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A PRESENTATION ON MOVEMENT OF NATURAL PERSONS UNDER THE GATS IN COMPUTER AND RELATED SERVICES ON BEHALF OF NASSCOM BY VAIBHAV PARIKH Nishith Desai Associates Legal and Tax Counselling Worldwide [email protected] www.nishithdesai.com SYNOPSIS • IT software and services sector in India: An introduction • Issues / constraints facing the movement of software professionals (natural persons) • Necessity for freer movement of natural persons under the GATS • Policy initiatives and reforms NASSCOM Nishith Desai Associates it SOFTWARE AND SERVICES SECTOR IN INDIA • This sector accounts for – 16% of the country's overall exports; – 500,000 jobs; and – US$ 1.6 billion in investments. NASSCOM Nishith Desai Associates DOMESTIC SOFTWARE MARKET Source:www.nasscom.org NASSCOM Nishith Desai Associates SOFTWARE AND SERVICES EXPORTS NASSCOM Source:www.nasscom.org Nishith Desai Associates SOFTWARE DESTINATIONS Source:www.nasscom.org NASSCOM Nishith Desai Associates INDIAN SOFTWARE EXPORTS: DELIVERY MODELS Delivery 1999-00 2000-01 2001-02 (Projected) Onsite 57.4% 56.1% 47.3% Offshore 34.7% 38.6% 48.6% Products and unclassified 7.9% 5.3% 4.1% Total (US$ Billions) 2.65 6.2 7.7 Source:www.nasscom.org NASSCOM Nishith Desai Associates BIRD’S EYE VIEW Productized services Mode 4 Products GATT Mode 1 Mode 3 Services GATS Servicized Products NASSCOM Nishith Desai Associates NEED FOR MOVEMENT OF NATURAL PERSONS • Globalisation of economic-activities and technological developments • Facilitation of cross-border trade in services • Leveraging on the expertise and skill that Indian software professionals possesses in order to reach out to a global market • Direct contact between supplier and consumer necessary for effective services NASSCOM Nishith Desai Associates ISSUES / CONSTRAINTS • Immigration related issues • Inadequate recognition of qualifications, experience and training • Differential treatment of foreign service personnel NASSCOM Nishith Desai Associates IMMIGRATION ISSUES • Visa Requirements – Prior adequate search in national markets – Wage parity requirement • Negates cost-based advantage of developing countries – Differentiation in processing permits based on the level of employment • Faster to process intra-company transferee permits for higher level employees than permits for software professionals system analysts and database consultants NASSCOM Nishith Desai Associates IMMIGRATION ISSUES • Visa Requirements (contd.) – Cumbersome procedure for issuance of work permits • Time frame of 2 weeks to 3 to 4 months, or even longer! – Quota restrictions • H-1B visa quota – Cap on economic expansion – Restrictions on transferability and mobility – Limitation on duration of stay • Economic Needs, local market needs test NASSCOM Nishith Desai Associates INADEQUATE RECOGNITION • Foreign countries find the educational and work experience / training qualifications of software engineers to be insufficient – Eg. UK – Five years of experience or graduation and two years of senior postgraduation work experience – Eg. U.S. – 3 years professional experience • Issue: Indians may be sufficiently skilled without satisfying the above criteria NASSCOM Nishith Desai Associates DIFFERENTIAL TREATMENT • Tax implications on temporary foreign service providers – Social security taxes in the US – no tax credit in home country – erodes the cost advantage • Government procurement policies favour domestic suppliers – eg. data processing • Government approval required – Setting up operations – nature of entity and establishment of local offices – Remittance of foreign exchange NASSCOM Nishith Desai Associates DRAWBACKS / LOSSES • • • • Loss of business opportunities Higher costs for the customers / consumers Uncertainty, delays in deputing personnel Difficulties in transferring between sites in host country • Wage parity condition erodes cost advantage NASSCOM Nishith Desai Associates BROAD POLICY INITIATIVES/ REFORMS • Improving the structure of GATS commitments • Removal of existing limitations NASSCOM Nishith Desai Associates IMPROVING THE STRUCTURE OF GATS COMMITMENTS • Horizontal Commitments – – – – Specifically include individual professionals Clear eligibility criteria to be determined Uniformity in definitions Further expansion to include middle and lower level professionals in the category of “other persons” or “specialists” Source: India’s proposal to WTO NASSCOM Nishith Desai Associates IMPROVING THE STRUCTURE OF COMMITMENTS • Sectoral Commitments – Developed countries to make commitments in all sub-sectors for computer and related services. Source: India’s proposal to WTO NASSCOM Nishith Desai Associates REMOVING EXISTING LIMITATIONS • Visa requirements – – – – – – – – NASSCOM Transparent visa application procedures Simplify application procedures Less stringent norms for entry and stay Remove labour conditions for specialty occupations (US) Remove labour market test requirement for all specialists (Australia) Establish guidelines for wage parity Impose conditions to prevent exploitation of foreign workers De-link temporary visas from permanent visas Nishith Desai Associates REMOVING EXISTING LIMITATIONS • Clear criteria for the Economic Needs Test • Social Security and Totalisation issues – Bilateral agreements – Exemptions from contributions for professionals of developing countries • Recognition of work experience and qualifications of IT professionals NASSCOM Nishith Desai Associates WAY FORWARD • Liberalization of Mode 4 • Amendments in domestic regulations • Formation of international and bilateral agreements and treaties • GATS Visa – Debate already initiated THANK YOU NASSCOM Nishith Desai Associates