Trade Agreements and Immigration

By Jessica M. Vaughan on April 13, 2004

In the National Interest, April 13, 2004

Last month, upon concluding a chummy summit at the ranch with President Bush, Mexican President Vicente Fox exuberantly announced the availability of an unlimited number of guestworker visas for Mexican professionals to work in the United States. Though not the same as Bush's original guestworker program unveiled in January, which would offer visas to some six to ten million illegal workers, the program heralded by Fox required no new Congressional review. Known as the TN visa program, it was negotiated ten years ago as part of NAFTA. While hundreds of thousands of Canadians have used the program since 1996, the number of visas for Mexicans was capped at 5,500 until January of this year. Demand is expected to be enormous, given the vast salary differential between the United States and Mexico. U.S. consulates in Mexico are already reporting a sharp upswing in the number of applicants.

It has come as a surprise to many people, including some members of Congress, which approved the pacts, that guestworker programs are a standard component in free trade agreements such as NAFTA, the recently approved Chile and Singapore treaties, and the ongoing World Trade Organization (WTO) negotiations. (How the pending Central American Free Trade Agreement will deal with this issue remains to be seen.) Each of these pacts includes pledges from the participating countries to guarantee access for temporary business visitors, traders and multinational corporate transferees (L visas). That sounds logical, since traders need temporary access to other countries to ply their wares. What is harder to explain is the inclusion of guestworker categories whose connection to international trade is less obvious. For instance, the TN program, created by NAFTA, allows an unlimited number of Canadian and Mexican professionals to work in the United States on temporary visas, pretty much forever. The other guestworker program covered by trade agreements, the H1-B, allows in at least 65,000 foreign professionals a year under certain conditions.

As a result of these commitments, the United States has put itself on a one-way boulevard with few exits, moving toward wide-open access for foreign workers and the companies who hire them, under terms dictated by an international organization rather than our own democratically-evolving immigration laws. Without adjustments to both our planned treaty commitments and our existing dysfunctional guestworker policies, the consequences are potentially disastrous for large segments of the U.S. workforce.

The H1-B program has become very controversial in recent years, in part because a growing number of U.S. companies have outsourced technology-based functions to contractors providing cut-rate services, often staffed with H1-B or L guestworkers. Some see this as legitimate trade in services - what the WTO calls "movement of natural persons" to sell a service. Others see it as exploiting weaknesses in U.S. immigration law to hire cheap foreign labor. Neither guestworker program includes a requirement that sponsors make an effort to hire Americans first. Efforts to ensure that these visas are not used to replace U.S. workers have resulted in layers of complicated regulations that burden employers and are rarely enforced anyway. Plus, the programs have suffered chronically from high rates of fraud.

The H1-B program, and to some extent the intracompany transferee (L) program, enables foreign companies to essentially "dump" foreign workers here, much in the same way steel or lumber can be "dumped" in a foreign market; that is sold for less than its true value. This practice is most common in the technology sector. According to researcher Ronil Hira of the Rochester Institute of Technology, "the Indian IT industry has utilized U.S. immigration regulations for competitive advantage to accelerate its growth." Infosys, for example, is one of the leading Indian-owned IT services firms. Between 70 and 80 percent of the company's global revenues in the last few years came from U.S. contracts, and they are staffed mainly by Indian workers here on H1-B and L visas.

Hospitals and health care services firms are also heavy users of trade pact-guaranteed guestworker programs. At least 50,000 foreign nurses have entered the country in the last 10 years on temporary visas, mostly Canadians, using the TN visa. Nurses' advocates across the country are bracing themselves for the arrival of even greater numbers this year from Mexico with the lifting of the TN cap. One Mexican headhunter has a contract to provide 3,000 nurses to hospitals in four U.S. states. Stephanie Tabone, of the Texas Nursing Association, where the largest number of foreign nurses are working, says that the influx is causing noticeable wage depression for U.S. nurses. 'Hospitals can bring in even very experienced nurses from abroad, and call them entry level, so they can get away with paying them less.'

Teachers, too, are beginning to feel the pinch of foreign competition. The National Education Association, the nation's largest teacher's union, commissioned a study in 2003 that found that roughly 10,000 foreign teachers had been hired by public school systems, usually on H-1Bs, and concentrated in certain areas, including Texas and California. It noted with concern that the school systems may increasingly choose to hire foreign teachers to avoid costly employment taxes, retirement plans and health benefits.

U.S. trade negotiators include guestworker provisions in the treaties under the guise that they are temporary. But no one else - neither employers nor employees - considers the situation to be temporary. The reality is that most workers will end up staying on one way or another, and U.S. law does not discourage that; in fact, it provides a few loopholes to make it easy. Each year roughly 100,000 'temporary' guestworkers receive permanent residency (green cards), and the numbers would likely be even higher if it were not for the statutory annual limits on green cards.

A number of bills have been introduced in Congress that would reform the guestworker programs to minimize their market-distorting effects. Opponents have argued that changing the laws now will provoke trade disputes. In fact, Canada has considered launching a complaint over a newly implemented regulation requiring foreign nurses to be proficient in English, which it considers to be a trade barrier. India has complained about the recent lowering of the H1-B cap to 65,000, claiming it violates WTO principles. If past experience is any guide, the United States will not easily be able to protect its interests in the dispute resolution forum of the WTO. According to a GAO report, the United States is often a target and rarely prevails in WTO disputes.

Rather than scrapping U.S. involvement in trade liberalization, it makes far more sense to clean up our immigration laws. This is possible to accomplish within the framework of the existing trade agreements. For instance, in the absence of the kind of domestic safeguard measures that are often permitted for trade in goods, strict numerical limits should be imposed on all guestworker categories. Numerical limits are somewhat arbitrary, but are also negotiable and, even more important, more manageable than the alternative - complicated regulations that seek to control wage levels and recruiting practices, but are all but unenforceable.

In addition, temporary should mean temporary. Business people conducting legitimate trade rarely need to stay more than six months, and guestworkers should be limited to stays of three to five years. All applicants for temporary visas should have to demonstrate that they are not abandoning their residence and ties abroad. Intracompany transferee visa regulations should be tightened to reduce fraud and weaknesses in the program that enable it to be used as a regular employment visa category. Finally, H1-B visas should be removed from the purview of trade agreements. This visa program is intended to meet the staffing needs of U.S. employers, and has nothing to do with trade. Indeed, WTO documents note that trade agreements are not supposed to cover visa programs for those 'seeking access to the employment market of a Member.'

Clashes with our trading partners over visas are likely to become a staple of foreign affairs as the United States and the WTO countries push their respective agendas regarding liberalization of trade in services. By failing to distinguish between visas that facilitate trade and visas that facilitate the displacement of American professionals, U.S. trade negotiators contribute to the erosion of public support for free trade in general.

Jessica Vaughan is a senior policy analyst at the Center for Immigration Studies.