Dan Stein
Executive Director
Federation for American Immigration Reform

Presented to the
HOUSE COMMITTEE ON INTERNATIONAL RELATIONS

Wednesday, February 4, 2004

This testimony addresses FAIR's concerns with abuse of the L-1 visa as a means to displace American workers with lower wage earning foreign workers. It calls for reform of the L-1 visa provisions.

Mr. Chairman and members of the subcommittee, thank you for the opportunity to present the views of the Federation for American Immigration Reform (FAIR) on the growing problem of intra-company transfer (L-1) visa abuse. FAIR is a national, not-for-profit organization of concerned citizens nationwide promoting better immigration controls and substantial reductions in overall immigration for the benefit of all Americans. Our members include persons who have unfairly lost their jobs to foreign workers hired at lower salaries. My name is Dan Stein, and I am FAIR's executive director.

The "L" category nonimmigrant visa, which allows foreign nationals to work in this country for five or seven years, is available to persons employed outside the United States for at least one of the three years prior to making application. It is designed for persons who are managers, executives (L-1A) and persons with specialized knowledge (L-1B) of the affiliated corporations. The petitioning corporation must have a U.S. affiliate, and the U.S. affiliate petitions for the transfer of the employee.

Unlike applicants for other categories of temporary employment visas, "L" visa holders need not maintain a legal intent to return home (meaning "temporary" L visa holders can abandon any intention of maintaining a foreign domicile). This makes it easier for an L visa holder to get on track to petition for permanent resident status -- and makes something of a mockery of the idea that this is a temporary visa program. Originally designed for senior executives and top-level managers, it has been the inclusion of persons with "specialized knowledge" (L-1B) and their families that has enhanced the opportunities for abuse. (Further, on January 16, 2002, the USCIS changed the practice and now allows spousal L-2 visa holders "open market" employment authorization.)

American workers, already hard hit by the job losses of the past few years, are being pounded as well by the unfair competition coming from the importation of foreign workers willing to take American jobs for lower wages. Some of our nation's best jobs in the high tech industry are increasingly being surrendered to foreign workers coming in through both the H-1B and the L-1 program. Unemployment in the Information Technology sector of our labor market -considered critical to this nation's economic future - stands at 7 percent, which is significantly above the overall unemployment rate, and among the highest rates ever recorded among high tech workers.

There has been much attention focused on the export of American jobs to cheaper labor markets overseas and the toll this phenomenon has taken on the middle class. The corollary to the exportation of jobs is the importation of lower-wage workers to do the jobs that remain in this country. Through a variety of legal and extra-legal means, American companies have been systematically replacing American workers with foreign workers who are nearly always paid less than those they replace. The L-1 visa system represents the latest legal loophole that is being exploited to the detriment of American workers.

The threat to American workers from the L-1 visa program is not new. Rather, it has only been in recent years that this program, by which a company with a foreign subsidiary operation can transfer executive and specialized employees to the United States on temporary visas, has been exploited by companies to bring in large numbers of foreign workers, who generally are paid significantly less than American employees. What makes the L-1 program a potentially greater threat to American workers is that what these companies are doing is all perfectly legal. Though it may have been Congress' intent to facilitate a relatively small number of legitimate intra-company transfers, the law is so broadly written that it leaves the door wide open for companies to use it to replace American employees with lower paid overseas employees.

Statistical information on abuse of the L-1 visa is unavailable, because no government agency is paying attention to this issue. However, anecdotal evidence of abuse is increasingly available across the country.

For example, Business Week reported last year that Siemens Technologies laid off a dozen high tech workers in their Lake Mary, Florida, office and replaced them with foreign workers, supplied by Tata Consultancy, working on L-1 visas. These foreign workers, on average, are paid about one-third of what the laid off Americans earned. Tata acknowledged that it paid some programmers on the project only $36,000 a year-below the average local range of $38,000 to $70,000 for a basic programmer and far below the $98,000 that one of the laid off U.S. programmers was paid. Yet this was perfectly legal, because there is no provision in the L-1 visa law that prevents laying-off American workers to replace them with foreign temporary workers, or requires the payment of prevailing wages to these L-1 visa workers.

Sun Microsystems, one of the leading national computer firms, has openly stated that it does not give American workers preference in its hiring and layoff decisions. Large banks, like Bank of America, have been quite open about their use of this program to employ less expensive foreign workers. And under the L-1 program, it's perfectly legal. (Unlike the H-1B specialty occupation program - which contains a weak labor protection scheme - the "L" program has no protections whatsoever.) Even weak protections, often illusory are better than none at all, and provide some recourse to American workers who are damaged by employers who blatantly abuse H-1B visas. An excellent website on the abuse of the H-1B program can be found on the Programmers Guild page entitled "How to Underpay an H-1B," at: www.programmersguild.org/Guild/h1b/howtounderpay.htm.)

Given the prevailing current attitudes in America's corporate boardrooms, Congress must not rely on corporations to police their own use of L-1 visas. Major Fortune 500 companies like Bank of America and Sun Microsystems freely admit that they will use every legal opportunity to substitute cheaper foreign workers for Americans. Lacking a sense of responsibility for the common good of the nation, and only for the corporate bottom line, unrestricted access to L-1 visas is tantamount to leaving the keys to the liquor cabinet in the hands of an alcoholic.

Robin Tauch, a high tech employee who worked in AT&T's IT department on its long distance billing system in Dallas, recounts how she and hundreds of her co-workers were made jobless over the past couple of years as their jobs were outsourced to Computer Sciences Corporation, which then began to replace them with Indian workers supplied by Cognizant Technology Solutions, a New Jersey firm whose president and CEO, Lakshmi Narayanan, is based in India. Ms. Tauch notes that she and other co-workers were even required to train the Indian workers who replaced them.

Some of the Indian workers stayed in the States to act as a liaison with India, and some returned to India after training to support the system remotely. She believes some of the Indian workers, who replaced her and her co-workers, were brought in for training on L-1 visas and notes that notices that would have been required if these were H-1B workers were not present.

The use - some would argue, abuse - of "L" category visas has permitted labor contractors to transfer overseas workers to the U.S., who are then contracted out to American clients. Under this loophole in the "L" visa category, a company headquartered in India, like Tata, can transfer its computer programmer employees to its subsidiary incorporated in the United States and continue to pay the workers Indian wage rates while they may be doing subcontract work for a U.S. company, such as Siemens or Intel. Thus, the Indian subcontractor can underbid a competitor that pays prevailing wages to American employees. The unintended consequence of these sorts of unrestricted transfers of overseas employees is that higher paid American programmers are laid off.

The number of L-1 visas issued has been rising steeply in recent years. During the late 1980s and early 1990s, the immigration service recorded between 60,000-70,000 entries per year on these visas (without counting accompanying family members). Then during the 1990s, the number of entries on these visas began to surge:

1992 - 75,315
1994 - 98,189
1996 - 140,457
1998 - 203,255
2000 - 294,658

In 2001, the last year for which the INS (now DHS) has released statistics, the number of L-1 visas issued was 328,480, and the number has continued to escalate in 2003, despite the record level of unemployment among information technology workers. An obvious loophole for abuse of these visas may be seen in the fact that there is no ceiling on the number that may be issued or renewed each year.

According to an India Times News Network report of March 8, 2003, at some large high tech companies with U.S. offices, use of the L-1 visa now outstrips use of the H-1B visa to bring in temporary foreign workers. Immigration consulting firms are openly touting the L-1 visa as the way for high tech companies to get around the miniscule protections built into the H-1B program. One visa and immigration consultant (the Williams Law Firm of Reston, Virginia) said on its website (www.it-visas.com/it/L1.asp) that the L-1 program is "…a quite useful tool to by-pass the cumbersome steps of obtaining a labor certification." The India Times News Network article cited above stated, "Employers looking to slash costs have discovered that they can use firms that hire L-1s to dump high-paid Americans in favor of cheaper workers from abroad."

The Bureau of Citizenship and Immigration Services has testified that L-1 visas are intended for foreign employees coming to the U.S. to work for the specific company that petitioned for them, not for another company that they are being contracted out to; such a use would be fraudulent. Yet, according to a May 30, 2003 New York Times investigation, in practice, the use of L-1 visas directly contradicts this intent.

Business Week reported last year that Tata Consultancy Services used L-1 visas to bring in half of the 5,000 high tech workers it has placed at companies in the U.S. Other companies are following suit: Almost one-third of Infosys' 3,000 U.S. workers were on L-1s, as were 32 percent of Wipro's 1,500 U.S. workers. Tata, Infosys and Wipro are large outsourcing companies, or "body shops."

FREE TRADE AGREEMENTS

Aside from the general problem of unfairly putting American jobs on the block for foreign temporary workers, the issue has been exacerbated by the negotiation of Free Trade Agreements (FTAs), such as those recently concluded with Singapore and Chile, which locked in visa set-asides for intra-company transfers. These provisions limit the ability of Congress to regulate immigration policy by committing the United States to continue importing foreign temporary workers without limit and without any regard for their impact on American workers. Under these FTAs, Congress is powerless to take remedial action. Moreover, the Singapore and Chile FTAs are being touted as models for a host of similar agreements currently being negotiated by our government.

These FTAs constitute an invitation to foreign companies to set up operations in places such as Singapore and Chile for the sole purpose of being able to send foreign workers-who don't even have to be nationals of Singapore or Chile-to the United States regardless of any safeguards that may be adopted.

In summary, Mr. Chairman, the problem of abuse of the L-1 visa is growing rapidly and American workers are being treated unfairly. This circumstance cries out for remedial legislation to put an end to the abuse.

We must make some fundamental decisions about our future - about whether the United States is a nation that operates for the direct benefit of U.S. workers, or merely a meta market that exists to promote short-term financial interests at the expense of collective economic security. We must decide whether the economy - as vital as it is to our national well-being - is subservient to the people, or whether the people are subservient to an emerging economic model that forces the society to pay large social and tax costs for subsidized foreign labor.

Unfortunately, we seem to be moving in the direction of the latter. The various programs discussed here today, including the L-1 visa program, as well as President Bush's recent immigration initiative, are mortal threats to the American middle class.

The president's plan, which includes legal status for many millions of people working here illegally and almost certainly amnesty at some point in the future, and an open-ended foreign worker recruitment program, constitutes a dagger pointed at the heart of the American middle class. The abuse of existing programs, like the L-1 visa, combined with the nearly unfettered access to foreign workers envisioned in the Bush plan will spell the end of upward mobility for the vast majority of Americans. Congress has the power to enact and repeal many laws, but it cannot repeal the law of supply and demand.

I will outline below the measures that we believe are required and address legislative initiatives that have already been presented to this body.

NEEDED REFORM LEGISLATION

• The criteria for L-1 visa recipients should be returned to its original scope and intent as restricted to senior managerial and executive personnel only who are employed directly by the company they will be working for in the U.S. Employers should be barred from forcing a current employee to train a non-immigrant (non-U.S. Citizen or permanent resident alien) successor.

There is a valid requirement for allowing intra-company transfers. However, when the visa criteria allows for the transfer of non-managerial employees, regardless of how any provision is worded, a loophole becomes available for international body shop-type operations. In addition, programs that train technical workers in the operations of U.S. companies are increasingly serving to accelerate the loss of American jobs through overseas outsourcing operations. If the L-1 visa is restricted to managerial and executive personnel only, current concern with using the L-1 program as an unregulated and unlimited equivalent of an H-1B visa would be eliminated. Where there remained a valid need to employ technical specialists in the United States on a temporary basis, the company would then have to get a more appropriate temporary visa.

• Require that the employer of an L-1 visa employee pay to the school district the equivalent of the out-of-district student cost (the same as for a foreign student on an F visa) for any dependents of the temporary foreign worker enrolled in public school.

The U.S. immigration law, in general, has ignored the effects of immigration on the communities in which they live. The greatest impact is on the local public school system. L-1 workers may-and often do-bring spouses and children with them. The children of temporary foreign workers may be considered residents of the local school district because of their parents' employment, but to lessen their impact and in fairness to the local taxpayers, they should be treated as outof-district foreign students when they enroll in public school. The best way to assure such equitable payments is to make it a requirement of the L-1 visa program that the employer, not local taxpayers, be responsible for education costs of their L-1 workers' children. This proposal is similar in nature to current Department of Defense school impact programs in areas where military families are stationed and use the local schools.

• Require that the employer of an L-1 visa holder assume liability for medical expenses incurred by the employee and accompanying family members.

Similar to the above recommendation for public schooling, foreign residents account for a large share of uncompensated medical expenses incurred by public medical facilities. To assure that any medical cost to the community is compensated, a requirement is needed for the employer to provide medical insurance for these foreign workers. There is a need for similar provisions to be included for other temporary foreign worker visas, and including them in a reform of the L-1 visa law would constitute a good start towards achieving that objective.

• Eliminate business expense tax write-offs for recruitment and training of foreign workers.

Companies at present are able to reduce their tax obligations by writing off the costs of recruiting and training foreign workers. This has the effect of making the American taxpayer subsidize this activity. The companies seeking employees from overseas should be made to bear these costs by amending the tax code.

• Reject any further Free Trade Agreements that include intra-company transfer visa provisions.

Congress put the administration on notice during debate on the Singapore and Chile FTAs that it objected to the inclusion of H-1B and L-1 type visa provisions in these agreements, but voted to implement the agreements anyway. A legislative initiative by Sen. Dianne Feinstein to preclude any such provisions in the several FTA's now under negotiation has been scuttled at the request of the White House. While the Special Trade Representative Robert Zoellick indicates that he has foresworn visa provisions in FTA's under current negotiation, there is no guarantee that this is a permanent provision. A reform of the L-1 visa law would offer an opportunity for Congress to go on record opposing any such future provision.

CURRENT REFORM PROPOSALS

H.R. 2154, introduced by Congressman Dan Mica, would bar to third party "body shop" abuses. By law, this reform would prevent intra-company transfer workers on L-1 visas from being subcontracted to work for another company. This would reinforce the intent of the current law, as stated by the administration. In the Senate, a similar provision was introduced as S. 1635 by Sen. Saxby Chambliss.

FAIR supports the intent of this reform, but does not believe it goes far enough. A loophole would still exist for a consulting company using L-1 visa workers to compete for a contract to do work for an American company as long as the work was done contractually by the consulting company rather than by its employees

H.R. 2702, introduced by Congresswoman Rosa DeLauro, would place an annual cap of 35,000 on L-1 visas and deny L-1 visas to any company that has laid-off an American worker within six months of filing an L-1 visa application. Among its other provisions, it would also require that L-1 visa workers be paid prevailing U.S. wages and receive benefits available to U.S. workers.

FAIR supports H.R. 2702 in the belief that it would largely close the loopholes in the L-1 visa program that disadvantage American workers. Nevertheless, we think that a loophole will continue to exist, albeit a more restricted one, as long as foreign companies are able to use the L-1 visa program to bring in technical workers who can be used to fill the jobs of Americans. FAIR would prefer to see technical worker visas entirely removed from the L-1 program. If that is done, then a numerical limitation on L-1 visas for executives and managers becomes unnecessary, and similarly the prevailing wage and benefit provisions also become unneeded.

H.R. 2849 introduced by Congresswoman Nancy Johnson (and as S.1452 by Sen. Christopher Dodd) addresses abuses in both the H-1B and the L-1 visa provisions. The L-1 provisions, inter alia, preclude employment of an L-1 visa worker if Americans are laid off six months before or after L-1 visa hire. It requires employers to pay L-1 workers prevailing domestic wage. It reduces the potential for abuse by requiring that an L-1 visa holder must have been employed directly by the sponsoring company for at least two of the most recent three years that the foreign worker has been in the country. The legislation also reduces the amount of time that these workers may remain in the United States.

FAIR supports the thrust of the Johnson/Dodd legislation. It clearly is aimed at preventing the program from being used to replace American workers and to undercut wages and working conditions. Still, FAIR would prefer to see the non-managerial provisions of the L-1 visa removed entirely, because this is the loophole that has led to the current pattern of abuse.

CONCLUSION

Mr. Chairman, FAIR has long worked to encourage reform of the H-1B provisions to ensure that the interests of American workers are protected, and has been actively involved over the past year in similarly working to encourage reform of the L-1 visa provisions. We are pleased that your committee is looking at this issue and at legislation to correct the obvious pattern of abuse that has developed.

FAIR stands ready to work with you and your staff as you proceed to develop legislation out of the proposals you have before you.