Nishith Desai Associates Legal and Tax Counselling Worldwide VAIBHAV PARIKH MOVEMENT OF NATURAL PERSONS UNDER THE GATS IN COMPUTER AND RELATED SERVICES NASSCOM A PRESENTATION ON MOVEMENT OF NATURAL PERSONS UNDER THE GATS IN COMPUTER AND RELATED SERVICES ON BEHALF OF NASSCOM BY

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 Nishith Desai Associates NASSCOM

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. Nishith Desai Associates NASSCOM

DOMESTIC SOFTWARE MARKET Source: Nishith Desai Associates NASSCOM

SOFTWARE AND SERVICES EXPORTS Source: Nishith Desai Associates NASSCOM

SOFTWARE DESTINATIONS Source: Nishith Desai Associates NASSCOM

INDIAN SOFTWARE EXPORTS: DELIVERY MODELS Source: Nishith Desai Associates Delivery (Projected) Onsite57.4%56.1%47.3% Offshore34.7%38.6%48.6% Products and unclassified 7.9%5.3%4.1% Total (US$ Billions) NASSCOM

BIRDS EYE VIEW Nishith Desai Associates NASSCOM Services GATS Mode 3 Mode 1 Mode 4 Products GATT Productized services Servicized Products

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 Nishith Desai Associates NASSCOM

KEY SOFTWARE SERVICES E-commerce solutions Software development Interactive integration services Application service providers IT enabled services Source: Nishith Desai Associates NASSCOM

POTENTIAL FOR SOFTWARE SERVICES EXPORTS Reasons –Low labour costs –High quality services –High level of training On-site delivery about 50% of the total software earnings Professional service exports over 40% of total software service exports –mainly in custom application development and maintenance, limited for other segments Nishith Desai Associates NASSCOM

ISSUES / CONSTRAINTS Immigration related issues Inadequate recognition of qualifications, experience and training Differential treatment of foreign service personnel Nishith Desai Associates NASSCOM

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 Nishith Desai Associates NASSCOM

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 Nishith Desai Associates NASSCOM

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 post- graduation work experience –Eg. U.S. – 3 years professional experience Issue: Indians may be sufficiently skilled without satisfying the above criteria Nishith Desai Associates NASSCOM

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 Nishith Desai Associates NASSCOM

COMMERCIAL PRESENCE Restrictions on foreign direct investment Conditions relating to staffing and management Nature of incorporation Geographic and branching restrictions Nishith Desai Associates NASSCOM

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 Nishith Desai Associates NASSCOM

PROPOSALS OF OTHER MEMBERS Transparency in immigration procedures and policies Access to information concerning immigration procedures and conditions of entry and stay Determining criteria for Economic Needs Test Harmonization of definitions and categories in Mode 4, including meanings of intra-company transferees, executives, managers etc. and making commitments on entry of business visitors and professionals Undertake sectoral commitments in other sectors Mutual recognition agreements for qualifications and experience Nishith Desai Associates NASSCOM

BROAD POLICY INITIATIVES/ REFORMS Improving the structure of GATS commitments Removal of existing limitations Nishith Desai Associates NASSCOM

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: Indias proposal to WTO Nishith Desai Associates NASSCOM

IMPROVING THE STRUCTURE OF COMMITMENTS Sectoral Commitments –Developed countries to make commitments in all sub-sectors for computer and related services. Source: Indias proposal to WTO Nishith Desai Associates NASSCOM

REMOVING EXISTING LIMITATIONS Visa requirements –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 NASSCOM

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 Nishith Desai Associates NASSCOM

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 Nishith Desai Associates NASSCOM