[Senate Hearing 108-327]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-327

 THE L-1 VISA AND AMERICAN INTERESTS IN THE 21ST CENTURY GLOBAL ECONOMY

=======================================================================

                                HEARING

                               before the

      SUBCOMMITTEE ON IMMIGRATION, BORDER SECURITY AND CITIZENSHIP

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 29, 2003

                               __________

                          Serial No. J-108-31

                               __________

         Printed for the use of the Committee on the Judiciary




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                            WASHINGTON : 2003
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                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman
CHARLES E. GRASSLEY, Iowa            PATRICK J. LEAHY, Vermont
ARLEN SPECTER, Pennsylvania          EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
LARRY E. CRAIG, Idaho                CHARLES E. SCHUMER, New York
SAXBY CHAMBLISS, Georgia             RICHARD J. DURBIN, Illinois
JOHN CORNYN, Texas                   JOHN EDWARDS, North Carolina
             Bruce Artim, Chief Counsel and Staff Director
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director
                                 ------                                

      Subcommittee on Immigration, Border Security and Citizenship

                   SAXBY CHAMBLISS, Georgia, Chairman
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     PATRICK J. LEAHY, Vermont
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
LARRY E. CRAIG, Idaho                RICHARD J. DURBIN, Illinois
JOHN CORNYN, Texas                   JOHN EDWARDS, North Carolina
                  Joe Jacquot, Majority Chief Counsel
                  James Flug, Democratic Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Chambliss, Hon. Saxby, a U.S. Senator from the State of Georgia..     1
Cornyn, Hon. John, a U.S. Senator from the State of Texas........    30
Feinstein, Hon. Dianne, a U.S. Senator from the State of 
  California.....................................................    26
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah, 
  prepared statement.............................................    72
Kennedy, Hon. Edward M., a U.S. Senator from the State of 
  Massachusetts..................................................     2
Leahy, Hon. Patrick J. Leahy, a U.S. Senator from the State of 
  Vermont, prepared statement....................................    74

                               WITNESSES

Buffenstein, Daryl R., General Counsel, Global Personnel 
  Alliance, Atlanta, Georgia.....................................    14
Dodd, Hon. Christopher J., a U.S. Senator from the State of 
  Connecticut....................................................     3
Fluno, Patricia, former Siemens Technologies Employee, Lake Mary, 
  Florida........................................................     7
Fragomen, Austin T., Jr., Chairman, American Council on 
  International Personnel, Inc., Washington, D.C.................    16
Gildea, Michael W., Executive Director, Department for 
  Professional Employees, AFL-CIO, Washington, D.C...............    11
Verman, Beth R., President, Systems Staffing Group, Inc., on 
  behalf of the National Association of Computer Consultant 
  Businesses, Bala Cynwyd, Pennsylvania..........................     9
Yale-Loehr, Stephen, Adjunct Professor of Law, Cornell Law 
  School, Ithaxa, New York.......................................    18

                       SUBMISSIONS FOR THE RECORD

Buffenstein, Daryl R., General Counsel, Global Personnel 
  Alliance, Atlanta, Georgia, prepared statement.................    34
Fluno, Patricia, former Siemens Technologies Employee, Lake Mary, 
  Florida, prepared statement....................................    46
Fragomen, Austin T., Jr., Chairman, American Council on 
  International Personnel, Inc., Washington, D.C., prepared 
  statement......................................................    50
Gildea, Michael W., Executive Director, Department for 
  Professional Employees, AFL-CIO, Washington, D.C., prepared 
  statement......................................................    63
Verman, Beth R., President, Systems Staffing Group, Inc., on 
  behalf of the National Association of Computer Consultant 
  Businesses, Bala Cynwyd, Pennsylvania, prepared statement and 
  attachment.....................................................    76
Yale-Loehr, Stephen, Adjunct Professor of Law, Cornell Law 
  School, Ithaxa, New York, prepared statement...................    84

 
 THE L-1 VISA AND AMERICAN INTERESTS IN THE 21ST CENTURY GLOBAL ECONOMY

                              ----------                              


                         TUESDAY, JULY 29, 2003

                              United States Senate,
          Subcommittee on Immigration, Border Security and 
                                                Citizenship
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:34 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Saxby 
Chambliss, Chairman of the Subcommittee, presiding.
    Present: Senators Chambliss, Grassley, Cornyn, Kennedy, and 
Feinstein.

OPENING STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR FROM 
                      THE STATE OF GEORGIA

    Chairman Chambliss. The Subcommittee will come to order. We 
are here today for a Subcommittee hearing on the Immigration 
and Border Security Subcommittee for the purpose of reviewing 
the L-1 visa program.
    I appreciate our panel of witnesses testifying today on 
``The L-1 Visa and American Interests in the 21st Century 
Global Economy.''
    Congress created the L-1 visa to allow international 
companies to move executives, managers and other key personnel 
within the company and into the United States temporarily. A 
current concern is whether some companies are making an end-run 
around the visa process by bringing in professional workers on 
an L-1 visa who are not solely intra-company transferees. With 
media reports that some American workers have been displaced, 
cause for closing the so-called L-1 loophole are increasing.
    Today we will hear from a full range of perspectives and 
will evaluate what actions can be taken without potentially 
adverse consequences.
    One particular issue is with companies who bring in workers 
not just to transfer within the company, but also for 
outsourcing them to other companies. For example, an alleged 
problem arises when an offshore company obtains L-1 visas to 
transfer foreign workers who had general professional skills 
that are shared broadly by U.S. workers. Once these L-1 workers 
arrive in the United States, they are outsourced to a third-
party company, often to work with computer software that is 
widely available. When an outsourced L-1 worker sits at a desk 
next to his U.S. counterpart doing the same work, a concern is 
whether the foreign worker really has the kind of specialized 
knowledge of his company's product that was anticipated by the 
statute or whether this is a clever legal use of the L-1 visa 
that evades the intent of Congress.
    Some critics of the L-1 visa have advocated legislation, 
and that may be appropriate, yet we must be careful not to 
impose overly-burdensome requirements on United States 
businesses. Unnecessary restrictions often backfire by limiting 
flexibility, deterring investment, and hurting the very 
businesses that we agree already use the L-1 as Congress 
intended. We need the best people in the world to come to the 
United States, to bring their skills and innovative ideas, and 
to support our business enterprises, and the L-1 visa is an 
important tool to achieve these purposes.
    We look forward to our witnesses' presentations today, and 
before we get to our panels, I want to call on my distinguished 
Ranking Member from Massachusetts, Senator Kennedy, for any 
comments he wishes to make.

 STATEMENT OF HON. EDWARD M. KENNEDY, A U.S. SENATOR FROM THE 
                     STATE OF MASSACHUSETTS

    Senator Kennedy. Thank you very much, Mr. Chairman. Thank 
you for having the hearing today.
    In today's world, the title of the hearing suggests, 
commerce, like communication, is global. Every other country in 
the world is within America's reach, and we are within their 
reach too. In this new world, Americans earn their livelihood 
in peaceful competition and peaceful cooperation with the 
entire world. For the good of the Nation and its economy, we 
must not adopt an immigration policy whose goal is to isolate 
our Nation.
    Curtailing legal immigration in a way that impedes the flow 
of highly-skilled foreign professionals or top-level foreign 
executives and managers may well undermine our economic and 
competitive leadership in the world.
    At the same time, we must make sure that companies do not 
misuse the temporary visa programs to lay off U.S. workers and 
replace them with cheaper foreign workers.
    There have been a number of media stories about companies 
firing talented U.S. employees and replacing them with foreign 
workers brought in under L visas, willing to work longer hours 
for less pay. In the most flagrant instance, the replaced 
workers have even been asked to train their foreign 
replacements. Our immigration laws must contain protections to 
guards against such abusive layoffs.
    The L visa program was created to enable multinational 
corporations to transfer their top level executives, managers 
or employees with specialized knowledge of the corporation to 
assist its affiliates in the United States. The program was not 
intended to be used to admit rank-and-file employees who have 
no special knowledge of the corporation but who would compete 
with U.S. workers.
    In contrast, the H-1B visa was designed to admit workers 
who possessed a needed specialized skill, even though they did 
not have any specialized knowledge of the corporation. To 
address the problem of U.S. worker displacement, Congress 
required companies seeking H-1B visas to demonstrate they were 
not able to find qualified U.S. workers for their positions.
    Recent press reports indicate that some international 
companies may be misusing L-1 visas to circumvent the worker 
protections in the H-1Bs and displace American workers. Others 
claim that the press reports exaggerate the problem and that 
there is no widespread abuse of the L-1 visa.
    The witnesses at our hearing today represent a wide array 
of views on the issue. Clearly there is anecdotal evidence of 
abuses of the L visa program. The issue is the extent of the 
abuses and whether safeguards are needed, either by 
administrative changes or statutory reforms. Our immigration 
laws, regulation and procedures must be fair and reasonable, 
must address the needs of employers and protect the rights of 
workers. While this task may not be easy, it will be made 
easier if both opponents and proponents of the L-1 visa program 
provide this Committee with the assistance in assessing the 
extent of the problem and suggesting corrective action.
    I look forward to the witnesses. I thank the Chair for 
having the hearing.
    Chairman Chambliss. Thank you, Senator Kennedy.
    Before we move to our panel, we have one of our 
distinguished colleagues here, Senator Chris Dodd, who has a 
presentation he wishes to make on this particular issue.
    Senator Dodd, welcome. We look forward to hearing from you.

STATEMENT OF HON. CHRISTOPHER J. DODD, A U.S. SENATOR FROM THE 
                      STATE OF CONNECTICUT

    Senator Dodd. Thank you very much, Mr. Chairman. I will 
keep this very, very brief, and I want to extend my 
appreciation to you for allowing me to come by and share some 
few brief thoughts about the issue.
    Let me first of all commend the Committee for looking into 
this very specific issue. Like many of my colleagues, while I 
do not sit on this Committee, I felt I knew the immigration 
laws fairly well, and certainly the H-1B visa program and 
others. The L-1 program was something I was not terribly 
familiar with until the issues that you have identified and 
Senator Kennedy has identified came to my attention in my own 
state.
    Let me state the obvious at the outset, something I am sure 
that every single member of this Committee and our colleagues 
would agree with, and that is that we strongly believe that 
citizens from other nations have made and will continue to make 
a very sound and enormous contribution to the overall well-
being of our Nation. We are after all a Nation that was founded 
by immigrants, and we have been sustained, and grown as a 
result of the contribution of millions of people who have come 
to our shores from around the globe over the last two 
centuries, and we have remained vibrant and creative because 
our doors have remained open to supplement the talents of a 
very gifted and skilled American workforce. I emphasize the 
word ``supplement,'' Mr. Chairman. Not that I did not say 
``substitute.'' That is really what we are talking about here 
today. I am sure that none of us believe that American workers 
should be treated as second-class citizens when it comes to the 
security of their jobs here at home, and that security should 
not be jeopardized by U.S. Government programs and policies 
related to the temporary employment of certain nonimmigrant 
visa holders. At the very least laws enacted by Congress should 
ensure that workers living in my home State of Connecticut or 
elsewhere around the country confront a level playing field 
when competing for jobs. No member of Congress would knowingly 
support Government programs that cause American workers to lose 
their jobs, nor do I mean to suggest that this is a stated 
purpose of the L-1 visa program that is the subject of this 
hearing. The stated purposes of the program, I have now grown 
to learn, allow, as you pointed out and Senator Kennedy has, 
for intracompany transfers of certain executives, managers and 
individuals with specialized skills from foreign offices of 
companies to their U.S. operations on a temporary basis.
    During the economic boom of the 1990's, when jobs were easy 
to find, evidence now suggests that abuses of L-1 and H-1B 
visas often went unchecked, but the state of the job market has 
changed, of course. Massive layoffs have occurred at companies 
both large and small and it now takes months for laid-off 
workers to find new jobs. The unemployment rate is now over 6 
percent.
    There is clearly a growing body of anecdotal evidence to 
suggest that both L-1 and H-1B visa programs have been and are 
being misused by some employers because of weaknesses in 
existing law and implementing regulations, and because of 
ineffective or absent Government enforcement. Between 1997 and 
2002 some 3.4 million H-1B and L-1 visas were approved by U.S. 
Immigration authorities. 70,000 of those visa holders have been 
employed in my State of Connecticut. The L-1 visa program has 
grown significantly during that time period, from 203,000 visas 
issued in 1997 to nearly 314,000 in 2002. This growth in visa 
approvals has occurred while domestic unemployment has risen in 
the latter portion of that time period.
    One of the witnesses that the Committee will hear from this 
afternoon will give additional credibility to the belief that 
at least some of these employers have not hesitated to take 
advantage of weaknesses in the L-1 visa program to replace 
American workers with lower cost L-1 visa holders. I have come 
to the conclusion, Mr. Chairman, that it is time for Congress 
to take a serious look at the L-1 and H-1B visa programs and to 
propose remedies for the offensive weaknesses in those 
programs, weaknesses that are hurting our own citizens, and 
hope these hearings will be the first step in that process.
    I sought to take some steps of my own in that direction a 
weak or so ago with the introduction of S. 1452, the USA Jobs 
Protection Act of 2003. I was pleased to be joined in that 
effort by our colleague, my colleague from Connecticut, 
Republican House member Nancy Johnson, who I know, Mr. 
Chairman, you served with in the House. She and I have brought 
together the various House proposals, and have combined it in a 
single proposal which she has offered there and I have offered 
in the Senate, and I would ask unanimous consent that a copy of 
that bill be included in your record if it is all right.
    Chairman Chambliss. Without objection.
    Senator Dodd. Once enacted into law, we think that this 
would ensure the L-1 visa program is utilized, continue to be 
utilized for the purposes which it was originally intended, and 
that was not to displace American workers with lower-cost 
foreign visa holders. This legislation would also tighten the 
law with respect to H-1B visa programs, but I will not go into 
that today. That is not the subject of your hearing.
    Very simply, let me just say what the bill would do, and 
you have already commented on some of the suggestions. First, 
it would end the practice of allowing L-1 visa holders to be 
subcontracted by one employer to another. This is becoming a 
growing feature of this program. That was never the intent of 
the legislation initially. It would also take away a big 
incentive for replacing American workers with L-1 visa holders 
by requiring that these new workers are paid the prevailing 
wage of the job that they would be replacing. It requires that 
before a U.S. employer seeks to bring a specialized worker from 
a foreign affiliate of his or her company, that a documented, 
good faith effort should be made to fill the position with 
American workers. The L-1 visa program was established to allow 
companies to temporarily bring to the United States managers 
and executives with an institutional memory of the firm's 
practices and policies to pass on that knowledge. I agree that 
such institutional expertise is invaluable to the success of a 
company's operations in the United States. But the individuals 
that are granted visas under this provision should have a well-
established work history with a company to qualify for such a 
visa. That is why we have included a provision in our bill that 
would require individuals seeking L-1 visas must have been 
employed by the company seeking their transfer to the United 
States for two of the last 3 years, rather than 6 months of 1 
year required under existing law.
    I mentioned earlier that there is a growing body of 
anecdotal evidence that suggested that both the L-1 and H-1B 
visa programs are creating problems with certain categories of 
American workers. Why do we not have more hard data on this 
important issue? I would say to the Committee that this is 
because there has been very little Government oversight or 
enforcement of these programs, particularly the L-1 program. I 
have attended to address this deficiency. Our bill contains 
provisions that would require the Labor Department to oversee 
this program. It will finally provide the Labor Department with 
the authority it currently lacks to investigate potential 
violators of the law and to impose sanctions. The bill would 
also make a number of reforms in the H-1B visa program. I will 
not go into that right now. I will submit some of that for the 
record if I may.
    I know the Committee has a number of witnesses you are 
going to hear from today which I think can offer some 
additional light on this subject matter.
    Mr. Chairman, based upon many Connecticut families that I 
have heard from on the subject, together with the testimony you 
are going to hear today, I believe the L-1 and H-1B visa 
programs have contributed to the growth in unemployment in 
Connecticut and elsewhere. It is within this Committee's 
legislative responsibility to analyze these problems created by 
the current law and practices, and propose remedies. As you do 
so, I would urge members to give consideration to the bill that 
Congresswoman Johnson and I have submitted, and I will be 
willing to work with you as we try and fashion some remedies 
here to try and straighten this situation out. What is self-
evident of course is that the status quo is not acceptable. 
American workers have the right to expect the Congress to do 
what is necessary to protect their jobs from this kind of 
activity so that the will be able to continue to provide for 
their families.
    I certainly look forward to working with you and other 
members of the Committee to provide that kind of leadership on 
this issue, and I thank you immensely for allowing me to share 
some of these thoughts with you and the Committee.
    Chairman Chambliss. Senator Dodd, thank you very much for 
being here. We appreciate your insight and your hard work to 
this point on the issue, and we look forward to the referral of 
your bill and continuing to dialogue and work with you as we 
solve this in the way that is most beneficial to the American 
worker and the American business community.
    Senator Dodd. Thank you very much, Mr. Chairman. I 
appreciate it.
    Senator Kennedy. May I just thank you for your presence 
here. In the H-1B we have a requirement for $1,000 fee. 
Actually I thought it ought to be higher. That fund is used for 
training Americans so that they can develop those skills over 
the period of time. One of the things that we see in short 
supply is the resources, even for the Department of Labor, to 
look into these abuses, whether it is H-1B or the L visas. Do 
you think it would make sense if they were doing a similar kind 
of thing, bringing in these foreign workers for the L-1, that 
they might also participate in a similar kind of a program in 
terms of the skills? You might just take a look at it and let 
us know what you might think.
    Senator Dodd. In fact, the bill I have introduced has that 
provision.
    Senator Kennedy. It has that provision?
    Senator Dodd. We think that is sound judgment.
    Senator Kennedy. Is it $1,000?
    Senator Dodd. I think we used $1,000. We can say it pays 
for itself. We do not have a dollar amount in the bill.
    Senator Kennedy. Okay.
    Senator Dodd. I think it is a very good suggestion as well, 
and I know that you are going to look into the H-1Bs and I 
supported it back a few years ago. I mean my State is a good 
example. It is a high-tech State, a lot of information 
technology, and there was a real demand back a few years ago. 
We raised the caps on the H-1B visa program, and I think we did 
so wisely at the time. That is only a 3-year deal. You are 
going to have to reconsider that now, and I would hope when you 
are looking at it, we take a look at this new environment we 
are operating in now before allowing that number to go back up 
to the years we have had previously, just as a suggestion.
    Chairman Chambliss. You are correct. It has to be 
reauthorized by the end of September, and Senator Kennedy and I 
intend to make sure we thoroughly review it between now and 
then.
    Senator Dodd. Good. Thank you very much.
    Chairman Chambliss. Again, thanks very much.
    We will now call panel members up. Patricia Fluno, who is a 
former Siemens Technologies employee from Lake Mary, Florida; 
Beth R. Verman, President, Systems Staffing Group, a member of 
the National Association of Computer Consultant Businesses from 
Bala Cynwyd, Pennsylvania. I hope I said that right. Michael W. 
Gildea, Executive Director, Department for Professional 
Employees from the AFL-CIO here in Washington, D.C.; Daryl 
Buffenstein, General Counsel, Global Personnel Alliance from 
Atlanta, Georgia; Mr. Austin T. Fragomen, Jr., Chairman, 
American Council of International Personnel, Washington, D.C.; 
and Mr. Stephen Yale-Loehr, Adjunct Professor, Cornell Law 
School, Ithaca, New York.
    As we introduce you individually here, we will recognize 
you for opening statements. We are going to start over here 
with you, Mr. Yale-Loehr. Excuse me. We are starting over here 
with Ms. Fluno. And if you will, due to the size of our panel, 
we will be happy to take any statements you want to put in the 
record, but if you will limit your opening comments to 5 
minutes or less, we will greatly appreciate it so we can get to 
questions from the members to you.
    So, Ms. Fluno, welcome. Thank you for coming up from Lake 
Mary, Florida, and we look forward to hearing your story, which 
we have all read about, and we appreciate you being here today. 
Thank you.

   STATEMENT OF PATRICIA FLUNO, FORMER SIEMENS TECHNOLOGIES 
                  EMPLOYEE, LAKE MARY, FLORIDA

    Ms. Fluno. Thank you very much. My name is Pat Fluno. I am 
a computer programmer from Orlando, Florida. My coworkers and I 
lost our jobs to visa holders from India. I would like to begin 
by reading excerpts from a letter I wrote to Representative 
John Mica in August of 2002, asking for help.
    We are employees in the data processing department of 
Siemens ICN, at both the Lake Mary and Boca Raton sites. We are 
all U.S. citizens and full-time salaried computer programmers 
and analysts ranging in age from 33 to 56.
    Approximately 15 employees have letters dated August 19, 
2002, indicating a layoff date in conjunction with the 
restructuring of IT. At that time, employee meetings were held 
informing us that the department would be outsourced. During 
the months of May and June management had meetings with 
outsourcing companies on site. We were interviewed by several 
of those companies and all expressed surprise that we had 
already been given definitive layoff dates. During the last 
week of June, the outsourcing company was announced as Tata 
Consulting Services of India. People from TCS were on site July 
1st. They immediately begin interviewing us on how to do our 
jobs. Layoffs of Americans began on July 15 and were scheduled 
to continue through August 30.
    We are being laid off and TCS personnel are taking our 
jobs. Siemens management has told us to transition our work to 
TCS and show them how to continue the development and support 
work already begun by Americans. My letter to Representative 
Mica ends by asking for help to prevent this injustice.
    We lost our jobs and we had to train our replacements so 
there would be little interruption to Siemens. This was the 
most humiliating experience of my life.
    Our visa-holder replacements are sitting at our old desks, 
answering our old phones, and working on the same systems and 
programs we did--but for one third the cost. This is what a 
manager at Siemens told me. 15 people were laid off. At an 
average high-tech salary of $75,000 each, that is over $1.1 
million of gross wages lost to Federal and State income taxes, 
from just 15 people. The visa holders do not pay income taxes. 
Representatives of TCS will tell you that their programmers 
make $36,000 per year, which is just under the average starting 
salary range for American programmers. But what is the 
breakdown of that money? $24,000 of that is nontaxable living 
expenses for working out of town. That leaves just $12,000 of 
real salary paid to them in equivalent Indian rupees. $12,000, 
close to the U.S. minimum wage. An American having an income of 
$36,000 would have to pay taxes, but not these visa holders. 
There are no salary rules for L-1 visas.
    How can they come to the U.S. so easily? The L-1 states 
that they must be a specialized knowledge worker familiar with 
the products and services of the company. There are many 
legitimate uses for the L-1 to transfer employees from one 
company subsidiary to another. But transferring a worker from 
Tata India to Tata U.S. for work at Siemens is not what was 
intended by the L-1 visa. They are not working on Tata's 
computer systems, but on those of Siemens. In our particular 
case, Tata knew Americans were being laid off, so they did not 
use the H-1B visas. Instead they fraudulently used the L-1. 
There are no regulations regarding the misuse of L-1s and only 
limited penalties for H-1B abuse. Where is the INS? Where is 
the DOL? There are hundred of thousands of L-1 and H-1B workers 
in the United States taking jobs that Americans can do and that 
Americans want to do. Every H-1B and L-1 visa given to 
outsourcing companies like Tata is a job an American should 
have.
    What is happening here? In a time when our National 
security is paramount, we are making ourselves dependent on 
third world nations for our computer technology. We are giving 
these countries the ability to access, modify and break the 
very computer systems that run the U.S. economic 
infrastructure.
    Yet, we have an even greater parasite on our economy, and 
it comes from American companies. U.S. corporations are taking 
entire departments and relocating them to an Indian subsidiary. 
Hundreds of data processing, payables, and call center jobs are 
lost at one time. Ask Microsoft. Ask IBM. Ask Cigna. Ask almost 
any large U.S. corporation and you will find they have sent 
jobs offshore. The term ``offshore'' is just a euphemism for 
American jobs that are lost and will never return. What is the 
economic impact of this? In the short term these companies say 
they are cutting costs, but in the long term they are 
undermining their consumer base. Where will our children find 
jobs? In marketing perhaps? Marketing to whom?
    We need incentives to keep jobs in the U.S. We need 
monitoring of visa holders. We need fines for abuse and 
punitive damages for affected American workers. Current H-1B 
penalties only apply to certain types of companies. Misuse is 
misuse. It must apply to all situations equally. We need to 
enforce the laws we already have. Why can a company like Tata, 
operating in the United States, mock our equal opportunity and 
ethnic diversity laws? Where is the EEOC?
    I have one question to ask all the CIOs and all the CEOs 
who have laid off U.S. citizens in favor of cheap labor. How 
does it feel to know you have personally contributed to the 
decline of the American economy? How does it feel?
    Thank you.
    [The prepared statement of Ms. Fluno appears as a 
submission for the record.]
    Chairman Chambliss. Thank you very much.
    Ms. Verman, welcome.

STATEMENT OF BETH R. VERMAN, PRESIDENT, SYSTEMS STAFFING GROUP, 
    INC., ON BEHALF OF THE NATIONAL ASSOCIATION OF COMPUTER 
        CONSULTANT BUSINESSES, BALA CYNWYD, PENNSYLVANIA

    Ms. Verman. Thank you, Chairman Chambliss, members of the 
Subcommittee.
    My name is Beth Verman. I am President of Systems Staffing 
Groups, Inc. My company is located just outside of 
Philadelphia, and I am appearing today on behalf of the 
National Association of Computer Consultant Businesses, the 
NACCB. The NACCB has approximately 300 member firms with 
operations in over 40 States and is the only national trade 
association exclusively representing information technology, IT 
services companies. On behalf of NACCB we thank you for 
allowing us to address this important issue.
    My company, like other IT services firms, serves the need 
for flexibility in the IT workforce. It does not make economic 
sense for most clients to stay fully staffed for all potential 
IT development projects. That would be like permanently 
employing every construction trade for an office building 
project that may be needed some time in the future. Most large 
companies maintain a split between in-house employees and 
outside consulting resources. Consulting resources can be 
shifted to respond to a client's needs for different skill sets 
and different levels of demand. IT consultants are utilized to 
both augment existing in-house personnel as well as provide 
teams to help develop and integrate technology projects. This 
staffing flexibility helps make full-time employees more secure 
and gives their employer the flexibility needed in our rapidly 
changing environment.
    After over 12 years in the IT staffing business, I founded 
Systems Staffing Group, a certified woman-owned business, in 
September 2000. My company specializes in placing IT 
professionals such as java programmers and software engineers 
with Fortune 500 insurance and financial services companies. 
Most of my clients are located in Pennsylvania, Delaware, New 
York, New Jersey and Connecticut. I am a small business, 
averaging 20 consultants on billing, and I anticipate doing 
over $2.5 million in gross revenue this year. I was honored to 
have recently received one of Philadelphia's top ``40 under 
40'' minority executive awards.
    While I am proud of my firm's progress to date, 
particularly in light of becoming a new mother this year, I 
have been frustrated that its growth has been hampered because 
of unfair competition with large foreign-based consulting 
companies that are not playing by the same set of rules my 
domestic company plays by. Let me give you a specific example. 
In prior years we typically place 12 or more consultants a year 
at a major insurance company. Since January 1st of this year, 
we have only placed 2 consultants at the same client site. This 
is not a result of lack of demand. Rather, many of the 
consultants we have placed at this large insurance company, 
along with many direct employees of the company, have been 
replaced by individuals brought into the United States by large 
foreign consulting companies on L-1B intracompany transfer 
visas reserved for persons with specialized knowledge. I have 
personally seen similar arrangements at other client sites, and 
the NACCB has reports from other members experiencing the same 
kind of displacement.
    The L-1B visa was established to allow multinational 
companies to bring persons with specialized knowledge of the 
petitioning company's products, procedures and processes to the 
U.S. to work for a related U.S. company. The specialized 
knowledge is supposed to be an advanced level of skill that 
does not involve skills readily available in the U.S. labor 
market. The foreign IT workers that have been placed at some of 
my client sites are not utilizing any specialized knowledge. 
They are in effect staffing assignments at a third party client 
site. Although these firms often package their services as 
fixed price or time and material projects, the L-1B IT workers 
they employ are performing the same jobs, sitting at the same 
desks as consultants I had placed on a staff augmentation basis 
with the same client. Based on my observations, the IT workers 
brought in on L-1B visas possess no unique skills; their skill 
sets are readily available in this country. By simply posting 
an available position to a major Internet job board, my 
recruiters could quickly generate hundreds of qualified 
candidates who possess the required skills being filled by 
workers who have entered the country on L-1B visas. Why then 
are so many of these foreign companies using the L-1B 
specialized knowledge visa? The answer is it gives them an 
unfair competitive advantage in selling IT services against 
U.S. based companies.
    By squeezing IT workers into the L-1B visa category, it 
appears that these companies are circumventing many of the 
requirements of the H-1B visa program. Under the L-1B program, 
unlike the H-1B program, there is no obligation to pay a 
prevailing wage, no obligation to pay $1,000 fee to support 
education and training of U.S. workers, no obligation to attest 
an effort has been made to recruit a U.S. worker or attest that 
there has not and will not be a layoff of a U.S. worker for H-
1B dependent companies. Finally, by its nature, the L-1B visa 
is only available to companies with an offshore presence, 
leaving firms such as my company with only a U.S. presence at a 
competitive disadvantage.
    By utilizing the L-1B program, large foreign consulting 
companies are able to undercut my client billing rates by 30 to 
40 percent. The only way to undercut billing rates to that 
extent is to pay IT workers significantly less than an 
equivalent U.S. worker. Further, NACCB has serious concerns 
whether L-1B visa holders and their petitioning employers are 
meeting all of their U.S. tax obligations.
    While I believe there are flaws in the current L-1B visa 
program, NACCB and I remain strong supporters of business 
immigration. During the talent shortage that this country 
experienced in the late 1990's and into 2000, which was 
particularly acute in technology-related positions, NACCB 
supported an increase in the H-1B visa cap. While most of the 
consultants I place with clients are U.S. citizens or legal 
residents, I do place H-1B consultants brought in by other 
firms. NACCB and I believe that responsible business 
immigration contributes to U.S. competitiveness and is an 
essential business tool in a global economy.
    As this Subcommittee considers the current L-1B program, I 
would hope you would consider some modest changes that will 
allow the legitimate use of the L-1 visa to continue, but 
eliminate the current abuses of the visa. NACCB has provided 
you in our legislative changes, those changes that we would 
like to see.
    Some have called for more drastic measures such as 
prevailing wage requirements and annual caps. NACCB and I 
believe that these measures are neither necessary nor 
advisable. Given the differences in pay scales between the 
United States and many other nations, prevailing wage 
requirements would exclude the entry of many executives, 
managers and individuals with substantial knowledge of 
proprietary processes that contribute to U.S. competitiveness. 
Likewise, annual caps, which are notoriously difficult to set 
with any degree of accuracy, would potentially restrict the 
legitimate use of the L-1 visa without addressing the problem. 
By limiting the use of the visa for the purposes for which it 
was originally intended through modest statutory changes, the 
abuses can be eliminated without overly restricting the 
movement of individuals for legitimate business purposes.
    Mr. Chairman, in conclusion, I am ready, willing and able 
to compete aggressively in the marketplace. I not only welcome 
competition, I relish it. I have always succeeded in highly-
competitive environments. Such an environment requires me to 
continually improve and deliver greater value to my clients. 
However, I am being asked to compete against foreign consulting 
companies that are provided an unfair competitive advantage by 
stretching my own country's immigration laws. To use a football 
metaphor, the L-1B visa program as it is currently being used 
allows foreign IT services companies the ability to start with 
the ball on my 10 yard line, whereas I must start with the ball 
on my own 20. All we ask is that U.S. laws are clarified, 
upheld and enforced so we have a level playing field. I urge 
this Subcommittee to begin the process of leveling this playing 
field. Thank you for the opportunity to express my views and 
the views of many U.S.-based IT services companies.
    [The prepared statement of Ms. Verman appears as a 
submission for the record.]
    Chairman Chambliss. Thank you very much.
    Mr. Gildea, pleased to have you today.

STATEMENT OF MICHAEL W. GILDEA, EXECUTIVE DIRECTOR, DEPARTMENT 
     FOR PROFESSIONAL EMPLOYEES, AFL-CIO, WASHINGTON, D.C.

    Mr. Gildea. Thank you, Mr. Chairman.
    My name is Mike Gildea, and I am the Executive Director of 
the Department for Professional Employees for the AFL-CIO, a 
consortium of 25 national units representing nearly 4 million 
professional and technical employees in both the public and 
private sectors.
    Mr. Chairman, we appreciate the opportunity to present our 
views here today. Mr. Chairman, we also appreciate your 
comments and those of Senator Feinstein and other members of 
the Subcommittee during full Committee deliberations on the 
Chile-Singapore Free Trade Agreements. Hopefully, the USTR will 
refrain from dabbling in immigration law in future agreements 
in light of the bipartisan bicameral backlash that has 
resulted.
    That confrontation did serve to raise a much larger issue 
related to guest worker visa policies, and that is that there 
is no coherent national policy regarding professional guest 
workers.
    Whether it is L-1, H-1B, TN visas or other such programs, 
each operates under different standards, limitations and rules 
of accountability where they may exist. Given the adverse 
impact that these programs are having on U.S. professionals, 
perhaps now is the time to develop a more holistic coordinated 
Federal policy in this regard.
    What is particularly baffling about these programs is there 
is no nexus between the unusually high current of unemployment 
among professional and technical workers, and the fact that the 
guest worker population now numbers over 1 million according to 
some estimates. As a result, well-qualified American 
professionals are forced to compete against foreign workers 
here in the us for domestic jobs. In our opinion, there is 
something seriously wrong with this picture.
    I strongly urge the Subcommittee to address these and other 
public policy anomalies as you consider badly-needed reforms in 
both the L-1 and H-1B programs. Key policy questions need to be 
addressed. What is the total number of guest workers that 
should be allowed into the U.S. under all such programs? To 
what extent should there be uniformity across all programs with 
regard to protections, eligibility, qualifications, enforcement 
protocols, et cetera? Should employers be limited in the total 
number of temporary foreign workers they can have on a payroll 
from all guest worker programs?
    As to L-1, it is intended to facilitate intracompany 
transfer for purposes of training strategic personnel with 
global corporations that have U.S. facilities.
    We have no problem with this concept. But now it has 
morphed into something that has victimized highly-skilled, 
well-educated American professionals like Patricia Fluno.
    The L-1 program has few limitations, and such, it is ripe 
for fraud and abuse. There are no statutory prohibitions 
against using L-1s to replace an American worker. Such 
replacements should be banned, and stiff penalties including 
civil fines and debarment for violation should be imposed along 
with strengthening DOL enforcement tools. In addition, the 
relevant sections of the ``dependent employer requirement'' 
under H-1B should also be applied.
    There is no annual limit on the number of L-1 visas that 
can be issued. According to State Department statistics from 
1995 to 2001 the number of L-1 visas doubled from 29,000 to 
over 59,000. Given these numbers, we suspect that some 
employers are job-churning the L-1s, that is, bringing them in 
for 3, 4, or 5 years, and then replacing them with second and 
third general L-1s. We would recommend that a cap be imposed 
that reflects the utilization average over the last decade, 
about 35,000.
    Another problem is the renewability of the visa, an issue 
that was a major point of controversy regarding the misnamed 
``temporary entry'' provisions of the trade agreements. L-1 has 
a two-tier renewal scheme for the 1-year visa. For those with 
specialized knowledge it is 5 renewals. We do not believe that 
5 years is a temporary program. 2 to 3 years is sufficient, 
especially if these L-1s posses a high degree of specialized 
knowledge.
    Subcontracting by outsourcing firms is another abuse. I 
doubt that Congress envisioned the likes of Tata Consultancy 
Services, Wipro and Infosys Technologies, all Indian-owned 
firms, when it created the program 33 years ago. As some of the 
more senior members of this Subcommittee know, some of these 
firms and others like them have a troubled history under H-1B. 
Today they are among the biggest users of the L-1 program. 
Their outsourcing under it appears to contradict the original 
intent of the program. On this point, the statutory language 
seems clear, so it would be a reasonable clarification of law 
to specifically prohibit subcontracting.
    During deliberations on the trade agreements, Congress 
forced the USTR to agree to the same fee that is applicable 
under H-1B, $1,000 per visa, and that should be applied to the 
L-1 program with the bulk of the proceeds going to oversight 
and enforcement by the appropriate Federal agencies. The 
imposition of the $1,000 fee would serve as a modest 
disincentive to discourage overuse of the program and 
accomplish a better degree of fee uniformity across all 
professional guest worker programs.
    In the Siemens case, according to the San Francisco 
Chronicle, Tata Consultancy acknowledged that it paid wages 
below the average local wages for basic programmers, which was 
far below the wages paid to U.S. employees who were fired. 
Requiring the payment of a prevailing wage to L-1 workers would 
discourage those who would try to use the program as a back 
door to cheap labor.
    Mr. Chairman, we have detailed for the Subcommittee other 
problem areas and reform proposals in our written submission. I 
would therefore like to close by raising one final concern that 
your Judiciary Committee colleague, Senator Lindsey Graham, 
reference at each of the recent full Committee sessions on the 
trade agreements, the outsourcing of professional and technical 
jobs overseas. This matter was the subject of a recent hearing 
in the House Small Business Committee.
    Recently there has been a spate of news article about this 
troubling phenomenon. The reason I raise it in the context of 
your hearing is that there is a connecting thread and that is 
Tata, Wipro and Infosys, the firms I mentioned earlier. They 
are not just brokerage houses for L-1B and H-1B visas, they are 
among the primary players involved in the transfer of tens of 
thousands of U.S. jobs and tens of millions in payroll.
    A recent study by Forrester Research estimates that if 
current trends continue over the next 15 years, the U.S. will 
lose 3.3 million high-end service jobs and $136 billion in 
wages. Today major U.S. firms from many sectors are falling all 
over themselves to get into the outsourcing exodus.
    As they used to say in one of this Nation's greatest 
technology initiatives, the space program, ``Houston, we've got 
a problem,'' and I would suggest it is a big one. One this time 
it is not textile, steel, machine tool and other manufacturing 
jobs. Many of them are long gone. Now it is the high-tech, 
high-paying jobs that are headed out of town. The question for 
this Subcommittee is to what extent are guest worker programs 
under your jurisdiction contributing to the outsourcing tidal 
wave? I would suggest that it is significant.
    In conclusion, professional technical workers in this 
Nation have made enormous personal sacrifices to gain the 
education and training necessary to compete for the knowledge 
jobs in the so-called new American economy. They deserve better 
than to be victimized by immigration programs like L-1 and H-
1B. Congress can make a long-overdue start in cleaning up guest 
worker visa programs by implementing badly-needed reforms.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Gildea appears as a 
submission for the record.]
    Chairman Chambliss. Thank you very much, Mr. Gildea.
    Mr. Buffenstein, welcome, and we look forward to your 
testimony.

  STATEMENT OF DARYL R. BUFFENSTEIN, GENERAL COUNSEL, GLOBAL 
              PERSONNEL ALLIANCE, ATLANTA, GEORGIA

    Mr. Buffenstein. Thank you, Mr. Chairman.
    The Global Personnel Alliance, Mr. Chairman, is a group of 
companies, a loose consortium of companies that are very 
interested in immigration and global mobility issues because of 
the effect on generating employment in the United States and on 
maintaining the competitiveness of U.S. industry abroad.
    Mr. Chairman, we would like to commend your comments and 
the comments of Senator Kennedy to the extent that they reflect 
a sincere intention to look carefully at this problem before 
rushing to legislation.
    We are not here to dispute or question any facts that have 
been asserted by any witnesses today. Indeed, everyone should 
have profound sympathy with anyone who has lost their job for 
whatever reason. There may well be circumstances where people 
on L-1 visas have been improperly classified. But if I may 
borrow a term that Al Simpson used on this Committee when he 
chaired it many years ago. Professor--Senator Simpson, sorry.
    Senator Kennedy. Better be careful now which one you use.
    [Laughter.]
    Mr. Buffenstein. He is now a professor, that is correct. 
But as Senator Simpson would have said, ``We are a couple of 
tacos short of a combination plate.''
    [Laughter.]
    Mr. Buffenstein. The issue we have heard about today, Mr. 
Chairman, is a small slice of a very big picture, and that 
picture is the story of international investment creating jobs 
in this country in small towns across the country, the very 
kind of jobs Mr. Gildea talked about having disappeared, 
manufacturing jobs, bread and butter, meat and potatoes jobs 
throughout the country, the story of how American companies 
keep competitive on international markets by bringing in a 
select cadre of specialists, managers, executives, 
technologists, who bring the technologies here so that we can 
export, who bring the technologies for research and development 
facilities that stay here so that we can keep jobs here rather 
than sending them offshore. In all the cited instances that we 
have heard about today, all the articles that have been written 
on this subject recently, and there have been a good number of 
them, reflect a very specific and particular phenomenon, and 
that is a phenomenon where an L-1 visa holder is working off 
site at another company that is not the company that brought 
the L-1 visa holder in, using knowledge that more often than 
not, as Ms. Fluno mentioned, appears to be generic knowledge 
and not specialized knowledge.
    So we ask you not to throw the baby out with the bath 
water. If there is legislation it needs to be focused exactly 
on that problem. In looking at that problem it should be 
remembered that many of the instances in which an employee 
works off site, as we will show in a while, are very legitimate 
instances.
    Mr. Chairman, there is not one Governor in this country I 
think that has not taken a trip abroad. Many States have 
offices simply to encourage foreign investment, to encourage 
international investment. Georgia has 250,000 jobs attributable 
to foreign companies. Massachusetts has almost exactly the same 
amount. Texas has something like 475,000 jobs, New York close 
to 500,000 jobs, and California a whopping 750,000 jobs 
attributable to international companies. That investment would 
not be here without the people that bring it, the specialists 
who bring in the know-how, and the technologies.
    There is a small German-owned company in South Carolina 
that set up a manufacturing facility to manufacture 
transmission belts that has manufacturing operations in Ohio as 
well, that has 470 workers and just one L-1 visa holder. But 
that person is necessary to bring in technology from a 
manufacturing facility in Sweden that is now used to 
manufacture in the United States.
    There is a Belgian company that is based on Georgia that 
just bought a manufacturing company in Utah that already has 
100 employees. By bringing in specialized digital signage 
technologies from Europe, that company believes it can increase 
that manufacturing facility to 300 people within two to 3 
years.
    These are not unique examples, Mr. Chairman. They are 
examples that are bound. There are as many examples as they are 
foreign companies operating in each State, and in Georgia, 
there are 1,500 with 600 manufacturing facilities counted in 
that number. But the role of the L visa in creating American 
exports and developing American competitiveness abroad is even 
more compelling. A major airline with 60,000 employees, 58,000 
of them in the United States, used the L visa to bring in a 
pricing analyst who had competitive knowledge of foreign 
markets, confidential knowledge of that airline's position on 
foreign markets. That airline, out of 58,000 employees, has 
only 12 L-1s, .0002 of its workforce. A major manufacturer in 
Ohio has a select cadre of some 30 L-1s in a workforce of 
60,000, that bring in key knowledge of its foreign markets so 
it can customize equipment for sale abroad.
    In many instances, or at least some instances, Mr. 
Chairman, there are circumstances where people are placed, as I 
have said, at other employers. A California developer of 
optical lenses needed to bring in a key global developer of 
that lens coating and have that person work as a joint venture 
partner. That development will create hundreds of jobs and 
would not have been possible without that person. The State 
Department, in its operating guidelines, has developed a 
scenario whereby those situations should be differentiated. 
Maybe sometimes it has not been honored, but many other 
limitations on the L visa that have been suggested go way 
beyond that initial scenario we have talked about. What we need 
here is a surgical instrument to look at the problem and devise 
legislation, not a sledge hammer that will knock off every 
company from its competitive advantage.
    Mr. Chairman, thank you for the opportunity to talk to you 
today.
    [The prepared statement of Mr. Buffenstein appears as a 
submission for the record.]
    Chairman Chambliss. Thank you very much, Mr. Buffenstein.
    Mr. Fragomen, welcome. We look forward to hearing from you.

   STATEMENT OF AUSTIN T. FRAGOMEN, JR., CHAIRMAN, AMERICAN 
   COUNCIL ON INTERNATIONAL PERSONNEL, INC., WASHINGTON, D.C.

    Mr. Fragomen. Good afternoon, Chairman Chambliss, Senator 
Kennedy, distinguished members of the Committee.
    The American Council on International Personnel is a 
nonprofit corporation founded in 1972 with over 300 members, 
all of whom are large global corporations, who collectively 
thousands of L petitions. For over 30 years the L-visa category 
for intracompany transfers has been essential to international 
investment and economic expansion. It is a tool that allows 
U.S. companies to participate in the global economy, and it has 
become a model for other countries seeking to capture a share 
of the global marketplace by facilitating the international 
transfer of knowledge, skills and talent. ACIP shares a concern 
of the Committee and of the previous witnesses regarding 
possible fraud and abuse in the program, and I think we all 
agree that appropriate sanctions should be imposed upon those 
who misuse the immigration system. However, the L visa is 
critical to the continued participation of U.S. companies in 
the 21st century global economy, and we urge Congress to move 
forward deliberately and with caution, which we can take from 
this hearing seems to be the predisposition of the Committee.
    To understand the L visa, it is important to understand the 
scope of international personnel transfers which fall in the 
general category of global mobility. I mention in my paper that 
a recent survey of 181 companies revealed that they have a 
combined expat population of over 35,000 employees. Unlike 
years past when primarily upper level executives were 
transferred abroad for a few years to gain international 
perspective and broader knowledge of markets and business 
practices abroad, today's transferees include professionals 
from all levels and operating units within the company.
    Where the problem has been created is, as pointed out by 
several witnesses and recent media articles, Congressional 
hearings, focusing on L visa usage in the context of 
outsourcing information technology and other professional 
services. A company may choose to outsource for a variety of 
reasons including where it wishes to limit in-house services to 
core competencies, to obtain enhanced services from expert 
service providers, or simply to reduce cost and maintain 
profitability. Outsourcing is not a new business model, but we 
acknowledge that it often comes with painful adjustments for 
U.S. workers.
    What has changed is that increasingly outsourced work is 
going to offshore firms or offshore subsidiaries of U.S. firms. 
Immigration laws, in particularly the L-1B, certainly 
facilitate these business arrangements, but are a by-product 
rather than an impetus for the offshoring model. Congress 
should consider what efforts must be made to ensure that the 
U.S. is an attractive locale for investment, that wages and 
working conditions of U.S. workers are not unfairly undercut, 
and that U.S. workers are prepared to meet the challenges and 
opportunities of the new economy.
    Proponents argue that while offshoring may cause some 
temporary dislocation in the U.S. workforce, it will also keep 
industries competitive, provide investment in developing 
countries and eventually create new markets for U.S. goods and 
services that will spur future economic growth. Whether one 
agrees with this assessment or not, the trend toward 
outsourcing and offshoring will not be halted by changes to the 
immigration laws.
    We have few recommendations. First, allegations that U.S. 
workers have been laid off and replaced by cheaper foreign 
workers extend to a very limited group of L-1B specialized 
knowledge employees who work off site. Therefore, any 
correction should be targeted at this perceived problem and not 
at the L visa category as a whole. The most effective approach 
to meet this objective would be to clearly delineate what does 
and does not constitute specialized knowledge. For example, 
knowledge of generic programming languages should not 
constitute specialized knowledge. ACIP firmly believes that 
with the appropriate guidance from Congress, BCIS and DOS are 
well-equipped to make determinations regarding eligibility for 
an appropriate usage of L-1 visas. It is not necessary to 
rewrite the entire L law, add significant new regulatory 
burdens for all L visa employers or create a new regulatory 
scheme.
    Second, the detection of fraudulent credentials, 
questionable business entities and inappropriate use of the 
program can be enhanced through precertification programs where 
companies frequently filing L visa applications under the L-
blanket petition of established criteria and protocols, limited 
resources demand that we increase information sharing and 
cooperation between the Government and employers.
    Finally, ACIP believes that the issues spurring many of the 
concerns expressed today derive from changes in the global 
economy and not deficiencies in the L category or regulations. 
Congress has a duty to consider the impact of new business 
models such as offshoring and opportunities for U.S. workers. 
However, the L visa is but a small piece of the puzzle. ACIP 
and member companies have and will continue to work on and 
support a variety of education and workforce initiatives to 
ensure we have access to the talent needed to compete in the 
21st century global economy. We should not let short-term 
economic difficulties blind us to long-term economic 
opportunities. ACIP recommends that Congress commission a study 
with the input of business experts that examines emerging 
economic trends and examines the array of policies necessary to 
ensure future economic growth and opportunities for U.S. 
workers.
    The L visa program, particularly the blanket program, is 
extremely important in facilitating global commerce for U.S. 
companies and has been for over 30 years. It is a model of 
success in an often broken immigration system. Our challenge is 
to create a secure and efficient immigration system that 
protects U.S. workers while anticipating employers' needs for 
access to talent from around the world. ACIP stands ready to 
work with you in building such a system.
    So I thank you for your time and consideration, and request 
that our full statement be included in the record. Thank you.
    [The prepared statement of Mr. Fragomen appears as a 
submission for the record.]
    Chairman Chambliss. Certainly we will be happy to include 
your full statement, and thank you, Mr. Fragomen.
    Professor Yale-Loehr, we are pleased to have you and look 
forward to your testimony.

  STATEMENT OF STEPHEN YALE-LOEHR, ADJUNCT PROFESSOR OF LAW, 
              CORNELL LAW SCHOOL, ITHACA, NEW YORK

    Mr. Yale-Loehr. Thank you very much. Mr. Chairman, 
distinguished members of the subcommittee, I teach immigration 
law at Cornell Law School. I am also a co-author of a 20-volume 
immigration law treatise that is the standard reference work in 
the field. So I am testifying today from an academic background 
to try to give you some overview and perspective about the L-1 
visa category. Much of what is in my written testimony has 
already been mentioned before so I am not going to tell you 
about the differences between the L-1A or the L-1B. Instead let 
me first focus on how the L-1 visa category is being used.
    As my grasp in statistics and my testimony indicate, L-1 
visa usage has waxed and waned over the last 10 years or so. It 
has always been much less used than another common visa 
category, the H-1B. At its peak in fiscal year 2001 the State 
Department issued 59,000 L-1 visas. Even that, though it sounds 
like a lot, was only 37 percent of the H-1B visa usage for that 
year, and that 59,000 L-1 visas constituted less than 1 percent 
of all nonimmigrant visas issued that year. Moreover, as you 
have heard from the other witnesses, the controversy within the 
L-1 context focuses on one subset of L-1s, and that is L-1B's. 
The State Department does not separately categorize how many L-
1B visas it breaks out, and that is one thing that I would 
recommend, is to try to find out how the L-1B visa usage has 
increased over the years, because I think that it is common 
consensus that there is no real problem with the L-1A visa 
category for executives and managers.
    Similarly, on numbers, I want to point out, some people 
have said, for example, that there ar 300,000 L-1s that come 
into the country every year. That number derives from 
statistics by the Bureau of Citizenship and Immigration 
Services as to the number of entrants, admissions each year by 
L-1 visa users, and L-2 spouses and children. Therefore, that 
number is exaggerated because on average the BCIS estimates L-1 
visa holders come in about 5 times a year. So that is not a 
true picture of the usage. It is rather how many times they are 
coming in back and forth. Therefore, it gives you an idea of 
how often L-1 visas are used for multiple travel over the years 
rather than being here just one time continuously in the United 
States.
    One other thing I want to focus on is the difference 
between the L-1 category and the H-1B visa category because I 
think it is important they are for two different reasons, and 
we need to keep those differences distinct.
    The H-1B visas are granted to professionals who have at 
least a college degree or equivalent. They are needed to 
provide unique skills, relieve temporary worker shortages or 
supply global market expertise. By contrast, the L-1 visa is 
designed for a narrower purpose, as we have heard, to help 
international companies bring in managers, executives or people 
with specialized knowledge on a temporary basis to assist their 
U.S. operations. There is no degree required for L-1 
eligibility because general educational requirements are not 
relevant for this category. Instead what we need are people who 
have inside knowledge about the company's operations and who 
bring that kind of background to bear when they come to the 
United States. A degree may be irrelevant, and as Mr. 
Buffenstein's written testimony indicates, in some instances 
there are people who do not have college degrees, but because 
of their unique knowledge of the company's operations, the L-1 
visa category is the only way they can come into the United 
States. So we should not impose a professional degree 
requirement on the L-1 visa category.
    Similarly, there are differences between the H-1B and the 
L-1 such as there is no portability of employment to 
unaffiliated entities in the L-1 category, and there are no 
extensions of L-1 stay beyond the statutory cap of 5 or 7 
years. Thus, in these respects the L-1 category is in fact more 
restrictive than the H-1B visa category.
    I also want to talk a little bit about globalization 
because that is sort of the sub-theme of this hearing. It is 
certainly an important characteristic of this century and 
affects all countries. Rather than paint too broad a brush, I 
want to point out that globalization contains both potential 
pitfalls and advantages for the United States.
    Assistant Secretary of Commerce for Technology Policy 
Mehlman, testified before the House of Representatives last 
month overseas outsourcing of IT, which is one subset of 
globalization, can actually benefit the United States and 
create jobs for U.S. workers. He stated in his testimony that 
so far the majority of work sent offshore is low-wage, 
represents a small fraction of the overall market for software 
and IT services and does not displace a large majority of the 
work done here in the United States. He continued that the 
Bureau of Labor Statistics projected in December of 2001 that 
the number of professional IT jobs in the United States will 
grow by 72 percent between then and 2010. The Bureau of Labor 
Statistics have also indicated that there is going to be a 
shortage of service sector jobs of about 9 million by 2010. So 
even though there is some overseas offshoring going on, on the 
whole the prospects for employment in the IT and service areas 
is still bright.
    Obviously, Congress needs to consider globalization and 
offshore outsourcing, but in my view the L-1 visa category, if 
properly administered and monitored, can be an anecdote to 
concerns about overseas outsourcing. Use of L-1 visas 
encourages both foreign investment in the United States and can 
help keep and grow jobs in the United States.
    In conclusion, like others have stated here, I think that 
we need to take a surgical approach to considering changes to 
the L-1 visa category. The narrow area of concern and possible 
abuses in the L-1B area where people claim to have specialized 
knowledge but do not really when they come into the United 
States and they are placed at third-party sites. We need to 
look at that narrow issue and see what we need to do about it, 
and it is possible that we can do that administratively rather 
than through legislation.
    Thank you very much.
    [The prepared statement of Mr. Yale-Loehr appears as a 
submission for the record.]
    Chairman Chambliss. Thank you very much.
    To all of our witnesses, we certainly have the spectrum 
covered here, which is great. That is exactly what we wanted to 
try to do.
    Ms. Fluno, let me start with you. Your displacement took 
place in the year 2002. What has been the result or the follow 
on with you and your coworkers at Siemens with respect to 
finding other employment in this high-tech community?
    Ms. Fluno. About one third of the people managed to get 
positions within Siemens, but another third are--they have been 
employed, but most are under employed, meaning that they are 
making less than they used to, and in fact, one gentleman 
cannot get a job in programming. He is mowing lawns. About one 
third are still unemployed.
    But I have learned a new term here this afternoon. I am 
going to tell them that they are having a short-term economic 
difficulty, and to tell that to the mortgage company.
    Chairman Chambliss. Do you know whether or not your 
replacement had ever previously been employed by Siemens?
    Ms. Fluno. I do not believe so.
    Chairman Chambliss. Mr. Fragomen, your firm represents Tata 
Services which has been mentioned here any number of times. 
Could you explain what kind of specialized knowledge Tata's 
products or services that Tata L-1 workers have?
    Mr. Fragomen. I can make a few general remarks. I am not 
really testifying on behalf of Tata, but I would be happy to 
address the Chairman's question.
    Essentially the standard that is used by the American 
Consulate in India for the various consular posts in issuing L-
1 visas, which is pretty much followed by other consular posts 
around the world, is that the job applicant has to have two 
things. First of all, L-1 blanket petitions require the 
applicant to have a professional degree, so they have to have a 
degree in computer science or a degree that is very, very 
specifically related to what they are doing. Secondly, they 
have to have experience working with the software of the 
company with whom they are going to be placed, or 
alternatively, working with proprietary software that Tata has 
developed that would be utilized within specific industries. So 
it is very, very narrow in terms of defining specialized 
knowledge.
    The consul would not grant a visa to someone who just had 
generic programming skills, for instance. It has to be a 
situation where the person is both a professional and has prior 
experience with the specific proprietary software. That would 
be the answer to the question.
    Now, I cannot relate that specifically to the Siemens 
situation because I do not have knowledge, but I would be happy 
to make an inquiry and see whether I could provide some 
information to the Committee.
    Chairman Chambliss. If you could provide some specifics on 
that, we would appreciate that.
    Mr. Fragomen. I would be pleased to do that.
    Chairman Chambliss. Ms. Verman, as a businesswoman running 
a competitive consulting company, do you believe that too much 
Government interference and over regulation is a concern with 
legislation that would tighten up the L-1 visa, and could you 
give us any example of how you might think that would 
interfere?
    Ms. Verman. I believe your question is how do I feel that 
the Government interference on the L-1 visa will affect my 
business?
    Chairman Chambliss. Will affect the issuance and the 
practical day-to-day operation of L-1 visa issuance.
    Ms. Verman. I think it would affect it tremendously. I 
think that it is not an even playing field at this point in 
time, that I am asked to compete against, at a disadvantage 
against foreign consulting companies where they have 
competitive advantage of transferring L-1B visa foreign workers 
here, and they put them here at a lower cost. I cannot compete 
with U.S. workers here for the same price.
    Chairman Chambliss. Are most of your workers that you 
obtain visas for domestic workers? Are they U.S. citizens?
    Ms. Verman. Most are U.S. citizens, legal residents, or I 
do also employ H-1B visa consultants as well.
    Chairman Chambliss. Mr. Buffenstein, would you explain how 
Global Personnel Alliance members use L-1 visas, and 
particularly what ways L-1 benefits American interests as those 
companies use it?
    Mr. Buffenstein. Mr. Chairman, a classic example is a U.S. 
company, such as the airline I mentioned, that needs to remain 
competitive on international markets and needs to bring in a 
key process or some confidential knowledge about the operations 
abroad to the United States in order to fuel exports or to make 
that company more competitive. The manufacturer that I 
mentioned in the Midwest is a good example. They make truck 
drive parts and axles. They need to customize them for Latin 
American or Asian markets. In order to do that they need to 
bring in a couple of key people with specialized user 
requirement knowledge for those markets in order to facilitate 
those exports.
    In another circumstance, the same company brought in a key 
individual who had knowledge of a European manufacturing 
process of a design modification that had been done in Europe 
that they wanted to bring back to the United States to 
introduce it into this manufacturing facility because they 
thought it something that would help their exports. Again, we 
are talking about 30 people, 35 people in a workforce of 
60,000. One of the examples in that same company, Mr. Chairman, 
I think is instructive. It is a Canadian individual who is the 
global leader for Brand Management and Marketing, and he is on 
an L-1, but he divides his time between Canada and the United 
States. That is something that I think is greatly ignored, that 
many L-1s are not in the United States on a full-time basis, 
but rather divide their time between the United States and 
abroad. There is a paper company, small paper company with 
2,000 employees based in the Southeast that has a number of key 
experts, just 4 of them on L-1 visas, but these people are 
probably here once a month, or every 3 months they come here in 
order to attend to some very complex and expensive machinery 
that that company needs in order to sustain its 2,000 
employees.
    For example, one of our companies has a managing director 
who is British, who comes to the United States and works here 
just one week out of every quarter. So for a total of 4 weeks a 
year that person is working here. Because the person is 
employed in the United States and actually performing a job 
when he is here, he cannot use a B or other kind of visa. He 
needs to get an L-1. So he gets an L-1, but that is literally 
for 4 weeks a year.
    What this all points out, Mr. Chairman, is that there 
really needs to be some study of some of the circumstances. 
Where are these L-1s working? Are they in California? Are they 
mainly in Georgia? What do they do? What occupations are they 
in? This kind of information is sorely lacking, and I would 
hope that as any part of the action that your Committee takes, 
that you would solicit some of this kind of information before 
too drastic a remedy is taken.
    Chairman Chambliss. Thank you.
    Senator Kennedy?
    Senator Kennedy. Thank you very much.
    Of course, the Immigration Service is supposed to know that 
when they grant the visa. I mean we do not need to go back in 
and all have another study. They are supposed to meet the 
requirements. The idea basically is if you have a specialized 
worker, the basic concept was because they are going to provide 
some specialized knowledge which means it is going to mean more 
workers and more jobs for people, but what we are talking about 
are the abuses I think here we have seen.
    I remember very clearly the 1965 debate on the immigration 
issue, eliminated the national origin quota system. We had the 
western hemisphere compromise. We eliminated the Asia-Pacific 
triangle. In 1970 the needs came because we had the beginning 
of the internationalization, and this was a very specialized 
kind of a program. I was trying to look back in the debates. 
They are virtually nonexistent because we were just trying to 
fill a very specialized concept, and that is the highly-skilled 
people for companies that are coming in here who had been a 
part of the company family, may not have the degrees, but had 
that special knowledge that was very important for that company 
to be expanding and expanding employment here.
    The concern that we have is whether they are growing with 
all of these abuses, and how extensive are they. That is what 
we are trying to get at today.
    But I an enormously sympathetic to Beth Verman, what she 
has said, and that is, if we let abuses go on, here is a 
company that is trying to compete, and if they can jiggle the 
system, whether it is the L-1 or whether the H-1B, and they can 
jiggle the system and get people in there and pay them a hell 
of a lot less, how is an American company, who is trying to 
play by the rules, trying to employ Americans, trying to deal 
and compete, they are at a significant disadvantage. I mean I 
may be putting more in your mouth than you said, but I hear the 
argument and have heard it for a long time, and I think that 
that is being unfair to American companies. So this is a 
complicated issue and question.
    I would like to get back to the issue about the definition 
of ``specialized knowledge.'' We have not got a lot of time. 
But a number of you talked about specialized knowledge. Is 
there a general understanding? Maybe Beth and Michael, you will 
be able to talk about it. Is there a sense that specialized 
knowledge is being abused? And we ought to understand what that 
specialized knowledge is and come back? I mean I would be 
interested. Ms. Verman, could you comment on it again?
    Ms. Verman. I feel that the term ``specialized knowledge'' 
is very broad, and it needs to be more defined. That seems to 
be where one of the abuses are.
    Senator Kennedy. Mr. Gildea?
    Mr. Gildea. If you look at the Siemens case, you wonder 
what kind of specialized knowledge they had when the workers, 
who were later to be displaced, were asked to train these 
folks, so what was the specialized knowledge base there for 
those workers? We are concerned about that under this program.
    Senator Kennedy. How much of this, Mr. Gildea, is the 
enforcement? I think we have had hearing after hearing, year 
after year after year, Department of Labor, under Democrats and 
Republicans. There are not a lot of resources. The restrictions 
in terms of the enforcement. We tried attestation, was sort of 
a newer concept, thinking that the business community would 
play by the rules, and I think the great majority have. There 
are abuses on it, and I do not know how we are going to be able 
to deal with it, but how much of this is the fact that we are 
not getting enforcement? We ought to try and hold accountable, 
or try to provide additional resources or do whatever we can 
with the Labor Department in terms of enforcement. How much of 
it is an enforcement problem, and how much of it do you think 
is the definition, how much of it is legislative? Is there any 
way to quantify it?
    Mr. Gildea. I think it is a little of each. In the case of 
enforcement you had OIG reports from the Department of Labor, 
GAO reports as well, looking at both L-1s and H-1Bs, and they 
do not have sufficient authority to enforce in some cases. The 
issue of blanket petitions, you wonder if the volume is such in 
the consular offices that they do not have time to look at 
these petitions in the way they need the kind of oversight.
    I do think that your suggestion regarding the fee makes 
sense. It is what we have recommended. And that the bulk of 
that should go into enforcement functions for DOL, for BCIS and 
for the consul offices to do the job that needs to be done in 
terms of screening and monitoring and data collection, 
gathering the information that they can report to you so that 
the Congress, House and Senate can do its oversight 
responsibilities and know exactly what is going on in these 
programs, and hopefully before these kinds of abuses set in, 
take action to prevent the abuses.
    Senator Kennedy. I had a favorite of 3,000. Then we got to 
2,000, and then we are down to 1,000. These are just a small 
number, but they are highly specialized. The company needs 
them. We talked about training and enforcement, and it does not 
seem to be unreasonable.
    Let me ask you on sort of an issue, Mr. Gildea, and then 
any of the others on the panel, as I see that time is going on. 
I listened to what Professor Yale-Loehr talked about in terms 
of the foreign investment and basically low wages. You know, 
enormously interesting, it caught my eye last night, in 
Newsweek, a long article in Newsweek. They talked about the 
shift, not just about low-wage jobs, but about the handling 
customer service, telemarketing, paperwork, biggest 
corporations, firms like GE, American Express, prefers to use 
them now. Now Fortune 500, Microsoft, is sending not just low 
wage, but are talking about the managerial and above workers, 
or at least those kinds of jobs overseas. In this case it 
mentioned particularly in India, and used the comparison in 
terms of what managers were getting, some managers were 
getting, an enormous disparity. How should we be dealing with 
this? That is a little bit off this, although some have 
referred that this is not unrelated. I have been listening and 
trying to understand better how it is related. I would be 
interested in what ideas you have on this, where are we going 
with it? Maybe you would take a crack at it, and I will ask Mr. 
Gildea and if anybody else has a comment. Then my time is up.
    Mr. Yale-Loehr. Yes, Senator Kennedy. I think globalization 
is a large issue that needs to be addressed by Congress 
comprehensively. As other witnesses have said, immigration 
restrictions are not going to stop globalization. That is a 
phenomenon that is too big that one little immigration 
legislation is going to be able to stop. I think we need to 
look at that comprehensively. I think within globalization the 
L-1 visa category is actually one way to try to keep jobs in 
the United States. By bringing in key people, managers, 
executives, people with true specialized knowledge that will 
enhance and create jobs in the United States, that can offset 
some of the negative aspects of globalization.
    Mr. Gildea. Senator, we do not see it that way. What we see 
some of these outsourcing firms doing is bringing in the lower 
wage workers, particularly from India, bring them in to get the 
skills and jobs of people like Patricia Fluno, and over time 
taking the knowledge and the skills back to India and working 
with the same companies that are responsible for setting up 
huge high-tech centers in India, and shipping hundreds of jobs 
going in the reverse direction. That is what our concern is 
with respect to these higher level jobs.
    Senator Kennedy. What do we do about that?
    Mr. Gildea. In terms of the visa fix we are--
    Senator Kennedy. I am thinking of going the other way. I am 
interested in what you think about what is happening here, but 
I mean, how in the world are you going to stop companies from 
going and shipping these managerial jobs and higher-paying jobs 
over to India or these other countries? They are going to be 
appealing to what is a 30,000 or $40,000 job here, goes for 
3,000 or 4,000 jobs over in these other countries. They are 
going not just do it for low income, but they are looking at 
these other skilled jobs. Should we be worried about it, and 
what are we going to do about it?
    Mr. Gildea. I think you should be worried about it. It is 
what indeed has happened in the manufacturing sector, where 
those jobs have gone to the lower wage rates. Even now you see, 
as a result of NAFTA and the maquilladora developers in Mexico, 
even those jobs, as Mexican workers' wages rise, those jobs are 
headed out of Mexico. If globalization, which for many U.S. 
workers means the unemployment line, is about that, we have got 
a tough problem in front of us, and it is not just the 
manufacturing jobs any more.
    Chairman Chambliss. Mr. Buffenstein, do you have a comment?
    Mr. Buffenstein. Mr. Chairman, I think in response to 
Senator Kennedy's question, it is not really possible to 
legislate a macroeconomic phenomenon. The problem with the 
globalization phenomenon, especially in the information 
technology industry, is that that is an industry which is 
highly mobile. It so opens that India has got a population 
fluent in English and proficient in this regard. We cannot 
legislate against companies moving businesses to India.
    But we can do, in information technology and elsewhere, is 
help U.S. business and industry be as competitive as 
conceivably possible and make sure that we have the ability to 
bring jobs here in industries where it is close to markets and 
where companies want the manufacturing to be.
    If you take the members of this Subcommittee, Mr. Chairman, 
alone, just the States represented by the members of this 
Subcommittee, 3 million jobs in those States are attributable 
directly to income-producing, employment-generating 
international investment, and lots of their manufacturing 
facilities in Massachusetts and Georgia that specifically are 
close to market, optical equipment, transmission equipment, all 
kinds of bread-and-butter manufacturing jobs that we need to 
encourage and bring to this country.
    In the information technology area, for example, one of our 
members has a developer in Ireland that they have brought to 
the United States that is helping educational proprietary 
software be developed here, whereas otherwise those jobs would 
have gone abroad. We need to encourage and facilitate that.
    Senator Kennedy. Thank you very much, Mr. Chairman.
    Chairman Chambliss. Thank you.
    Senator Feinstein?

  STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE 
                      STATE OF CALIFORNIA

    Senator Feinstein. Thank you very much, Mr. Chairman. I 
think it is correct that we take a good look at the L visa.
    I am sorry to be late. I was on the floor speaking on the 
trade agreement. You know, it is interesting, the more I am 
really looking into the trade agreement, having immigration 
staff look into it, it really is a stealth permanent 
immigration program. These visas are renewable forever. What I 
did not know is L visas do not pay taxes. So you are going to 
have people here that do not pay taxes, and replaces. Ms. Fluno 
said she makes $98,000 a year--
    Ms. Fluno. Did. Did, that is past tense.
    Senator Feinstein. Did. Trained the worker that is going to 
make a third what she makes. And this is good for us?
    Four years ago, and I represent California, I had a whole 
bunch of CEOs come to me, how they needed more H-1B visas, et 
cetera, et cetera. I bought the argument and I went along with 
it. So now we are faced with a trade agreement, Singapore, 
Chile, that has this L-1 visa program attached to it. Then I 
began taking a big look at some of the numbers involved in 
these so-called temporary worker programs. What you find is, at 
this time in the country, we have 5.2 million people taking 
jobs in this country under temporary visa categories, and 
40,400 are Chileans, and 29,400 are Singaporeans, for a total 
of 70,000 workers in these other visa categories.
    So I have to wonder why are we increasing this L-1 visa? I 
understand the L-1A, which I thought was the purpose of the 
program, that if you want to send a manager temporarily to give 
some advice to their counterparts in this country and then 
return, that is fine. But I do not really think that is what is 
happening. I think what is happening is, through this treaty, 
which I gather was to be a precedent for other treaties, to 
have a program where there is no labor certification, there is 
no labor investigation, and therefore, Ms. Fluno cannot even 
complain and have that complaint investigated as to whether she 
is being replaced for monetary reason. And I hazard a guess 
that is exactly what this program is going to be used to do.
    What I have also found, that fraud is increasing in all of 
these programs, and I just documented that on the floor of the 
Senate with numbers and dollars in fines.
    Now, I appreciate global competition. I come from a State 
that is a high-cost State, and the American dream has always 
been for a worker to be able to own a home and buy a car and 
educate their kids, and it is very hard to do it on $32,000 
paying taxes. Now we are going to have $32,000 and no taxes. I 
really think to have workers that are able to come into this 
country--and that is the second part of the L program, the L-
1B--and be here for 7 years and pay no taxes and replace 
American workers, that is not something I want to be a part of. 
I come from the State that has the biggest, I guess, technology 
industry, and I would hope that computer firms and chip firms 
and others in my State would not do that.
    As a matter of fact, when we expanded the L-1 visa program, 
it was really TechNet in California--and Senator Kennedy will 
remember this--that came up with the $1,000 fee that they would 
match and create a program to better educate domestic workers. 
Suddenly, 5 years later, we have lost all that.
    So I would like anybody to tell me that, give me a better 
reason why there should be an L-1B program where you do not pay 
taxes, where you can replace an American worker, where there is 
no prevailing rate? Why should we have that in this country? 
Somebody defend it.
    Mr. Buffenstein. Senator, I would like to take a shot if I 
may. I am not aware of any manufacturer in this country--and 
over 25 years I have worked with many of them that bring in L-1 
workers--who have L-1 workers that are not paying taxes in this 
country. The IRS regulations specifically require that if 
someone is resident here, meaning that they are more than a 
certain 181 days a year, or over a period of time, 3 months, 
120 days, 4 months, that they are residents, and they have to 
pay taxes just like you and me.
    There may be some financial arrangements involving the 
specific instances of abuse that have been cited, where people 
are not complying or where they have arranged certain 
mechanisms, but that certainly is not the mainstream of 
manufacturing. So the problem is, when you have a 
manufacturer--
    Senator Feinstein. Would you just clarify that? Are you 
speaking to the L-1B or the L-1A?
    Mr. Buffenstein. The L-1B and the L-1A.
    Senator Feinstein. To both.
    Mr. Buffenstein. Both.
    Senator Feinstein. You are saying neither pays any taxes.
    Mr. Buffenstein. No, ma'am. I am saying that in both 
circumstances the overwhelming number of manufacturers, 
certainly every one that I have worked with, those individuals, 
if they are resident in the United States have to pay taxes as 
residents, just as you and I do.
    Senator Feinstein. What is the definition of ``residency?'' 
What do we mean by that?
    Mr. Buffenstein. Well, it gets into a complex regulatory 
issue, but the definition of residency is quite simple. Anyone 
who in any 1 year is here more than 181 days, or someone who 
over a period of time is here more than--it is a complex 
formula, whereby you add a sixth of the previous year and third 
of the year before. Basically, if you are here for more than 
120 days a year, you are a resident. There are some treaties 
that exempt you in certain circumstances, if you are being 
taxed by the other country.
    But the point I am making here--because I do not know, and 
I am not disputing, what the circumstance was that Ms. Fluno 
encountered in Florida. What I am saying is that the vast 
majority of companies are neurotically desperate to be 
compliant with the law, both from a tax standpoint and from an 
immigration standpoint. They employ batteries of internal 
compliance people and outside lawyers who try to do this. And 
the manufacturers, like the one that I mentioned in the Midwest 
or like the optical lens manufacturer in Northern California, 
are companies that need an L-1B in order to bring in a needed 
technology to integrate that technology into the United States 
so that manufacturing can occur here.
    Mr. Fragomen. I would like to--
    Senator Feinstein. Please, go ahead, and then I will come 
back.
    Mr. Fragomen. I just wanted to add to Mr. Buffenstein's 
remark, that even if a person is not a resident for tax 
purposes, as a nonresident they pay tax at a statutory 30 
percent rate without deductions. So virtually everybody pays 
taxes.
    On the issue of the--on the other issue--
    Senator Feinstein. Not if it is the product of a trade 
agreement.
    Mr. Fragomen. To my knowledge--and we would be happy to 
submit some information for the Committee to the record, but to 
my knowledge, even if it is pursuant to a trade agreement, that 
taxes are still paid. It is just a question of whether they are 
paid as resident or as a nonresident.
    Senator Feinstein. I am told something else, so I would 
really appreciate any information you could provide, specific 
information of specifics involving what kind of taxes people 
pay, and we are going to ask CRS to clarify this for us so that 
we know exactly.
    Mr. Buffenstein, let me ask you this. I think many U.S. 
companies see the L-1 program as a way to import foreign 
workers without the restrictions and costs of the H-1B program. 
Restrictions that apply to H-1B but not L-1 include an annual 
limit on the number of visas issued and a requirement that the 
visa applicants have a bachelor degree or higher. H-1B visa 
applicants, as you know, have to pay the $1,000 fee we have 
just talked about, toward training American workers. L-1 
applicants do not. Visa law also requires workers with H-1Bs to 
be paid the prevailing wage in the region where they work, 
while L-1 visa carries no salary requirements. Would you be 
supportive of a prevailing rate requirement?
    Mr. Buffenstein. Senator, firstly, the airline that I 
mentioned earlier that employs 60,000 workers and brought in a 
pricing analyst to the United States, that individual who 
helped them be competitive on international fare markets and 
brought very specialized and in many respects confidential 
knowledge about their fares on European markets did not have a 
degree and would not have qualified if some of the proposals 
that are flying around now were enacted.
    In addition if there was a quota and the quota had been 
reached for that particular year, we would have had to tell 
that airline, well, sorry, you cannot have this person now. You 
have to wait a year, by which time the foreign carriers would 
have got the financial advantage. So some of those issues I 
think are best addressed qualitatively rather than 
quantitatively. In terms of--
    Senator Feinstein. That was not my question, sir.
    Mr. Buffenstein. I am sorry, ma'am. You mentioned in terms 
of prevailing wage requirements specifically.
    Senator Feinstein. The question was, would you support a 
prevailing rate attached to the L-1 visa?
    Mr. Buffenstein. As long as the mechanism was one in which 
international companies could continue to pay home country 
benefits, continue to keep people on international compensation 
systems, and there were a way of devising that that the 
Department of Labor certainly has not shown with respect to the 
current H-1B program. Because when you have someone who is 
brought, for example, for 6 months to the United States or for 
9 months, and then taken to Canada for a few months, you cannot 
keep on moving that person onto a different payroll. There are 
apples and oranges questions with respect to benefits. It is 
enormously expensive to transfer personnel to the United 
States. Many of these multinational companies that bring these 
key experts here pay enormous amounts of money and equalize 
compensation and tax burden for their individuals.
    The pricing analyst that I mentioned with respect to the 
major airline, is one who was relocated abroad earlier, because 
once the person's sojourn was complete in the United States, it 
is an expensive thing to keep the person here, so they were 
sent back immediately. So it all depends. The devil is very 
much in the detail on that issue, Senator.
    Senator Feinstein. But if the individual were here, I do 
not know what portion of L-1 visas that are here utilize the 
entire 7-year period, but I suspect it is a large number. Does 
anyone know?
    Mr. Fragomen. We did a study among our member companies, 
and the average stay in the United States on L-1 visas is 
approximately 2 years, and there are very few persons who stay 
more than 3 years, so very much, unlike the H-1, where there 
are a large percentage of persons who convert to permanent 
residents, it is very large in the L visa category. It may 
interest you that among the companies that do the offshore 
development work, for instance, that many of them have no 
permanent residents program at all. Everyone is rotated out 
within a year or two of when they come to the United States.
    Senator Feinstein. Then let me ask you this. Why, in the 
two trade agreements we have before us, are they providing for 
unlimited years, you can renew the visa forever? Why would that 
be necessary if people do not stay that length of time?
    Mr. Fragomen. Basically in the trade agreements you have 
two categories. You have your L visas, and then you have your 
free trade entries, the TNs, as in the North American Free 
Trade Agreement. The TNs are much more an abbreviated H-1 
essentially, and those people frequently stay for a long time. 
But there is not any particular reason that there would have to 
be a cap on L-1 time. I mean most L-1s just do not remain in 
the United States. Statistically, the number that convert to 
permanent residence is very small.
    Senator Feinstein. Do you have data on how many countries 
that would allow the same thing in reverse?
    Mr. Fragomen. Actually, I do. One of the practice areas in 
which we are engaged is global immigration, and I can give you 
a rundown of 10 or 20 countries. You will see that every one of 
them has the equivalent of an L visa category to facilitate 
international mobility.
    Senator Feinstein. That are not limited in number?
    Mr. Fragomen. No, they are not limited in number. The basic 
concept behind L visas is to try to limit usage by defining the 
category sufficiently narrowly so there are not negative 
competitive impacts on the local labor market. That is the 
basic concept, unlike the H-1, which is driven much more by 
labor market tests or at least creating a level playing field 
in terms of a labor market. But I would be happy to provide 
this information.
    Senator Feinstein. I would appreciate that, because again, 
in the trade agreement we have before us, they dropped the word 
``highly'' before ``specialized'' and actually provided for a 
number of occupational categories that do not require a 
bachelor's degree as well, which is rather interesting. So it 
is clearly meant to be a broader L-1 program, I guess not like 
what you are saying if what you are saying is right, that 
individuals can come in and effectively remain for the rest of 
their lives. It is mandatory that they are able to bring their 
families. And if there is any different point of view on the 
pattern of entry, we have to submit it to an international 
tribunal for decision, a very unusual agreement in that regard.
    Thank you, Mr. Chairman.
    Chairman Chambliss. Senator Cornyn.

STATEMENT OF HON. JOHN CORNYN, A U.S. SENATOR FROM THE STATE OF 
                             TEXAS

    Senator Cornyn. Thank you, Mr. Chairman. One benefit to 
being a junior member of this Subcommittee is most of the 
obvious questions are already asked by the time it gets to me.
    Chairman Chambliss. But you are a lot smarter about L-1.
    [Laughter.]
    Senator Cornyn. Thank you. I would just like to make an 
observation perhaps, and that is this whole subject of this 
hearing and also the hearings that you have held previously in 
this Subcommittee, I think have demonstrated how broken in so 
many respects our immigration system is, and certainly I hope 
what comes out of this hearing and the other hearings that you 
have convened is that we address not only the policy but 
obviously the enforcement issues, because no matter what 
Congress does in terms of writing a new law, if it is not 
enforced, that policy not only fails to be implemented, but it 
also breeds, I believe, disrespect for the law generally. Right 
now I am sorry to say I do not see our immigration laws being 
adequately enforced pretty much across the board.
    I think what we need to make sure we do is to make sure 
that any changes in this area obviously are fair to domestic 
workers, that it is predictable for employers and those 
workers, and that it is enforced diligently, as I think we all 
agree it should be.
    The amazing thing about this is that it seems to cut across 
so many different policy areas. One reason of course we bring 
in foreign workers, particularly those with specialized 
knowledge, because our education system some say is not 
producing those workers, so it implicates that. Obviously, it 
implicates our domestic economy and the global economy, as we 
have heard. It implicates homeland security concerns as we have 
heard previously, where some 300,000 people are currently in 
this country under final orders of deportation and we simply do 
not know where they are.
    In the hearing last Friday before Senator Graham's 
Subcommittee on the Judiciary Committee on Crime, the Border 
Patrol told us that they apprehend about 1 million people who 
come into this country illegally each year, but they cannot 
tell us how many they do not apprehend, but the best estimate 
is between 8 and 10 million undocumented immigrants are 
currently in the United States now. While we hope, and 
certainly I would expect that most are here because they want 
what immigrants have always wanted, which is an opportunity for 
a better life for themselves and their families, in a post 9/11 
world the demands of border security and homeland security I 
think require us to be far more diligent in that area.
    As we have heard Senator Feinstein, in the two free trade 
agreements that we have before us, I think could even be 
tonight, with Chile and Singapore, we have concerns that now 
the Executive Branch wants to get involved in immigration 
policy, which under the Constitution is reserved to the 
Congress.
    So I commend you for this hearing. I found it very 
edifying, like others here. It is also disconcerting in a lot 
of ways, and I hope and I expect that this Subcommittee and the 
Judiciary Committee, and hopefully the Senate as a whole will 
address these concerns, not just in a piecemeal fashion but in 
a comprehensive way so that our immigration system can be 
credible and fair, predictable and enforced.
    Thank you.
    Chairman Chambliss. Thank you, Senator Cornyn.
    Let me direct this to Mr. Buffenstein, Mr. Fragomen and Mr. 
Yale-Loehr. You know Ms. Fluno's story. You know the facts. She 
has related them again today. In my mind the use of L-1 visa is 
not consistent with the allowance of an individual to come in 
and replace an existing worker. You have all talked about the 
need for bringing in technical workers to engage from the 
standpoint of being able to assist with productivity or assist 
in the high-tech end of the manufacturing segment, but they 
should not be allowed to come in to replace a worker. Am I 
wrong about that, or do you disagree with that? Would you all 
take a shot at that?
    Mr. Buffenstein. Mr. Chairman, I think you are precisely 
correct because the definition of specialized knowledge would 
be violated if the knowledge was readily available here and was 
generic, where someone could just come and replace someone in a 
job which if the company could have found some people in the 
United States who were qualified for it. And that is the point 
I made earlier, and I would like to reiterate it, is that every 
instance of cited abuse, most particularly, Ms. Fluno's, but 
every instance of cited abuse, whether in the articles, what 
the people have talked about on this panel, all relate to the 
specific circumstance where there has been a contracting out or 
a leasing out of employment to a second employer, where there 
is no affiliation between the first and the second employer 
than a contractual agreement, and where the knowledge is 
generic knowledge, not to suggest that Ms. Fluno's knowledge 
was not substantial, but it is not knowledge that is possessed 
within that company or specifically by that company abroad, and 
that is what distinguishes the L-1.
    So if there is going to be a legislative solution, and not 
an administrative one, it should be targeted very specifically 
at that situation, bearing in mind that there are situations 
where it is very valid for a company, for example, an airline, 
to send someone to a code share airline in order to conduct a 
project, and not to throw that baby out with the bath water, 
but that is where it should be targeted. So I agree with you 
100 percent.
    Mr. Fragomen. I would agree with Mr. Buffenstein as well. I 
would just like to perhaps try to draw the distinction between 
maybe slightly different uses of L-1B visas. In a typical job 
shop situation, where a company is essentially just providing 
employees in the U.S., importing them and then essentially 
contracting them out, where they are working on another 
employer's premises and they become absorbed in the workforce 
or displace U.S. workers, and they have generic computing 
skills, software, hardware, et cetera, I think we all agree 
that that is not an appropriate L-1 usage because they do not 
possess specialized knowledge.
    But in an offshoring situation, we talked a little bit 
about how the development centers are created abroad, and these 
development centers actually do the software development, 
programming, et cetera. The companies send persons to the U.S. 
as part of a team, and part of this team is to feed information 
back to the development centers abroad, and the personnel of 
the companies come over and have very specialized knowledge of 
the particular software involved, meaning the proprietary 
software of the company for whom they are rendering this 
service, come and feed information back, and it is a 
cooperative kind of an effort.
    Now, in that kind of a situation, that is very different 
than the situation of a job shop. Now, personnel in those 
circumstances might only be in the United States for 6 months, 
for a year. Then they go back abroad. Then they are frequently 
reassigned to projects in other countries. So it is not a 
matter of just working the U.S.
    Now, this offshoring model can result, and frequently does 
result, unfortunately, in that it constitutes a form of 
outsourcing, it results in U.S. workers losing their jobs 
because the entire function is contracted out to this company 
who performs part of the work abroad and then has employees in 
the U.S. as well. That is why it is a complicated issue because 
it is really a subset of the outsourcing phenomena, which is 
actually what causes the loss of jobs. So it is not a one-to-
one displacement situation.
    Mr. Yale-Loehr. I could add two things to that. I agree 
with the previous two statements, but adding two things to 
that. Number one is in 1996 the State Department sent out 
guidance to its consular posts about this use of the L-1B visa 
usage, where they are placing them at third-party sites. That 
policy guidance, under which circumstances it is acceptable and 
when it is not acceptable is quoted in my testimony. Therefore, 
to the extent that you want to look at that particular aspect 
of L-1B usage, you might look at that State Department guidance 
and see if either administratively or legislatively that would 
be a good starting point to try to curb the abuse in that 
particular area.
    Second and more broadly, I think that you might consider 
seeing ways that you could encourage foreign countries to adopt 
legislation that meets international standards for protecting 
workers, and that way the economic advantages of outsourcing 
work in countries that do not honor employment norms will be 
lessened and the corresponding disadvantage of doing business 
in the United States will be overcome.
    Chairman Chambliss. Ms. Feinstein's question to you 
relative to prevailing wage, if I understand what you just 
said, and my understanding of L-1, prevailing wage really is 
irrelevant because we are not replacing somebody, if this thing 
works the way it is supposed to work, we are not replacing 
somebody, so prevailing wage really should not be of any import 
to us. Am I correct in that?
    Mr. Buffenstein. Precisely, Senator.
    Chairman Chambliss. Obviously, it looks as though what is 
going on is that we have got, from a conceptual standpoint, a 
program that was needed, probably is still needed to whatever 
extent companies need to bring in highly-skilled people for 
specific assignments, but we are seeing an abuse of that 
program, and the practical day-to-day operation of it has 
affected Ms. Fluno and Ms. Verman particularly directly.
    I think what we are going to do, we have a number of bills 
out there now. You all have seen these bills. When you get back 
and you put your feet on the table and have an opportunity to 
think about it, if you want to give us any comments on what you 
think with respect to those bills. My guess is we are going to 
try to hone in on tightening this law up to try to prevent the 
abuse that somebody like Ms. Fluno is having to go through 
right now.
    This type of thing really does generate a lot of emotion 
out of politicians especially, because Ms. Fluno's story is 
very, very real, and there are a lot more of Ms. Flunos out 
there. You probably know a lot more examples about it than we 
do.
    We are going to make every effort to try to tighten this 
thing up, so we would appreciate any comments any of you have 
with respect to what we might specifically look at it as we 
move forward. We do not want to destroy the whole program. It 
obviously is a good program conceptually and is something that 
we need to continue, but we certainly do need to tighten it up.
    I want to thank all of you for being here today. I know 
some of you have made a very special effort to be here, and we 
appreciate your written as well as your verbal testimony.
    I ask unanimous consent that we keep the record open until 
5:00 o'clock this Friday for any additional information. If any 
of you wish to submit any additional information or any member 
of the Subcommittee wishes to, we will accept it.
    That being the case, we will stand adjourned. Thanks again.
    [Whereupon, at 4:22 p.m., the Subcommittee was adjourned.]
    [Submissions for the record follow.]

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