U.S. Increases Visa Fees by $2,000 for H1-B’s and $2,250 for certain L’s: Sen. Schumer Leaps from “Chop Shops” to “Body Shops”

Posted September 14, 2010 by   · Print This Post Print This Post

On Aug. 13, 2010, President Obama signed an emergency supplemental appropriations bill for border security, P.L., 111-230.   Effective immediately, this law requires the submission of an additional fee of $2,000 for certain H-1B petitions and $2,250 for certain L-1A and L-1B petitions postmarked on or after Aug. 14, 2010, and will remain in effect through Sept. 30, 2014.

Application of the Fees to the Visa Categories. These additional fees apply to petitioners who employ 50 or more employees in the United States with more than 50 percent of its employees in the United States in H-1B or L (including L-1A, L-1B and L-2) nonimmigrant status.  Employers meeting these criteria must submit the fee when filing an H-1B or L-1 petition:

  • Initially to grant an alien nonimmigrant status described in subparagraph (H)(i)(b) or (L) of section 101(a)(15), or
  • To obtain authorization for an alien having such status to change employers.

The new fees discourage the use of foreign workers by increasing the costs of “the filing fee” and the “fraud detection fee.”

$600 Million. According to the bill’s proponent, Sen. Chuck Schumer (D., NY), this legislation will help pay the $600 million estimated to “significantly enhance the security and integrity of our Nation’s southern border–which currently lacks the resources needed to fully combat the drug smugglers, gunrunners, human-traffickers, money launderers and other organized criminals that seek to do harm to innocent Americans along our border.”  Cong. Rec. Aug. 12, 2010, p. S6996.

Chuck Schumer’s Warning to Body Shops: Reform or Else! Senator Schumer’s remarks are particularly enlightening on the legislative path for restricting foreign skilled labor from entering the U.S. to “replace” American workers.  Rather than summarize his policy arguments, it is instructive, for purposes of stimulating debate, to quote it extensively:

In 1990, the Congress realized the world was changing rapidly and that technological innovations, such as the Internet, were creating a high demand in the United States for high-tech workers to create new technologies and products. Consequently, Congress created the H-1B visa program to allow U.S. employers to hire foreign tech workers in special circumstances when they could not find an American citizen who was qualified.

Many of the companies that use this program today are using the program in exactly the way Congress intended; that is, these companies, such as Microsoft, IBM, and Intel, are hiring bright foreign students educated in our American universities to work in the United States for 6 or 7 years to invent new product lines and technologies so that Microsoft, IBM, and Intel can sell more products to the American public and hire more American workers. Then at the expiration of the H-1B visa period, these companies apply for these talented workers to earn green cards and stay with the company.

When the H-1B visa program is used in this manner, it is a good program for everyone involved. It is good for the company, it is good for the worker, and it is good for the American people who benefit from the products and jobs created by the innovation of the H-1B visa holder.

Every day companies such as Oracle, Cisco, Apple, and others use the H-1B visa program in the exact way I have described, and their use of the program has greatly benefited the country.

But recently some companies have decided to exploit an unintended loophole in the H-1B visa program to use the program in a manner that many in Congress, including myself, do not believe is consistent with the program’s intent.

Rather than being a company that makes something or provides a service and simply needs to bring in a talented foreign worker to help innovate and create new technologies, these other companies are essentially creating multinational temp agencies that were never contemplated when the H-1B program was created.

The business model of these newer companies is not to make any new products or technologies such as Microsoft or Apple does. Instead, their business model is to, first, bring foreign tech workers into the United States who are willing to accept less pay than their American counterparts; two, place these workers into other companies in exchange for a consulting fee; and, three, transfer these workers from company to company in order to maximize profits from placement fees.

In other words, these companies are petitioning for foreign workers simply to then turn around and provide these same workers to other companies who need cheap labor for various short-term projects.

Don’t take my word for it. If you look at the marketing materials of some of these companies that fall within the scope covered by today’s legislation, their materials boast about their “outsourcing expertise” and say their advantage is their ability to conduct what they call “labor arbitrage”–labor arbitrage; they say it–which is, in their own words, “transferring work functions to a lower cost environment for increased savings.”

The business model used by these companies within the United States is creating three major negative side effects. First, it is ruining the reputation of the H-1B program, which is overwhelmingly used by good actors for beneficial purposes. Some of our colleagues have legislation to curtail H-1B because of these types of abuses.

Second, according to the Economic Policy Institute, it is lowering the wages for American tech workers already in the marketplace. And, third, it is also discouraging many of our smartest students from entering the technology industry in the first place. Students can see that paying hundreds of thousands of dollars for advanced schooling is not worth the cost when the market is being flooded with foreign temporary workers willing to do tech work for far less pay because their foreign education was cheaper and they intend to move back home when their visa expires to a country where the cost of living is far less expensive.

This type of use of the H-1B visa program will be addressed as part of comprehensive reform, and it is likely going to be dramatically restricted–certainly, if I have something to do about it. We will be reforming the legal immigration system to encourage the world’s best and brightest to come to the United States to create new technologies and businesses that will employ countless American workers but will discourage businesses from using our immigration laws as a means to obtain temporary and less expensive foreign labor to replace capable American workers.

Let me say, in our proposal, the extra duty only goes on companies that are more than 50 percent foreign workers and 50 percent H-1B workers. The only companies that are 50 percent H-1B workers are those that are just doing the policy that I proposed–far, far from what we envisioned when H-1B was passed.

I say to those companies: If you do not change your ways–you should not be doing what you are doing, and this duty is appropriate for that purpose.

I do want to clarify a previous remark which mischaracterized these firms where I labeled them as “chop shops.” That statement was incorrect, and I wish to acknowledge that. In the tech industry, these firms are known as “body shops.” That is what I should have said, and that is what they are.

While I wholly oppose the manner in which these firms are using H-1B to accomplish objectives that Congress never intended, it would be unfortunate if anyone concluded from my remarks that these firms are engaging in illegal behavior.

But I also want to make clear that the purpose of this fee is not to target businesses from any particular country. Many news articles have reported that the only companies affected by this fee are companies based in India and that ipso facto the purpose of this legislation is to target Indian IT companies. It is simply untrue that the purpose of this legislation is to target Indian companies. We are simply raising fees for businesses that use the H-1B visa to do things that are contrary to the program’s original intent, and that will be on any company from any country that does it.

Visa fees will only increase for companies with more than 50 workers who continue to employ more than 50 percent of their employees through the H-1B program. That was never even close to anyone’s thought when H-1B was passed. Congress does not want the H-1B program to be a vehicle for creating multinational temp agencies where workers do not know what projects they will be working on or what cities they will be working in when they enter the country. The fee is solely based upon the business model of the company, not the location of the company.

If they are using the H-1B visa to innovate new products and technologies, that is a good thing, regardless of whether the company was originally founded in India, Ireland, or Indiana. But if they are using the H-1B visa to run a glorified international temp agency for tech workers in contravention of the spirit of this program, I and my colleagues believe they should have to pay a higher fee to ensure that American workers are not losing their jobs because of the unintended uses of the visa program that were never contemplated when the program was created. This belief is consistent regardless of whether the company using these staffing practices was founded in Bangalore, Beijing, or Boston.

Raising the fees for companies hiring more than 50 percent of their workforce through foreign visas accomplishes two important goals: First, it will provide the necessary funds to secure our borders without raising taxes or adding to the deficit. Second, it will level the playing field for American workers so they do not lose out on good jobs in America because it is cheaper to bring in a foreign worker than hire an American worker.

Legality of Restricting Free Flow of Foreign Workers. As a policy matter, restrictions on work permits are within the scope of permitted national activities under the WTO General Agreement on Trade in Services (GATS).  However, the WTO Agreement on Trade-Related Investment Measures (TRIM’s) does impose on member countries (including the United States) duties to treat foreign investors in a non-discriminatory fashion, to avoid “local content requirements” for goods or to restrict the volume or value of imports such an enterprise can purchase or use to an amount related to the level of products it exports (“trade balancing requirements”).  Whether visa restrictions constitute discrimination under TRIM’s is apparently not a question resolved in any international dispute arbitration panel.

Impact on Outsourcing. This legislation will promote hiring of Americans compared to foreigners for certain work.  For telework, it should not have any impact.

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