nishith desai associates legal and tax counselling worldwide [email protected] vaibhav...

Nishith Desai Associates

Legal and Tax Counselling Worldwide

[email protected]

www.nishithdesai.com

VAIBHAV PARIKHVAIBHAV PARIKH

A PRESENTATION ON

MOVEMENT OF NATURAL PERSONS MOVEMENT OF NATURAL PERSONS UNDER THE GATS IN UNDER THE GATS IN

COMPUTER AND RELATED SERVICESCOMPUTER AND RELATED SERVICES

ON BEHALF OF NASSCOMNASSCOM

BY

SYNOPSISSYNOPSIS

• 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 AssociatesNASSCOM

itit SOFTWARE AND SERVICES SOFTWARE AND SERVICES SECTOR IN INDIASECTOR IN INDIA

• This sector accounts for

– 16% of the country's overall exports;

– 500,000 jobs; and

– US$ 1.6 billion in investments.


DOMESTIC SOFTWARE MARKETDOMESTIC SOFTWARE MARKET

Source:www.nasscom.org


SOFTWARE AND SERVICES SOFTWARE AND SERVICES EXPORTSEXPORTS

Source:www.nasscom.org Nishith Desai AssociatesNASSCOM

SOFTWARE DESTINATIONSSOFTWARE DESTINATIONS



INDIAN SOFTWARE EXPORTS: INDIAN SOFTWARE EXPORTS: DELIVERY MODELSDELIVERY MODELS


Nishith Desai Associates

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

NASSCOM

BIRD’S EYE VIEWBIRD’S EYE VIEW


ServicesGATS

Mode 3Mode 1

Mode 4

ProductsGATT

Productized services

Servicized Products

NEED FOR MOVEMENT OF NEED FOR MOVEMENT OF NATURAL PERSONSNATURAL 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


ISSUES / CONSTRAINTSISSUES / CONSTRAINTS

• Immigration related issues

• Inadequate recognition of qualifications, experience and training

• Differential treatment of foreign service personnel


IMMIGRATION ISSUESIMMIGRATION 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


IMMIGRATION ISSUESIMMIGRATION 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


INADEQUATE RECOGNITIONINADEQUATE 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


DIFFERENTIAL TREATMENTDIFFERENTIAL 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


DRAWBACKS / LOSSESDRAWBACKS / 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


BROAD POLICY INITIATIVES/ BROAD POLICY INITIATIVES/ REFORMSREFORMS

• Improving the structure of GATS commitments

• Removal of existing limitations


IMPROVING THE STRUCTURE OF IMPROVING THE STRUCTURE OF GATS COMMITMENTSGATS 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


IMPROVING THE STRUCTURE OF IMPROVING THE STRUCTURE OF COMMITMENTSCOMMITMENTS

• Sectoral Commitments– Developed countries to make commitments in

all sub-sectors for computer and related services.

Source: India’s proposal to WTO


REMOVING EXISTING REMOVING EXISTING LIMITATIONSLIMITATIONS

• 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


REMOVING EXISTING REMOVING EXISTING LIMITATIONSLIMITATIONS

• 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


WAY FORWARDWAY FORWARD

• Liberalization of Mode 4

• Amendments in domestic regulations

• Formation of international and bilateral agreements and treaties

• GATS Visa – Debate already initiated

THANK YOUTHANK YOUNishith Desai AssociatesNASSCOM

nishith desai associates legal and tax counselling worldwide [email protected] vaibhav...

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