Even as Indian IT companies are keen to shun the onus of mandatory social security payments for their Indian employees in the US, calling it a non-tariff barrier to trade, the US has grown insistent on its stance it’s an immigration issue and can’t be discussed at trade fora.
The difference was reflected in the annual Trade Policy Forum meeting between the two countries earlier this month in which the US side was reluctant to discuss a totalisation agreement to exempt the Indian IT industry from the social security clause. The reluctance of the US trade officials, sources said, has been based on the premise that the issue is now being looked into by the National Security Council.
The council is attached to the office of US President Barack Obama.
The issue is crucial, as some analysts have termed the US policy on social security payments–along with its exorbitant hike of visa fees for working professionals–non-tariff barriers to services trade. They have suggested India explore options of dragging the US to the WTO over these issues. So treating it purely as an immigration issue could somewhat dilute the criticism over the anti-trade nature of the US policy.
The sources said that India’s ministry of external affairs is now expected to lead the charge in this matter. Already, officials of the ministry discussed the issue over teleconference with the US on October 20, they added.
The totalisation agreement between India and the US has remained elusive for years now. However, India has signed more than a dozen such agreements with countries, including Germany, France, Japan and Canada.
$1 bn: IT firms spend annually on social security payments for Indian employees in
$22.5 bn: Total taxes Indian IT companies paid in the US between 2011 and 2013
The IT companies are paying around $1 billion a year to comply with the social security norms for their Indian employees in the US, despite the fact that these people don’t work there long enough to be eligible for such benefits. A totalisation agreement mainly serves two purposes. First, it removes dual social security taxation, eliminating the possibility of a situation that occurs when a worker from one country works in another country and is required to pay social security taxes to both countries on the same earnings. Second, it helps in “exportability of benefits in case of a relocation to India or any other country” after having made social security contribution during a longer-term employment.
India is already gearing up to challenge the US at the dispute settlement body of the World Trade Organisation (WTO) on the visa issue. The US decision to drastically hike the H-1B and L-1 visa charges late last year is estimated to quadruple the Indian IT industry’s annual visa costs to $400 million.
The Indian IT industry has often complained it has been subjected to such anti-trade practices and that its contribution to the US economy is ignored by policy-makers there. According to a Nasscom report released in September last year, Indian IT companies were providing more than 4 lakh jobs in the US, of which around 3 lakh were held by either US citizens or permanent residents. These companies also invested over $2 billion in the 2011-2013 period and paid a staggering $22.5 billion in taxes to the US during those years.