experience with the petitioner.
107
Matter of GSTechnical Services, Inc (AAO, July 22, 2008) (unpublished), published on AILA InfoNet at Dec. No.
08081964 (posted Aug. 19, 2008); link: July 22, 2008 GSTechnical Services decision2
108
SAP is a family of business software applications used my many large corporations and governmental organizations to structure management decision-making. SAP, the largest European-based software development company, claims 89,000 customers in 120 countries for its products.
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In addition, the Service Center’s denial found that the petitioning IBM subsidiary
was a shell company, not an actual US business,109 which in the year following its
establishment had nonetheless managed to obtain several hundred L-1B visas. The
AAO decision recapped that USCIS had concluded that “GST was an immigration and
human resources department for IBM and that there was no business activity occurring
at the petitioner’s location in Raleigh, NC.” Using terms derived from the H-1B
Defensor decision110, the Service Center denied the petition, in part, on the grounds that
the petitioner is not the “real employer”: [Id.] IBM and other larger multinational firms
have since found it increasingly difficult to transfer even their most highly-qualified
technical workers into the U.S., particularly workers assigned to carry out contract
duties at client sites.
All this, of course, has hastened the decision of a number of firms to increasingly
carry out research, development, managerial, and even client service operations
offshore. This has not always been an ideal arrangement for all involved, which
seriously complicates the operations of global technology firms, impacting their bottom-
line and those of their customers and business partners. The U.S. regulatory and
compliance environment, particularly immigration, has become a major drag on the
global economy, impacting India particularly hard, deepening the effects of the latest
financial crisis in many ways, including the chances that an even worse crisis may
follow.
1.15 Other Effects of U.S. Regulatory Restrictions on Indian
Professionals
Declining Hires of New Graduates from Elite Indian Universities
109
In a later action upon Motion by counsel for the petitioner, the Service later rescinded that part of the decision, and concluded that GST had established an employer relationship with the beneficiary and is part of a larger IBM corporate entity doing business in the United States as defined by the regulations. See, Id. [8]. 110
See, Defensor v Meissner (2000, CA5 Miss) 201 F3d 384
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One of the casualties of the crisis was the graduating Class of 2009. If the
prospects for U.S. science and engineering graduates seem to be grim, as Sen.
Schumer alluded to, it is in large part because the U.S. lacks a coherent public policy to
create, attract and keep top talent. That has been left to the MNCs, Pentagon
contractors, and elite educational institutions in this country. This motley, market-driven
approach is becoming unfocused, and needs a major makeover if the U.S. is to retain
the best minds in the world.
Increasing the barriers to business immigration greatly decrease the chances
that global talent will choose to work and reside in the United States. It also impacts
the professional choices and opportunities for top graduates around the world, in India
as well as the U.S. In Q2 2009, amidst the crisis, hiring by MNCs in India actually
declined at the top of the crop of new hires recruited directly from India’s most
prestigious educational institutions. The Times of India reported111:
The economic slowdown has also slowed down campus hiring of IIT/IIM graduates by
multinational corporations but this is not the case with Indian private sector companies
who have increased it.
A written reply by Kapil Sibal in the Rajya Sabha shows that while in 2008, MNCs hired
3,031 IITians through campus selection, Indian private sector companies employed only
1,621 students.
But in 2009, hiring by MNCs fell dramatically to 1,606, whereas there was a marginal
increase by Indian private sector companies who hired 1,718 students.
Other sources reported a similar slowdown in graduate hires from Indian engineering
schools in 2009, with hiring flat and workers staying with their employers longer112:
[T]he 5th IDC-Dataquest T-School 2009 survey has shown that the worldwide economic recession has caused a decrease in the placement of engineering graduates in India – with only very few technology schools reporting 100% placement.
111
See, MNCs steering clear of IIT/IIMs? - India - The Times of India http://timesofindia.indiatimes.com/india/MNCs-steering-clear-of-IIT/IIMs/articleshow/4831739.cms#ixzz0y0FNarYU 112
See, http://www.dancewithshadows.com/business/indian-companies-on-a-hiring-spree-shows-global-survey-jobs-in-2009-2010/
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According to the survey, there has been a drop, on an average, of 11% in the placement of engineering graduates from 111 technology schools in India in 2009, compared to the previous year, except for 16 of them which achieved 100% absorption.
Of the 54 companies which visited the campuses of technical schools, over half were from the information technology sector and the business process outsourcing (BPO) sector.
While numbers for 2009 were depressed by poor first two quarters, there was
strong growth later in the year in global business related hiring within the IT sector.
Overall, 2009 Indian IT industry performance and hiring seems to have closely tracked a
similar turnaround in employment in the U.S. information sector, which also exhibited a
rebound in the second half of 2009, U.S. firms adding 120,000 positions by Q1 2010
after the unemployment peak in June, 2009, when sectoral unemployment hit 370,000,
according to the BLS. [See, Illust. 1, above]
Has a Tipping Point Been Reached in MNC Decisions to Move Most HQ
Operations and Higher Value-added Jobs Offshore?
As one reviews the data for bi-lateral US-India Trade in Services and the
example of IBM in the sections above, it becomes clear the U.S.-based multinationals
have altogether eliminated ten times as many jobs in the U.S. as can be accounted for
by Indian IT sector hiring. A second thing that is obvious is that Indian firms have
served as a convenient scapegoat for the MNCs on both an economic and a political
level.
Clearly, neither the Bush nor the Obama Administrations, and the U.S. Congress,
have shown any willingness to make the difficult decisions or invest the political capital
that might be required to mount an effort to directly challenge layoffs and investments
by multinational corporations. American elected officials have instead come to rely on
restrictive immigration measures as a substitute for developing rational trade and
service sector employment policies. USCIS has become the sharp point of a stick that
is waved around at the challenge posed by the globalization of U.S.-based
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multinationals. The results of actions taken by USCIS and USDOL also make it
abundantly clear that immigration restriction is not going to be a particularly effective
tool at crafting post-industrial employment policy.
What has been the result of this non-policy regarding U.S. unemployment in a
globalized economy? In July 2010, the overall unemployment rate of 9.7 percent is
exactly where it was a year ago. By the end of 2009, some 8.2 million jobs had been
shed in two years, and of these, 5.9 million Americans had been out of work for longer
than half a year. The unemployment rate had risen by 5.1 percent of the workforce in
the previous 18 months to over ten percent, most of this since September 2009, the
steepest increase in joblessness since the Great Depression. The U.S. has lost at least
200,000 IT jobs from its peak of 4 million in November 2008,113 after it had lost nearly
200,000 IT jobs earlier in 2008, according to Commerce Dept. data.
In response, USCIS and other regulatory agencies have virtually abandoned any
semblance of trying to strike a balance between their normally divided objectives of
promoting international commerce and protecting U.S. jobs, and have become
ineffective at both. They no longer process most business immigration benefits
applications in an impartial way at a reasonable timescale and cost to applicants while
protecting U.S. wages and working conditions. The U.S. immigration system is indeed
broken, but the fixes that are being offered in the House and Senate would turn the
system over to the bureaucrats to run as virtual ukases, a system of administrative
edicts that cannot be reviewed by the courts, destroying what is left of the U.S.
employment-based immigration for targeted industries. As the dismissal of the global
staffing industry H-1B law suit114 showed, there is scant reason to believe that the U.S.
courts are either willing or equipped to step into this breach. The U.S. Immigration
system and the rule of law is indeed broken or at least severely damaged, as is
confidence in it by MNC managers and top global talent.
113
See, Patrick Thibodeau, Computerworld, “Obama Says Stimulus Helps Keep IT Jobs Onshore”, (Feb. 17, 2010) http://www.reuters.com/article/idUS170410980320100218; also, see, BLS, Private Sector Gross Job Gains and Losses by Industry, Table 3, http://www.bls.gov/news.release/cewbd.t03.htm 114
See, Broadgate, Inc v USCIS, Case: 1:10-cv-00941, (DC Dist Ct June 8 2010), dismissed with prejudice, Aug. 12, 2010, see analysis, Rami Fakhoury, International Law Office, http://www.internationallawoffice.com/newsletters/detail.aspx?g=cc81ec1b-bc21-4d74-a7d6-370a617d4dfb
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The call for severe restrictions in U.S. business immigration and trade with India
implicates problems in global corporate planning and governance even more than the
public policy response, which has been slow to take notice, inconsistent and ineffective.
With the US currently suffering from high unemployment and concerned about
taking on additional debt, the U.S. is taking protectionist measures. In short order,
protectionism leads to more serious and broader economic consequences beyond
bilateral trade issues, and the result of a trade dispute can widen into formal WTO
sanctions or a breakdown in the GATS system, mutual reprisals, generalized capital
aversion and flight, escalating risk premiums, and a deepening balance-of-payments
crisis. Economists have seen many times in distressed financial systems how balance
of trade problems and the resulting liquidity crisis cascades into a cross-market financial
panic, and finally, a full-fledged currency crisis and international banking crisis. [See,
Luc Laeven and Fabian Valencia (2008), 'Systemic banking crises: a new database'.
International Monetary Fund Working Paper 08/224; Franklin Allen and Douglas Gale
(2000), 'Financial contagion'. Journal of Political Economy 108 (1), pp. 1–33.]
In this worsening economic and regulatory environment, some global firms may
be well advised to consider alternatives to the U.S. market. Restrictionist policy and
the erection of selective trade barriers is being implemented against the background of
emergency measures to forestall a balance-of-payments crisis, much as was seen in
Mexico in 1994, the Asia Crisis of 1997, the Russian Crisis (1998), and most recently in
Greece and other debt-ridden European countries. A balance-of-payments crisis can
be viewed as essentially a raid on national Treasuries, banks and markets by MNCs
and hedge funds. [Krugman, 1999] It follows a familiar pattern: over-indebtedness by
both the private and public sectors, followed by a raid on national bonds and equities
markets overinflated by Pangloss expectations of continuing government stimulus and
bailouts115, a burst of balloon assets, which leads to a currency crisis and the
inevitability of a capital crisis and austerity measures imposed from without. In the end,
global speculators make off with title to anything of value in the country at pennies on
the dollar, and finally move on to the next target.
115
See, Paul Krugman, What Happened to Asia?, , http://web.mit.edu/krugman/www/DISINTER.html
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2 PART 1 Conclusion
Immigration restriction, like other regulatory impediments to trade, hastens the process of MNC withdrawal from national markets and attendant human and capital flight, with a worsening of balance-of-payments accounts into full-fledged crises. H-1B and L-1 restrictions curtail the operation in the U.S. market of foreign-based service firms and obstruct the entry of non-resident service workers, having the cascade effect of accelerating the decision of firms to transfer a greater amount of corporate operations and jobs abroad by multinational companies.
These sorts of trade issues, regulatory barriers, and economic problems are familiar to International organizations and officials of the Trade Ministries of small countries in the developing world, but are now the unwanted province of increasingly indebted post-industrial countries, such as the United States. The literature of International Development agencies such as the World Bank and IMF are filled with warnings and case studies about regulatory impediments to trade, the costs and consequences of MNC withdrawal from national markets and capital flight, and describe in gory detail the terrible economic dilemmas and political crises of national governments facing worsening national accounts that metastasize into full-fledged balance-of-payments and banking crises. Indeed, the Wall Street meltdown of September 2008 can and should be viewed in these terms.
If it wants to stem these crises, the Obama Administration would be wise to shift its frame of reference from seemingly “cheap and easy” measures such as H-1B and L-visa restrictions that appease domestic political constituencies, and start seriously examining these case studies and lessons from the developing world as the U.S. struggles to find a rational Trade-in-Services and immigration policy. The term “policy” in this context is properly used as a singular expression, as there cannot be any rational and lasting long-term solution to either crisis with immigration and Trade in Services being considered together.
***
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APPENDIX I:
Source: BLS, August 18, 2010, http://www.bls.gov/news.release/cewbd.t01.htm
Table 1. Private sector gross job gains and losses, seasonally adjusted Table 1. Private sector gross job gains and job losses, seasonally adjusted Total private (In thousands)
Gross job gains Gross job losses Year 3 months ended Net change(1) Total Expanding Opening Total Contracting Closing establishments establishments establishments establishments 1999 March 353 8,585 6,626 1,959 8,232 6,395 1,837 June 644 8,539 6,661 1,878 7,895 6,210 1,685 September 588 8,571 6,734 1,837 7,983 6,250 1,733 December 1,005 8,749 6,956 1,793 7,744 6,076 1,668 2000 March 789 8,792 6,924 1,868 8,003 6,341 1,662 June 492 8,499 6,814 1,685 8,007 6,387 1,620 September 296 8,506 6,728 1,778 8,210 6,483 1,727 December 295 8,400 6,702 1,698 8,105 6,433 1,672 2001 March -156 8,436 6,694 1,742 8,592 6,717 1,875 June -792 8,009 6,319 1,690 8,801 7,050 1,751 September -1,184 7,608 5,917 1,691 8,792 6,991 1,801
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December -960 7,591 5,932 1,659 8,551 6,858 1,693 2002 March -39 8,049 6,259 1,790 8,088 6,424 1,664 June -38 7,890 6,164 1,726 7,928 6,290 1,638 September -171 7,608 6,015 1,593 7,779 6,248 1,531 December -198 7,522 5,960 1,562 7,720 6,171 1,549 2003 March -412 7,439 5,917 1,522 7,851 6,311 1,540 June -104 7,401 5,928 1,473 7,505 6,040 1,465 September 204 7,383 5,918 1,465 7,179 5,818 1,361 December 309 7,549 6,016 1,533 7,240 5,802 1,438 2004 March 465 7,709 6,207 1,502 7,244 5,802 1,442 June 634 7,747 6,228 1,519 7,113 5,644 1,469 September 212 7,635 6,062 1,573 7,423 5,880 1,543 December 775 7,860 6,248 1,612 7,085 5,658 1,427 2005 March 381 7,618 6,139 1,479 7,237 5,805 1,432 June 586 7,771 6,223 1,548 7,185 5,779 1,406 September 676 7,963 6,389 1,574 7,287 5,840 1,447 December 514 7,826 6,258 1,568 7,312 5,942 1,370 2006 March 800 7,720 6,294 1,426 6,920 5,639 1,281 June 417 7,784 6,267 1,517 7,367 6,000 1,367 September 37 7,493 6,058 1,435 7,456 6,101 1,355 December 493 7,793 6,254 1,539 7,300 5,947 1,353 2007 March 485 7,651 6,244 1,407 7,166 5,873 1,293 June 196 7,653 6,242 1,411 7,457 6,061 1,396 September -248 7,325 5,853 1,472 7,573 6,214 1,359 December 310 7,670 6,214 1,456 7,360 6,010 1,350 2008 March -280 7,167 5,781 1,386 7,447 6,090 1,357 June -536 7,296 5,869 1,427 7,832 6,334 1,498 September -967 6,884 5,520 1,364 7,851 6,461 1,390 December -1,801 6,738 5,363 1,375 8,539 7,038 1,501 2009 March -2,740 5,746 4,603 1,143 8,486 7,045 1,441 June -1,579 6,420 5,116 1,304 7,999 6,598 1,401 September -964 6,296 5,112 1,184 7,260 5,852 1,408 December -193 6,628 5,322 1,306 6,821 5,546 1,275
(1) Net change is the difference between total gross job gains and total gross job losses
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US-India Trade in Services, Part II – Has U.S. Immigration Law Become an Impermissible Non-Tariff Barrier to Trade Under the WTO General Agreement on Trade in Services (GATS)?
“To see ourselves as others see us.” – Robert Burns
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Executive Summary
Part I of this study, above, outlines current and recent trends in Trade-in-Services (TIS) between
the US and India, and discusses the political and economic sources of trade tensions between
the two countries. We find considerable evidence to support accusations recently raised that
the US. Government has, in fact, imposed impermissible barriers to entry and commercial
presence by service providers from India, Non-Tariff Barriers (NTB) to TIS that violate WTO
rules.
As Part II demonstrates, below, U.S. administrative measures that restrict business immigration
appear to violate this state’s commitments to remove barriers to trade under the WTO General
Agreement on Trade in Services (GATS), to which the U.S. has been party since 1995.
Specifically, recent rules changes in the L-1 nonimmigrant visa program, and to a lesser extent
rules changes in H-1B, have the intent as well as the effect of discrimination against the Indian
IT services consulting and outsourcing industries, and we conclude that they now present
barriers to market entry and operation of Indian service firms in the United States in violation of
GATS.
The U.S. may therefore be subject to binding arbitration and possible trade sanctions by the
WTO Dispute Settlement Body (DSB), along with countervailing tariffs on US exports by India
as enforced by world trade court ruling, if India pursues its complaint through the Body against
restrictive measures already taken by the U.S. that have harmed Indian firms and individual
service providers denied access to the US market in violation of GATS Modes 3 and 4.
Part II, below, outlines the text and effect of GATS, and discusses the history and operations of
the DSB, with particular attention to instances of trade disputes involving the United States and
their outcomes before the Body. Specifically, we examine the legal and regulatory measures
taken by the U.S. provoking a trade dispute with India, and analyze the body of DSB decisions
and its analytical framework to determine the strengths and weaknesses of the complaint which
India might bring for judgment before that Body.
In addition, we identify those areas of the U.S. regulatory and administrative enforcement
structure – specifically USCIS regulations, agency decisions and operating procedures – that
may present grounds for a finding of barriers to cross-border trade under the GATS. Because
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the Obama Administration is operating under significant political restraints, U.S. compliance with
a DSB order is less likely if its immigration laws are directly challenged. We will instead
concentrate on those corrective measures that may be taken administratively without change in
national legislation. While U.S. law has in the past been successfully challenged in the WTO,
we find that compliance is now less likely under current political and economic conditions of
crisis impacting the United States. It is unlikely that the U.S. Government would accede to WTO
challenge to U.S. immigration laws in the present political environment due to high and
persistent joblessness. Nonetheless, the White House, which remains strongly pro-Free Trade,
may be more willing to negotiate administrative measures if faced with a determined challenge
mounted by a major trade partner and other interested parties, including U.S.-based MNCs. The
GOI, India-based firms, and U.S.-based MNCs all have a common interest in knocking down
U.S. administrative barriers to IntraCompany transfers, otherwise known as the L-visa, to which
Mode 3 GATS rules apply.
It is extremely unlikely that the U.S. political system would willingly implement corrective actions
ordered by the WTO DSB if these involved any measures that directly challenged national
legislation. Congress has already made it clear that it considers its powers over immigration to
be plenary under the U.S. Constitution, and will not again tolerate agreement or accession to
any trade agreement that might be made by the US Trade Representative (USTR) that would
significantly change immigration laws. 116 To stand a reasonable chance of being received and
acted upon, corrective measures would have to instead address regulatory or policy issues
under the control of the Executive Branch.
Incentives as well as sticks usually present the most effective negotiating posture. An approach
that includes a series of compromise steps that the Indian IT industry is willing to offer alongside
U.S.-based multinationals, such as voluntary hiring targets for U.S. workers and a substantial
expansion of U.S. operations, would be well received at this point in time by the Obama
Administration and the U.S. public. The White House and Capitol Hill need to be educated
about how important unimpeded Trade in Services is to the American economy, and how lifting
116 The objection to trade pacts that require changes in domestic immigration law is also apparent in
correspondence co-signed by former House Immigration Subcommittee Chair Sensenbrenner with then Ranking
Minority Member John Conyers, Jr. (D-MI) addressed to former U.S. Trade Representative Rob Portman that
insisted that “the Administration will abide by the broad commitment” apparently made by prior U.S. Trade
Representative Robert B. Zoellick to not negotiate trade agreements with immigration provisions “that require
changes to the U.S. law.” Sensenbrenner, Conyers Push for Portman Commitment on Visas, Inside U.S. Trade (May
27, 2005); see, related, 108 H. Rpt. 224 Part 2 (July 22, 2003).
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of administrative impediments that are currently in the way of expansion of Multinational
operations here can help to stimulate domestic jobs growth.
Nonetheless, if in the end this should fail, we find that India may have standing to bring before
the DSB a complaint on behalf of a number of multinational corporations that operate
professional service companies from headquarters, subsidiaries or affiliates within India that
have also been adversely affected by improper application of U.S. immigration and labor law.
The MNCs are essential to a strategy before the Body, inasmuch as the restrictions upon L-1
are the clearest major violation of the U.S. commitment to lift barriers to commercial presence
and cross-border provision of services under GATS. While the interests of India and its
resident companies only partially overlap with U.S.-based Multinational Corporations (MNCs) ,
there is room to explore coalition building related to action that might be brought against the
United States before the Body.
BACKGROUND
Part I, above, examines the U.S.-India balance of trade in information-related
services and analyzes the impact that Indian H-1B and L-1 service providers in the IT-
BPO sector actually have upon U.S. unemployment. We find that specifically the impact
of Indian firms is negligible in terms of displacement of U.S. workers, the number of H-
1B workers amounting to four percent of all workers in the U.S. Information sector, and
half of these are employed by Indian firms. Therefore, the effect on balance of
payments by the value-added by these Indian specialty workers is neutral.
Furthermore, these IT outsourcing firms operate in accord with global Free Trade
agreements the U.S. lobbied most actively to put in place. The bottom-line and
competitiveness of U.S. firms undoubtedly benefit from the input of these highly-skilled
workers into US products, processes and supply chains. In addition, the Indian IT-BPO
industry operates in accordance with GATS and the national laws of the countries
where they operate. The discriminatory and punative measures taken against them by
the U.S. government have no supporting basis in law or necessity, and violate WTO
rules that bar both “de jury” discrimination against a treaty signatory by passage of a law
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or “de facto” measures that have the same discriminatory effect. [See, Section 2,
Appendix II, Articles III, VI, XVII]
In the earlier section of this work, we identified U.S.-multinationals (MNCs) as the
principal actor impacting employment levels in the U.S. IT industry. The 2009 deficit in
U.S.-India trade in the IT-BPO sector, ranging from $159 to $344 million, was equivalent
to no more than 3,500 U.S. F/T positions. By comparison, U.S.-based Multinational
Corporations eliminated more than 200,000 U.S. positions last year, and at least one-in-
five job eliminations in the U.S. were by MNCs, which carried out layoffs at a rate two to
three times that of other U.S. companies, according to the U.S. Commerce Department.
In total, U.S.-based MNCs have eliminated more than a million U.S. jobs across all
sectors since 2007, but it is Indian H-1B employers that have received a grossly
disproportionate share of blame, particularly for historically high rates of prolonged
unemployment in the U.S. tech industry.
We also find that the U.S. service sector continues to enjoy a sizable surplus,
about $150 billion in 2010, in its global terms of Trade in Services, which substantially
offsets the impact of the huge and growing U.S. deficits in Trade in Goods and
accompanying balance of accounts deficit, which now amount to a towering annualized
$600 billion exports deficit.
As was detailed in Part 1, the intent of the U.S. Congress in its action in August
imposing a $2,000 surcharge upon some H-1B and L-1 visa petition applications is
clearly punative and discriminatory with the expressed intent of eliminating the cost
advantage that Indian firms currently have in the U.S. market providing cross-border IT
and BPO services.
While the fees surcharge undoubtedly will commercially impact some firms in the
Indian IT-BPO industry, and they can and should be compensated under WTO
mechanisms, we believe there are more serious legal and regulatory issues that
actually present greater economic harm to Indian firms. While the U.S. remains bound
by its commitments under Mode 3 to allow the unimpeded commercial presence of
India-based companies to provide services inside the U.S., there are significant
regulatory interpretations that have been made by the USCIS that effectively impede the
ability of these firms to freely carry out contracts and to provide services inside the U.S.
through their employees – de facto measures inconsistent with actual US law and
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published regulations for Intracompany Transferees, the L-1 nonimmigrant category –
contrary to GATS Mode 3.
We also find that the most significant barriers to U.S. market trade in services are
imposed by administrative fiat, rather than by legislation, and they can be removed by
the same means. The principal agency is US Citizenship and Immigration Services
(USCIS), a division of the Department of Homeland Security (DHS), which is an
executive agency under the policy control of the White House. In recent years, USCIS
has also imposed a number of de facto administrative rules to entry of Natural Persons
attempting to provide private professional services as H-1B Temporary Workers –
again, contrary to US law without publishing new regulations – in contravention of WTO
rules for GATS Mode 4.
In the Annex to the GATS Treaty containing U.S. commitments to lift restrictions
on trade, the United States committed itself at the Uruguay Round of negotiations to
issue 65,000 H-1B visas per year. There are three additional U.S. trade agreements
that contain this sort of language: the North American Free Trade Agreement (NAFTA)
and the U.S. Free Trade Agreements (FTAs) with Chile and Singapore. The Chile and
Singapore agreements established specific visa programs with specific numbers of Free
Trade visas (2,400 and 1,600 per year respectively) attached to these trade
agreements.
The most significant de facto administrative measure restricting H-1B is the
January, 2010 “Neufeld memo”, a USCIS policy directive imposed rules requiring that
H-1B employers document that they maintain close, continuous “control” over H-1B
workers assigned at third-party client sites, effectively banning some of the most
common practices of outsourcing and staffing agencies. That new policy was recently
challenged by a law suit, Broadgate v USCIS. In August, the US District Court for the
District of Columbia dismissed the action brought by industry groups and staffing firms
seeking the court’s protection of their business model. The Judge specifically declined
to extend such protection, dismissing the suit with prejudice in August 13, coincidentally
on the same day that the President signed the H-1B and L-1 fee surcharge into law as
part of a Border Protection Bill. The U.S. clearly is neither willing nor able to come into
voluntary compliance with GATS regarding H-1B, which has become the principal focus
of political efforts to restrict foreign business employment presence in the U.S.
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Another action that has created barriers to trade that are facially inconsistent with
GATS is a set of de facto USCIS rules that have been applied to the L-1B category. In
2008, the USCIS Administrative Appeals Office (AAO) ruled against an IBM affiliate in
Matter of GSTechnical Services (“GST”), as discussed in Part I, above. That
administrative decision effectively imposes a new definition of “specialized knowledge”
so that only a tiny minority of previously eligible L-1B workers are now qualified for
visas, depending upon how strictly the new standard is construed in each case. USCIS
has also applied a related doctrine of “control” in such a way as to withhold or revoke L-
1A visas held by owner-directors of companies. This provides USCIS adjudicators with
enormous leeway in how many owner-directors and technical employees of
multinational corporations the agency will allow to work in the United States, as well as
which firms may be established and continue to operate here.
At the same time that US. business immigration regulations have become
increasingly restrictive, U.S.-based multinationals have steadily reduced their presence
in the U.S, which correlates with increasing levels of domestic IT unemployment. As we
have shown in Part I, the bulk of U.S. unemployment cannot be attributed to the
operations of Indian outsourcing firms, and there are no other U.S. policy factors of
sufficient magnitude – such as a change in tax policy -- that could account for the
declining share of U.S. employment by the MNCs. A business strategy of downsizing
U.S. operations by MNCs has been ongoing for several decades, a process that began
years before Indian firms became a significant competitor in global services, and the
globalization of these functions by MNCs is by far the largest structural factor driving IT
sector unemployment in the U.S. The chart below illustrates the declining U.S. share of
global MNC employment over a twenty year period117:
117
Source: BEA release, “Summary Estimates for Multinational Corporations”, April 16, 2010, http://www.bea.gov/newsreleases/international/mnc/2010/mnc2008.htm
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The U.S. response to this MNC strategy of globalization of operations has been
to restrict service provision by these companies in the U.S. This reactive policy of
protectionist restriction of business immigration has substantially contributed to the
decision to accelerate downsizing of American operations by these multinationals. In
this regard, it should be noted that in 2004 L-1 outsourcing was substantially restricted
by a change in law, and the GST decision was handed down before the Wall Street
crisis and the full weight of corporate layoffs had been realized. To a substantial
degree, growing problems with the U.S. immigration regulatory regime have reduced
the attractiveness of the U.S. market, and contributed to decisions to offshore
multinational operations, contributing to the 2008 financial collapse and surge in
joblessness in sectors and occupations previously viewed as “recession-proof.”
The May 2008 GST ruling followed the 2004 L-1B Visa Reform Act which
significantly restricted L-1B outsourcing, an amendment passed after unemployment in
the U.S. Information sector had crested in a previous peak in sectoral layoffs to more
than 300,000. In the wake of that law barring most L-1B outsourcing, there was an
effort made by many of the affected multinationals to make up the shortfall in available
visas by a shift in utilization to the H-1B category, which became oversubscribed, until
recently. In FY2009 and 2010, demand for H-1B dropped off significantly as MNCs
have found ways to move more operations offshore.
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The most recent USCIS action of concern was a clarification of de facto
measures already in place restricting H-1B outsourcing. The January, 2010 Neufeld
memo overtly imposes the same “control” rules on H-1B that had been applied by law to
L-1B in 2004. However, the “control” requirement is not found in the U.S. statute and
published regulations that govern H-1B, which falls under a different part of the
Immigration & Nationality Act (INA) and attendant regulations.
In 2008, USCIS imposed significantly stricter eligibility rules and a new definition
on L-1B “specialized knowledge” workers. These were de facto changes in USCIS
rules, not changes in regulations published in the The Federal Register, as required
under the Administrative Procedure Act. Because these de facto rule changes do not
follow “publish and comment” requirements at APA Secs. 553, 702-709, they are
inconsistent with US law, and because they discriminate in a de facto way against
Indian nationals, they also violate GATS.
These de facto restrictive measures have had several other malign effects.
First, they adversely impact and flaunt WTO rules and they violate the letter and intent
of U.S. law. USCIS has in effect been imposing L-1 statutory requirements for employer
“control” upon H-1B, this scrambles the distinct legal and treaty definitions that had
been applied to the different GATS categories for Mode 3 Commercial Presence (L-1
Intracompany Transfers) and Mode 4 Presence of Natural Persons as (H-1B Temporary
Workers) Service providers. Concurrently, it puts the U.S. regulatory regime for H-1B
and L-1 out of accordance with the nation’s stated commitment in the GATS Annex that
specifies its commitment to lift remaining restrictions and reservations. This changing
regulatory regime has also effectively changed USCIS eligibility requirements for H-1B
and L-1B so they no longer comply with the text of the law and published regulations,
making these measures less transparent – regulatory transparency is also a
requirement under GATS. As will be explained at greater length below, relevant
sections of GATS require that the administration of laws “relating to qualification
requirements and procedures” do not “constitute unnecessary barriers to trade in
services”, and that these be “based on objective and transparent criteria.” One of the
requirements for transparency in law is consistency between actual agency rules and
published laws and regulations. Finally, under GATS there is the requirement that the
national rules governing service provision across borders are “not more burdensome
than necessary to ensure the quality of the service”
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These measures present barriers to the L-1 commercial presence of foreign
service firms, to the H-1B cross-border provision of services by specialty workers, and
to the ability of foreign firms to conduct business consultations and post-sales warrantee
work performed by B-1, short-term Visitors for Business, under GATS Mode 1.
While it has a valid security mission recognized under GATS, and “hardening the
borders” since 9/11 is reasonable, careless and arbitrary regulatory changes by DHS
made America a far more difficult, risky and ultimately less secure place to do business,
particularly for certain types of businesses involved in international trade in services. In
the 1990s, the U.S. was the prime-mover of free trade and the World Trade
Organization (WTO), and signed and ratified a series of treaties and a set of rules
related to the Global Agreement on Trade in Services (GATS). Parts of the GATS
Agreements, Modes 3 and 4, correspond with (and, arguably, govern) the terms and
restrictions the U.S. can now place on the L-1 Intracompany visa and H-1B Temporary
Specialty Worker visa categories. DHS and USDOL practices transgress WTO rules
that forbid undue restrictions and unfavorable conditions imposed on foreign company
workers and service providers. Congressional leaders, even Democrats who were
previously pro-Free Trade, now, at a time of growing public discontent with high
unemployment, are openly and vocally backing discriminatory measures against foreign
outsourcing firms and calling for further restrictions on H-1B.
H-1B workers are widely blamed for taking what is viewed as “American jobs”,
and USCIS has made it as difficult for outsourcing companies to legally employ non-
immigrant workers as it can. This lends support to charges of discrimination on account
of nationality. In FY2005, at the high point for H-1B and L-1B utilization, three out of
four nonimmigrant visas issued for systems analysts and programmers were for Asian
countries, primarily India. 118 Five years later, after changes to U.S. law and to less
formal agency rules, that demographic has significantly changed with Indian H-1Bs
dropping to about one-in-three.119 In assessing cases against government policies, the
WTO Dispute Settlement Body (DSB) looks to the effect of national measures, as well
118
See, Yeoh et al., 'State/Nation/trasnation: Perspectives on Transnationalism in the Asia-Pacific', Routledge, 2004, ISBN 041540279X, page 167 119
See, (2009 Nonimmigrant Flow Report, DHS Office of Immigration Statistics (April, 2010), Table 4)
http://www.ilw.com/immigrationdaily/news/2010,0430-nonimmigrant.pdf
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as whether there is a legitimate governmental interest at stake. This sort of
discriminatory policy that particularly impacts certain nationalities in ways that are
contrary to the GATS Agreement and national law is clearly not legitimate, and will not
withstand scrutiny.
Because U.S. immigration rules disproportionately affect the ability of IT
consulting and BPO companies located in India to access and provide services under
Modes 1, 3, and 4 within the U.S. market, India has standing to represent their interests
under WTO rules in an action against the U.S. before the Body. Discriminatory effect
against specific nationalities (“national treatment”) is forbidden and forms the prima
facie basis for a finding of erection of an improper trade barrier under WTO rules. The
element of intention to discriminate against any specific nationality need not be shown,
and a showing of discrimination, in itself, due to the imposition of regulatory barriers to
trade (“national measures”) is sufficient for a finding of discrimination and national
treatment.
The following provides a detailed listing of agenda items related to restrictive
U.S. administrative measures to be resolved either through informal trade talks with the
USTR or as specific complaints to be made to the DSB. When one looks closely at the
specifics of U.S. immigration law, the importance and centrality of MNCs becomes
clear. Of the litany of measures that restrict U.S. immigration, those that have been
imposed in recent years on L-1 Intracompany Transferees are most clearly inconsistent
with U.S. commitments to allow foreign national companies and service workers access
and presence within United States markets on terms no less advantageous than
domestic U.S. firms and workers enjoy.
Multinational corporations are also central to efforts to lift trade restrictions
because they maintain enormous leverage with national governments to negotiate and
evolve immigration regulations that better suit their own needs. On the other hand, the
USG retains a trump card of unrealized enforcement powers to pursue tax haven and
profits-shifting abuses by the MNCs. The MNCs now have concerns about how
provisions of the recently-passed 2010 American Jobs and Closing Tax Loopholes Act
will be implemented. The changing and unpredictable nature of immigration regulation
in the United States presents a worrying and closely-related regulatory barrier for
MNCs, taken together with new tax laws that affects repatriation of profits they present
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significant uncertainty and elevated perceived risk for business operations. That
creates incentives for the MNCs to work with India in resolving these common issues
with the U.S. Finally, we analyze how the immigration-related interests of the U.S.-
based MNCs overlap those of the Indian IT-BPO firms, and how concerted policy reform
efforts can best be carried out.
UNDUE RESTRICTIONS UPON L-1 INTRACOMPANY TRANSFERS UNDER
GATS MODE 3
U.S. Treaty Obligations Under the WTO General Agreement on Trade in Services (GATS)
Membership in the World Trade Organization (WTO) binds 153 signatory states to abandon all forms of overt and implicit discrimination and most-favored-national (MFN) treatment in trade. WTO members agree to the binding arbitration in trade disputes with other members, including the judgment of the WTO arbitration and appellate body, the Dispute Settlement Body (DSB), which may impose trade sanctions, including the award of large monetary damages for non-compliance and withdrawal from treaty agreements.
The original WTO treaty pertaining to goods, the General Agreement on Tariffs and Trade (GATT) dates from 1947. That formed the basis for the finalized GATT (“GATT 1994”)120. A follow-on annex, the General Agreement on Trade in Services (GATS), governing the cross-border supply of services, including commercial presence of corporations and the movement of “natural persons,” also applies to every WTO Member. Domestic implementing legislation resulted in entry into force of GATS for the United States on January 1, 1995.
Under Article VI, the “supremacy clause” of the U.S. Constitution, GATT and the GATS agreements are the “supreme Law of the Land.”121 By ratifying and signing membership in the WTO, the Senate and the President explicitly limited sovereignty
120 General Agreement on Tariffs and Trade, 30 October 1947, 55 U.N.T.S. 187; General Agreement on Tariffs and
Trade 1994, Annex 1A of the WTO Agreement.
121 U.S. CONST. Art. VI, cl. 2
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over the ability of the United States to discriminate in its terms of trade against other states, impose national treatment (favor domestic industry), or to selectively convey most-favored nation status to other trade partners. In the process, it also specifically renounced sovereignty over the power to selectively restrict the entry of certain categories of non-immigrant business visitors, intra-company transferees, and specialty workers.
The treaty obligations under GATS to renounce discrimination in Trade-in-Services are not absolute. All states may continue to restrict to its own nationals services provided in the exercise of governmental authority. WTO members may still impose measures bearing on national security, the protection of public safety and health, and morality, etc. and they may also restrict all services directly related to the exercise of air traffic rights. In addition, each Member at the time of signing may elect to declare a number of restrictions and reservations on specific trade sectors from which it chose to temporarily exempt itself. The exemptions chosen by the United States are specified in an annex to its accession to GATS.122 These self-exemptions are theoretically “temporary” under the terms of the treaty, and are supposed to expire ten years after the date membership in the WTO is granted. Nonetheless, U.S. reservations remain in place and their continued validity has thus far not been challenged. Finally, as we were to see later in a GATS dispute, the United States has shown itself willing to withdraw from specific commitments it finds to be inconvenient, as is allowed by the treaty, and as occurred in 2007 after WTO panels found the U.S. would have to modify a federal law in order to comply with its commitment to liberalize its global trade in on-line gaming services. However, withdrawal from liberalization commitments opens a state to further sanctions for resulting losses to other WTO Members, and a major withdrawal from commitments to liberalize Modes 1 through 4 Trade in Services could result in an award to India and other trading partners that would be extremely costly to the U.S., if actually collected either by direct award or by the imposition of countervailing measures by GOI such as as tariffs on US goods or services. That recourse by India would likely lead to trade restrictions or retaliatory measures by the U.S. and an escalating trade war which would be highly damaging to both parties as well as to the world trade system.
The list of reservations declared in 1995 by the United States is notable for the fact that it includes a declaration that it is not bound to remove limitations on market
122
The legally binding commitments and exemptions undertaken by the United States are published in its Schedule
of Specific Commitments (GATS/SC/90; GATS/SC/90/Suppl.2 and 3) and List of Article II (MFN) Exemptions (GATS/EL/90; GATS/EL/90/Suppl.2 and 3). ftp://ftp.usitc.gov/pub/reports/studies/GATS97.pdf
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access related to immigration. However, in the same section, the U.S. bound itself to allow the entry and temporary stay of certain categories of non-immigrants. In effect, the USA Schedule of Specific Commitments binds the U.S. to not restrict or discriminate in the entry and temporary stay of non-immigrants in the B-1 business Visitor and L-1 Intracompany Transferee categories, and in the case of H-1B, made additionally pledges to allow a specified minimum number of annual admissions of Specialty Workers.
Text of Schedule of Specific Commitment and Corresponding U.S. Non-immigrant
Classes
With regard to immigration-related measures, the annex declares the U.S. is “[u]nbound, except for measures concerning temporary entry and stay of another member who shall into the categories listed below:” [pp. 3-7]
[B-1 Visitor for Business/Visa Waiver]
- Services Salespersons - persons not based in the territory of the United States and receiving no remuneration from a source located within the United States, who are engaged in activities related to representing a services supplier for the purpose of representing a services supplier for the purpose of negotiating for the sale of the services of that supplier where: a) such sales are not directly made to the general public and b) the salesperson is not engaged in supplying the service. Entry for persons named in this section is limited to a ninety-day period
[Corresponding U.S. Non-Immigrant Class – L-1A and L-1B]
- Intra-corporate Transferees - managers, executives and specialists, as defined below, who are employees of firms that provide services within the United States through a branch, subsidiary, or affiliate established in the United States and who have been in the prior employ of their firm outside the United States for a period of not less than one year immediately preceding the date of their application for admission and who are one of the following:
a) Managers - persons within an organization who primarily direct the organization, or
a department or sub-division of the organization, supervise and control the work of other
supervisory, professional or managerial employees, have the authority to hire and fire or
recommend hiring, firing, or other personnel actions (such as promotion or leave
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authorization), and exercise discretionary authority over day-to-day operations. Does
not include first-line supervisors, unless the employees supervised are professionals, nor
does it include employees who primarily perform tasks necessary for the provision of the
service.
b) Executives - persons within the organization who primarily direct the management
of the organization, establish the goals and policies of the organization, exercise wide
latitude in decision-making, and receive only general supervision or direction from
higher-level executives, the board of directors, or stockholders of the business.
Executives would not directly perform tasks related to the actual provision of a service or
services of the organization.
c) Specialists - persons within an organization who possess knowledge at an
advanced level of continued expertise and who possess proprietary knowledge of the
organization's services, research equipment, techniques, or management. (Specialists
may include, but are not limited to, members of licenced professions.)
[and]
Personnel Engaged in Establishment - A person who has been employed in the
immediately preceding year by an entity described in Section II, receiving remuneration
from that source, who occupies a managerial or executive position with that entity and is
entering the territory of the United States for the purpose of establishing an entity
described in Section II that will support employment of persons named in paragraphs a),
b), and c) therein. The subject persons shall present proof of acquisition of physical
premises for the entity that shall commence its business operations within one year of
the date of entry of that person.
[Corresponding U.S. Non-Immigrant Class – H-1B]
Fashion Models and Specialty Occupations - Up to 65,000 persons annually on a world-wide basis in occupations as set out in 8 USC. ' 1101 (a) (15) (H) (i) (b), consisting of (i) fashion models who are of distinguished merit and ability; and (ii) persons engaged in a specialty occupation, requiring (a) theoretical and practical application of a body of highly specialized knowledge; and (b) attainment of a bachelor's or higher degree in the specialty (or its equivalent) as a minimum for entry into the occupation in the United States. Persons seeking admission under (ii) above shall possess the following qualifications: (a) full licensure in a US state to practice in the occupation, if such licensure is required to practice in the occupation in that state; and (b) completion of the
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required degree, or experience in the specialty equivalent to the completion of the required degree and recognition of expertise in the specialty through progressively responsible positions relating to the specialty. Entry for persons named in this section is limited to three years.
Specialty occupation aliens and their employers must be in compliance with all labour condition application requirements that are attested to by the established employer. These requirements are: a) wages paid to the person are the greater of: 1) the actual wage paid by the employer to individuals in that place of employment with similar qualifications and experience, or 2) the prevailing wage for that occupational classification in the area of employment; b) conditions of work are such that they will not adversely affect working conditions for those similarly employed; c) there is no strike or lockout in the course of a labour/management dispute in progress at the place of employment affecting the subject occupation; labour/management dispute in progress at the place of employment; d)the employer has not laid off or otherwise displaced workers in the subject occupation in the previous six months and will not lay off or displace any US worker during the 90-day period following the filing of an application or the 90-day periods preceding and following the filing of any visa petition supported by the application; e) the employer has taken and is taking timely and significant steps to recruit and retain sufficient US workers in the specialty occupation; and f) notice is given at the time of application by the employer to employees or their representatives at the place of employment.
Binding Arbitration in Trade Disputes under GATS with other WTO Members
Most trade disputes that lead to arbitration and settlement by the Dispute Settlement Body involve “facially-neutral measures”, laws and regulations that while they contain no explicit reference to origin (“origin neutral”) nonetheless have some sort of disproportionate discriminatory effect upon one or more particular Members. Article II, Paragraph 1 of the GATS states:
With respect to any measure covered by this Agreement, each Member shall accord
immediately and unconditionally to services and service suppliers of any other Member
treatment no less favourable than that it accords to like services and service suppliers of
any other country.
Almost all national measures that have a discriminatory effect are barred under
the terms of the GATT and GATS. The WTO does not permit national laws or
regulations that have the effect of either de jure or de facto trade discrimination, national
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treatment or most-favored-nation treatment, and bans all such measures, regardless of
whether discrimination was the intent or is merely the effect under the “aim and effects”
clause of GATT Article III.123 The policy statement in Article III, Paragraph 1 states that
internal taxes and internal regulatory measures should not be used “to afford protection
to domestic production.” 124 Commentary on the issue of intent and effect observes125:
National measures are only origin-neutral if they contain no explicit distinction whatsoever on the basis of origin. This excludes measures which treat imports in the same manner as most, but not all, like domestic goods. Such measures typically contain an exception for local or regional goods, or even a single supplier within the domestic market. Contrary to the usual claim of the defendants in these cases, such regimes do not qualify as equal treatment, which means applying a measure indistinctly to imports and national goods. The exception in favor of a part of domestic suppliers, therefore,
amounts to an explicit or de jure discrimination to the extent it applies.
The DSB allows complaining Members several alternative ways to demonstrate that they have been aggrieved by such de facto discrimination. A case may be established by the mere fact of disproportionate discriminatory effect, a showing of “less favored” treatment, and it is unnecessary to show any specific intent to discriminate against the aggrieved party.
These “negative effects” and “de facto” approaches also show up in U.S. immigration jurisprudence, and is long-established, following the U.S. Supreme Court’s seminal “Chinese Laundry Case”, Yick Wo v Hopkins (1886), which invalidated a San Francisco ordinance that disproportionately discriminated against plaintiff Chinese nationals. Even though the contested statute in that case was race and nationality neutral on its face, the Court found it to be without rational basis. More recently, the 9th Circuit Court of Appeals has applied this principle in Kazarian v. US, 596 F.3d 1115,.
C.A.9 (Cal.), March 04, 2010 (NO. 07-56774) http://www.ca9.uscourts.gov/opinions/view_subpage.php?pk_id=0000010327, which set
123
For the English-language version of all WTO GATT and GATS documents, see, http://www.wto.org/english/docs_e/legal_e/legal_e.htm 124 In 1996, the WTO Appellate Body rejected the “aim and effects” distinction as contrary to the text of Article III.
See, Japan — Taxes on Alcoholic Beverages, WT/DS8, -10, -11/AB/R (4 October 1996).
125 See, Lothar Ehring, De Facto Discrimination in WTO Law: National and Most-Favored-Nation Treatment, or
Equal Treatment?, http://centers.law.nyu.edu/jeanmonnet/papers/01/013201.html
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aside a decision by the Administrative Appeals Office (AAO) that had read into the law and regulation a requirement that does not appear and is not reasonably implied by it. The Kazarian decision significant held as follows:
“The AAO’s conclusion rests on an improper understanding of 8 CFR § 204.5(h)(3)(vi). Nothing in that provision requires a petitioner to demonstrate the research community’s reaction to his published articles before those articles can be considered as evidence, and neither USCIS nor the AAO may unilaterally impose novel substantive or evidentiary requirements beyond those set forth at 8 CFR § 204.5. " [emphasis added]
The WTO panels and Appellate Body similarly forbid application of any national measure or tariff that is not “reasonable, impartial, and objective”, whether found to be intentional and targeted, or because it can be show to have merely a de facto discriminatory effect.
Most of the case law developed by the Body deals with trade discrimination in goods and commerce under the GATT, which generally but not necessarily carries over to the less common GATS disputes that come before the DSB. Establishing illegal de facto discrimination is not a completely developed area of trade law, and remains the topic of intense debate. Much of the legal controversy focuses on GATT’s textual requirement of "likeness" and whether GATT Article III includes an "aims and effects" test. The other conditions for a violation of an Article III, "less favorable treatment" and "taxation in excess" respectively, are also an unsettled question, with differing interpretations appearing in various GATT and WTO dispute settlement reports.
The most recent major GATS dispute involving the United States to be considered by the Body is the Internet Gambling complaint brought on March 21, 2003 by the Caribbean island states of Antigua and Barbuda. Requesting consultations with the US regarding American federal and state laws affecting gambling and betting services, Antigua and Barbuda argued that the cumulative impact of the US measures resulted in the “total prohibition” of the cross-border supply of gambling and betting services from WTO members to the U.S., and that this violated the GATS. The dispute moved to the next stage, and on 12 June 2003, Antigua and Barbuda requested the establishment of a panel, which found that the U.S. had indeed made specific commitments to lift restrictions on “other recreational services” (including gambling and betting) of the type specified in the complaint. Further, the panel found that three US federal laws (the Wire Act, the Travel Act and the Illegal Gambling Business Act) and four out of the eight state laws it examined (enacted in Louisiana, Massachusetts, South Dakota and Utah) violated US commitments under Article XVI concerning market
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access. The Panel also found that the US had failed to make out a defense under Article XIV, which sets forth the general exceptions to the GATS regime.
Both the United States and Antigua and Barbuda appealed. The Appellate Body limited its findings to the three federal laws (holding that the Panel should not have ruled on the eight state laws, because Antigua had not made a prima facie case of inconsistency with the GATS). The Appellate Body reversed many of the Panel’s findings, so that the US was compelled to modify only one of the contested federal laws. In the end, on May 4, 2007, in the midst of the contentious DOHA Round of negotiations, the US announced it was withdrawing its commitments in the gaming sector from its GATS schedule, as permitted under Article XXI. This partial withdrawal of commitments during mediation of a dispute was an unprecedented move in the WTO.126 A WTO Member may modify or remove measures at issue after establishment of a panel but prior to adoption of the panel or Appellate Body report.
Nonetheless, this established a significant precedent for future actions brought against the United States under Articles II, III, VI, or XVI.
SOME USCIS DE FACTO RULES AND PRACTICES VIOLATE SPECIFIC
GATS COMMITMENTS
Unlawful Restrictions on Mode 3 Commercial Presence (L-1 Intracompany Transferees)
L-1 Workers
L-1 Intracompany Transferees may normally work in the U.S. on long-term assignments for a limited cumulative maximum period of either seven years (L-1A Executives and Managers) or five years (L-1B “Specialized Knowledge” workers)127.
126
See, http://www.antiguawto.com/wto/AOGA_Press_Rel_response_USTR_PR_on_omission_May07.pdf 127
8 C.F.R. §214.2(1)(12) imposes time limits of five years “in the United States” in a specialized knowledge L-1B capacity or seven years “in the United States” in a L-1A managerial or executive capacity. Exemption to these time limits are provided for categories of employees whose H or L employment in the U.S. is intermittent in character, being less than six months each year. 8 C.F.R. §214.2(h)(13)(v); 8 C.F.R. §214.2(l)(12)(ii).
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What U.S. Law Says L-1 Workers May Not Do: A 2004 change in the law128
effectively limits outplacement of L-1B workers. Most significantly, that amendment
barred visa status for aliens with specialized knowledge “stationed primarily at the
worksite of an employer unaffiliated with the petitioning employer”. The bar applies “if:
(1) the alien will be controlled and supervised principally by such unaffiliated employer;
or (2) the placement is essentially an arrangement to provide labor for hire rather than in
connection with the alien's specialized knowledge.”129
The 2004 statutory change is not at issue here. As explained above, direct
challenge to settled U.S. immigration law under WTO rules would probably be
unavailing. In effect, however, this requirement for control has been interpreted by
USCIS to require six additional de facto requirements for L-1B petitions that are neither
in the revised statute nor in published DHS regulations. These additional requirements
related to qualifications of L-1B specialty workers would appear to contravene Article VI
of the General Agreement, Domestic Regulation, specifically Paragraphs 1, 4 and 5.
GATS Article VI, Paragraphs 1 and 2 states a requirement for “reasonable, objective
and impartial” administration of all national measures (including federal immigration
laws related to nonimmigrant classes which the U.S. has made commitments):
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.
128
See, Immigration and Nationality Act (I.N.A., hereinafter, “The Act’) as amended by the Omnibus Appropriations
Act (OAA) for Fiscal Year 2005, Public Law 108-447, 118 Stat. 2809. As amended at Section 214(c)(2)(B) of the Act, 8 U.S.C. 8 1184(c)(2)(B). Among the provisions of the OAA is the L-1Visa Reform Act of 2004 (L-1 Reform Act), signed December 8, 2004. 129
See, http://thomas.loc.gov/cgi-bin/query/z?c108:H.R4818.ENR:
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Relevant sections of Paragraphs and 4 and 5 provide that administration of laws
“relating to qualification requirements and procedures” do not “constitute unnecessary
barriers to trade in services, as stated in paragraph 4, and that these be “based on
objective and transparent criteria”, that are – and here is the crux -- “not more
burdensome than necessary to ensure the quality of the service”:
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 2008, the USCIS Administrative Appeals Unit (AAO) issued a decision that
radically changes USCIS interpretation of qualifications requirements for L-1B visas. In
Matter of GSTechnical Services Inc130 (IBM), the AAO ruled that the definition of
“specialized knowledge” now included six additional elements: 1) knowledge narrowly
held within the company; 2) possessed by a small, elite class of employees, (key
personnel only); 3) involves unusual duties, skills, and “knowledge beyond that of a
130
Matter of GSTechnical Services, Inc (AAO, July 22, 2008) (unpublished), reproduced on AILA InfoNet at Dec. No.
08081964 (posted Aug. 19, 2008); also, available at USCIS website AAO decisions page: L-1 Intracompany
Transferees, L-1A and L-1B, July 22, 2008: JUL222008_04D7101.PDF, http://www.uscis.gov/uscis-ext-
templating/uscis/jspoverride/errFrameset.jsp
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skilled worker”; 4) requires a prolonged period of experience with the petitioning
company (beyond the one-year statutory requirement); 5) the beneficiary’s skills must
be substantially greater than both the average standards within the petitioner’s own
workforce; and 6) the knowledge is copyright-protected.
In particular, AAO decisions bearing on L-1B “specialized knowledge” issues appear
to be discriminatory, targeting the large multinational IT consulting companies drawing
upon workforces primarily located in India that were once the primary users of the
program. These new L-1B eligibility criteria are clearly in contravention of Article VI,
Paragraph 4, especially subpart 4(b) that mandates that eligibility requirements are “not
more burdensome than necessary to ensure the quality of the service.”
Furthermore, the de facto eligibility rules and agency procedures for L-1B that came
out in recent years contradict the text and intent of controlling U.S. statute, are
inconsistent with federal regulations and contrary to definitive interpretation rendered by
long-established USCIS headquarters’ policy memos. The 2008 AAO decision was
clearly not rendered to ensure the quality of the service provided by IBM, and was
instead intended by the agency to placate domestic political and labor groups opposed
to services outsourcing and to offshoring by multinationals in an effort, in contravention
of specific GATS commitments made by the U.S. to facilitate Mode 3 commercial
presence, to protect competing domestic firms and labor markets.
This untidy rulemaking through adjudications process has frustrated large numbers of applicants, and it works to discourage companies from filing L-1 petitions for all but an elite few employees who can be shown to have the highest possible level of experience and knowledge about proprietary company-owned processes. Theoretically, under a literal reading of the 2008 AAO decision, only a small fraction of the employees of a company that employed only Nobel Laureates would qualify for L-1B visas under the GSTechnical Services decision. Such a requirement is clearly not “reasonable” or “impartial,” as required under Article VI.
Another requirement read into the law by the agency is that that the petitioner
“control” the work of the beneficiary extends to L-1A managers and executives, as well
as to L-1B specialized knowledge workers. USCIS extended the “control” requirement
outside the context of the 2004 law, which appertains exclusively to L-1B specialized
knowledge workers, to deny or revoke L-1A visas of company Directors who have a
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controlling interest in their own firms. Establishing the “control” requirement under
recent USCIS practice and procedures involves production of several dozen additional
categories of documents than were required under previous interpretation, which is a
further violation of the Article VI, Paragraph 4(b) that prohibits eligibility requirements
that are more “burdensome than necessary to ensure the quality of service.”
Application of the “control” requirement to L-1A Owner-Directors also violates the
Article XVI, Paragraph 2 commitment of Market Access to Mode 3 Commercial
Presence and Mode 4 Specialty service providers, which forbids any specification of
type of legal entity and forbids limitations on foreign capital investment. In effect, the
application of “control” requirement to L-1A imposes the following forbidden measures
under Article XVI:
(e) measures which restrict or require specific types of legal entity or joint venture
through which a service supplier may supply a service; and
(f) limitations on the participation of foreign capital in terms of maximum
percentage limit on foreign shareholding or the total value of individual or
aggregate foreign investment.
Furthermore, there is evidence that this requirement has been applied in a
discriminatory fashion in some instances to shut down the operations of U.S. affiliates of
firms, particularly those located in Asia, that have become the subject of political or
policy-driven compliance and enforcement measures in violation of Article XVII National
Treatment prohibitions. This is also an issue affecting MNCs that needs to be resolved
through negotiations or brought before a WTO panel.
Specific restrictions at job sites for L-1B and various types of non-immigrant workers
are also discussed in the sections, below. The first six additional requirements, above,
are vulnerable to challenge, as they are entirely agency ukase, which are not applied in
a transparent and reasonable manner. They are inconsistent with GATS articles as well
as U.S. law and published regulation, and have been imposed as a means for the
USCIS and Consuls to selectively restrict the issuance of L-1 visas, which creates
uncertainty, and raises compliance costs and risks of arbitrary administrative sanctions
for multinational corporations. Altogether, these six de facto agency rules for L-1B are a
costly and unlawful impediment to commercial presence in the United States, and they
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present grounds for WTO mediation as a potential violation of the U.S. obligations to
maintain transparent and reasonable eligibility standards and procedures under GATS
Articles III and VI as well as its commitment to maintain open market access under
GATS Article XVI.
The seventh requirement of a showing of employer “control,” because it is expressly
imposed upon L-1B by the 2004 amendment to the Immigration & Nationality Act, may
be less amenable to successful resolution through WTO trade enforcement
mechanisms because it is likely to be fiercely resisted by the U.S. Nonetheless, the
“control” requirement may pose a violation to the Article VI, Paragraph VI prohibition
against unnecessarily burdensome measures where its application, in effect, entails an
unreasonable burden of documentary evidence to establish eligibility. In this regard, the
extension of the “control” doctrine to L-1A managers and executives is clearly in excess
of the letter and intent of the 2004 Amendment to the I.N.A. as well as a change in
authoritative agency interpretation in the form of binding AAO precedent decision, and
thus violates the GATS requirement for “objective and transparent” (read, clearly legal
under national law) eligibility requirements under Article VI, Paragraph 4(a) as well as
the notice and transparency requirements under Article III. Where it also restricts L-1A
Owner-Directors, the “control” requirement may invoke additional issues under Articles
XVI and XVII. On the other hand, as it has been developed and articulated in U.S.
Administrative Law, the “control” doctrine has a firmer basis in administrative common
law than some other problematic USCIS practices, and it appears in published agency
rules for L-1B, and has survived a recent court challenge in the H-1B context131.
Inappropriate application of the “control” doctrine, such as excessive documentation
requirements or arbitrary application to L-1A, may also amount to GATS violations.
Restrictions on Mode 4 Service Providers (H-1B Specialty Workers) - Less Clearly
Discriminatory
131
See, Broadgate, Inc. v. USCIS, US Dist Ct. DC, Case No. 1-10-cv-00941-GK (Dec. Aug. 13, 2010)
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H-1B Workers
A. General Description
H-1B Specialty Workers may normally work in the U.S. on long-term assignments for a limited cumulative maximum period of six years with additional one-year increments available 365 days after filing an I-140 Immigrant Visa petition under ACT-21.
What U.S. Law Says H-1B Workers May Not Do:
What H-1B Workers May Not Do: A January 2010 policy statement, the “Neufeld Memo”, reinforces and adds to restrictions USCIS has been imposing for several years on employers who place their H-1B workers at third-party sites. Like L-1B, employers must now demonstrate that they fully “control” the work of employees assigned off-site. The memo imposes a new requirement for 28 types of documents in eight categories that must be submitted at the time of petition filings in order to establish that the petitioner controls the work of the H-1B beneficiary. [See, Appendix I for details] The memo also makes it clear that there are several categories of H-1B employment that will be denied, including self-employment and independent contractors, and workers outsourced by so-called Job Shops. In some respects, the limitations on H-1B now increasingly resemble those for L-1B, including the memo’s suggestion that a showing of “control” now extends to a requirement to document who provides tools, and that H-1B outsourcing may be permitted provided the H-1B worker applies company proprietary knowledge and the work performed is closely related to the company’s primary line of business (e.g., off-site financial software development by H-1B employees of a financial software development firm.)
Federal agency application of the common law definition of “control” has been upheld by the U.S. Supreme Court in several cases, and the U. S. District Court for the District of Columbia has just recently ruled in Broadgate v. USCIS that USCIS may apply its version as a non-binding policy guidance in adjudications of H-1B petitions. The decision ruled against the plaintiff’s argument that the USCIS requirement for common law “control” was inconsistent with the regulatory definition of “U.S. employer.” The court also expressly rejected the plaintiffs’ request for injunction seeking court protection of the business model employed by some staffing agencies of outsourced personnel for assignment to third-party clients who do not exercise control over H-1B workers at client work sites. Finally, the Court held that the Neufeld memo is not policy that is binding on the agency and is instead interpretation consistent with existing law and regulation. The
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outcome of this case makes it far more difficult for similar challenges to the policy within the U.S. Courts.
The DSB is certainly not bound by either national legislation or national judicial rulings on the subject. Nonetheless, the Broadgate decision presents some difficulty with regard to the question of whether the USCIS policy is actually inconsistent with the U.S. commitment to allow admission to a specified number of foreign “specialty workers” under Mode 4, inasmuch as the text of the U.S. commitment clearly requires that service workers be “employed” by an “established employer” and be paid a wage by that “employer” consistent with the prevailing wage for U.S. employees:
Specialty occupation aliens and their employers must be in compliance with all labour
condition application requirements that are attested to by the established employer.
It should be noted that there is no similar language that pertains to an express
“employer” requirement contained in US commitments to the L-1 category for Mode 3
commercial presence. The requirement for control by the employer, however, is an
express part of the 2004 statutory change to L-1B.
Under U.S. judicial interpretation, control is an inherent element of the employer-
employee relationship, and it has been held repeatedly to be not unreasonable for
federal agencies to require a showing of that where an employer-employee relationship
needs to be established as an eligibility requirement. It would appear, in light of the
“employer” attestation requirement, that a direct challenge in the DSB to the H-1B
“control” requirement laid out in the Neufeld memo might present a more difficult barrier
to establishing a prima facie discrimination case before the WTO.
While the H-1B outsourcing industry and most of its workers are primarily located
in India, which is disproportionately impacted by this policy, nonetheless, the memo
arguably does not present prima facie evidence of discrimination – in itself -- based
upon the Most Favored Nation (MFN) commitment of GATS Article II or by a failure by
the U.S. to honor its specific commitment under Mode 4 to allow admission to qualified
specialty workers coming to be employed by established employers. In order to prevail
in a matter before the WTO, the DSB panels and appeal board would have to be
convinced that the USCIS policy of defining “employer” to entail “control” is either
inconsistent with GATS Article II or is an unreasonable interpretation of the specific
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language and meaning of the terms used in the language of its commitment to remove
barriers under its Annex of Exceptions to the GATS. Another argument that might be
made is that the US has improperly extended its reservations far beyond their shelf life,
and that they are now void. However, that is not uncommon, and the same sort of
complaint could likely be made against the other party. In the alternative, a successful
WTO complaint against the Neufeld memo would have to identify specific case(s) when
U.S. application of H-1B rules had discriminatory effect – the August 2010 statement by
Senator Schumer about the fees surcharge comes to mind -- and/or application of H-1B
rules are clearly inconsistent with the U.S. commitments under Mode 4.
One specific complaint that has been made unsuccessfully in U.S. District Court
in the Broadgate case is that the Neufeld memo and its “control” doctrine discriminates
against a particular business model used by firms in a particular industry, staffing
agencies, which – it was argued -- USCIS regulations specifically permit.
Commentators, including this author, have pointed out that particular complaint did not
make the strongest possible legal case against the Neufeld memo, and that other
litigation might well have a different result. Because US law and WTO rules are quite
different with regard to discriminatory effect of law and regulation, nonetheless, the DSB
might be more receptive to such a complaint if it is shown to have discriminatory
national effect.
WTO case law gives some indication of how the DSB might rule if presented with
this issue. After some contrary rulings, in EC – Bananas III, the Appellate Body clarified
that the MFN obligation in Article II of the GATS applies both to de facto as well as de
jure discrimination. A measure is now held to be discriminatory if, on consideration of
the facts relating to the application of the measure, it is apparent that it discriminates in
practice or in fact. In that case, the Appellate Body stated as follows132:
The obligation imposed by Article II is unqualified. The ordinary meaning of this provision does exclude de facto discrimination. Moreover, if Article II was not applicable to de facto discrimination, it would not be difficult – and, indeed, it would be a good deal easier in the case of trade in services, than in the case of trade in goods – to devise discriminatory measures aimed at circumventing the basic purpose of that Article.
132
See, Report of the Appellate Body, EC – Bananas III, supra, note 7, paras. 223-228; Reports of the Panel, EC –
Bananas III, WT/DS27/R/ECU, WT/DS27/R/USA, WT/DS27/R/MEX, supra, note 10, paras. 7.287-7.293.
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A closely related issue decided in WTO case law is whether the services or
service suppliers of the Members discriminated against are sufficiently “like” the
nationals of the state or favored MFN nationals with which they are invidiously
compared. GATS, Article II, Paragraph 1 commands:
[E]ach Member shall accord immediately and unconditionally to services and service
suppliers of any other Member treatment no less favourable than that it accords to like
services and service suppliers of any other country.
In effect, that means that an Article II complaint would need to show that the
Neufeld memo imposes impediments upon Indian Temporary workers that are not faced
by U.S. workers – beyond the mere fact that they must qualify under the H-1B definition
and apply for visas -- and that indeed these measures constitute “treatment [ . . .] less
favorable than that it accords to like services and service suppliers of any other
country.” In other words, the complaint would need to show that the “control”
requirement is unnecessary and that the measure is unreasonably related to
administration of the pertinent H-1B regulations, and that the resulting disadvantage
suffered by H-1B workers is something more than inherent to the necessary and
legitimate control of the admission of non-resident service providers. U.S. workers do
not have to demonstrate the element of employer control over their duties, and the
“control” doctrine is inherently discriminatory.
A showing of less favorable treatment under GATS Article II, Para 1 would
entail a series of questions. First, is the “control” requirement on H-1B workers
sufficiently “like” the normal regulation of U.S. workers so that they can be compared?
The answer to that would seem to be yes, the common law “control” doctrine has many
applications in U.S. domestic labor law. It is not a concept that is entirely outside the
body of U.S. labor law. The second question, then, is there a similar requirement for
employer “control” of U.S. workers assigned by staffing agencies to third-party work
sites? The answer here is crucial to a case that might be made against the Neufeld
memo at the WTO. Indeed, there is no prohibition in U.S. labor law that forbids U.S.
workers from being assigned by staffing agencies to third-party work sites, and the
particular arbitrariness and discriminatory effect of its application to H-1B might thus be
demonstrated.
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Finally, with regard to the Article II prohibition against national treatment that
favors certain nationals over others, note that the meaning of the term “like” in Article II
is not well-developed in GATS case law. It was addressed peripherally in one WTO
dispute prior to the Internet Gambling case. Although lessons are drawn from the
interpretation of the term “like products” in provisions of GATT, such as Article III: Para.
2 and Article III: Para. 4 of the GATT 1994, the terms “like services” and “like service
suppliers” in the context of the GATS Article II, Para. 1 may entail some more difficult
conceptual problems.
Nonetheless, In EC – Bananas III, the panel held that Article II, Para. 1 applies to
services associated with banana distribution133:
... the nature and the characteristics of wholesale transactions as such, as well as each of the different subordinated services mentioned in the headnote to section 6 of the CPC, are “like” when supplied in connexion with wholesale services, irrespective of whether these services are supplied with respect to bananas of EC and traditional ACP origin, on the one hand, or with respect to bananas of third-country or non-traditional ACP origin, on the other.
Indeed, it seems that each of the different services activities taken individually is virtually the same and can only be distinguished by referring to the origin of the bananas in respect of which the service activity is being performed.
Similarly, … to the extent that entities provide these like services, they are like service suppliers.
However, even if disparate treatment of H-1B workers is found, the issue is not
settled. Restrictions upon H-1B workers is a special case under the U.S. Annex of
Exceptions. As was explained above, one would need to make a further showing
under these circumstances that the current U.S. interpretation of its H-1B regulations is
not necessary and unreasonable. Indeed, Mode 4 differs from Mode 3 inasmuch as the
Service Worker crosses a border to provide services for herself, not for a foreign
employer, as in Mode 3. Therefore, this reservation may be shown to be inconsistent
with the overarching schema of GATS, and is thus unreasonable.
133
Reports of the Panel, EC – Bananas III, supra, note 10, para. 7.322.
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Finally, however, even if the laws and regulations are themselves necessary and
reasonable, the specific interpretation and application of them may in fact still be
inconsistent with GATS requirements. As with the L-1B, which specifically restricts
visas by law to workers who are controlled by the petitioner, nonetheless, the “control”
requirement may pose a violation to the Article VI, Paragraph VI prohibition against
unnecessarily burdensome measures where its application, in effect, entails an
unreasonable burden of documentary evidence to establish eligibility. Any USCIS or
US Department of State practice may be challenged by such a showing, and the
Neufeld memo, attached as an Exhibit to this section, is outlandishly burdensome with
regard to documentary requirements.
However, even where there is a DSB judgment against the U.S., it may in fact be
a very difficult and lengthly process to obtain compliance or even money damages in
these immigration-related matters. The alternative is countervailing measures, but
those risk a major trade confrontation, and all that entails for India and the U.S.
The history of disputes before the WTO shows that often, despite a DSB ruling
against it, the offending party will not promptly comply with the judgment of the Body. In
one case, the Internet Gambling matter, the United States chose to modify its table of
commitments so as to eliminate going forward its obligation to lift a measure restricting
Internet Gambling across its borders. In such cases of non-compliance such as this,
the DSB was authorized to impose -and has imposed in trade disputes large
compensatory awards -100 percent ad valorem duties, such as those imposed in a
2000 dispute with the US over export the EU of genetically modified crops, where duties
were allowed on a list of EU products with an annual trade value of $116.8 million.
While discussions to resolve these matters have continued for years, resolution is often
not achieved, and actual payouts can be effectively delayed, seemingly indefinitely.
While the “control” doctrine, in itself, may be consistent with US obligations under
GATS, it’s application may have discriminatory effect. There is little question about the
discriminatory intent behind recent H-1B restrictions and that differential treatment is
accorded. Under the Neufeld dicta, H-1B petitions received from a discrete category of
companies are treated differently from others operating according to a different
business model. Petitions received where beneficiaries are placed at client sites are not
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approved without additional documentation in excess of what is required by existing law
and regulation.
Companies that place H-1B foreign employees at customer sites must provide
complete itineraries and contracts with end-user clients, something which the agency
has not consistently required and does not require of “brick and mortar” companies that
do not provide outsourcing services. A complete list of those documents required by
the Neufeld memo is attached as Appendix II, below. In some cases, USCIS
demands that end-user clients specify the names of supervisory employees, and details
about other business partners and operations, proprietary information which many third-
party clients understandably refuse to provide. This puts these companies that employ
H-1B workers at a grave disadvantage relative to their competitors. Similarly intrusive
demands for client contracts and details about their clients are made of any L-1B
petitioner whose employee may be assigned to client sites. This effectively walls off
both the H-1B and L-1B programs from companies that employ the dual-tier staffing
model in use around the world. Within the U.S. market, these staffing companies are
staffed overwhelmingly by Indian nationals. This puts such I.T. consulting companies
still operating inside the U.S. at a huge competitive disadvantage, and many MNCs
have responded by simply expanding operations abroad while closing down offices and
functions inside this country, which appears to be both the intent and well as the effect
of these measures.
A related basis for a prima facie showing of discrimination in a potential WTO
complaint on H-1B restrictions might be that these improper regulatory barriers to
entry of specialty service workers has substantially contributed to the decline in
numbers of applications in the last two years, so that in 2010 (FY 2011), it is possible
that the U.S. may not meet its obligation under GATS to issue the full quota of 65,000
H-1B visas.
B-1 Short-Term Visitors for Business
B-1 Business Visitors are normally admitted the U.S. on short-term assignments for six months with limited extensions to a one-year period of maximum stay.
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What U.S. Law Says B-1 and “B-1 in Lieu of H-1B” May Not Do: Generally, B-1 Visitors are barred from performing productive work inside the U.S. There are limited exceptions for B-1 Service Contract workers who enter to carry out post-sales installation or maintenance of industrial equipment, but they may not receive any pay for services from a U.S. source. Another related category in the non-immigrant worker mix is “B-1 in Lieu of H-1B”, a short-term status that is granted by some U.S. consular posts to trusted companies that need to dispatch managers or specialists to the US to perform some types of immediate, short-term specialized function. These are both is highly restricted and closely monitored visa categories that are only sparingly issued. [For more information, please see related FLG resource document, “Intermittent L-1 Visas and B-1 in Lieu of H-1B: Two Little-Known Options for Business”, (December 22, 2009)]
USCIS and consuls now make intrusive and excessive demands for documentation of the element of control. The documentary burdens can be very heavy, alike, to H-1B and L-1B and B-1. Typically, the employer will be required to provide a copy of the employment contract with the beneficiary, and a copy of contracts spelling out the scope of work and timetables with end-user clients. These must establish that the beneficiary will be carrying out duties of complexity and knowledge consistent with H-1B requirements for a “specialty occupation” or “specialized knowledge” for an L-1B worker or B-1 Service Contract worker. In all categories, the beneficiary should be named, and an organizational chart submitted that shows his/her place in the project hierarchy in order to establish the petitioner’s control or supervision. As referenced above, the chances of approval for a client site placement position are improved if it is demonstrated the beneficiary is not only controlled by but also supervised by another employee of the petitioner.
The USCIS General Counsel has indicated a willingness to work with the Immigration Bar and other interested parties to resolve the issue of overly-intrusive Service Center demands for sensitive documents, such as third-party contracts. If there are clear cases where USCIS continues to make unreasonable demands for such documents, is a matter that may also be brought up in the context of DSB mediation.
Similarly, Consuls have enormous discretion in issuance of B-1 visas, and the range of legal and administrative appeals are extremely limited. There is no question that nonimmigrant visa issuance in general, and the B-1 category, in particular, are issued on the basis of national origins profiling and criteria, the specifics of which the U.S. State Department guards as a near state secret. This is an apparent violation of the transparency requirements in GATS Articles III and VI. In cases where the discriminatory denial of business visas has been clear and consistently abusive, and
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attempts at resolution through diplomatic channels have failed, this as well may also be brought up through WTO consultations.
CONCLUSION:
The foregoing report analyzed U.S.-India trade issues related to restrictive
immigration laws and policies that have been recently put in place by USCIS and other
U.S. federal regulatory agencies. This details a long listing of agenda items related to
restrictive measures to be resolved either politically by the industry with the
Administration, or through diplomatic channels, or through more formal trade talks by
the Government of India with the USTR, or finally, if these efforts are unavailing as
specific complaints to be made to the WTO Dispute Settlement Body and Appeals
Panel.
Indian IT service companies that use the H-1B visa have become the target of
late of organized efforts to focus U.S. public anger over joblessness and perceived
problems with Free Trade policy. In Part 1, we looked at these issues in detail, and
concluded that growth of the Indian IT-BPO sector accounts for a tiny percentage of
current U.S. unemployment in the Information sector, perhaps one-tenth of one percent,
while an analysis of the role of U.S.-based multinationals reveals that they account for a
very high percentage of job eliminations during the current recession, perhaps as much
as thirty percent. U.S. Commerce Department data show the U.S.-based MNCs have
laid off more than one million U.S. workers, and have conducted layoffs at a rate twice
that of domestic firms. Therefore, there is some tension between the U.S.-based
MNCs and Indian based IT industry, as the continued focus upon the latter helps the
former avoid the political consequences of high unemployment rates in the IT service
sector they dominate.
Nonetheless, U.S. immigration law and policy are of great, shared importance to
Multinational Corporations, whether U.S.-based or resident in India or third-countries.
Many companies, particularly in the IT industry, have extensive operations in both
countries, and are increasingly globalized in ownership and outlook. All these parties
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have a shared interest in the fair, transparent and predictable administration of U.S.
immigration regulation, particularly recent restrictions on L-1 Intracompany Transferees.
We see that recent U.S. administration of this category is most clearly inconsistent with
U.S. commitments under the GATS to allow foreign national companies and service
workers unimpeded access and commercial presence within the United States.
Multinational corporations are also central to efforts to lift trade restrictions. The
MNCs enjoy tremendous economic and political power to negotiate and evolve
immigration regulations that meet their needs. If sufficiently restricted or handicapped in
the U.S. market, they may threaten or opt to leave, resulting in a great loss in jobs and
revenues to the U.S. For its part, the USG is only beginning to exercise enforcement
powers that it has long had to pursue tax avoidance and profits shifting abuses by the
MNCs. However, a direct conflict between trade partners, or by states with MNCs,
would be disastrous to all involved, so there is a reasonable chance that resolution of
these issues related to U.S. restrictions on business nonimmigrant may be resolved on
terms that are acceptable to all parties.
Finally, we see that to a large degree the immigration-related interests of the
U.S.-based MNCs overlap those of the Indian IT-BPO firms. Efforts at policy reform can
best be carried out in a coordinated fashion, particularly if a consensus develops that a
threat of trade sanctions is both necessary and useful in order to lift overly-burdensome
restrictions. Preparing for the option of bringing these matters before the WTO Dispute
Body may be a useful option and way to move a negotiated settlement forward. The
WTO is a state-based body, and mediation must be carried out between national
government trade representatives. Private parties have no right of independent access
or complaint resolution. Nonetheless, the WTO Body is an avenue through which
companies in India and United States can utilize through the shared office of the
Government of Indian to remove the unwarranted and unlawful restrictions on
immigration and visas that present a threat to collective interests.
***
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APPENDIX I: Neufeld Memo Documentary Requirements
On January 8, 2010, USCIS issued a policy memo that is of importance to companies
that utilize the H-1B Temporary Worker and L-1 Intra-company Transferee visa
programs, particularly firms that may place non-immigrant workers at client sites. The
Memo was written by Donald Neufeld, Associate Director Service Center Operations.134
The Neufeld memo outlines new guidance to USCIS officers at Service Centers
processing H-1B applications, and also signals a new focus for the agency’s efforts to
regulate outsourcing and so-called Job Shops. The Neufeld memo is important to all H-
1B employers because it lays out an expanded list of documents in several categories
that companies will now have to provide with initial petitions for H-1B workers.
Significantly, the Neufeld Memo identifies a number of categories of outsourcing
applications that the Service will approve and a list of documents that will be required. It
also describes several scenarios involving types of cases Service Center examiners
should not approve, and provides what appears to be a more solid legal rationale for
how it makes these decisions.
In addition to heightened documentary demands, the memo instructs examiners how
they should deal with the issue of employer “control” over the work of H-1B beneficiaries
assigned at third-party client sites. While some of these issues are not new, this is a
significant statement of how USCIS will treat certain categories of applications, and a
warning that the agency will be requiring all applicants to address and document issues
related to control. Finally, it communicates that USCIS will also be enforcing rules
against the self-employment of investors, the hiring of independent contractors, and will
be looking at certain indicators that H-1B petitioners are actually employment agencies,
134
See, Donald Neufeld, Associate Director, Service Center Operations, DHS, USCIS, HQ 70/6.2.8, AD10.24, Memorandum for Service Center Directors, “Determining Employer-Employee Relationship for Adjudication of H-1B Petitions, Including Third-Party Site Placements”, Additions to Officer’s Field Manual (AFM) Chapter 31.3(g)(15)(AFM Update AD 10-24)(Jan. 08, 2010), linked at: http://www.aila.org/content/default.aspx?docid=30956
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and will deny those determined to be operating outside the traditional “employer-
employee relationship.”
FAQs - FREQUENTLY ASKED QUESTIONS ABOUT ISSUES OF
EMPLOYER “CONTROL” OVER H-1B WORKERS
Q. What are the attestations and/or documents that now need to be filed
with H-1B petitions to demonstrate control?
A. The memo signals that new filings of H-1B petitions will have to attest to,
and where applicable, be accompanied by the following types of
documents:
A complete itinerary of engagements that specifies the dates of each service or
engagement, the names and addresses of the actual employers, and the names and
addresses of the establishment, venues, or locations where the services will be
performed for the period of time requested;
Copy of signed Employment Agreement between the petitioner and beneficiary
detailing the terms and conditions of employment;
Copy of an employment offer letter that clearly describes the nature of the employer-
employee relationship and the services to be performed by the beneficiary;
Copy of relevant portions of valid contracts between the petitioner and a client (in
which the petitioner has entered into a business arrangement for which the
petitioner’s employees will be utilized) that establishes that while the petitioner’s
employees are placed at the third-party worksite, the petitioner will continue to have
the right to control its employees;
Copies of signed contractual agreements, statements of work, work orders, service
agreements, and letters between the petitioner and the authorized officials of the
ultimate end-client companies where the work will actually be performed by the
beneficiary, which provides information such as a detailed description of the duties
the beneficiary will perform, the qualifications that are required to perform the job
duties, salary or wages paid, hours worked, benefits, a brief description of who will
supervise the beneficiary and their duties, and any related evidence;
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Copy of position description or any other relevant documentation that describes the
skills required to perform the job offered, the source of the instrumentalities and tools
needed to perform the job*, the product to be developed or the service to be
provided, the location where the beneficiary will perform the duties, the duration of
the relationship between the petitioner and the beneficiary, whether the petitioner
has the right to perform additional duties, the extent of petitioner’s discretion over
when and how long the beneficiary will work, the method of payment, the petitioner’s
role in paying and hiring assistants to be utilized by the beneficiary, whether the work
to be performed is part of the regular business of the petitioner, the provision of
employee benefits*, and the tax treatment of the beneficiary in relationship to the
petitioner*;
A description of the performance review process*; and/or
Copy of petitioner’s organization chart, demonstrating beneficiary’s supervisory
chain.
The above requirements stated in the Neufeld memo are virtually identical to the
demand-list of documents attached to a typical USCIS Request For Evidence (RFE)
that Immigration Attorneys and clients have been receiving for years. [* An asterisk
denotes documents that were not commonly called for or provided previously]
This is a long list, and may seem an unduly burdensome requirement for additional
documentation of “control” from H-1B employers with client site placements. These
were previously most often seen in RFEs. Now, the Service has articulated a
requirement that these same documents be provided up front with initial H-1B filings,
and is putting filers on notice that missing any of the eight listed elements will likely
result in an RFE and a denial.
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Q. What part of these documentary requirements appears to present a
worrying new direction in H-1B enforcement?
A. Several elements stand out in the documentation requirements stated
in the Neufeld Memo
A very close reading of the memo reveals USCIS citation of several court decisions that
considered several key questions:
when a beneficiary is actually an employee or an independent contractor,
when a petitioning firm actually operates as an agent as opposed to exercising
control a bona fide employer, and,
the question of when is a director of a company actually employed as opposed to
being a mere investor.
The decisions cited, the distinctions drawn in those decisions, along with several of the
required documents listed in the memo, indicate that USCIS is looking more closely at
the related issues of Self-employed Beneficiaries, Independent Contractors, and
Agents as Petitioners. We will examine these, below, in greater detail.
Q. What are the specific elements that must now be demonstrated to
enhance the chances that a petition will be approved or renewed under the
new guidelines?
A. Here are the more specific items that now need to be provided to satisfy
the Neufeld memo requirements:
1. Contents of H-1B support letter
- Name supervisor, title, contract information, work location, frequency beneficiary
reports to the supervisor, and how petitioning company exercises ongoing supervision
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and control over the beneficiary.
- Mention petitioner has sole and exclusive authority to hire, promote, and fire the
beneficiary.
- Mention any proprietary software, methodologies or tools utilized or developed
by the petitioner as opposed to the third-party client or the foreign national, himself
(NOTE: those that belong to the petitioner are weighed in favor of establishing the
employer-employee relationship, while those provided by the third-party client indicate
the petitioner may not have full control over the work; in addition, if the bulk of “tools and
instrumentalities” are owned and brought to the job by the beneficiary, this may indicate
the beneficiary is an independent contractor, a factor which can also be used along with
other factors to deny the petition.)
- Mention any performance reviews that are conducted exclusively by the
petitioner.
- Provide description of petitioner’s performance review process.
- Describe how beneficiary's duties to be carried out are essential to petitioning
company's core line of work
- Describe direct and indirect company benefits and support the petitioning
employer provides to the beneficiary, such as paid education, purchases of tools or
equipment, paid or subsidized medical/dental, life or other insurance, job training, HR
counseling, travel, transportation, childcare, and housing allowances, perks, and
company leisure and community activities.
For managers, executives, directors or beneficiaries with equity interest in
petitioning firm, specify the following:
- Whether the organization can hire or fire the individual or set the rules and
regulations of the individual's work either by employer's direct right of control or by right
of partnership as specified in incorporation agreement.
- Whether and, if so, to what extent the organization supervises the individual's
work, including the functional and project management authorities of others within the
organization.
- Whether the individual reports to someone higher in the organization or must
answer to other partners who may be able to combine to outvote the beneficiary.
- Whether and, if so, to what extent the individual is able to influence the
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organization and the functional and organizational limits thereupon.
- Whether the parties intended that the individual be an employee, as expressed
in written agreements or contracts.
- Whether the individual shares in the profits, losses, and liabilities of the
organization (if a minority share, so state, if majority interest or joint venture, specify
implied right of mutual veto and other constraints on powers of beneficiary, such as
limits on powers specified in Articles of Incorporation or corporate by-laws.
2. Include the employment offer/acceptance letter listing title and job duties of
beneficiary, and make sure it is signed by both the petitioner and beneficiary.
3. Include organization chart listing the personnel above and below the
beneficiary, and where all these individuals fall within the U.S. company
4. Include work itinerary (Scope of Work).
5. Include service agreement between petitioner and customer.
- Make sure there is language in the agreement that states the petitioner has “sole
right to control the manner and means for accomplishing the services to be performed
under the agreement”
- If current existing agreement does not include this language, obtain amendment
that incorporates this language
- Avoid any language in agreement that states services are to be provided by
petitioner on an “as needed basis”
6. Letter from any third-party end customer, which has itinerary consistent
with H-1B support letter, job title, duties, duration of project, states beneficiary is
not an employee of the customer, and indicates the name of petitioner’s
supervisor to whom the beneficiary reports.
7. Neufeld Memo also lays out certain rules and procedures that will apply to
the issuance of Requests For Evidence (RFEs)
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- Examiners must specifically state the issue at hand
- Examiners must tailor RFE and request “specific illustrative types of evidence”
- Has potential to force examiners to do a better job reviewing evidence and may
make them more accountable; may make it easier to respond to RFEs.
8. H-1B extension petitions and items to include to show maintenance of
employer-employee relationship during prior H-1B period:
- All W-2s and paystubs for current year
- Copies of all of the beneficiary’s time sheets with the petitioner or similar records
of actual attendance at work
- Copies of the beneficiary’s prior year’s work schedule
- Copies of any promotion letters issued to the beneficiary by the petitioner
- Copies of any pay increase letters issued to the beneficiary by the petitioner
- Copies of any letters from petitioner to beneficiary transferring the beneficiary to
a new work location
- Copies of any performance reviews of the beneficiary performed by the
petitioner
- Evidence of any work product, achievements, bonuses, awards to the
beneficiary (example: e-mail communications acknowledging any milestones,
achievements, etc.)
- Evidence of insurance or other cash value benefits provided to the beneficiary
by the petitioner.
Q. What is the basis for the above list of required attestations and
requirements?
A. The Neufeld memo lays out five scenarios of “valid employer-employee
relationship,” and three categories that are unacceptable for H-1B approval
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The basis for requiring all these documents, particularly from companies that place H-
1B workers at client sites, is found by Neufeld in the common law principle of “control.”
This amounts to an unstated acknowledgement by USCIS that previous USCIS policy
interpretation that cited the Defensor decision lacked adequate legal support.
The criteria INS Service Center examiners will now use for determining whether the H-
1B employer-employee relationship exists are stated by Neufeld as follows:
Valid employer-employee relationship would exist in the following circumstances:
[p.7]
1) Traditional Employment [Right to Control Scenario]
2) Temporary/Occasional Off-Site Employment
3) Long-Term/Permanent Off-Site Employment [Right to control specified and
actual control exercised]
4) Long-Term Placement at a Third-Party Work Site
5) Agents as Petitioner – regulatory exception to No Exercise of Control Rule
(Example given: a runway model beneficiary with a modeling agency petitioner. The
third-party client fashion house is the “actual employer.” Nonetheless, an exception
exists for “one who is traditionally self-employed or who uses agents to arrange short-
term employment on behalf with numerous employers.”)
The following scenarios would not present a valid employer-employee
relationship: [p.8]
1) Self-employed Beneficiaries [No separation Between Individual and Employing
Entity; No Independent Control Exercised and No Right to Control Exercised]
2) Independent Contractors [Petitioner has No Right of Control; No Exercise of
Control]
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3) Third-Party Placement/”Job Shop” [Petitioner has No Right of Control; No
Exercise of Control]
***
APPENDIX II: Significant Articles in the GATS Agreement
As a Member of the WTO, the United States in 1995 acceded to GATS at the Uruguay round of
global trade talks. As a Member at its inception, the U.S. obligated itself to comply with a list of
commitments to lift barriers to Trade in Services. These are contained as 28 Articles and
several subject matter annexes to GATS. In addition to that, each signatory state commits
itself to its own Annex of Exemptions to the Agreement, in which it lists those areas of trade
which are still restricted, limited, or reserved with a schedule of commitments to lift all or some
of these stated exemptions.135
135 For an authoritative overview and interpretation of GATS and its Articles, see UNCTAD Teaching Modules,
WORLD TRADE ORGANIZATION 3.13 GATS, Dispute Settlement,
http://www.unctad.org/en/docs/edmmisc232add31_en.pdf
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As signatory to the General Agreement, the U.S. agrees to abide by 28 Articles along with
several subject matter annexes, including the following that are most relevant:
Article II: Most-Favoured-Nation Treatment
1. With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country.
2. A Member may maintain a measure inconsistent with paragraph 1 provided that such a measure is listed in, and meets the conditions of, the Annex on Article II Exemptions.
3. The provisions of this Agreement shall not be so construed as to prevent any Member from conferring or according advantages to adjacent countries in order to facilitate exchanges limited to contiguous frontier zones of services that are both locally produced and consumed.
[…]
Article III: Transparency
1. Each Member shall publish promptly and, except in emergency situations, at the latest
by the time of their entry into force, all relevant measures of general application which
pertain to or affect the operation of this Agreement. International agreements pertaining
to or affecting trade in services to which a Member is a signatory shall also be published.
2. Where publication as referred to in paragraph 1 is not practicable, such information
shall be
made otherwise publicly available.
3. Each Member shall promptly and at least annually inform the Council for Trade
in Services of the introduction of any new, or any changes to existing, laws,
regulations or administrative guidelines which significantly affect trade in
services covered by its specific commitments under this Agreement.
4. Each Member shall respond promptly to all requests by any other Member for specific
information on any of its measures of general application or international agreements
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within the meaning of paragraph 1. Each Member shall also establish one or more
enquiry points to provide specific information to other Members, upon request, on all
such matters as well as those subject to the notification requirement in paragraph 3.
Such enquiry points shall be established within two years from the date of entry into
force of the Agreement Establishing the WTO (referred to in this Agreement as the
"WTO Agreement"). Appropriate flexibility with respect to the time-limit within which such
enquiry points are to be established may be agreed upon for individual developing
country Members. Enquiry points need not be depositories of laws and regulations.
5. Any Member may notify to the Council for Trade in Services any measure, taken
by any other Member, which it considers affects the operation of this Agreement.
Article V bis: Labour Markets Integration Agreements
This Agreement shall not prevent any of its Members from being a party to an
agreement establishing full integration [Ftn. 2] of the labour markets between or among
the parties to such an agreement, provided that such an agreement:
(a) exempts citizens of parties to the agreement from requirements concerning residency
and work permits;
(b) is notified to the Council for Trade in Services.
[Ftn: 2] Typically, such integration provides citizens of the parties concerned with a right
of free entry to the employment markets of the parties and includes measures
concerning conditions of pay, other conditions of employment and social benefits.
Article VI: Domestic Regulation
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.
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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:
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(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 [Ftn. 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.
[ . . .]
Article XIV: General Exceptions
Subject to the requirement that such measures are not applied in a manner which would
constitute a means of arbitrary or unjustifiable discrimination between countries where
like conditions prevail, or a disguised restriction on trade in services, nothing in this
Agreement shall be construed to prevent the adoption or enforcement by any
Member of measures:
(a) necessary to protect public morals or to maintain public order;5
(b) necessary to protect human, animal or plant life or health;
(c) necessary to secure compliance with laws or regulations which are not
inconsistent with the provisions of this Agreement including those relating
to:
(i) the prevention of deceptive and fraudulent practices or to deal
with the effects of a default on services contracts;
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(ii) the protection of the privacy of individuals in relation to the
processing and dissemination of personal data and the protection of
confidentiality of individual records and accounts;
(iii) safety;
(d) inconsistent with Article XVII, provided that the difference in treatment
is aimed at ensuring the equitable or effective6 imposition or collection of
direct taxes in respect of services or service suppliers of other Members;
(e) inconsistent with Article II, provided that the difference in treatment is
the result of an agreement on the avoidance of double taxation or
provisions on the avoidance of double taxation in any other international
agreement or arrangement by which the Member is bound.
[ftn. 5] The public order exception may be invoked only where a genuine and
sufficiently serious threat is posed to one of the fundamental interests of society.
[ftn. 6] Measures that are aimed at ensuring the equitable or effective imposition or
collection of direct taxes include measures taken by a Member under its taxation system
which:
(i) apply to non-resident service suppliers in recognition of the fact that the tax
obligation of non-residents is determined with respect to taxable items sourced or
locate`d in the Member's territory; or
(ii) apply to non-residents in order to ensure the imposition or collection of taxes
in the Member's territory; or
(iii) apply to non-residents or residents in order to prevent the avoidance or
evasion of taxes, including compliance measures; or
(iv) apply to consumers of services supplied in or from the territory of another
Member in order to ensure the imposition or collection of taxes on such
consumers derived from sources in the Member's territory; or
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(v) distinguish service suppliers subject to tax on worldwide taxable items from
other service suppliers, in recognition of the difference in the nature of the tax
base between them; or
(vi) determine, allocate or apportion income, profit, gain, loss, deduction or credit
of resident persons or branches, or between related persons or branches of the
same person, in order to safeguard the Member's tax base.
Tax terms or concepts in paragraph (d) of Article XIV and in this footnote are determined
according to tax definitions and concepts, or equivalent or similar definitions and
concepts, under the domestic law of the Member taking the measure.
Article XIV bis: Security Exceptions
1. Nothing in this Agreement shall be construed:
(a) to require any Member to furnish any information, the disclosure of which it considers
contrary to its essential security interests; or
(b) to prevent any Member from taking any action which it considers necessary for the
protection of its essential security interests:
(i) relating to the supply of services as carried out directly or indirectly for the purpose of
provisioning a military establishment;
(ii) relating to fissionable and fusionable materials or the materials from which they are
derived;
(iii) taken in time of war or other emergency in international relations; or
(c) to prevent any Member from taking any action in pursuance of its obligations under
the United Nations Charter for the maintenance of international peace and security.
2. The Council for Trade in Services shall be informed to the fullest extent possible of
measures taken under paragraphs 1(b) and (c) and of their termination.
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Article XV: Subsidies
1. Members recognize that, in certain circumstances, subsidies may have
distortive effects on trade in services. Members shall enter into negotiations with
a view to developing the necessary multilateral disciplines to avoid such trade-
distortive effects.7 The negotiations shall also address the appropriateness of
countervailing procedures. Such negotiations shall recognize the role of subsidies in
relation to the development programmes of developing countries and take into account
the needs of Members, particularly developing country Members, for flexibility in this
area. For the purpose of such negotiations, Members shall exchange information
concerning all subsidies related to trade in services that they provide to their domestic
service suppliers.
2. Any Member which considers that it is adversely affected by a subsidy of
another Member may request consultations with that Member on such matters.
Such requests shall be accorded sympathetic consideration.
PART III: SPECIFIC COMMITMENTS
Article XVI: Market Access
1. With respect to market access through the modes of supply identified in Article
I, each Member shall accord services and service suppliers of any other Member
treatment no less favourable than that provided for under the terms, limitations
and conditions agreed and specified in its Schedule.8
[Ftn. 8] If a Member undertakes a market-access commitment in relation to the supply
of a service through the mode of supply referred to in subparagraph 2(a) of Article I and
if the cross-border movement of capital is an essential part of the service itself, that
Member is thereby committed to allow such movement of capital. If a Member
undertakes a market-access commitment in relation to the supply of a service through
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the mode of supply referred to in subparagraph 2(c) of Article I, it is thereby committed to
allow related transfers of capital into its territory.
2. In sectors where market-access commitments are undertaken, the measures
which a Member shall not maintain or adopt either on the basis of a regional
subdivision or on the basis of its entire territory, unless otherwise specified in its
Schedule, are defined as:
(a) limitations on the number of service suppliers whether in the form of numerical
quotas, monopolies, exclusive service suppliers or the requirements of an economic
needs test;
(b) limitations on the total value of service transactions or assets in the form of numerical
quotas or the requirement of an economic needs test;
(c) limitations on the total number of service operations or on the total quantity of service
output expressed in terms of designated numerical units in the form of quotas or the
requirement of an economic needs test;9
(d) limitations on the total number of natural persons that may be employed in a
particular service sector or that a service supplier may employ and who are
necessary for, and directly related to, the supply of a specific service in the form
of numerical quotas or the requirement of an economic needs test;
(e) measures which restrict or require specific types of legal entity or joint venture
through which a service supplier may supply a service; and
(f) limitations on the participation of foreign capital in terms of maximum
percentage limit on foreign shareholding or the total value of individual or
aggregate foreign investment.
Article XVII: National Treatment
1. In the sectors inscribed in its Schedule, and subject to any conditions and
qualifications set out therein, each Member shall accord to services and service
suppliers of any other Member, in respect of all measures affecting the supply of
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services, treatment no less favourable than that it accords to its own like services
and service suppliers.10
2. A Member may meet the requirement of paragraph 1 by according to services
and service suppliers of any other Member, either formally identical treatment or
formally different treatment to that it accords to its own like services and service
suppliers.
3. Formally identical or formally different treatment shall be considered to be less
favourable if it modifies the conditions of competition in favour of services or
service suppliers of the Member compared to like services or service suppliers of
any other Member.
Article XVIII: Additional Commitments
Members may negotiate commitments with respect to measures affecting trade in
services not subject to scheduling under Articles XVI or XVII, including those regarding
qualifications, standards or licensing matters. Such commitments shall be inscribed in a
Member's Schedule.
[Ftn. 9] Subparagraph 2(c) does not cover measures of a Member which limit inputs for
the supply of services.
[Ftn. 10] Specific commitments assumed under this Article shall not be construed to
require any Member to compensate for any inherent competitive disadvantages which
result from the foreign character of the relevant services or service suppliers.
PART IV: PROGRESSIVE LIBERALIZATION
Article XIX: Negotiation of Specific Commitments
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1. In pursuance of the objectives of this Agreement, Members shall enter into successive
rounds of negotiations, beginning not later than five years from the date of entry into
force of the WTO Agreement and periodically thereafter, with a view to achieving a
progressively higher level of liberalization. Such negotiations shall be directed to the
reduction or elimination of the adverse effects on trade in services of measures as a
means of providing effective market access. This process shall take place with a view to
promoting the interests of all participants on a mutually advantageous basis and to
securing an overall balance of rights and obligations.
2. The process of liberalization shall take place with due respect for national policy
objectives and the level of development of individual Members, both overall and in
individual sectors. There shall be appropriate flexibility for individual developing country
Members for opening fewer sectors, liberalizing fewer types of transactions,
progressively extending market access in line with their development situation and,
when making access to their markets available to foreign service suppliers, attaching to
such access conditions aimed at achieving the objectives referred to in Article IV.
3. For each round, negotiating guidelines and procedures shall be established. For the
purposes of establishing such guidelines, the Council for Trade in Services shall carry
out an assessment of trade in services in overall terms and on a sectoral basis with
reference to the objectives of this Agreement, including those set out in paragraph 1 of
Article IV. Negotiating guidelines shall establish modalities for the treatment of
liberalization undertaken autonomously by Members since previous negotiations, as well
as for the special treatment for least-developed country Members under the provisions of
paragraph 3 of Article IV.
4. The process of progressive liberalization shall be advanced in each such round
through bilateral, plurilateral or multilateral negotiations directed towards increasing the
general level of specific commitments undertaken by Members under this Agreement.
Article XX: Schedules of Specific Commitments
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1. Each Member shall set out in a schedule the specific commitments it undertakes
under Part III of this Agreement. With respect to sectors where such commitments are
undertaken, each Schedule shall specify:
(a) terms, limitations and conditions on market access;
(b) conditions and qualifications on national treatment;
(c) undertakings relating to additional commitments;
(d) where appropriate the time-frame for implementation of such commitments; and
(e) the date of entry into force of such commitments.
2. Measures inconsistent with both Articles XVI and XVII shall be inscribed in the column
relating to Article XVI. In this case the inscription will be considered to provide a
condition or qualification to Article XVII as well.
3. Schedules of specific commitments shall be annexed to this Agreement and shall form
an integral part thereof.
Article XXI: Modification of Schedules
1. (a) A Member (referred to in this Article as the "modifying Member") may modify
or withdraw any commitment in its Schedule, at any time after three years have
elapsed from the date on which that commitment entered into force, in
accordance with the provisions of this Article.
(b) A modifying Member shall notify its intent to modify or withdraw a commitment
pursuant to this Article to the Council for Trade in Services no later than three months
before the intended date of implementation of the modification or withdrawal.
2. (a) At the request of any Member the benefits of which under this Agreement
may be affected (referred to in this Article as an "affected Member") by a proposed
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modification or withdrawal notified under subparagraph 1(b), the modifying
Member shall enter into negotiations with a view to reaching agreement on any
necessary compensatory adjustment. In such negotiations and agreement, the
Members concerned shall endeavour to maintain a general level of mutually
advantageous commitments not less favourable to trade than that provided for in
Schedules of specific commitments prior to such negotiations.
(b) Compensatory adjustments shall be made on a most-favoured-nation basis.
3. (a) If agreement is not reached between the modifying Member and any affected
Member before the end of the period provided for negotiations, such affected Member
may refer the matter to arbitration. Any affected Member that wishes to enforce a right
that it may have to compensation must participate in the arbitration.
(b) If no affected Member has requested arbitration, the modifying Member shall be free
to implement the proposed modification or withdrawal.
4. (a) The modifying Member may not modify or withdraw its commitment until it
has made compensatory adjustments in conformity with the findings of the
arbitration.
(b) If the modifying Member implements its proposed modification or withdrawal
and does not comply with the findings of the arbitration, any affected Member that
participated in the arbitration may modify or withdraw substantially equivalent
benefits in conformity with those findings.
Notwithstanding Article II, such a modification or withdrawal may be implemented solely
with respect to the modifying Member.
5. The Council for Trade in Services shall establish procedures for rectification or
modification of Schedules. Any Member which has modified or withdrawn scheduled
commitments under this Article shall modify its Schedule according to such procedures.
PART V: INSTITUTIONAL PROVISIONS
Article XXII: Consultation
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1. Each Member shall accord sympathetic consideration to, and shall afford adequate
opportunity for, consultation regarding such representations as may be made by any
other Member with respect to any matter affecting the operation of this Agreement. The
Dispute Settlement Understanding (DSU) shall apply to such consultations.
2. The Council for Trade in Services or the Dispute Settlement Body (DSB) may, at the
request of a Member, consult with any Member or Members in respect of any matter for
which it has not been possible to find a satisfactory solution through consultation under
paragraph 1.
3. A Member may not invoke Article XVII, either under this Article or Article XXIII, with
respect to a measure of another Member that falls within the scope of an international
agreement between them
relating to the avoidance of double taxation. In case of disagreement between Members
as to whether a measure falls within the scope of such an agreement between them, it
shall be open to either Member to bring this matter before the Council for Trade in
Services.11 The Council shall refer the matter to arbitration. The decision of the
arbitrator shall be final and binding on the Members.
Article XXIII: Dispute Settlement and Enforcement
1. If any Member should consider that any other Member fails to carry out its obligations
or specific commitments under this Agreement, it may with a view to reaching a mutually
satisfactory resolution of the matter have recourse to the DSU.
2. If the DSB considers that the circumstances are serious enough to justify such action,
it may authorize a Member or Members to suspend the application to any other Member
or Members of obligations and specific commitments in accordance with Article 22 of the
DSU.
3. If any Member considers that any benefit it could reasonably have expected to
accrue to it under a specific commitment of another Member under Part III of this
Agreement is being nullified or impaired as a result of the application of any
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measure which does not conflict with the provisions of this Agreement, it may
have recourse to the DSU. If the measure is determined by the DSB to have
nullified or impaired such a benefit, the Member affected shall be entitled to a
mutually satisfactory adjustment on the basis of paragraph 2 of Article XXI, which
may include the modification or withdrawal of the measure. In the event an
agreement cannot be reached between the Members concerned, Article 22 of the DSU
shall apply.
Article XXIV: Council for Trade in Services
1. The Council for Trade in Services shall carry out such functions as may be assigned
to it to facilitate the operation of this Agreement and further its objectives. The Council
may establish such subsidiary bodies as it considers appropriate for the effective
discharge of its functions.
2. The Council and, unless the Council decides otherwise, its subsidiary bodies shall be
open to participation by representatives of all Members.
3. The Chairman of the Council shall be elected by the Members.
Article XXV: Technical Cooperation
1. Service suppliers of Members which are in need of such assistance shall have access
to the services of contact points referred to in paragraph 2 of Article IV.
2. Technical assistance to developing countries shall be provided at the multilateral level
by the Secretariat and shall be decided upon by the Council for Trade in Services.
Article XXVI: Relationship with Other International Organizations
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The General Council shall make appropriate arrangements for consultation and
cooperation with the United Nations and its specialized agencies as well as with other
intergovernmental organizations concerned with services.
[Ftn. 11]With respect to agreements on the avoidance of double taxation which exist on
the date of entry into force of the WTO Agreement, such a matter may be brought before
the Council for Trade in Services only with the consent of both parties to such an
agreement.
PART VI: FINAL PROVISIONS
Article XXVII: Denial of Benefits
A Member may deny the benefits of this Agreement:
(a) to the supply of a service, if it establishes that the service is supplied from or in the
territory of a non-Member or of a Member to which the denying Member does not apply
the WTO Agreement;
(b) in the case of the supply of a maritime transport service, if it establishes that the
service is supplied:
(i) by a vessel registered under the laws of a non-Member or of a Member to which the
denying Member does not apply the WTO Agreement, and
(ii) by a person which operates and/or uses the vessel in whole or in part but which is of
a non-Member or of a Member to which the denying Member does not apply the WTO
Agreement;
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(c) to a service supplier that is a juridical person, if it establishes that it is not a service
supplier of another Member, or that it is a service supplier of a Member to which the
denying Member does not apply the WTO Agreement.
Article XXVIII: Definitions
For the purpose of this Agreement:
(a) "measure" means any measure by a Member, whether in the form of a law,
regulation, rule, procedure, decision, administrative action, or any other form;
(b) "supply of a service" includes the production, distribution, marketing, sale and
delivery of a service;
(c) "measures by Members affecting trade in services" include measures in respect of
(i) the purchase, payment or use of a service;
(ii) the access to and use of, in connection with the supply of a service, services which
are required by those Members to be offered to the public generally;
(iii) the presence, including commercial presence, of persons of a Member for the supply
of a service in the territory of another Member;
(d) "commercial presence" means any type of business or professional establishment,
including through
(i) the constitution, acquisition or maintenance of a juridical person, or
(ii) the creation or maintenance of a branch or a representative office, within the territory
of a Member for the purpose of supplying a service;
(e) "sector" of a service means,
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(i) with reference to a specific commitment, one or more, or all, subsectors of that
service, as specified in a Member's Schedule,
(ii) otherwise, the whole of that service sector, including all of its subsectors;
(f) "service of another Member" means a service which is supplied,
(i) from or in the territory of that other Member, or in the case of maritime transport, by a
vessel registered under the laws of that other Member, or by a person of that other
Member which supplies the service through the operation of a vessel and/or its use in
whole or in part; or
(ii) in the case of the supply of a service through commercial presence or through the
presence of natural persons, by a service supplier of that other Member;
(g) "service supplier" means any person that supplies a service;12
(h) "monopoly supplier of a service" means any person, public or private, which in the
relevant market of the territory of a Member is authorized or established formally or in
effect by that Member as the sole supplier of that service;
(i) "service consumer" means any person that receives or uses a service;
(j) "person" means either a natural person or a juridical person;
(k) "natural person of another Member" means a natural person who resides in the
territory of that other Member or any other Member, and who under the law of that
other Member:
(i) is a national of that other Member; or
(ii) has the right of permanent residence in that other Member, in the case of a
Member which:
1. does not have nationals; or
2. accords substantially the same treatment to its permanent residents as it does
to its nationals in respect of measures affecting trade in services, as notified in its
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acceptance of or accession to the WTO Agreement, provided that no Member is
obligated to accord to such permanent residents treatment more favourable than
would be accorded by that other Member to such permanent residents. Such
notification shall include the assurance to assume, with respect to those
permanent residents, in accordance with its laws and regulations, the same
responsibilities that other Member bears with respect to its nationals;
(l) "juridical person" means any legal entity duly constituted or otherwise
organized under applicable law, whether for profit or otherwise, and whether
privately-owned or governmentally-owned, including any corporation, trust,
partnership, joint venture, sole proprietorship or association;
[Ftn. 12] Where the service is not supplied directly by a juridical person but
through other forms of commercial presence such as a branch or a representative
office, the service supplier (i.e. the juridical person) shall, nonetheless, through
such presence be accorded the treatment provided for service suppliers under the
Agreement. Such treatment shall be extended to the presence through which the
service is supplied and need not be extended to any other parts of the supplier
located outside the territory where the service is supplied.
(m) "juridical person of another Member" means a juridical person which is either:
(i) constituted or otherwise organized under the law of that other Member, and is
engaged in substantive business operations in the territory of that Member or any other
Member; or
(ii) in the case of the supply of a service through commercial presence, owned or
controlled by:
1. natural persons of that Member; or
2. juridical persons of that other Member identified under subparagraph (i);
(n) a juridical person is:
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(i) "owned" by persons of a Member if more than 50 per cent of the equity interest in it is
beneficially owned by persons of that Member;
(ii) "controlled" by persons of a Member if such persons have the power to name a
majority of its directors or otherwise to legally direct its actions;
(iii) "affiliated" with another person when it controls, or is controlled by, that other person;
or when it and the other person are both controlled by the same person;
(o) "direct taxes" comprise all taxes on total income, on total capital or on elements of
income or of capital, including taxes on gains from the alienation of property, taxes on
estates, inheritances and gifts, and taxes on the total amounts of wages or salaries paid
by enterprises, as well as taxes on capital appreciation.
Article XXIX: Annexes
The Annexes to this Agreement are an integral part of this Agreement.
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ANNEX ON ARTICLE II EXEMPTIONS
Scope
1. This Annex specifies the conditions under which a Member, at the entry into force of
this Agreement, is exempted from its obligations under paragraph 1 of Article II.
2. Any new exemptions applied for after the date of entry into force of the WTO
Agreement shall be dealt with under paragraph 3 of Article IX of that Agreement.
Review
3. The Council for Trade in Services shall review all exemptions granted for a period of
more than 5 years. The first such review shall take place no more than 5 years after the
entry into force of the WTO
Agreement.
4. The Council for Trade in Services in a review shall:
(a) examine whether the conditions which created the need for the exemption still
prevail; and
(b) determine the date of any further review.
Termination
5. The exemption of a Member from its obligations under paragraph 1 of Article II of the
Agreement with respect to a particular measure terminates on the date provided for in
the exemption.
6. In principle, such exemptions should not exceed a period of 10 years. In any
event, they shall be subject to negotiation in subsequent trade liberalizing rounds.
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7. A Member shall notify the Council for Trade in Services at the termination of the
exemption period that the inconsistent measure has been brought into conformity with
paragraph 1 of Article II of the Agreement.
Lists of Article II Exemptions
[The agreed lists of exemptions under paragraph 2 of Article II will be annexed here in
the treaty copy of the WTO Agreement.]
ANNEX ON MOVEMENT OF NATURAL PERSONS SUPPLYING SERVICES UNDER
THE AGREEMENT
1. This Annex applies to measures affecting natural persons who are service suppliers of
a Member, and natural persons of a Member who are employed by a service supplier of
a Member, in respect of the supply of a service.
2. The Agreement shall not apply to measures affecting natural persons seeking
access to the employment market of a Member, nor shall it apply to measures
regarding citizenship, residence or employment on a permanent basis.
3. In accordance with Parts III and IV of the Agreement, Members may negotiate specific
commitments applying to the movement of all categories of natural persons supplying
services under the Agreement. Natural persons covered by a specific commitment shall
be allowed to supply the service in accordance with the terms of that commitment.
4. The Agreement shall not prevent a Member from applying measures to regulate
the entry of natural persons into, or their temporary stay in, its territory, including
those measures necessary to protect the integrity of, and to ensure the orderly
movement of natural persons across, its borders, provided that such measures
are not applied in such a manner as to nullify or impair the benefits accruing to
any Member under the terms of a specific commitment.13
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[. . .]
OTHER SERVICE ANNEXES [Financial Services, Air Travel, etc.]
APPENDIX III: SCHEDULE OF SPECIFIC U.S. COMMITMENTS
AND RESERVATIONS TO THE WTO GATS TREATY COMMUNICATION FROM THE UNITED STATES
United States' Schedule of Specific Commitments
under the General Agreement on Trade in Services
To facilitate the process of negotiations, including presentation of initial offers, the United States
has prepared the attached draft consolidated version of its Schedule of Specific Commitments and List of
Article II (MFN) Exemptions. This is not a legally binding document and does not substitute for the
legally binding commitments and exemptions undertaken by the United States in its Schedule of Specific
Commitments (GATS/SC/90; GATS/SC/90/Suppl.2 and 3) and List of Article II (MFN) Exemptions
(GATS/EL/90; GATS/EL/90/Suppl.2 and 3).
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_______________
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THE UNITED STATES OF AMERICA - SCHEDULE OF SPECIFIC COMMITMENTS
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
I. HORIZONTAL COMMITMENTS
ALL SECTORS COVERED BY THIS SCHEDULE: For the purpose of this schedule the "United States" is defined as encompassing the 50 states of the United States,
plus the District of Columbia.
All Sectors: Temporary
Entry And Stay of Natural
Persons1
4) Unbound, except for measures concerning
temporary entry and stay of nationals of
another member who fall into the categories
listed below:
4) Unbound
Services Salespersons - persons not based in the
territory of the United States and receiving no
remuneration from a source located within the United
States, who are engaged in activities related to
1 "Temporary entry" means entry without intent to establish permanent residence under immigration laws of the US and confers no rights with respect to
citizenship. US commitments regarding entry and temporary stay in the US do not apply in cases of labour/management disputes.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
representing a services supplier for the purpose of
negotiating for the sale of the services of that supplier
where: a) such sales are not directly made to the
general public and b) the salesperson is not engaged in
supplying the service. Entry for persons named in this
section is limited to a ninety-day period.
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Intra-corporate Transferees - managers, executives
and specialists, as defined below, who are employees
of firms that provide services within the United States
through a branch, subsidiary, or affiliate established in
the United States and who have been in the prior
employ of their firm outside the United States for a
period of not less than one year immediately
preceding the date of their application for admission
and who are one of the following:
a) Managers - persons within an organization who
primarily direct the organization, or a
department or sub-division of the
organization, supervise and control the
work of other supervisory, professional or
managerial employees, have the authority
to hire and fire or recommend hiring,
firing, or other personnel actions (such as
promotion or leave authorization), and
exercise discretionary authority over
day-to-day operations. Does not include
first-line supervisors, unless the employees
supervised are professionals, nor does it
include employees who primarily perform
tasks necessary for the provision of the
service.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
b) Executives - persons within the organization who
primarily direct the management of the
organization, establish the goals and
policies of the organization, exercise wide
latitude in decision-making, and receive
only general supervision or direction from
higher-level executives, the board of
directors, or stockholders of the business.
Executives would not directly perform
tasks related to the actual provision of a
service or services of the organization.
c) Specialists - persons within an organization who
possess knowledge at an advanced level of
continued expertise and who possess
proprietary knowledge of the
organization's services, research
equipment, techniques, or management.
(Specialists may include, but are not
limited to, members of licenced
professions.)
Entry for persons named in this section is limited to a
three-year period that may be extended for up to two
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Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
additional years for a total term not to exceed five
years.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Personnel Engaged in Establishment - A person who
has been employed in the immediately preceding year
by an entity described in Section II, receiving
remuneration from that source, who occupies a
managerial or executive position with that entity and
is entering the territory of the United States for the
purpose of establishing an entity described in Section
II that will support employment of persons named in
paragraphs a), b), and c) therein. The subject persons
shall present proof of acquisition of physical premises
for the entity that shall commence its business
operations within one year of the date of entry of that
person.
Fashion Models and Specialty Occupations - Up to
65,000 persons annually on a world-wide basis in
occupations as set out in 8 USC. ' 1101 (a) (15) (H) (i)
(b), consisting of (i) fashion models who are of
distinguished merit and ability; and (ii) persons
engaged in a specialty occupation, requiring (a)
theoretical and practical application of a body of highly
specialized knowledge; and (b) attainment of a
bachelor's or higher degree in the specialty (or its
equivalent) as a minimum for entry into the
occupation in the United States. Persons seeking
admission under (ii) above shall possess the following
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Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
qualifications: (a) full licensure in a US state to
practice in the occupation, if such licensure is required
to practice in the occupation in that state; and (b)
completion of the required degree, or experience in
the specialty equivalent to the completion of the
required degree and recognition of expertise in the
specialty through progressively responsible positions
relating to the specialty. Entry for persons named in
this section is limited to three years.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Specialty occupation aliens and their employers must
be in compliance with all labour condition application
requirements that are attested to by the established
employer. These requirements are: a) wages paid to
the person are the greater of: 1) the actual wage paid
by the employer to individuals in that place of
employment with similar qualifications and
experience, or 2) the prevailing wage for that
occupational classification in the area of employment;
b) conditions of work are such that they will not
adversely affect working conditions for those similarly
employed; c) there is no strike or lockout in the course
of a labour/management dispute in progress at the
place of employment affecting the subject occupation;
labour/management dispute in progress at the place
of employment;
d) the employer has not laid off or otherwise
displaced workers in the subject occupation in
the previous six months and will not lay off or
displace any US worker during the 90-day period
following the filing of an application or the
90-day periods preceding and following the
filing of any visa petition supported by the
application; e) the employer has taken and is
taking timely and significant steps to recruit and
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Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
retain sufficient US workers in the specialty
occupation; and f) notice is given at the time of
application by the employer to employees or
their representatives at the place of
employment.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
All Sectors: Acquisition of
Land
3) None
3) The federal government restricts initial
sale of federally-owned lands to US
citizens. (Preceding restriction does
not apply to foreign-owned companies
formed under the laws of any state of
the United States.)
Acquisition of land reclaimed with
federal funds and reclamation of desert
land is restricted to individual US
citizens
Ownership of land by non-US citizens is
limited in: Kentucky (restrictions apply
only to individuals, not to
foreign-owned companies incorporated
within the United States) and South
Carolina (applies to individuals and
foreign-owned corporations).
Purchase of land by non-US citizens not
resident within the state is restricted
in: Oklahoma, Florida, and Wyoming.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
In Mississippi, non-US citizens may not
purchase more than 5 acres for
residential property, or more than 320
acres for industrial development.
Non-US citizens may not purchase or
bid on sales of public lands in: Hawaii,
Idaho, Mississippi, Montana, and
Oregon
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
All Sectors: Taxation
Measures
1) None
2) None
3) None
1), 2), 3) At the federal level, with respect
to direct taxes:
Differential tax treatment may be
provided between trusts created or
organized in the United States to
provide employee benefits and trusts
not created or organized in the United
States and their respective
beneficiaries. Such provisions affect
the taxation of the income of the trust
or the beneficiary, the availability of
deductions to taxpayers for
contributions to the trust, and tax
administration requirements; these
provisions include different rules for
allowing deductions to, and
determining the earnings of, foreign
employee benefit plans.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
An increase in the rate or a widening
of the base of a federal income tax
may be imposed on a national,
resident or corporation of a foreign
country where a national, resident or
corporation of the United States is
being subjected to discriminatory or
extraterritorial taxes (as described in
section 891 or section 896 of the
Internal Revenue Code).
At the federal level, with respect to taxes
other than direct taxes:
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
An excise tax may be imposed in
connection with transfers of any
property by a citizen or resident of the
United States, or by a domestic entity
(corporations, partnership, estate or
trust) to a foreign entity (corporation
partnership, estate or trust).
An excise tax may be imposed on US
source gross investment income of
foreign organizations that are private
foundations.
4) Unbound, except as indicated in the horizontal
section
4) None
All Sectors: Subsidies
1) Unbound
2) Unbound
1) Unbound
2) Unbound
3) The Federal Overseas Private
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
3) None Investment Corporation (OPIC)
insurance and loan guarantees are not
available to certain aliens, foreign
enterprises, and foreign-controlled
enterprises established in the United
States
Trade and Development Agency
financing is limited to:
I. individuals 1) who are either US
citizens or non-US citizens lawfully
admitted for permanent residence
in the United States and 2) whose
principal places of business are in
the United States, or
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
II. privately-owned commercial
corporations or partnerships that
are incorporated or legally
organized under the laws of the
United States and whose principal
places of business are in the
United States and (1) that are
more than 50 per cent beneficially
owned by individuals who are US
citizens or (2) that have been
incorporated or legally organized
in the United States for more than
3 years, have performed similar
services in each of the prior 3
years, and employ US citizens in
more than half of their permanent
full-time positions in the United
States and have the existing
capability in the United States to
perform the contract
Unbound for measures at the federal,
state or local levels that accord rights
or preferences to members of socially
or economically disadvantaged groups
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
in the United States, including:
Federal Small Business Administration
- loans are restricted to US citizens or
companies that are 100 per cent
owned by US citizens and whose
directors are all US citizens
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Maine - The Maine Veterans Small
Business Loan Guarantee Program
provides guarantees to eligible
resident veterans for business loans
from local lending institutions. A
qualifying business is one that is
independently owned and operated in
Maine, and the applicant must be a
war veteran. The Small Business Loan
Guarantee Program in Maine provides
guarantees of loans made by private
lenders to eligible residents of Maine
for business purposes.
Maryland - The Maryland Small
Business Development Financing
Authority makes direct loans to
socially or economically disadvantaged
business persons. Applicants must be
US citizens and have a business that is
70 per cent owned by socially or
economically disadvantaged persons.
Applicants for the Maryland Small
Business Surety Bond Guarantee
Program must be US citizens and, if
entities, must have their principal
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
places of business in Maryland.
Minnesota - Community Development
Corporations are only eligible to
receive grants if 60 per cent of their
directors are residents of the specific
geographic community in Minnesota
within which they will operate.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Oregon - Oregon law requires that
the Economic Development
Corporation (EDC) give preference in
OBDF loans to businesses owned in
whole or in part by dislocated timber
workers.
Pennsylvania - Minority Business
Development Authority provides
long-term low interest loans to
minority-owned businesses.
Applicants must be Blacks, Aleuts,
Eskimos, Hispanics or American
Indians who are residents of
Pennsylvania.
Unbound for research and
development subsidies
4) Unbound, except as indicated in the horizontal
section
4) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
II. SECTOR-SPECIFIC COMMITMENTS
1. BUSINESS SERVICES
A. PROFESSIONAL SERVICES
a) 1) Legal Services: practice
as or through a qualified
US lawyer
For the following jurisdiction, the following
commitments apply: in (all states)
1) Services must be supplied by a natural person
An in-state office must be maintained for licensure
in: District of Columbia, Indiana (or an affiliate
with an office and with other attorneys in the
state), Michigan, Minnesota (or maintain individual
residency in Minnesota), Mississippi, New Jersey,
Ohio, South Dakota and Tennessee.
1) In-state or US residency is required for
licensure in: Hawaii, Iowa, Kansas,
Massachusetts, Michigan, Minnesota
(or maintain an office in Minnesota),
Mississippi, Nebraska, New Jersey, New
Hampshire, Oklahoma, Rhode Island,
South Dakota, Vermont, Virginia,
Wyoming.
2) Services must be supplied by a natural person
2) In-state or US residency is required for
licensure in: Hawaii, Iowa, Kansas,
Massachusetts, Michigan, Minnesota
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
An in-state office must be maintained for licensure
in: District of Columbia, Indiana (or an affiliate
with an office and with other attorneys in the
state), Michigan, Minnesota (or maintain individual
residency in Minnesota), Mississippi, New Jersey,
Ohio, South Dakota and Tennessee.
(or maintain an office in Minnesota),
Mississippi, Nebraska, New Jersey, New
Hampshire, Oklahoma, Rhode Island,
South Dakota, Vermont, Virginia,
Wyoming.
3) Services must be supplied by a natural person
Partnership in law firms is limited to persons
licenced as lawyers
US citizenship is required to practice before the US
Patent and Trademark Office
3) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
4) Services must be supplied by a natural person
An in-state office must be maintained for licensure
in: District of Columbia, Indiana (or an affiliate
with an office and with other attorneys in the
state), Michigan, Minnesota (or maintain individual
residency in Minnesota), Mississippi, New Jersey,
Ohio, South Dakota and Tennessee.
US Citizenship is required to practice before the US
Patent and Trademark Office
4) In-state or US residency is required for
licensure in: Hawaii, Iowa, Kansas,
Massachusetts, Michigan, Minnesota
(or maintain an office in Minnesota),
Mississippi, Nebraska, New Jersey, New
Hampshire, Oklahoma, Rhode Island,
South Dakota, Vermont, Virginia,
Wyoming.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
a) 2) Legal Services:
consultancy on law of
jurisdiction where
service supplier is
qualified as a lawyer
(such consultancy
excludes the following:
i) appearing for a person
other than himself or
herself as attorney in any
court, or before any
magistrate or other
judicial officer, in this
state (other than upon
admission pro haec vice);
ii) preparing any
instrument effecting the
transfer or registration
of title to real estate
located in the United
States of America;
iii) preparing any will or
trust instrument
effecting the disposition
on death of any property
located in the United
States of America and
owned by a resident
thereof, or any
instrument relating to
the administration of a
For the following jurisdiction, the following
commitments apply: Alaska2
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted, provided
foreign legal
consultant (FLC) is
competent.
b) Practice of
3rd-country law:
permitted provided
that FLC obtains
written legal advice
from an attorney
licenced in that
jurisdiction.
c) Practice of
host-country law:
permitted provided
that FLC obtains
written legal advice
from an attorney
licenced to practice in
that jurisdiction.
d) Association with local
lawyers: partnerships
with local lawyers
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
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2 The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be licenced
as a foreign legal consultant (FLC) in Alaska. Licensure is subject to meeting requirements of registration, an experience requirement (5 of the 7 years
preceding registration must have been spent practising law), certification of registration and good standing with home-country bar, meeting the
professional liability insurance requirement, and agreement to be bound by the Rules of Disciplinary Enforcement, Ethics Opinions adopted by the Board of
Governors of the Alaska Bar Association, and the Code of Professional Responsibility. Professional privileges apply to all foreign lawyers.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
United States of
America; and iv)
preparing any
instrument in respect of
the marital or parental
relations, rights or duties
of a resident of the
United States of
America, or the custody
or care of the children of
such a resident.)
For the following jurisdiction, the following
commitments apply: California3
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
a) Practice of
international law:
permitted to the
extent incorporated
in home-country law.
b) Practice of
3rd-country law: not
permitted.
3 The following information is provided for transparency purposes only. A supplier regularly providing services is required to be licenced as a foreign legal
consultant in California. Licensure is subject to meeting requirements of registration, an experience requirement (4 of the 6 years preceding registration
must have been spent practising law), certification of registration and good standing with home-country bar, meeting the professional liability insurance
requirement, and agreement to be bound by the requirements of the State Bar of California. Professional privileges apply to all foreign lawyers.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Connecticut4
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted to the
extent incorporated
in home-country law.
b) Practice of
3rd-country law:
permitted provided
FLC first obtains
advice from an
attorney licenced in
that jurisdiction.
c) Practice of
host-country law: not
4 The following information is provided for transparency purposes only. A supplier regularly providing services is required to be licenced as a foreign legal
consultant in Connecticut. Licensure is subject to meeting requirements of registration, a minimum age of 26 years, an experience requirement (5 of the 7
years preceding registration must have been spent practising law), certification of registration, meeting the professional liability insurance requirement, an
overdraft notification, good standing with home-country bar, and a written commitment to observe the Connecticut Rules of Professional Conduct.
Professional privileges apply to all foreign lawyers.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
permitted.
d) Association with local
lawyers: partnership
with local attorneys
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: District of Columbia5
1) None
2) None
3) In-state office required
4) Unbound, except as indicated in the horizontal
section. Additionally, an in-state office is required.
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted, provided
FLC is competent.
b) Practice of
3rd-country law:
permitted, provided
FLC is competent.
c) Practice of
host-country law:
permitted provided
FLC first obtains
advice from an
attorney licenced in
5 The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be licenced
as a foreign legal consultant in the District of Columbia. Licensure is subject to meeting requirements of registration, a minimum age of 26 years, an
experience requirement (5 of the 8 years preceding registration must have been spent practising law), certification of registration and good standing with
home-country bar, meeting the professional liability insurance requirement, and a written commitment to be bound by the Code of Professional
Responsibility of the American Bar Association. Professional privileges apply to all foreign lawyers.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
that jurisdiction and
identifies the person
to the client.
d) Association with local
lawyers: partnership
with local lawyers
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Florida6
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted to the
extent incorporated
in home-country law.
b) Practice of
3rd-country law: not
permitted.
c) Practice of
host-country law: not
permitted.
d) Association with local
lawyers: partnerships
with local lawyers
6
The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be
licenced as a foreign legal consultant in Florida. Licensure is subject to meeting requirements of registration, a minimum age of 26 years, an experience requirement
(5 of the 7 years preceding registration must have been spent practising law), certification of registration and good standing with home-country bar, and a sworn
statement to abide by the Rules of Professional Conduct. Professional privileges apply to all foreign lawyers.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Georgia7
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted to the
extent incorporated
in home-country law.
b) Practice of
3rd-country law: not
permitted.
c) Practice of
host-country law: not
permitted.
d) Association with local
lawyers: partnership
with local lawyers
7
The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be licenced as a
foreign legal consultant in Georgia. Licensure is subject to meeting requirements of registration, an experience requirement (5 of the 7 years preceding
registration must have been spent practising law), certification of registration and good standing with home-country bar, and a commitment to observe the
Rules of Professional Responsibility and Disciplinary Rules applicable to members of the State Bar of Georgia. Professional privileges apply to all foreign
lawyers.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Hawaii8
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted, provided
FLC is competent.
b) Practice of
3rd-country law:
permitted provided
FLC obtains advice
from an attorney
licenced in that
jurisdiction and
identifies that person
to the client.
c) Practice of
host-country law:
permitted provided
FLC obtains advice
8 The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be licenced as a
foreign legal consultant in Hawaii. Licensure is subject to meeting requirements of registration, a minimum age of 26 years, an experience requirement (5 of the
7 years preceding registration must have been spent practising law), and certification of registration and good standing with home-country bar. Professional
privileges apply to all foreign lawyers.
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/USA
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
from an attorney
licenced in that
jurisdiction and
identifies that person
to the client.
d) Association with local
lawyers: partnership
with local lawyers
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a.
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/USA
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Illinois9
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted to the
extent incorporated
in home-country law.
b) Practice of
3rd-country law: not
permitted.
c) Practice of
host-country law: not
permitted.
d) Association with local
lawyers: partnership
with local lawyers
9 The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be licenced as a
foreign legal consultant in Illinois. Licensure is subject to meeting requirements of registration, an experience requirement (5 of the 7 years preceding
registration must have been spent practising law), meeting the professional liability insurance requirement, a written commitment to observe the Rules of
Professional Conduct, and certification of registration and good standing with home-country bar. Professional privileges apply to all foreign lawyers.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Michigan10
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) In-state residency required
4) In-state residency required
a) Practice of
international law:
permitted to the
extent incorporated
in home-country law.
b) Practice of
3rd-country law: not
permitted.
c) Practice of
host-country law: not
permitted.
d) Association with local
lawyers: partnership
with local lawyers
10
The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be
licenced as a foreign legal consultant in Michigan. Licensure is subject to meeting requirements of registration, a minimum age of 18 years, an experience requirement
(3 of the 5 years preceding registration must have been spent practising law), and certification of registration and good standing with home-country bar. Professional
privileges apply to all foreign lawyers.
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/USA
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Minnesota11
1) None
2) None
3) In-state office required
4) Unbound, except as indicated in the horizontal
section. Additionally, an in-state office is required.
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted to the
extent incorporated
in home-country law.
b) Practice of
3rd-country law: not
permitted.
c) Practice of
host-country law: not
permitted.
d) Association with local
lawyers: partnership
with local lawyers
11
The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be licenced as a
foreign legal consultant in Minnesota. Licensure is subject to meeting requirements of registration, a minimum age of 26 years, an experience requirement (5 of
the 7 years preceding registration must have been spent practising law), certification of registration and good standing with home-country bar, and are subject
to the Minnesota Rules of Professional Conduct. Professional privileges apply to all foreign lawyers.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: New Jersey12
1) None
2) None
3) In-state office required
4) Unbound, except as indicated in the horizontal
section. Additionally, an in-state office is required.
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted to the
extent incorporated in
home-country law.
b) Practice of 3rd-country
law: permitted
provided FLC obtains
advice from an
attorney licenced in
that jurisdiction and
identifies that person
to the client.
c) Practice of
host-country law:
permitted provided
FLC obtains advice
from an attorney
licenced in that
jurisdiction and
12
The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be
licenced as a foreign legal consultant in New Jersey. Licensure is subject to meeting requirements of registration, an experience requirement (5 of the 7 years
preceding registration must have been spent practising law), meeting the professional liability insurance requirement, certification of registration and good
standing with home-country bar, and shall observe the Rules of Professional Conduct of the American Bar Association. Professional privileges apply to all foreign
lawyers.
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/USA
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
identifies that person
to the client.
d) Association with local
lawyers: partnership
with local lawyers
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a.
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/USA
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: New York13
1) None
2) None
3) In-state office required
4) Unbound, except as indicated in the horizontal
section. Additionally, an in-state office is required.
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted, provided
FLC is competent.
b) Practice of
3rd-country law:
permitted, provided
FLC is competent.
c) Practice of
host-country law:
permitted to practice
NY and federal law
provided FLC relies on
advice from a person
duly qualified and
entitled to render
professional legal
advice on NY or US
law. Permitted to
practice law of other
US states, provided
13
The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be licenced as a foreign legal
consultant in New York. Licensure is subject to meeting requirements of registration, a minimum age of 26 years, an experience requirement (3 of the 5 years preceding registration must have been spent practising law), certification of registration and good standing with home-country bar, meeting the professional liability insurance requirement, and agreement to be bound by the New York Bar Code of Ethics. Professional privileges apply to all foreign lawyers.
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/USA
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
FLC is competent.
d) Association with local
lawyers: partnership
with local lawyers
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
unrestricted.
g) Other: n/a.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Ohio14
1) None
2) None
3) In-state office required
4) Unbound, except as indicated in the horizontal
section. Additionally, an in-state office is required.
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted.
b) Practice of
3rd-country law:
permitted if FLC
obtains advice from
an attorney licenced
in that jurisdiction
and identifies that
person to the client.
c) Practice of
host-country law:
permitted if FLC
obtains advice from
an attorney licenced
14
The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be licenced as a
foreign legal consultant in Ohio. Licensure is subject to meeting requirements of registration, a minimum age of 21 years, an experience requirement (4 of
the 6 years preceding registration must have been spent practising law), certification of registration and good standing with home-country bar, meeting the
professional liability insurance requirement, and being subject to the Ohio Code of Professional Responsibility and the disciplinary procedural rules set forth
in Gov. Bar R.V. Professional privileges apply to all foreign lawyers.
S/D
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/USA
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
in that jurisdiction
and identifies that
person to the client.
d) Association with local
lawyers: partnership
with local lawyers not
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a.
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/USA
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96
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Oregon15
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
a) Practice of
international law:
permitted to the
extent incorporated in
home-country law.
b) Practice of 3rd-country
law: permitted if FLC
obtains advice from an
attorney licenced in
that jurisdiction and
identifies that person
to the client.
c) Practice of
host-country law:
permitted if FLC
obtains advice from an
attorney licenced in
that jurisdiction and
identifies that person
15
The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be licenced as a
foreign legal consultant in Oregon. Licensure is subject to meeting requirements of registration, a minimum age of 18 years, an experience requirement (5 of the 7
years preceding registration must have been spent practising law), and certification of registration and good standing with home-country bar, meeting the professional
liability insurance requirement, and agreement to comply with ORS Chapter 9, the Oregon Code of Professional Responsibility and the Oregon State Bar's Rules of
Procedure. Professional privileges apply to all foreign lawyers.
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/USA
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
to the client.
d) Association with local
lawyers: partnership
with local lawyer
permitted.
e) Employment of local
lawyers: permitted
f) Use of firm name:
permitted.
g) Other: n/a.
S/D
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/USA
Page 1
98
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Texas16
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) In-state residency required
4) In-state residency required
a) Practice of
international law:
permitted to the
extent incorporated
in home-country law.
b) Practice of
3rd-country law: not
permitted.
c) Practice of
host-country law: not
permitted.
d) Association with local
lawyers: partnership
with local lawyers
16
The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be licenced as a
foreign legal consultant in Texas. Licensure is subject to meeting requirements of registration, a minimum age of 26 years, an experience requirement (5 of the 7
years preceding registration must have been spent practising law), meeting the professional liability insurance requirement, certification of registration and good
standing with home-country bar, and taking an oath to abide by the State Bar Act, the State Bar Rules, and the Texas Disciplinary Rules of Professional Conduct.
Professional privileges apply to all foreign lawyers.
S/D
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/USA
Page 1
99
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a.
S/D
CS/W
/USA
Page 2
00
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Washington17
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) In-state residency required at time
admitted
4) In-state residency required at time
admitted
a) Practice of
international law:
permitted to the
extent incorporated
in home-country law.
b) Practice of
3rd-country law: not
permitted.
c) Practice of
host-country law: not
permitted.
d) Association with local
lawyers: partnerships
with local lawyers
17
The following information is provided for transparency purposes only. A supplier regularly providing services in the jurisdiction is required to be licenced as a
foreign legal consultant in Washington. Licensure is subject to meeting requirements of registration, an experience requirement (5 of the 7 years preceding
registration must have been spent practising law), and certification of registration and good standing with home-country bar, and agreement to be bound by the
Discipline Rules for Lawyers and the Rules of Professional Conduct. Professional privileges apply to all foreign lawyers.
S/D
CS/W
/USA
Page 2
01
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
permitted.
e) Employment of local
lawyers: permitted.
f) Use of firm name:
permitted.
g) Other: n/a.
S/D
CS/W
/USA
Page 2
02
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
For the following jurisdiction, the following
commitments apply: Other States
1) None
2) None
3) Unbound for Alabama, Arizona, Arkansas,
Colorado, Delaware, Idaho, Indiana, Iowa, Kansas,
Kentucky, Louisiana, Maine, Maryland,
Massachusetts, Mississippi, Missouri, Montana,
Nebraska, Nevada, New Hampshire, New Mexico,
North Carolina, North Dakota, Oklahoma,
Pennsylvania, Rhode Island, South Carolina, South
Dakota, Tennessee, Utah, Vermont, Virginia, West
Virginia, Wisconsin, Wyoming.
4) Unbound for Alabama, Arizona, Arkansas,
Colorado, Delaware, Idaho, Indiana, Iowa, Kansas,
Kentucky, Louisiana, Maine, Maryland,
Massachusetts, Mississippi, Missouri, Montana,
1) None
2) None
3) None
S/D
CS/W
/USA
Page 2
03
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Nebraska, Nevada, New Hampshire, New Mexico,
North Carolina, North Dakota, Oklahoma,
Pennsylvania, Rhode Island, South Carolina, South
Dakota, Tennessee, Utah, Vermont, Virginia, West
Virginia, Wisconsin, Wyoming.
4) None
S/D
CS/W
/USA
Page 2
04
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
b) Accounting, Auditing
and Bookkeeping
Services
1) None
2) None
3) Sole proprietorships or partnerships are limited to
persons licenced as accountants, except in Iowa
where accounting firms must incorporate
4) Unbound, except as indicated in the horizontal
section. In addition, an in-state office must be
maintained for licensure in: Arkansas, Connecticut,
Iowa, Kansas, Kentucky, Michigan, Minnesota,
Nebraska, New Hampshire, New Mexico, Ohio,
Vermont, and Wyoming.
US citizenship is required for licensure in North
Carolina.
1) None
2) None
3) None
4) In-state residency is required for
licensure in: Arizona, Arkansas,
Connecticut, District of Columbia, Idaho,
Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maine, Michigan, Minnesota,
Mississippi, Missouri, Nebraska, New
Hampshire, New Mexico, North Carolina,
North Dakota, Ohio, Oklahoma, Rhode
Island, South Carolina, Tennessee, and
West Virginia.
S/D
CS/W
/USA
Page 2
05
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
c) Taxation Services 1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
d) Architectural Services
1) None
2) None
3) Two-thirds of the officers, partners, and/or
directors of an architectural firm in Michigan must
be licenced in Michigan as architects, professional
engineers and/or land surveyors.
4) Unbound, except as indicated in the horizontal
1) None
2) None
3) None
S/D
CS/W
/USA
Page 2
06
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
section
4) None
S/D
CS/W
/USA
Page 2
07
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
e) Engineering Services
f) Integrated Engineering
Services
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section. In addition, US citizenship is required for
licensure in the District of Columbia.
1) None
2) None
3) None
4) In-state residency is required for
licensure in: Idaho, Iowa, Kansas,
Maine, Mississippi, Nevada, Oklahoma,
South Carolina, South Dakota,
Tennessee, Texas, and West Virginia.
g) Urban Planning &
Landscape Services
1) None
2) None
3) Two-thirds of the officers, partners, and/or
directors of an architectural firm in Michigan must
be licenced in Michigan as architects, professional
1) None
2) None
3) None
S/D
CS/W
/USA
Page 2
08
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
engineers and/or land surveyors
4) Unbound, except as indicated in the horizontal
section.
4) None
B. COMPUTER AND
RELATED SERVICES
(MTN.GNS/W/120
a) - e), except airline
computer reservation
systems)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
S/D
CS/W
/USA
Page 2
09
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
D. REAL ESTATE SERVICES
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section. In addition, US citizenship is required for
licensure as a real estate broker in: Mississippi and
New York.
1) Corporations that own real estate in
Florida must maintain an office and
registered agent in Florida
2) None
3) None
4) In-state residency or US citizenship is
required for licensure as a real estate
broker in South Dakota
E. RENTAL/LEASING
SERVICES WITHOUT
OPERATORS:
c) Relating to Other
transport Equipment
1) None
1) None
S/D
CS/W
/USA
Page 2
10
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
d) Relating to Other
Machinery and
Equipment
e) Other (except Harbour
Dredges)
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
2) None
3) None
4) None
F. OTHER BUSINESS
SERVICES
a) Advertising (except
aerial advertising and
skywriting)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
1) None
2) None
3) None
4) None
S/D
CS/W
/USA
Page 2
11
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
section
S/D
CS/W
/USA
Page 2
12
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
b) Market Research and
Public Opinion Polling
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
c) Management
Consulting
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
1) None
2) None
3) None
4) None
S/D
CS/W
/USA
Page 2
13
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
section
d) Services Related to
Management
Consulting
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
f) Services Incidental to
Agriculture, Hunting
and Forestry (except
provision of agricultural
machinery with drivers
and crew, harvesting
and related services,
services of farm labour
1) None
2) None
1) None
2) None
S/D
CS/W
/USA
Page 2
14
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
contractors, and aerial
fire fighting)
3) None
4) Unbound, except as indicated in the horizontal
section
3) None
4) None
S/D
CS/W
/USA
Page 2
15
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
g) Services Incidental to
Fishing
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
h) Services Incidental to
Mining
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
1) None
2) None
3) None
S/D
CS/W
/USA
Page 2
16
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
section
4) None
j) Services Incidental to
Energy Distribution
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
S/D
CS/W
/USA
Page 2
17
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
k) Placement and Supply
Services of Personnel
1) None
2) None
3) US citizenship is required for ownership of
employment agencies in Arkansas.
4) Unbound, except as indicated in the horizontal
section. In addition, US citizenship is required for
licensure as an employment agent, employment
agency counsellor and employment agency
manager in Arkansas.
1) None
2) None
3) None
4) None
l) Investigation and
Security Services
1) None
2) None
1) None
2) None
S/D
CS/W
/USA
Page 2
18
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
3) Permanent resident alien status or US citizenship is
required to own contract security companies in
Maine
4) Unbound, except as indicated in the horizontal
section. In addition, permanent resident alien
status or US citizenship is required for private
investigators and security guards in: Maine and
New York.
3) None
4) In-state residency is required for private
detectives in Michigan
m) Related Scientific &
Technical Consulting
(except land surveying
for the purpose of
establishing legal
boundaries, aerial
surveying and aerial
map-making)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None18
2) None18
3) None18
4) None
18
For those functions where an engineering degree is required, the US limitations on engineering also apply.
S/D
CS/W
/USA
Page 2
19
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
n) Maintenance & Repair of
Equipment (except
maritime vessels,
aircraft, and other
transport equipment)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
o) Building-Cleaning
Services
1) Unbound*
2) None
3) None
4) Unbound, except as indicated in the horizontal
1) Unbound*
2) None
3) None
4) None
S/D
CS/W
/USA
Page 2
20
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
section
p) Photographic Services
(except aerial
photographic services)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
q) Packaging Services
1) None
2) None
3) None
1) None
2) None
3) None
S/D
CS/W
/USA
Page 2
21
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
4) Unbound, except as indicated in the horizontal
section
4) None
S/D
CS/W
/USA
Page 2
22
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
r) Publishing (Only part of
MTN.GNS/W/120
category: "r) Printing,
Publishing")
1) None
2) None
3) A single company or firm is not permitted to own
a combination of newspaper, radio and/or TV
broadcast stations serving the same local market
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
s) Convention Services
1) None
2) None
3) None
1) None
2) Unbound with respect to tax deductions
3) None
S/D
CS/W
/USA
Page 2
23
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
4) Unbound, except as indicated in the horizontal
section
4) None
2. COMMUNICATION
SERVICES
B. LAND-BASED COURIER
SERVICES
(except courier services
involving any prior or
subsequent movement
by air)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal section
1) None
2) None
3) None
4) None
S/D
CS/W
/USA
Page 2
24
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
C. TELECOMMUNICA-
TIONS
Enhanced
Telecommunications
Services, as defined by
the US Federal
Communications
Commission in Section
64.702 of the
Commission's Rules and
Regulations: services,
offered over common
carrier transmission
facilities (i.e., public
telecommunications
transport services) which
employ computer
processing applications
that:
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
i) act on the format,
content code, protocol
or similar aspects of the
subscriber's transmitted
S/D
CS/W
/USA
Page 2
25
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
information; or
ii) provide the subscriber
additional, different, or
restructured
information; or
iii) involve subscriber
interaction with stored
information.
S/D
CS/W
/USA
Page 2
26
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Includes the following:
h) Electronic Mail
i) Voice Mail
j) On-line Information and
Data Base Retrieval
k) Electronic Data
Interchange
l) Enhanced/Value-added
Facsimile Services
(including store and
forward, store and
retrieve)
m) Code and Protocol
Conversion
n) On-line Information
and/or Data Processing
(including transaction
processing)
o) Other
S/D
CS/W
/USA
Page 2
27
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
S/D
CS/W
/USA
Page 2
28
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
2.C. TELECOMMUNICA-TIONS
SERVICES*:
2.C.a. Voice services
2.C.b. Packet-switched data
transmission services
2.C.c. Circuit-switched data
transmission services
2.C.d. Telex services
2.C.e. Telegraph services
2.C.f. Facsimile services
(1) None
(2) None
(3) None, other than
- Comsat has exclusive rights to links with
Intelsat and Inmarsat.
- Ownership of a common carrier radio license:
Indirect: None
(1) None
(2) None
(3) None
The United States
undertakes the obligations
contained in the reference
paper attached hereto.
S/D
CS/W
/USA
Page 2
29
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
2.C.g. Private leased circuit
services
2.C.o. Other
Mobile Services
Analogue/Digital cellular
services
PCS (Personal
Communications
services)
Paging services
Mobile data services
*Excluding one-way
satellite transmissions of
DTH and DBS television
services and of digital
audio services
Direct: May not be granted to or held by
(a) foreign government or the
representative thereof
(b) non-U.S. citizen or the representative of
any non-U.S. citizen
(c) any corporation not organized under the
laws of the United States or
(d) U.S. corporation of which more than 20%
of the capital stock is owned or voted by a
foreign government or its representative,
non-U.S. citizens or their representatives or
a corporation not organized under the laws
of the United States
(4) Unbound except as indicated by horizontal
commitments
(4) Unbound except as indicated by
horizontal commitments.
S/D
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/USA
Page 2
30
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
D. AUDIOVISUAL SERVICES
a) Motion Picture & Video
Tape Production &
Distribution Services
1) None
2) None
3) None
1) Grants from the National Endowment
for the Arts are only available for:
individuals with US citizenship or
permanent resident alien status, and
non-profit companies.
2) None
3) Grants from the National Endowment
for the Arts are only available for:
individuals with US citizenship or
permanent resident alien status, and
non-profit companies.
4) None
S/D
CS/W
/USA
Page 2
31
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
4) Unbound, except as indicated in the horizontal
section
b) Motion Picture
Projection Service
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
c) Radio & Television
Services
1) None
1) None
S/D
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/USA
Page 2
32
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
2) None
3) None
4) None
S/D
CS/W
/USA
Page 2
33
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
d) Radio and Television
Transmission Services
1) None
2) None
3) A single company or firm is prohibited from owning
a combination of newspapers, radio and/or TV
broadcast stations serving the same local market.
1) None
2) None
3) None
Radio and television licences may not be held by: a
foreign government; a corporation chartered
under the law of a foreign country or which has a
non-US citizen as an officer or director or more
than 20 per cent of the capital stock of which is
owned or voted by non-US citizens; a corporation
chartered under the laws of the United States that
is directly or indirectly controlled by a corporation
more than 25 per cent of whose capital stock is
owned by non-US citizens or a foreign government
or a corporation of which any officer or more than
25 per cent of the directors are non-US citizens.
4) Unbound, except as indicated in the horizontal
S/D
CS/W
/USA
Page 2
34
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
section. In addition, US citizenship is required to
obtain radio and television licences.
4) None
e) Sound Recording
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
S/D
CS/W
/USA
Page 2
35
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
f) Other Audiovisual
Services
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
3. CONSTRUCTION &
RELATED ENGINEERING
SERVICES - (except
Marine Dredging)
1) Unbound*
2) None
3) None
4) Unbound, except as indicated in the horizontal
1) Unbound*
2) None
3) None
S/D
CS/W
/USA
Page 2
36
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
section. In addition, an in-state office must be
maintained by all contractors in Michigan.
4) None
4. DISTRIBUTION SERVICES
A. COMMISSION AGENTS'
SERVICES
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
S/D
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/USA
Page 2
37
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
B. WHOLESALE TRADE
(except wholesale trade
of alcoholic beverages,
firearms and military
equipment)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
B. WHOLESALE TRADE of
alcoholic beverages
1) Unbound
2) Unbound
3) Unbound
4) Unbound, except as indicated in the horizontal
1) None
2) None
3) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
section
4) None
C. RETAILING (except retail
sale of alcoholic
beverages, firearms and
military equipment)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
D. FRANCHISING
1) None
2) None
3) None
1) None
2) None
3) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
4) Unbound, except as indicated in the horizontal
section
4) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
5. EDUCATIONAL SERVICES
D. Adult Education (except
flying instruction)
1) None
2) None
3) The number of licences for cosmetology schools in
Kentucky is limited to 48 total licences, with a total
of 8 licences allowed for operation of such schools
per congressional district
4) Unbound, except as indicated in the horizontal
section
1), 2), 3), 4) Scholarships and grants
may be limited to US citizens and/or
residents of particular states and may, in
some cases, only be used at certain states
institutions or within certain US
jurisdictions.
E. Other Education
Services
1) None
1), 2), 3), 4) Scholarships and grants
may be limited to US citizens and/or
residents of particular states and may, in
some cases, only be used at certain states
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
institutions or within certain US
jurisdictions.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
6. ENVIRONMENTAL
SERVICES19,20
A. Sewage Services
(contracted by private
industry)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
19
In each of the following subsectors, US commitments are limited to the following activities: implementation and installation of new or existing systems for
environmental cleanup, remediation, prevention and monitoring; implementation of environmental quality control and pollution reduction services; maintenance and
repair of environment-related systems and facilities not already covered by the US commitments on maintenance and repair of equipment; on-site environmental
investigation, evaluation, monitoring; sample collection services; training on site or at the facility; consulting related to these areas.
20 Nothing in this offer related to transportation should be construed to supersede the existing US commitments on transportation or related MFN exemptions.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
B. Refuse Disposal Services
(contracted by private
industry)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
C. Sanitation and Similar
Services
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
D. Other (Cleaning services
of exhaust gases; Noise
abatement services;
Nature and landscape
protection services;
Other environmental
services, n.e.c.)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
7. FINANCIAL SERVICES
A. INSURANCE:
1. Commitments in this subsector are undertaken in accordance with the Understanding on Commitments in Financial Services (the "Understanding"), subject
to the limitations and conditions set forth in these headnotes and the schedule below.
2. The market access commitments in this subsector in respect of mode (1), as described in paragraph 2(a) of Article I of the Agreement, are limited to the
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
services indicated in paragraphs B.3(a) and B.3(b) of the market access section of the Understanding. The market access commitments in this subsector in
respect of mode (2), as described in paragraph 2(b) of Article I of the Agreement, are limited to the services indicated in paragraphs B.4(a) and B.4(b) of the
market access section of the Understanding. It is understood that paragraph B.4 of the Understanding does not require that non-resident financial service
suppliers be permitted to solicit business, and no commitment to such solicitation is undertaken.
3. National treatment commitments in this subsector are subject to the following limitation: national treatment with respect to services and service suppliers
will be provided according to a non-U.S. service supplier's state of domicile, where applicable, in the United States. State of domicile is defined by
individual states, and is generally the state in which an insurer either is incorporated, is organized or maintains its principal office in the United States.
4. Commitments in this sector do not cover measures set out in the entry applicable to "Insurance" in the United States list of exemptions from Article II.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Direct Insurance
a) Life, Accident, and
Health Insurance
Services (except
workers compensation
insurance)
b) Non-Life Insurance
Services
1) Government-owned or government- controlled
insurance companies, whether US or foreign, are
not authorized to conduct business in: Alabama,
Alaska, Arkansas, California, Colorado,
Connecticut, Delaware, Georgia, Hawaii, Idaho,
Kansas, Kentucky, Maine, Maryland, Montana,
Nevada, New Jersey (only with respect to surplus
lines), New York (non-life companies are
authorized; life and health companies are not),
North Carolina, North Dakota, Oklahoma,
Oregon, Pennsylvania, Rhode Island, South
Dakota, Tennessee, Washington, West Virginia,
Wyoming.
1) A one per cent federal excise tax is
imposed on all life insurance premiums
and a four per cent federal excise tax is
imposed on all non-life insurance
premiums covering US risks that are
paid to companies not incorporated
under US law, except for premiums
that are earned by such companies
through an office or dependent agent
in the United States.
When more than 50 per cent of the
value of a maritime vessel whose hull
was built under federally guaranteed
mortgage funds is insured by a non-US
insurer, the insured must demonstrate
that the risk was substantially first
offered in the US market.
The United States
undertakes the obligations
contained in Additional
Commitments Paper I
attached hereto.
2) None
3) Government-owned or government controlled
insurance companies, whether US or foreign, are
2) None
3) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
not authorized to conduct business in: Alabama,
Alaska, Arkansas, California, Colorado,
Connecticut, Delaware, Georgia, Hawaii, Idaho,
Kansas, Kentucky, Maine, Maryland, Montana,
Nevada, New Jersey (only with respect to surplus
lines), New York (non-life companies are
authorized; life and health companies are not
authorized), North Carolina, North Dakota,
Oklahoma, Oregon, Pennsylvania, Rhode Island,
South Dakota, Tennessee, Washington, West
Virginia, Wyoming.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Branches are not permitted to provide surety
bonds for US federal government contracts.
The following states have no mechanism for
licensing initial entry of a non-US insurance
company as a subsidiary, unless that company is
already licensed in some other US state:
Minnesota, Mississippi, and Tennessee.
The following states have no mechanism for
licensing initial entry of a non-US insurance
company as a branch, unless that company is
already licensed in some other US state: Arkansas,
Arizona, Connecticut, Georgia, Hawaii, Kansas,
Maryland, Minnesota, Nebraska, New Jersey,
North Carolina, Pennsylvania, Tennessee, Utah,
Vermont, Wyoming, West Virginia.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
US citizenship is required for members of the
board of directors of locally established and
licensed companies in the following states and in
the following shares or numbers: 100 per cent
required in Louisiana; three-quarters in
Washington (mutual life companies with the
majority of the board being resident in the state);
two-thirds required in Oklahoma (for stock and
mutual companies) and Pennsylvania; a majority
required in California (for mutual insurers
operating as authorized insurers only in the state
of California), Florida (for stock and mutual
insurers), Georgia (for stock and mutual insurers
with one fourth resident in the state), Idaho (for
stock and mutual insurers), Indiana, Kentucky,
Mississippi, Ohio (for legal reserve life insurers),
Oregon, New York, South Dakota (except if more
than 1000 persons are entitled to vote for the
board of directors and a majority of the voters
reside outside the state, or less than one per cent
of the shares are owned by state residents),
Wyoming (for an insurer operating as an
authorized insurer only in Wyoming); seven in
Tennessee (for mutual life insurance companies;
three resident in Illinois (for stock, mutual, or legal
reserve insurers) and Missouri (life and accident).
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
US citizenship for incorporators of insurance
companies is required in the following states and in
the following percentages or numbers: 100 per
cent in Hawaii, Idaho (for stock or mutual insurer),
Indiana, South Dakota and Washington; two-thirds
in Arizona (for stock and mutual insurers),
two-thirds resident in Georgia (for stock and
mutual insurers); a majority in Alaska, Florida (for
stock and mutual insurers), Arkansas (majority for
mutuals or stock), Kansas (all life insurance
companies and mutual insurers other than life),
Kentucky (for mutual or stock insurers); Maine (life,
health, and accident and mutual aid assoc with
state residency for mutuals), Missouri (minimum
13 with overall majority resident in the state),
Montana (stock or mutual insurers), Texas (life,
health, accident and mutual aid assoc with state
residency for mutuals), Wyoming (for reserve stock
and mutual insurers).
State residency is required in the following states
for the organizing members of the following types
of mutual insurance companies: Arkansas (mutuals
and farm mutual insurers), California (county
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
mutual fire insurer); Idaho (all mutuals); Kansas (all
mutuals); North Dakota (all mutuals), Minnesota
(township mutuals, farmers mutual fire insurance
companies); Mississippi (all mutuals); Montana
(farm mutual insurer); Vermont (fire cooperatives);
Wyoming (farm mutual insurer).
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Seven or more US citizens, a majority of whom are
residents of the state, may organize a fraternal
benefit society in the following states: Alaska,
Arizona (requires 10 or more US citizens, a majority
of whom are citizens of the state), Arkansas,
California, Delaware, Florida, Hawaii, Idaho, Illinois,
Indiana, Iowa, Kansas, Kentucky, Maine, Maryland,
Michigan, Minnesota, Mississippi, Missouri,
Montana, Nebraska, New Jersey, North Dakota,
Oklahoma (requires 10 or more US citizens, a
majority of whom are residents of the state),
Oregon, Pennsylvania, South Dakota, Virginia,
Vermont, Washington, West Virginia and
Wyoming.
Twenty-five or more persons domiciled in the state
may organize a domestic reciprocal insurer in:
Arizona, Arkansas, California, Delaware, Georgia,
Idaho, Indiana, Kentucky, Maine, Maryland,
Mississippi, Montana, Pennsylvania, South Dakota,
Tennessee, Vermont, Virginia, Washington and
Wyoming.
4) Unbound, except as indicated in the horizontal
4) Unbound, except as indicated in the
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
section horizontal section
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
c) Reinsurance and
retrocession
1) Government-owned or government- controlled
insurance companies, whether US or foreign, are
not authorized to conduct business in: Alabama,
Alaska, Arkansas, Colorado, Connecticut,
Delaware, Georgia, Hawaii, Idaho, Kansas,
Kentucky, Maine, Maryland, Montana, Nevada,
New York (non-life companies are authorized; life
and health companies are not), North Carolina,
North Dakota, Oklahoma, Oregon, Pennsylvania,
Rhode Island, South Dakota, Tennessee,
Washington, West Virginia, Wyoming.
1) A one per cent federal excise tax is
imposed on all premiums covering US
risks that are paid to companies not
incorporated under US law, except for
premiums that are earned by such
companies through an office or
dependent agent in the United States.
In Texas, total direct reinsurance of
mutual life insurance companies may
not be entered into with non-US
companies.
Insurance companies incorporated in Nevada
may purchase reinsurance only from an insurer
admitted to Nevada. All insurers writing workers'
compensation insurance in Minnesota must
purchase reinsurance from the Minnesota
Workers' Compensation Reinsurance Authority.
Unbound for Maine for the provision of
reinsurance for workers' compensation.
2) Insurance companies incorporated in Nevada
may purchase reinsurance only from an insurer
2) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
admitted to Nevada. All insurers writing workers'
compensation insurance in Minnesota must
purchase reinsurance from the Minnesota
Workers' Compensation Reinsurance Authority.
Unbound for Maine for the provision of
reinsurance for workers' compensation.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
3) Government-owned or government- controlled
insurance companies, whether US or foreign, are
not authorized to conduct business in: Alabama,
Alaska, Arkansas, Colorado, Connecticut,
Delaware, Georgia, Hawaii, Idaho, Kansas,
Kentucky, Maine, Maryland, Montana, Nevada,
New York (non-life companies are authorized; life
and health companies are not), North Carolina,
North Dakota, Oklahoma, Oregon, Pennsylvania,
Rhode Island, South Dakota, Tennessee,
Washington, West Virginia, Wyoming.
The following states have no mechanism for
licensing initial entry of a non-US insurance
company as a subsidiary, unless that company is
already licensed in some other US state:
Maryland, Minnesota, Mississippi, and
Tennessee. After a license is obtained in some
other US state, licensing and entry into the states
listed above is permitted.
3) None
The following states have no mechanism for
licensing initial entry of a non-US insurance
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
company as a branch, unless that company is
already licensed in some other US state:
Arkansas, Arizona, Connecticut, Georgia, Kansas,
Maryland, Minnesota, Nebraska, New Jersey,
North Carolina, Pennsylvania, Tennessee, Utah,
Vermont, Wyoming, West Virginia. After a
license is obtained in some other US state,
licensing and entry into the states listed above is
permitted.
4) Unbound, except as indicated in the horizontal section.
4) Unbound, except as indicated in the
horizontal section.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
d) Services Auxiliary to
Insurance:
(applicable to
sub-sectors i), ii) and iii)
below)
1), 3) Nonresident licenses are not issued to
individuals not licensed in another US state in
Arkansas (agents, brokers, adjusters, consultants),
Connecticut (producers/adjusters/appraisers/
consultants/ brokers/reinsurance intermediary),
Colorado (producer, adjuster and reinsurance
intermediary), California (agents/brokers),
Delaware (broker/agent/reinsurance
intermediary), Georgia (counsellor/adjuster),
Florida (agent/broker), Hawaii, Illinois (producers/
adjusters/reinsurance intermediaries), Indiana
(agent/broker), Kansas (agent/ broker), Kentucky
(agent/broker), Louisiana (agent/broker), Maine
(agent/ broker), Maryland (agent/broker/
reinsurance agent/reinsurance broker), Mississippi
(agent/broker), Missouri (brokers), Montana
(producer's license/agent/broker), Nevada
(solicitor/ adjuster/property bondsman/bail
solicitor), New Jersey (producer's agent/broker),
New Mexico (bailbondsmen/solicitors/broker
agent), North Dakota (agents/brokers)
Nebraska (producer's license/agent/ broker), New
York (reinsurance intermediary), North Carolina
(reinsurance intermediary), Oregon
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
(agent/adjuster/consultant/
reinsurance intermediary), Pennsylvania
(adjuster/solicitor), South Dakota (agent), Virginia
(agents/brokers/consultants), West Virginia
(broker/reinsurance intermediary) and Texas
(agent/broker), Washington (agent/broker).
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
i) Brokerage Services21
1), 3) Brokerage licenses are not issued to non-residents
in: South Dakota, Wyoming.
Brokerage licenses are issued to non-residents
for only certain lines of insurance in: Alabama
(all except life, accident & health), Arkansas
(property, casualty, surety & marine), California,
Louisiana (property & casualty), New Mexico
(property & casualty).
All states require in-state residency for surplus
lines brokers.
2) None
4) Unbound, except as indicated in the horizontal
section.
1), 3) Higher license fees for non-residents
may be charged in: Alaska, Arizona,
Arkansas, California, Colorado, Georgia,
Indiana, Louisiana, Maine,
Massachusetts, Montana, Nebraska,
Nevada, New Hampshire, New Mexico,
North Carolina, North Dakota, Ohio,
Oklahoma, Pennsylvania, Rhode Island,
South Carolina, Utah, Vermont.
2) None
4) Unbound, except as indicated in the
horizontal section.
21 For transparency purposes, it should be noted that brokerage firms can generally offer services in most states by obtaining licenses as "brokers" and in other states by
obtaining licenses to operate as "agents". Brokerage licenses are not issued in Florida, Iowa, Kentucky, Michigan, Minnesota, Mississippi, Oregon, Tennessee, Texas, Virginia, West
Virginia, Wisconsin.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
ii) Agency Services
1), 3) Agency licenses are issued to non-residents for all
or only certain lines of insurance in: California,
Florida (general lines, life & health), Kansas,
Kentucky (general lines, life & health), Louisiana
(life & health), New Mexico (life & health), Ohio
(life & casualty), Oregon, Rhode Island (all except
general lines), Texas.
All states require in-state residency for surplus
lines agents.
2) None
4) Unbound, except as indicated in the horizontal
section.
1), 3) Higher license fees for non-residents
may be charged in: Alaska, Arkansas,
California, Colorado, Florida, Indiana,
Iowa, Kansas, Kentucky, Louisiana,
Maine, Massachusetts, Mississippi,
Montana, Nebraska, Nevada, New
Hampshire, New Jersey, New Mexico,
North Dakota, Oklahoma, Pennsylvania,
Rhode Island, South Carolina, South
Dakota, Tennessee, Utah, Vermont,
Wisconsin, Wyoming.
2) None
4) Unbound, except as indicated in the
horizontal section.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
iii) Consultancy, Actuarial,
Risk Assessment, and
Claim Settlement
Services
1), 3) Licenses are not issued to
nonresidents in: Alabama (adjuster, solicitor,
service representative), California (adjuster,
insurance analyst, motor club agents, bail
bondsman), Florida (customer representative),
Georgia (counsellor, adjuster), Hawaii (adjuster,
solicitor), Idaho (solicitor), Indiana (bail
bondsmen), Kentucky (adjuster), Maryland
(adjuster), Michigan (adjuster), Montana
(adjuster), Nevada (solicitor, adjuster, property
bondsman), New Mexico (solicitor), North Carolina
(limited representatives, adjusters, motor vehicle
damage appraisers, professional bondsmen,
runners), Oklahoma (bail license), Oregon,
Pennsylvania (motor vehicle damage appraiser),
Washington (solicitor, adjuster), West Virginia
(adjuster, solicitor), and Wyoming (adjuster,
solicitor).
1), 3) None
In-state residency is required for licensure in:
California (for adjusters; and for life and disability
insurance analysts), Georgia (for inspection when
not accompanied by a licensed resident adjuster),
Illinois (for non-resident public adjusters who are
licensed in a state which does not permit equal
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
treatment to Illinois residents), Maryland,
Mississippi (for independent adjusters), and
Nevada (for appraisers and adjusters).
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
US citizenship is required for licensure in: Alabama
(for agents, brokers, solicitors, managing general
agents and service representatives), Idaho (for
agents, brokers, solicitors and surplus lines
brokers), Missouri (for brokers), Nebraska (for
brokers), New Mexico (for solicitors and
bailbondsmen), Ohio (for surplus lines brokers) and
Oklahoma (for bail license).
2) None
4) Unbound, except as indicated in the horizontal
section.
2) None
4) Unbound, except as indicated in the
horizontal section.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
B. FINANCIAL SERVICES (LIMITED TO BANKING AND OTHER FINANCIAL SERVICES AND EXCLUDING INSURANCE):
1. Commitments in these subsectors are undertaken in accordance with the Understanding on Commitments in Financial Services (the "Understanding"),
subject to the limitations and conditions set forth in these headnotes and the schedule below.
2. The market access commitments in these subsectors in respect of modes (1) and (2), as described in paragraphs 2(a) and (b) of Article I of the Agreement, are
limited to the services indicated in paragraphs B.3(c) and B.4(c) of the market access section of the Understanding, respectively. It is understood that
paragraph B.4 of the Understanding does not require that non-resident financial service suppliers be permitted to solicit business, and no commitment to
such solicitation is undertaken.
3. National treatment commitments in these subsectors are subject to the following limitation: National treatment will be provided based upon the foreign
bank's "home state" in the United States, as that term is defined under the International Banking Act, where that Act is applicable. A domestic bank
subsidiary of a foreign firm will have its own "home state" and national treatment will be provided based upon the subsidiary's home state, as determined
under applicable law.22
22
Foreign banking organizations are generally subject to geographic and other limitations in the United States on a national treatment basis. Where such limitations do not
conform to national treatment, they have been reserved as market access restrictions. For purposes of illustration, under this approach, the following situation does not accord
national treatment and would therefore be scheduled as a limitation: a foreign bank from a particular home state is accorded less favourable treatment than that accorded to a
domestic bank from that state with respect to expansion by branching.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
4. Service suppliers choosing to supply a service through a juridical person constituted under the laws of the United States are subject to non-discriminatory
limitations on juridical form.23
5. The offer of new financial services or products is subject, on a non-discriminatory basis, to relevant institutional and juridical form requirements.
23 For example, partnerships and sole proprietorships are generally not acceptable juridical forms for depository financial institutions in the United States.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
All Subsectors, except as
specifically provided below
1),2),3) Michigan limits, according to the country of
their home charters, the banks in which corporate
credit unions may place deposits.
1) None
2) None
The United States
undertakes the obligations
contained in Additional
Commitments Paper II
attached hereto.
3) All directors of a national bank must be U.S.
citizens unless a national bank is an affiliate or
subsidiary of a foreign bank, in which case only a
majority of the board need be U.S. citizens.
Foreign ownership of Edge corporations is limited
to foreign banks and US subsidiaries of foreign
banks, while domestic non-bank firms may own
such corporations.
Federal and state law do not permit a credit union,
savings bank, home loan or thrift business in the
United States to be provided through branches of
corporations organized under a foreign country's
law.
3) Foreign banks are required to register
under the Investment Advisers Act of
1940 to engage in securities advisory
and investment management services in
the United States, while domestic banks
are exempt from registration. The
registration requirement involves record
maintenance, inspections, submission of
reports and payment of a fee.
Foreign banks cannot be members of
the Federal Reserve System, and thus
may not vote for directors of a Federal
Reserve Bank. Foreign-owned bank
subsidiaries are not subject to this
measure.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
In order to accept or maintain domestic retail
deposits of less than $100,000, a foreign bank must
establish an insured banking subsidiary. This
requirement does not apply to a foreign bank
branch that was engaged in insured deposit-taking
activities on December 19, 1991.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Unbound with respect to paragraph 2(e) of Article
XVI of the Agreement, and paragraphs A, B.5 and
B.6 of the Understanding in relation to the
expansion, via the establishment of a branch or the
acquisition of one or more branches of a bank
without acquisition of the entire bank, by a foreign
bank into another state from its "home state" as
that term is defined under applicable law. Except
as specifically set forth elsewhere in this schedule,
such expansion shall be provided on a national
treatment basis in accordance with headnote 3.
Interstate expansion by a foreign bank through the
establishment of branches by merger with a bank
located outside the "home state" as that term is
defined under applicable law, of a foreign bank is
prohibited where Montana or Texas is the home
state of the foreign bank or is the state where the
bank is located that is to be merged into the
foreign bank, resulting in the establishment of
branches. Except as specifically set forth
elsewhere in this schedule, such expansion shall be
provided on a national treatment basis in
accordance with headnote 3.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Unbound for initial entry by establishment or
acquisition of state-chartered banks or
state-licensed offices of foreign banks as indicated
in the following forms: California (branch; also
savings and loan association); Connecticut (bank or
holding company; also credit union); Georgia
(agency); Illinois (branch); Kentucky (subsidiary);
Louisiana (agency); Massachusetts (subsidiary or
branch); Michigan (agency); North Carolina
(subsidiary, branch, agency, or representative
office); Pennsylvania (any deposit-taking or
representative bank office); Washington (branch,
agency, or representative office). The limitations
in this paragraph do not apply to initial
establishment or acquisition of a national bank
subsidiary by a foreign person or establishment of
a federal branch or agency by a foreign bank that
does not already have a banking presence in the
United States, or generally to interstate expansion.
Such limitations may apply to interstate expansion
through state-licensed limited branches, agencies,
or representative offices.24
24
The limitations in this paragraph reflect state reciprocity measures.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
The following states are unbound for the specified
activities: Indiana (establishment of service offices
by foreign-owned credit unions); Iowa (activities of
foreign-owned savings and loan associations;
foreign-owned bank or trust company acting as
fiduciary; use of satellite banking terminals).25
Initial entry or expansion by a foreign person (but
not a domestic person) through acquisition or
establishment of a state-chartered commercial
bank subsidiary is prohibited or otherwise limited
in the following states: Alabama; Arizona;
Arkansas; California (limit on foreign non-bank
ownership of international banking corporation);
Colorado; Delaware; Indiana; Kansas; Louisiana;
Maryland; Michigan; Minnesota; Mississippi;
Montana; Nebraska; Nevada; North Carolina;
North Dakota; Oklahoma; Oregon; Pennsylvania;
South Carolina; Tennessee; Vermont; Virginia;
Washington; West Virginia; Wisconsin; Wyoming.
The limitations in this paragraph do not apply to
establishment or acquisition of a national bank
subsidiary by a foreign person that does not
already have a banking presence in the United
25
The limitations in this paragraph reflect state reciprocity measures.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
States.
The following states limit initial entry or expansion
by a foreign person through acquisition or
establishment of the following entities: Delaware
(savings and loan associations; savings banks); Ohio
(savings and loan associations; savings banks;
credit unions); Tennessee (savings and loan
associations; savings banks; credit unions; trust
companies); Washington (savings and loan
associations; savings banks; credit unions; trust
companies).
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
The boards of directors of depository financial
institutions organized under the following states'
laws are subject to U.S. citizenship requirements of
up to the specified proportions: Alabama (all);
Colorado (3/4); District of Columbia (all); Florida
(majority); Georgia (all); Indiana (3/4); Iowa
(majority); Kentucky (all); Louisiana (majority);
Massachusetts (majority); Mississippi (all);
Missouri (all); New Hampshire (majority); New
Jersey (all); New Mexico (3/4); New York (all;
applies also to trustees of mutual savings bank or
savings and loan associations, and to committees
of credit unions); North Carolina (3/4); North
Dakota (majority); Pennsylvania (all, but may be
waived); South Dakota (3/4); Tennessee (all);
Vermont (2/3); West Virginia (majority); Wisconsin
(2/3).
Texas allows pre-judgment seizure remedies
and civil discovery requests to be applied
against foreign bank agencies, while
subsidiaries are exempt.
The following states require direct branches
or agencies of foreign banks to register under
securities broker-dealer or investment adviser
measures, while bank subsidiaries of foreign
banks are exempt from such registration to
the same extent as domestic banks
incorporated in the state: Alabama; Arizona;
Arkansas; California; Connecticut; Delaware;
District of Columbia; Georgia; Idaho; Iowa;
Kansas; Louisiana; Maryland; Mississippi;
Missouri; Nebraska; New Hampshire; New
Jersey; New Mexico; New York; North
Carolina; Ohio; Oklahoma; Pennsylvania;
South Dakota; Tennessee; Texas; Vermont;
Washington. These limitations do not apply
to Federally licensed branches or agencies.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
U.S. citizenship is also required for the
incorporators or organizers of depository financial
institutions organized under state law. Residence
within a state may also be required for directors,
incorporators, organizers, or executive committee
members of depository financial institutions
organized under state law.
U.S. citizenship is required to engage in specified
activities in the following states: Arizona
(collection agency); Indiana (collection agency);
Illinois (safe deposits); Nevada (collection agency).
Establishment of a branch or agency by a foreign
bank is limited as specified in the following states:
State branch license subject to certain limitations -- California (no trust/fiduciary powers); Hawaii (no trust/fiduciary powers); Massachusetts; Oregon; Pennsylvania; Utah (no trust/fiduciary powers); Washington (limited trust/fiduciary powers and restricted to one office per bank). These limitations do
The following states require direct
branches or agencies of foreign banks,
but not bank subsidiaries of foreign
banks, to register or obtain licenses in
order to engage in the following
activities: Arkansas (selling checks;
mortgage transactions); California
(selling payment instruments); Delaware
(sale or cashing of checks, drafts, money
orders; motor vehicle financing;
transportation of money/valuables);
Georgia (mortgage lending/brokerage,
check selling/cashing); Indiana (money
transmission; loan brokerage); Kansas
(money transmission); Maryland (selling
payment instruments, traveller's
checks); Massachusetts (check
selling/cashing; foreign transmittal
agencies; motor vehicle financing;
insurance premium financing; retail
instalment sales/servicing; residential
real estate mortgage financing -- license
requirement applies only to agencies);
North Carolina (selling checks);
Oklahoma (selling checks); Pennsylvania
(mortgage banking/brokerage);
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
not apply to Federal branches.
Tennessee (money transmission;
residential lending/brokerage; industrial
loan and thrift activities); Texas
(currency exchange or transmission --
does not apply to Texas agencies; selling
checks); Virginia (mortgage
lending/brokerage; money transmission;
sale of money orders; check cashing);
Wisconsin (selling checks).
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
State branch license not available, but state agency license is available in Idaho and West Virginia.
No state branch or agency license available -- Arizona; Arkansas; Colorado; Indiana; Iowa; Minnesota; Montana; Nebraska; New Mexico; North Dakota; Oklahoma; Rhode Island; South Carolina; South Dakota; Tennessee; Vermont; Virginia; Wisconsin. These limitations do not apply to Federal offices.
Branch license not available but agency license is, subject to any specified limitations -- Delaware (state license limited to one office per bank and cannot operate in a manner likely to result in a substantial detriment to existing bank; no fiduciary powers); Florida (available only to a foreign bank with at least $25 million in capital or that is one of five largest banks in its home country); Georgia (available only to foreign bank with at least $50 million in excess of liabilities; no fiduciary and limited other powers); Louisiana (limited to parishes with more than 350,000 residents); Mississippi; Missouri (no fiduciary powers); Oklahoma (foreign bank must have at least $25 million in capital or, inter alia, be
The following states restrict various
commodities transactions by foreign
bank branches and agencies, but not by
other depository financial institutions:
Arizona; California; Idaho; Indiana; Iowa;
Mississippi; Missouri; Nebraska; New
Hampshire; Washington.
Offers and sales of securities to foreign
bank branches and agencies in the
following states are subject to
registration/disclosure requirements
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
one of five largest banks in its home country; special asset maintenance/capital equivalency rules apply, as do other restrictions); Texas (one office only, limited to metropolitan areas with at least 500,000 residents; limited fiduciary powers). Certain restrictions on fiduciary powers apply to federal agencies.
that do not apply if the transaction
involves other financial institutions:
Illinois; Indiana; Louisiana; Montana;
Nebraska; New Jersey; North Dakota;
Tennessee; Texas (applies to branches
and agencies of all foreign financial
institutions).
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
No branch or state agency license available -- Wyoming.
No branch or agency license available -- Alabama; Kansas; Maryland; North Dakota.
Representative offices of foreign banks are not
permitted in the following states, or are limited as
specified: Arizona; Arkansas; Colorado; Kansas;
Kentucky; Michigan; Mississippi; Montana; North
Dakota; Oklahoma (foreign bank must have at least
$10 million in capital or, inter alia, be one of the
five largest banks in its home country; special asset
maintenance/capital equivalency requirements
may apply); Oregon; Rhode Island; South Carolina;
South Dakota; Tennessee; Vermont; Virginia;
Wisconsin; Wyoming. Other states require
incorporation of representative offices.
4) Unbound, except as indicated in the horizontal
section.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
4) Unbound, except as indicated in the
horizontal section.
Trading of Securities and
Derivative Products and
Services Related Thereto;
Participation in Securities
Issues
1), 2), 3) Federal law prohibits the offer or sale of
futures contracts on onions, options contracts on
onions, and options on futures contracts on onions
in the United States, and services related thereto.
Unbound for the authority to act as a sole trustee
of an indenture for a bond offering in the United
States.
Unbound with respect to the use of simplified
registration and periodic reporting forms for
securities issued by small business corporations.
1), 2), 3) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
4) Unbound, except as indicated in the horizontal
section.
4) Unbound, except as indicated in the
horizontal section.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
Participation in Issues of
Government Debt Securities
1), 2) None
3) Unbound for the granting or continuation of
Federal Reserve designation as a primary dealer
in US government debt.
4) Unbound, except as indicated in the horizontal section.
1), 2), 3) None
4) Unbound, except as indicated in the
horizontal section.
8. HEALTH RELATED &
SOCIAL SERVICES
A. HOSPITAL AND OTHER
HEALTH CARE FACILITIES
- Direct ownership and
management and
operation by contract of
such facilities on a "for
1) Unbound*
2) None
1) Unbound*
2) Federal or state government reimbursement of medical expenses is limited to licensed, certified facilities in the United States or in a specific US
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
fee" basis
3) Establishment of hospitals or other health care facilities, procurement of specific types of medical equipment, or provision of specific types of medical procedures may be subject to needs-based quantitative limits.
state
3) None
In New York, corporate ownership of an operating corporation for, and limited partnerships as operators of, hospitals, nursing homes (including long term health care centres) or diagnostic and treatment centres is prohibited. If the operator has any members which are not natural persons or is a corporation whose shares of stock are owned by another corporation, a New York corporation must be established as the operator of a licenced home care services agency and a certified home health agency.
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
In Michigan and New York Health Maintenance Organizations must be incorporated in those states.
4) Unbound except as indicated in the horizontal
section
4) None
9. TOURISM AND TRAVEL
RELATED SERVICES
A. HOTELS AND
RESTAURANTS
(INCLUDING CATERING)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
1) None
2) None
3) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
section 4) None
B. TRAVEL AGENCIES AND
TOUR OPERATORS
1) None
2) None
3) Official tourism offices with diplomatic or official
status are not permitted to operate on a commercial
basis in the United States or to act as agents or
principals in commercial transactions
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
C. TOUR GUIDE SERVICES
1) None
2) None
3) The number of concessions available for commercial
operations in federal, state and local facilities is
limited
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
D. OTHER
1) None
2) None
3) None
1) None
2) None
3) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
4) Unbound, except as indicated in the horizontal
section
4) None
10. RECREATIONAL,
CULTURAL, & SPORTING
SERVICES
A. ENTERTAINMENT
SERVICES (INCLUDING
THEATER, LIVE BANDS
AND CIRCUS SERVICES)
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
B. NEWS AGENCY SERVICES
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
C. LIBRARIES, ARCHIVES,
MUSEUMS AND OTHER
CULTURAL SERVICES
1) None
2) None
3) None
4) Unbound, except as indicated in the horizontal
1) None
2) None
3) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
section 4) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
D. OTHER RECREATIONAL
SERVICES (except
sporting)
1) None
2) None
3) The number of concessions available for commercial
operations in federal, state and local facilities is
limited
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
11. TRANSPORT SERVICES
C. AIR TRANSPORT
SERVICES: Aircraft
repair and maintenance.
(Aircraft repair and
maintenance activities,
when undertaken on an
1) Unbound*
2) None
1) Unbound*
2) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
aircraft or a part
thereof, while it is
withdrawn from service.
Does not include line
maintenance or other
repair or maintenance
activities undertaken by
an air carrier (includes
its agents or
contractors) on aircraft
it owns, leases, or
operates.)
3) None
4) Unbound, except as indicated in the horizontal
section
3) None
4) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
E. RAIL TRANSPORT
a) Passenger
Transportation,
excluding high speed rail
b) Freight Transportation
1) None
2) None
3) Foreign railroads must incorporate in Vermont or in
an adjacent state in order to own directly or
indirectly the stock of a railroad company
incorporated in Vermont
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
d) Maintenance and Repair
of Rail Transport
Equipment
1) None
2) None
1) None
2) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
3) None
4) Unbound, except as indicated in the horizontal
section
3) None
4) None
F. ROAD TRANSPORT
a) Passenger transport:
Interurban regular
transport
1) Unbound until January 1, 1997. No limitations
after that date.
2) None
3) Unbound until January 1, 2001. No limitations
after that date.
4) Unbound, except as indicated in the horizontal
section
1) Unbound until January 1, 1997. No
limitations after that date.
2) None
3) Unbound until January 1, 2001. No
limitations after that date.
4) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
b) Freight transport
(Commitment limited to
transportation of cargo
that has either an origin
or a destination outside
the United States)
1) Unbound until December 17, 1995. After
December 17, 1995, unbound except to or from
California, Arizona, New Mexico and Texas through
different ports of entry. No limitations after
January 1, 2000.
2) None
3) Unbound until December 17, 1995. After
December 17, 1995, no limitations
4) Unbound, except as indicated in the horizontal
section
1) None
2) None
3) None
4) None
d) Maintenance and Repair
of Road Transport
Equipment
1) Unbound*
2) None
1) Unbound*
2) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
3) None
4) Unbound, except as indicated in the horizontal
section
3) None
4) None
H. SERVICES AUXILIARY TO ALL MODES OF TRANSPORT
d) Other Supporting and
Auxiliary Transport
Services: Customs House
Brokers
1) Unbound*
2) None
3) Services must be supplied by a corporation,
association or partnership. One officer of a
corporation or association or one of the members
of a partnership must hold a valid customs
broker's licence in order for the entity to engage
in such business. A customs broker's licence may
only be obtained by a US citizen.
1) Unbound*
2) None
3) None
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Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
4) Unbound, except as indicated in the horizontal
section
4) None
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ATTACHMENT TO THE UNITED STATES SCHEDULE
REFERENCE PAPER
Scope
The following are definitions and principles on the regulatory framework for the basic telecommunications
services.
Definitions
Users mean service consumers and service suppliers.
Essential facilities mean facilities of a public telecommunications transport network or service that
(a) are exclusively or predominantly provided by a single or limited number of suppliers; and
(b) cannot feasibly be economically or technically substituted in order to provide a service.
A major supplier is a supplier which has the ability to materially affect the terms of participation (having regard to
price and supply) in the relevant market for basic telecommunications services as a result of:
(a) control over essential facilities; or
(b) use of its position in the market.
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1. Competitive safeguards
1.1 Prevention of anti-competitive practices in telecommunications
Appropriate measures shall be maintained for the purpose of preventing suppliers who, alone or together,
are a major supplier from engaging in or continuing anti-competitive practices.
1.2 Safeguards
The anti-competitive practices referred to above shall include in particular:
(a) engaging in anti-competitive cross-subsidization;
(b) using information obtained from competitors with anti-competitive results; and
(c) not making available to other services suppliers on a timely basis technical information about
essential facilities and commercially relevant information which are necessary for them to
provide services.
2. Interconnection
2.1 This section applies to linking with suppliers providing public telecommunications transport networks or
services in order to allow the users of one supplier to communicate with users of another supplier and to access
services provided by another supplier, where specific commitments are undertaken.
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2.2 Interconnection to be ensured22
Interconnection with a major supplier will be ensured at any technically feasible point in the network.
Such interconnection is provided.
(a) under non-discriminatory terms, conditions (including technical standards and specifications)
and rates and of a quality no less favourable than that provided for its own like services or for
like services of non-affiliated service suppliers or for its subsidiaries or other affiliates;
(b) in a timely fashion, on terms, conditions (including technical standards and specifications) and
cost-oriented rates that are transparent, reasonable, having regard to economic feasibility, and
sufficiently unbundled so that the supplier need not pay for network components or facilities
that it does not require for the service to be provided; and
(c) upon request, at points in addition to the network termination points offered to the majority of
users, subject to charges that reflect the cost of construction of necessary additional facilities.
2.3 Public availability of the procedures for interconnection negotiations
The procedures applicable for interconnection to a major supplier will be made publicly available.
2.4 Transparency of interconnection arrangements
22
Rural local exchange carriers may be exempted by a state regulatory authority for a limited period of time from the
obligations of section 2.2. with regard to interconnection with competing local exchange carriers.
Rural telephone companies do not have to provide interconnection to competing local exchange carriers in the manner
specified in section 2.2. until ordered to do so by a state regulatory authority.
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It is ensured that a major supplier will make publicly available either its interconnection agreements or a
reference interconnection offer.
2.5 Interconnection: dispute settlement
A service supplier requesting interconnection with a major supplier will have recourse, either:
(a) at any time or
(b) after a reasonable period of time which has been made publicly known
to an independent domestic body, which may be a regulatory body as referred to in paragraph 5 below, to
resolve disputes regarding appropriate terms, conditions and rates for interconnection within a reasonable
period of time, to the extent that these have not been established previously.
3. Universal service
Any Member has the right to define the kind of universal service obligation it wishes to maintain. Such
obligations will not be regarded as anti-competitive per se, provided they are administered in a transparent, non-
discriminatory and competitively neutral manner and are not more burdensome than necessary for the kind of
universal service defined by the Member.
4. Public availability of licensing criteria
Where a licence is required, the following will be made publicly available:
(a) all the licensing criteria and the period of time normally required to reach a decision concerning
an application for a licence and
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(b) the terms and conditions of individual licences.
The reasons for the denial of a licence will be made known to the applicant upon request.
5. Independent regulators
The regulatory body is separate from, and not accountable to, any supplier of basic telecommunications
services. The decisions of and the procedures used by regulators shall be impartial with respect to all market
participants.
6. Allocation and use of scarce resources
Any procedures for the allocation and use of scarce resources, including frequencies, numbers and rights
of way, will be carried out in an objective, timely, transparent and non-discriminatory manner. The current state
of allocated frequency bands will be made publicly available, but detailed identification of frequencies allocated
for specific government uses is not required.
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ATTACHMENT TO THE UNITED STATES SCHEDULE
ADDITIONAL COMMITMENTS PAPER I
(a) Taking note of principles of federalism under the United States Constitution, recognizing that insurance
has been regulated at the state government level since the beginning of insurance regulation in the
United States, and further recognizing the provision of the McCarran-Ferguson Act that "[t]he business
of insurance...shall be subject to the laws of the several States," the Government of the United States
welcomes efforts by the National Association of Insurance Commissioners ("NAIC") to promote the
harmonization of state insurance regulation, through such steps as its Accreditation Program and the
preparation of model insurance laws.
(b) The Government of the United States notes that under Accreditation Program, the NAIC selects an
independent team of auditors to review the compliance of states with the laws, regulations, and
regulatory and organizational practices contained in the NAIC accreditation standards. The team reports
to the NAIC, which determines whether a state qualifies for accreditation under the standards. As of
October 11, 1994, 37 states were accredited by the NAIC through this program.
(c) The Government of the United States notes that NAIC Model Laws are designed to facilitate legislative
and regulatory action on common problems among the states and are intended to save duplication of
effort on the part of the states. Some models are adopted by all or most of the states, so there is a
harmonizing effect. Some models serve as guidelines which the states may adopt, utilize or amend to fit
their individual needs. Certain models have been identified as being of such import that their adoption
is necessary for states to be accredited pursuant to NAIC financial regulation standards.
(d) The Government of the United States encourages the NAIC to continue its effort to work with state
governments on these programs.
(e) Recognizing principles of federalism, the long history of state regulation of insurance in the United
States, and the McCarran-Ferguson Act, and noting the concerns of regulators who seek to further
increase internationalization of their insurance markets while addressing prudential concerns, the
Government of the United States:
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(i) welcomes that the NAIC in October 1993 adopted a model law on the initial entry of non-U.S.
insurance providers without their prior establishment in another state, and the Government of
the United States encourages the NAIC to continue and as appropriate intensify its efforts with
relevant state authorities with regard to this issue;
(ii) would welcome consideration by the NAIC, if appropriate, of the issue of the time period for
review of licensing applications of insurance providers, from the perspective that regulatory
authorities should make administrative decisions on completed applications of insurance
providers within a reasonable time; and
(iii) welcomes efforts by the NAIC to review with the states the question of citizenship
requirements for the boards of directors of foreign insurance providers, and the Government of
the United States encourages the NAIC to continue and as appropriate intensify its efforts with
relevant state authorities within regard to this issue.
(f) The Government of the United States notes the concern raised by another Member that different state
regulations for foreign insurance providers on lines of products permitted, trusteed assets
requirements, deposit requirements, remittance ceiling and reinsurance trust funds affect foreign
insurance providers ability to enter the insurance market of the United States.
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ADDITIONAL COMMITMENTS PAPER II
(1) The Administration has expressed its support for Glass-Steagall reform on a national treatment basis
and will work with Congress to achieve an appropriate framework to accomplish this objective.
(2) The Administration, noting that even before the adoption of the Riegle-Neal banking legislation, many
states had taken action to liberalize interstate acquisitions of banks on a basis that provided national
treatment to foreign banks, welcomes further initiatives by states to provide additional access on a non-
discriminatory basis.
(3) The Government of the United States has taken action to remove impediments to the offering of
securities in the United States by foreign and domestic issuers. The National Securities Markets
Improvement Act of 1996 preempts state regulation of offerings of certain securities, including those
listed on the New York Stock Exchange, the National Association of Securities Dealers Automated
Quotation/National Market System, and securities issued by registered investment companies. This
legislation eliminates duplicative state and federal securities legislation in the area of securities
registration.
(4) Section 7(d) of the Investment Company Act authorizes the SEC to permit a foreign investment company
to register and publicly offer its shares in the United States if the SEC makes the following prudential
findings:
1. that it is both legally and practically feasible for the SEC and U.S. investors effectively to enforce
the provisions of the Investment Company Act against the investment company, and
2. that it is consistent with the requirements set forth in the Investment Company Act.
(5) The Government of the United States notes that the Federal Reserve, working in cooperation with other
domestic supervisory authorities, has established an enhanced framework for the regulation and
supervision of U.S. operations of foreign banks, which endeavors to coordinate annual examinations of
foreign banks and provide uniform guidance with respect to examination policies.
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UNITED STATES OF AMERICA - FINAL LIST OF ARTICLE II (MFN) EXEMPTIONS
Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
Movement of
persons
Government issuance of treaty
trader or treaty investor
non-immigrant visas that extend
a special visa category to
nationals of treaty partners in
executive and other personnel
categories engaged
Countries with whom the United
States has a Friendship,
Commerce and Navigation Treaty
(FCN), a Bilateral Investment
Treaty (BIT), or certain countries
as described in Section 204 of the
Immigration Act of 1990
Indefinite
To facilitate trade under
FCNs and BITs
solely to carry on substantial trade, including trade in services or trade in technology, principally between the US and the foreign state of which a natural person is a national, or
solely to develop and direct the operations of an enterprise in which a natural person has invested or is actively in the process of investing a substantial amount of capital
Restrictions on performance of
longshore work when making US
port calls by crews of foreign
vessels owned and flagged in
countries that similarly restrict
US crews on US-flag vessels from
longshore work
Countries that prohibit longshore
work by crew members aboard
US vessels
Indefinite
Reciprocal restrictions on
countries that prohibit
longshore work by crew
members aboard US
vessels
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
All Sectors: Taxation
Measures
Differential treatment under
direct tax measures at the
federal level
All
Indefinite
Such measures are:
measures under the US Internal Revenue Code (IRC) permitting the residents of countries contiguous to the United States to receive more favorable treatment and permitting certain US taxpayers to receive more favorable treatment as to their contiguous country operations, and providing any other benefits with respect to contiguous countries;
Volume of movements
across US borders
between Canada and the
United States and
between Mexico and the
United States; efficient
administration of tax
system.
benefits available under the US IRC with respect to US possessions;
Coordination of the
United States and US
possession income taxes;
fiscal arrangements for US
possessions; and
facilitation of economic
development in US
possessions
benefits available under the US IRC with respect to Caribbean Basin Initiative (CBI) beneficiary countries;
Facilitation of economic
development in certain
developing countries
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
regarding activities covered by the scope of the General Agreement on Trade in Services, reciprocal reduction of taxation on income derived from the international operation of aircraft or of taxation of certain earnings derived from the use of railroad rolling stock;
Prevention of double
taxation and proper tax
administration
tax exemption for earnings derived from the ownership or operation of a communications satellite system by a foreign entity designated by a foreign government to participate in such ownership if the United States, through its designated entity, participates in such system pursuant to the Communications Satellite Act of 1962;
Facilitation of satellite
communications and
proper tax administration
denial of statutory reduction of double taxation or deferral of US tax on income earned through controlled foreign corporations, because the country participates in or cooperates with an international boycott, or for similar foreign policy reasons;
Foreign policy
considerations
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
measures permitting less favorable taxation for citizens, corporations or products of a foreign country based on discriminatory or extraterritorial taxes, more burdensome taxation, or other discriminatory conduct;
To foster efficient
international taxation
policies
allow the deduction for expenses of an advertisement carried by a foreign broadcast undertaking and directed primarily to a US market only where the broadcast undertaking is located in a foreign country that allows a similar deduction for an advertisement placed with a US broadcast undertaking;
To encourage the
allowance of advertising
expenses internationally
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
in connection with the exclusion of, or deduction relating to, certain foreign earned income from the gross income of individuals, the benefit of a waiver of the required period of stay in a foreign country as determined by the Secretary of the Treasury. The Secretary is empowered to determine that individuals were required to leave a foreign country because of war, civil unrest or similar adverse conditions in such foreign country which precluded the normal conduct of business by such individuals; and
To take into account
problems created by
adverse conditions within
particular countries
Sub-federal tax measures
affording differential treatment
to service suppliers or to services
when the differential treatment
is based on one of the following
criteria:
All
Indefinite
To implement fiscal
policies of sub-central
governments
are performed, consumed, or located within different sub-federal entities;
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
differ based on the size or income of the service supplier or on the scale or methods (including environmental and health and safety measures) of performance;
differ in the extent of ownership or participation by minority or other disadvantaged groups;
differ as to the eligibility for non-profit status for pension, profit-sharing or other employee-benefit regimes;
differ based on federal immunity to taxation, for example, exemption from sub-federal tax on US government obligations or contracts; differ based on federal immunity to taxation, for example, exemption from sub-federal tax on US government obligations or contracts;
are performed or located in countries contiguous to the United States; or
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
are performed or located in jurisdictions with which sub-federal entities have arrangements for tax cooperation and assistance
Sub-federal measures
substantively incorporating
provisions of federal law subject
to an MFN exemption under this
agreement
All
Indefinite
To implement fiscal
policies of sub-central
governments
All Sectors:
Land Use
Non-US citizens in Wyoming may
not acquire or inherit land unless
the country of which they are a
citizen extends a reciprocal right
to US citizens
All
Indefinite
Lack of reciprocity
All Sectors
Canadian small businesses, but
not small businesses of other
countries, may use simplified
registration and periodic
reporting forms with respect to
their securities
Canada
Indefinite
Maintenance of
established preference
Telecommunication
services: One-way
satellite transmission
of DTH and DBS
television services
and of digital audio
Differential treatment of
countries due to application of
reciprocity measures or through
international agreements
guaranteeing market access or
All
Indefinite
Need to ensure
substantially full market
access and national
treatment in certain
markets.
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
services national treatment
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
Insurance
Banking and Other
Financial Services
Measures according differential
treatment in regard to the
expansion of existing operations,
the establishment of a new
commercial presence or the
conduct of new activities, in a
circumstance in which a Member
adopts or applies a measure that
compels, or has the effect of
compelling, a person of the
United States, on the basis of its
nationality, to reduce its share of
ownership in an insurance
services provider operating in the
Member's territory to a level
below that prevailing on
12/12/97.
A broker-dealer registered under
US law that has its principal place
of business in Canada may
maintain its required reserves in
a bank in Canada subject to the
supervision of Canada.
All countries
Canada
Indefinite
Indefinite
Need to protect existing
US ownership of service
suppliers operating in
other Members.
Maintenance of
established preference.
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
(excluding Insurance)
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
Banking and Other
Financial Services
(excluding Insurance)
Permission to establish
state-licensed branches,
agencies, or representative
offices, or to own commercial
bank subsidiaries, is based on a
reciprocity test in the following
States: California (applies also to
savings and loan associations),
Connecticut (applies also to
credit unions), Georgia, Illinois,
Kentucky, Louisiana,
Massachusetts, Michigan, North
Carolina, Pennsylvania,
Washington. Among the
conditions on which agency or
agency and representative office
licenses may be granted for the
following States is that the
foreign bank is one of the five
largest banks in the home
country: Florida, Oklahoma.
Permission for a foreign-owned
bank or trust company to act as
fiduciary, and to use satellite
banking terminals, is based on a
reciprocity test in Iowa. Iowa also
subjects the activities of foreign-
owned savings and loan
associations to a reciprocity test.
All countries
Indefinite
Need to protect existing
activities of US service
suppliers abroad and to
ensure substantially full
market access and
national treatment in
international financial
markets.
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
Michingan permits corporate
central credit unions to place
deposits in banks chartered in
Canada or the European
Common Market but not in banks
chartered in other foreign
countries.
Authority to act as a sole trustee
of an indenture for a bond
offering in the United States is
subject to a reciprocity test.
Designation as a primary dealer
in the US Government debt
securities is conditioned on
reciprocity.
Canada and European Common
Market
All
All
Indefinite
Indefinite
Indefinite
Maintenance of
established preference.
Need to ensure US
financial service suppliers
are permitted to provide
trustee services in foreign
markets.
Need to ensure US
financial service suppliers
are afforded national
treatment in foreign
government debt markets.
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
Transport Services:
Air Transport
Services
Measures which pertain to selling
and marketing of air transport
services (including sales, other
than by airlines, of passenger
charters and forwarding of air
freight other than by airlines) and
to operation and regulation of
computer reservation system
(CRS) services, as described in the
Annex on Air Transport Services.
(For transparency purposes,
these measures include, but are
not limited to, bilateral and
multilateral civil aviation
agreements, understandings and
All partners with which the
United States has active aviation
relations (approximately
100 countries) covered by
bilateral or other air services
agreements and comity and
reciprocity regimes. Also
concerned are the co-signatories
of the Chicago Convention and
various other international
aviation agreements,
undertakings, and
understandings to which the
United States is a party.
Indefinite
The common policy and
practice of exchanging
rights, settling disputes,
and applying laws and
other measures pertaining
to the operation of civil
aircraft and air
transportation
differentially, with respect
to the activities referred
to above, on the basis of
mutual agreement and
balanced exchanges of
rights and responsibilities.
undertakings and informal
comity and reciprocity aviation
regimes to which the United
States is a party; US laws and
regulations, including the
International Air Transportation
Fair Competitive Practices Act of
1974, as amended, the Federal
Aviation Act of 1958, as
amended, the International Air
Transportation Competition Act
of 1979, the International
Aviation Facilities Act, as
amended, and Title 14,
Parts 1 - 399, of the Code of
Federal Regulations; and
measures of US states and
territories and the District of
Columbia, and of their agencies
and subdivisions).
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
Transport Services:
Road Transport
The US government has
discretion to limit the issuance of
trucking licenses to persons from
contiguous countries on the basis
of reciprocity. The Bus
Regulatory Reform Act of 1982
permits the President to remove
or modify in whole or in part the
moratorium on a finding that
such removal or modification is in
the national interest. Domestic
and cross-border trucking
operations are permitted within
designated Interstate Commerce
Commission commercial zones.
The moratorium was lifted for
Canada in October 1982.
Mexico, Canada
Indefinite
Need to have authority to
impose a moratorium on
the issuance of new
licenses for domestic
operations within and
cross-border operations
into the United States on
the basis of reciprocity
Transport Services:
Pipeline Transport
Pursuant to the Mineral Lands
Leasing Act of 1920, aliens and
foreign corporations may not
acquire rights-of-way for oil or
gas pipelines, or pipelines
carrying products refined from oil
and gas, across on-shore federal
lands or acquire leases or
interests in certain minerals on
on-shore federal lands, such as
coal or oil.
All
Indefinite
Lack of reciprocity
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
Non-US citizens may own a
100 per cent interest in a
domestic corporation that
acquires a right-of-way for oil or
gas pipelines across on-shore
federal lands, or that acquires a
lease to develop mineral
resources on on-shore federal
lands, unless the foreign
investors' home country denies
similar or like privileges for the
mineral or access in question to
US citizens or corporations, as
compared with the privileges it
accords to its own citizens or
corporations or to the citizens or
corporations of other countries.
Nationalization is not considered
to be denial of similar or like
privileges. Foreign citizens, or
corporations controlled by them,
are restricted from obtaining
access to federal leases on Naval
Petroleum Reserves if the laws,
customs or regulations of their
country deny the privilege of
leasing public lands to US citizens
or corporations.
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Sector or subsector
Description of measure
indicating its inconsistency with
Article II
Countries to which the measure
applies
Intended duration
Conditions creating the
need for the exemption
Transport Services:
Space Transportation
Quantitative restrictions and
price disciplines in certain
bilateral agreements on the
launch of satellites in the
international commercial space
launch market
All
Indefinite
Need to prevent
disruption of competition
in the international space
launch market
__________
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APPENDIX IV: Significant Trade Disputes and Related
Events Involving National Legislation
HISTORICAL HIGHLIGHTS AND HISTORY OF WTO-MEDIATED TRADE
DISPUTES INVOLVING US LEGISLATION, OR FOREIGN LEGISLATION
1. EU--Hormone ban (WT/DS26)
The US brought a complaint against the EU after the European states banned US meat containing synthetic growth hormones. The WTO ruled that the EU ban on imports of meat from animals to which any of six hormones for growth promotional purposes had been administered was inconsistent with the EU's obligations under the Agreement on the Application of Sanitary and Phytosanitary Measures ("SPS Agreement"). Because the EU has still not complied with this, the US was authorized to impose -and has imposed -100 percent ad valorem duties on a list of EU products with an annual trade value of $116.8 million. While discussions with the EU to resolve this matter are continuing, no resolution has been achieved yet. On November 3, 2000, the EU notified the WTO of its plans to make permanent the ban on one hormone, oestradiol.
2. EU--Protection of trademarks and geographical indications for agricultural products and foodstuffs (WT/DS174)
The US believes that the EU Regulation 2081/92 is inconsistent with the EU's obligations under the TRIPS Agreement. That regulation protects trade names for products such as “Champagne” sparkling wines to products that actually originate in the named geographical areas. The US claims that the regulation does not provide national treatment with respect to geographical indications for agricultural products and foodstuffs or sufficient protection to pre-existing trademarks that are similar or identical to such geographical indications.
3. United States--Foreign Sales Corporation ("FSC") tax provisions (WT/DS108)
The EU challenged the FSC provisions of the U.S. tax law, and a WTO panel found that the FSC tax exemption indeed constitutes a prohibited export subsidy under the Subsidies Agreement, and also violates U.S. obligations under the Agreement on Agriculture. Legislation that was signed by President Bush following this ruling was found to be insufficient to bring the US into compliance with its WTO obligations. The
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EU was awarded the ability to impose sanctions between $1 billion and $4 billion on US exports, but has refrained from doing so while the US administration tries to reform the law and rid it from illegal export subsidies.
4. United States--1916 Revenue Act (WT/DS136, 162)
The EU challenged Title VII of the Revenue Act of, often referred to as the Antidumping Act of 1916, which allows for private claims against, and criminal prosecutions of, parties that import or assist in importing goods into the United States at a price substantially less than the actual market value or wholesale price. A WTO panel found that the 1916 Act is inconsistent with WTO rules. Although legislation to repeal the Act was introduced in the House on December 20, 2001, no action was taken. Arbitration was briefly taken up on this matter, but suspended on March 4, 2002 in light of on-going bilateral efforts to resolve the dispute.
5. United States--Section 110(5) of the Copyright Act (WT/DS160)
A WTO panel held on June 15, 2000, that an exception in the Fairness in Music
Licensing Act, which permits certain retail establishments to play radio or television
music without paying royalties to songwriters and music publishers, violates the US'
WTO obligations. The panel found that lost benefits to the EU amounted to $1.1 million,
but even though the US has not yet complied with the ruling no sanctions have been
suspended in the light of ongoing efforts to reach a negotiated resolution of the issue.
U.S. - Copyright (Panel)
6. United States--Section 211 Omnibus Appropriations Act (WT/DS176)
The EU won a ruling that Section 211 of the Omnibus Appropriations Act, which addresses the ability to register or enforce, without the consent of previous owners, trademarks or trade names associated with business confiscated without compensation by the Cuban government, breaches national treatment and most favored nation obligations of the TRIPs Agreement. The EU and the U.S. have agreed that the reasonable period of time for implementation of the necessary changes to the Act will expire on January 3, 2003.
7. United States-Customs Controls in Ports of Le Havre and Rotterdam
EU Trade Commissioner Pascal Lamy has warned that there could be another trade dispute arising over the decision by US authorities to impose special anti-terrorist controls in certain European ports which could result in unfair competition between those European ports "approved" by the US and the others.
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8. United States – Section 337 of the 1930 Tariffs Act (WT/DS 337)
http://www.wto.org/english/tratop_e/dispu_e/87tar337.pdf
The European Economic Community (EEC) requested that the Council of the General
Agreement on Tariffs and Trade (GATT) establish a panel under GATT Article XXIII(2)
to consider the application of section 337 of the United States Tariff Act of 1930 (19
U.S.C. § 1337 (1982 & Supp. V 1988)). The Community sought a finding that the
procedures applied under section 337 in patent-based cases were inconsistent with the
GATT obligation to accord national treatment to imported goods and thus constituted
prima facie nullification or impairment of benefits accruing to the Community under the
GATT. The panel established under the authority of the Council found: (1) that certain
aspects of section 337 procedure accord less favorable treatment to imported goods
than is accorded to goods of domestic origin by the comparable procedures of patent
litigation in the federal district courts, and are therefore inconsistent with the national
treatment obligation of GATT Article III(4); and (2) that these instances of less favorable
treatment cannot in many respects be justified as “necessary” under the exception for
enforcement measures in GATT Article XX(d). The panel recommended that the GATT
contracting parties ask the United States to bring its procedures into conformity with the
General Agreement. This article reviews and analyzes the panel’s decision.
OTHER SIGNIFICANT GATS/GATT DISPUTES
See, WTO DISPUTES INDEX:
http://www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm;
http://www.worldtradelaw.net/; http://www.worldtradelaw.net/search/searchreports.htm
9. Also, see, U.S. - Gambling Services (Panel) Category: WTO Panel Reports U.S. - Gambling Services (AB)
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Category: Appellate Body Reports; U.S. - Gambling Services (Panel) (21.5) Category: WTO Panel Reports
10. China - Publications and Audiovisual Products (Panel); China - Publications and
Audiovisual Products (AB)
Category: Appellate Body Reports; U.S. - Gambling Services (Panel) (21.5)
Category: WTO Panel Reports
11. U.S. - Section 301 (Panel)
Category: WTO Panel Reports
US – SECTION 301 TRADE ACT1
(DS152)
PARTIES AGREEMENT TIMELINE OF THE DISPUTE
Complainant European Communities
Establishment of Panel 2 March 1999
Circulation of Panel Report 22 December 1999
Respondent United States
DSU Art. 23.2(a) and (c)
Circulation of AB Report NA
Adoption 27 January 2000
1.
MEASURE AT ISSUE
•
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Measure at issue: US legislation (i.e. Sections 301-310 of the Trade Act of 1974)
authorizing certain actions by the Office of the United States Trade Representative
("USTR"), including the suspension or withdrawal of concessions or the imposition of
duties or other import restrictions, in response to trade barriers imposed by other
countries.
2.
SUMMARY OF KEY PANEL FINDINGS2
•
DSU Art. 23.2(a) (Section 304 – unilateral decision): Based on the terms of Art. 23.2(a),
the Panel first set out that it is for the WTO, through the DSU process, and not an
individual WTO Member, to determine that a measure is inconsistent with WTO
obligations. The Panel then concluded that Sec. 304 was "not inconsistent" with US
obligations under Art. 23.2(a) because, while the statutory language of Sec. 304 in itself
constituted a serious threat that unilateral determinations contrary to DSU Art. 23.2(a)
might be taken, the United States had (i) lawfully
removed this threat by the "aggregate effect of the Statement of Administrative Action
('SAA')" and (ii) made a statement before the Panel that it would render determinations
under Section 304 in conformity with its WTO obligations. In this regard, the Panel added
the caveat, however, that should the United States repudiate or remove in any way its
undertakings contained in the SAA and confirmed in statements before the Panel, then,
the finding of conformity would no longer be warranted.
2 Other issues addressed in this case: mandatory/discretionary legislation distinction;
examination by panels of Members' law; GATT claims; Vienna
Convention on the Law of Treaties.
12. EC - IT Products (Panel)
Category: WTO Panel Reports
S/DCS/W/USA
Page 330
13. EC - Customs Matters (Panel)
Category: WTO Panel Reports
14. EC - Biotech Products ("GMOs") (Panel)
Category: WTO Panel Reports