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Friday, February 28th, 2020

Column: H-1B protectionism and trade war

by March 29, 2016 General

India’s exports, experiencing continuous decline for several months now, might face worse prospects if less Indian software professionals travel to the US following the sharp increase in H-1B visa fees. The hike in the visa fees reflects the predominance of protectionism in the political discourse in the run-up to the US presidential elections.
The number of temporary work visas has always been a point of contention between India and the US.

Notwithstanding the role of Indian professionals in making the Silicon Valley what it is, presidential elections in the US, during the last couple of decades, have unfailingly charged Indian IT professionals for depriving the locals of skilled IT jobs. The theme has resonated particularly well with the Democrats given their traditional constituencies of working-class voters. In more recent years, and particularly this time around, the theme has found bipartisan political favour. Both Republicans and Democrats have supported the visa fee hikes and are in agreement over capping the visa quotas.

Unlike several other issues, where American businesses lobby with political parties for securing their agendas, the visa fee hike has not gathered much traction among the former. On the contrary, large American IT firms such as Facebook are happy to have more Indian professionals coming into the country given the rich skills they bring at low costs. Silicon Valley itself is rather unhappy over the cap and hike decision. But the current political environment in the US does not appear ready to listen to rational business views.

Domestic jobs are featuring prominently in the US presidential election campaign. This is a bit surprising given the recent improvements in domestic employment ratios and the overall steady improvement in the US economic outlook. Sadly, both Hillary Clinton and Donald Trump, the respective forerunners for eventual presidential nomination from the Democrats and Republicans, are relying on an inward-looking economic perspective in their election campaigns. Protecting American jobs appears to be the order of the day at a time when labour productivity in the US is not rising rapidly.

Appealing to domestic constituencies is important during elections. The visa fee hikes are unlikely to be rolled back. For the first time, India has decided to take the matter to the WTO by contesting it as a measure antithetical to free trade and suffocating national comparative advantage. The issue will run into arbitration unless the two countries are able to bilaterally agree on a compromise.

Given the context of the elections and their high stakes, the US might not actually mind if the matter gets into the dispute settlement dragnet of the WTO. Neither the Republicans, nor the Democrats have much to lose on this. On the contrary, their presidential hopefuls would have the opportunity of showcasing the dispute to their constituencies as evidence of their commitment to saving American jobs. They would, of course, be willing to revisit the matter once the dust settles over the heat and grind of the elections.

But India’s situation is more precarious. The fact that despite years of unhappiness over the management of the temporary work visa, India has finally decided to drag the US to arbitration at the WTO reflects the enormous importance it attaches to the prospects of the software industry at a time when its other exports are practically knocked out. India might not have resorted to the step had it been a period when its exports were doing well. The economically benign condition of exports might have encouraged it to focus more on diplomatic consultations rather than a legal face-off at the WTO.

Locking horns with the US at the WTO also reflects India’s anguish over the persistent criticism of the US and other major economies on its defensive trade policies. Indeed, India continues to remain on the ‘watch list’ of the US administration over what the latter considers are particularly stringent domestic patent laws. The USTR is more uncomfortable dealing with India than China. This is because decisions on domestic policies influencing market access prospects in India are influenced significantly by a variety of diverse opinions including those of the civil society. Getting to see ‘sense’ on certain issues and urging the government to adopt commensurate policies is sometimes much easier for China, given the complete command the latter’s government has over policies.
Though strategically, particularly in many segments of regional foreign policy, India and the US have greatly reduced their distance over the years, they have hardly been able to do so on trade. The two do not differ as sharply even on climate change. On issues relating to trade policies, India and the US hardly exist in the same planet and common vision space.

It is therefore not surprising that India did not hesitate to follow the path of legal confrontation on an issue that hurts it badly. The confrontation might not end soon given that it is also likely to be the preferred path for the US till its presidential elections are over.

The author is senior research fellow and research lead (trade and economic policy) in the Institute
of South Asian Studies, the National University of Singapore.


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