Temporary movement of people as service suppliers - GATS mode 4

Temporary movement of people as service suppliers- GATS mode 4 Julia Nielson OECD May 2004

Structure of the presentation • The context for mode 4 - temporary mobility • Defining GATS mode 4 • Restrictions on mode 4 • Gains from liberalization • What are the issues to manage? • Labour market impact • Brain drain/overstaying • Remittance management • Security • Thoughts on priorities for the GATS negotiations

The context • Migration flows no larger now relative to population size than in 1850-1915 • Much is inter-regional and inter-developing country • But temporary movement is increasing • More countries are exporters and importers • New drivers • Technological change • Declining transport and communication costs; • Global businesses and production chains

The context • Considerable movement taking place despite very limited GATS commitments • US: H1B declining, but temporary unskilled (H2B) increased by 50% per year to reach 72 400 in 2001. • UK: 85 000 work permits in 2002, mostly new technologies, health and education (ditto France, but numbers smaller) • Japan: 142 000 in 2001 (decline in higher skilled) • Australia: 43 000 temporary permits in 2001 • Korea: 28 200 (skilled) in 2001, 60% increase; plus 100 000 trainees • Concentrated in certain sectors – ICT, health • Some countries prominent - India H1-B, Philippines labour exporter

The context • But figures are not comparable and do not equate with mode 4 • Temporary is slippery • Statistically, cut off is 12 months • Some countries have temporary workers for 20 years • Others permit change of visa to permanent migration • Different definitions of “foreign” • Social context – labour market, social security, culture. • Mode 4 is a trade, not a migration concept • Don’t distinguish between service and non-service activities • E.g., “business visitors” , “company managers” • Activities may not be commercial • Amateur and professional athletes • Combinations of modes • Working holiday makers

The context • Within the universe of migration, there is the subset of temporary migration • Within temporary migration, there is the subset of temporary labour migration • Mode 4 is a subset of temporary labour migration • Depending how you define it, get closer to migration issues and concerns

Structure of the presentation • The context for mode 4 - temporary mobility • Defining GATS mode 4 • Restrictions on mode 4 • Gains from liberalization • What are the issues to manage? • Labour market impact • Brain drain/overstaying • Remittance management • Security • Thoughts on priorities for the GATS negotiations

Defining mode 4 • Article 1.2(d): “the supply of a service…by a service supplier of one Members, through presence of natural persons of a Member in the territory of another Member”. • Annex on the Movement of Natural Persons: “measures affecting natural persons who are service suppliers of a Member, and natural persons of a Member who are employed by a service supplier of a Member, in respect of the supply of a service”

Defining mode 4 • Mode 4 is temporary movement • Not defined, commitments range from several weeks (business visitors) to 3-5 years (intra-corporate transferees) • BUT permanent explicitly excluded • GATS does not apply to measures affecting individuals seeking access to the employment market, nor to measures regarding citizenship, residence or employment on a permanent basis.

Defining mode 4 • What is a service supplier? • Temporary agricultural workers or suppliers of fruit-picking services? • What is the scope of category “services incidental to agriculture (manufacturing)” in W/120? • Tasks performed on a fee or contract basis without ownership of the inputs or outputs • In the world of fragmented production chains, definition of a service is shifting

Defining mode 4 • Mode 4 normally includes: • Self-employed or independent service suppliers (remuneration received in host country) • Employees of a foreign company who are sent to fulfill a contract with a host country client • Employees of foreign companies established in the host country (intra-corporate transferees) • Business visitors (short term stays, no remuneration received in host country)

Defining mode 4 • While foreigners working on contract to domestic firms fall under mode 4 it is unclear whether foreign employees of domestic companies are covered. • Language of GATS suggests maybe not, but included in commitments of some WTO Members. • Also some members can deem a range of contracts to be employment for the purposes of bringing the worker under local labour law • As a practical matter, it may be hard to distinguish between contractual service suppliers and employees

Defining mode 4 - summary • No clear definition, but can think in terms of duration and purpose of stay: • Gain entry for specific purpose( to fulfil a contract) • Normally confined to one sector (can’t move - vs general migrants) • Temporary (not migrating permanently nor seeking entry to labour market)

Structure of the presentation • The context for mode 4 - temporary mobility • Defining GATS mode 4 • Restrictions on mode 4 • Gains from liberalization • What are the issues to manage? • Labour market impacts • Brain drain/overstaying • Remittance management • Security • Thoughts on priorities for the GATS negotiations

Restrictions on mode 4 • Less liberalisation under mode 4 than other modes; current commitments • Horizontal, not sectoral • Limited to the higher skilled (managers, executives, specialists) • Linked to investment (intra-corporate transferees), relatively few commitments for contractual service suppliers • Economic needs tests – not transparent, can be arbitrary and unpredictable in application • Regulatory issues • Wage parity, social security • Time consuming and burdensome visa procedures • Licensing and qualification requirements - recognition

Recognition • Lack of recognition of qualifications a major issue in mode 4 • Especially for developing countries as more of a problem for SMEs and contractual service suppliers • Trade tends to be between countries where differences are relatively small • GATS disciplines fairly weak. • Article VII permits but does not require recognition • Must afford other interested WTO members adequate opportunity to prove they meet the same standards • Notification requirements • Encourages international standards “where appropriate” • Ability to set standards left up to Members – only require that no discriminate in the application of those standards (VII.3) • PLUS, must have adequate procedures to verify competence where commitments for professional services are made (Article VI.6)

Recognition • Hard to assess MRAs; many still works in progress • Mostly neighbouring countries, or part of broader regional integration; those with historical (linguistic, education) ties • Mostly between developed countries • Many industry agreements – including under RTAs • already internationalised professions: engineers, architects, accountants • Range – some far-reaching; some reduced requirements or procedures; some a degree of facilitation; others cooperation and dialogue. • Industry initiatives have made more progress.

Recognition • Wide range of practices and cultural assumptions • Fear of loss of regulatory sovereignty • Absence of formal licensing or qualification systems in some countries • Absence of recognition frameworks or experience • MRAs often led by industry associations – may be lacking or not interested in facilitating access • Lack of awareness in the professions of the benefits of MRAs • Resource intensive and complex negotiations • Lack of incentive to negotiate MRAs in absence of real market access interests (or relevant commitments)

Gains from mode 4 liberalisation • Winters – opening of developed country labour markets to temporary entry by foreign workers to equivalent of 3 percent of current workforce would result in global welfare gains of around US$150 billion per year. • Numbers not to be taken to strictly, but clear that gains significant

Gains from liberalisation • Developed to developing country: • Main issue is intra-corporate transferees • Gains for local economy from exposure to foreign expertise in terms of knowledge transmission, productivity growth and flow-on benefits for development domestic entrepreneurship. • BUT developing countries could lose out over time if these reduce opportunities for nationals • And thus reduce incentives for education

Gains from liberalisation • Developing to developed countries, skilled labour: • Reduces total output and tax base • Can reduce capacity to entrepreneurship, ability to absorb new technologies • BUT • Workers can be more productive in advanced economies • Remittances may offset the loss • Ideas, technology and networks • Useful if return, but networks will be less developed than permanent migrant who maintain links • More widely spread, but perhaps more superficial, increased skills • Can increase returns to education thereby encouraging greater investment in education

Gains from liberalisation • Net balance will vary by country and sector • Very small economies which could not generate market to make skills profitable – may gain • Very large economies which can create critical mass of skilled workers – lose some at margin, but offset by gains • Medium-sized economies may not reach the critical mass of skills because of migration – could lose more than gain. • More work and research needed!

Gains from liberalisation • Developing to developed country, unskilled labour • Skilled workers less friction BUT gains from trade come from exploiting differences • Promises higher returns • BUT • Political problems – although arguably less with temporary movement than permanent • Fewer cultural or integration issues • Less call on public/social services • Could be done as for goods – with appropriate pace and adjustment policies • Developed countries ageing and likely to face shortages

What are the issues to manage? • Impacts also vary according to policy frameworks. • Key issues to manage include: • Labour market impact • Brain drain / overstaying and migration regulator concerns • Remittance management • Security

Issues to manage – labour market impact • Hard to assess impact because countries use so many devices to prevent real impact. • – ENTs, wage parity, social security • Wage parity pros: • Prevents exploitation • While quotas exist, benefits developing country workers • Cons: • Undermines comparative advantage • Cost advantage developing countries currently shows up more in outsourcing than mode 4 • Another administrative hurdle before can hire foreign worker

Issues to manage • Social security • Competitive advantage to foreign workers if don’t have to pay • BUT inequitable to pay into schemes from which may never benefit. • Possible solutions: • Pay into separate fund and reimburse on departure • Separate short (health cover) and long-term (pensions) benefits; pay the former, with latter refunded on departure or paid into fund at home country rates

Issues to manage • Do foreign workers drive down wages? • Are they complements or substitutes? • Complement – brought in to fill gaps; training and turnover expenses mean not profitable to use them instead of locals; firms claim to look for most skilled. • BUT others argue that availability foreign labour undermines pressure for wage rises or improvements in conditions (nurses). • Companies sponsoring foreigners often required to demonstrate commitment to training nationals • Do they contribute to outsourcing in the domestic market and the casualisation of labour?

Issues to manage - overstaying • Distinguish between legal and illegal • Illegal - a risk with all forms of temporary entry (tourists, students) • Legal – can be managed, often used as pre-selection permanent migrants • Cooperation, incentives and enforcement • Enforcement – withholding part of pay, bonds, responsibility on domestic company, monitoring • Incentives – tax incentives, financial assistance, reintegration assistance, creation of opportunities at home (including via FDI)

Issues to manage • Brain drain/circulation • Less of a problem with mode 4 than permanent migration • BUT even temporary loss a problem where skills are scarce • Codes of conduct (nurses) a possible solution • But hard to control individual migration decisions • Capacity building programs to train excess workers, help to offset lost investment in education and ensure return.

Issues to manage - remittances • Remittance management • US$72.3 billion in 2001 (likely higher) • Over- and under-estimates mode 4 as includes permanent migrants and those in non-service sectors, but only those abroad for > 1 year • While not all mode 4, important benefit • In the poorest countries, remittances are 2-3 times larger than FDI • In most developing countries, remittances>ODA. • Facilitate transfers – e.g., ID cards. • Matching funds to encourage investment in community projects

Issues to manage • Security • A reality which will complicate the trade facilitation approach to labour mobility • Question of risk assessment • But security measures should be reasonable and aim to be least burdensome while still effective. • Are also costs to lost mobility • US scientists (also students)

Thoughts on priorities for the GATS negotiations? • Three major challenges to making progress: • Flexibility of migration regimes vs certainty of GATS commitments • MFN GATS commitments vs special migration arrangements for certain countries • Lack of understanding between trade and migration policy communities

Priorities for negotiations • These tensions are not easily resolved and a degree of pragmatism might be necessary • Need to aim for concrete gains which can actually be achieved • Think both of this round and the longer term • Liberalization on the ground more important than seeing all reflected in GATS commitments • Danger of going backwards if insist on all bound

Priorities for negotiations - who • Contractual service suppliers (not tied to investment) • Individual service suppliers • Companies sub-contracting • Why? • More scope for developing countries as not tied to investment • Greater possibility of including lower-skilled labour • Companies on each side of transaction, easier to enforce conditions (especially return) • For greatest benefit, remove pre-employment requirements

Priorities for negotiation - who • Contractual service suppliers • Aim for more members to include in schedules • Possibility of sector-specific commitments • Longer durations of stay (especially for individuals who are limited in the types of contracts for which they can apply) • BUT not suitable for all services

Priorities for negotiations - who • Alternatively, another approach for certain types of workers could be bilateral labour agreements • More likely to cover lower-skilled workers • Can negotiate additional terms not available under GATS to address specific issues • E.g., brain drain and loss of investment in education for health workers • Can allow for regulatory experimentation • BUT MFN problem • Time limited waiver – perhaps with notification obligations?

Priorities for negotiations - who • Intra-corporate transferees • Help create a broader alliance for mode 4 • Developing countries increasingly becoming investors – real scope to bring in own workers (TCS in US) • Also joint ventures in context own mode 3 liberalization • Own nationals often intra-corporate transferees of TNCs • Need wider range of skill levels and remove pre-employment requirements to facilitate global recruitment

Priorities for negotiations - who • What about foreign employees domestic companies? • Not all agree covered by GATS at present • Viewed as most contentious in migration community because closest to regular migration • Seen as entering the labour market (although can’t change employer without permission)?? • Labour officials don’t want to treat differently foreign and domestic employees of domestic companies • But difficulty of distinguishing between contractual service suppliers and employees • Area for further research

Priorities for negotiations - who • Clarifying and aiming for more uniform definitions of key common terms – managers, executives, specialists • Use ISCO-88? • RTAs also a good place to start • Where can’t agree, at least increase the transparency and require a greater degree of specificity in commitments

Priorities for negotiations - how • GATS visa? • Need to work closely with migration officials to see if this makes sense • Danger of going backwards (less data, more restrictive definition of mode 4, more burdensome procedures) • Where are good systems in place, use GATS visa as a reference point • Where nothing in place, could be a good place to start • Resource issues and capacity to implement • Explore other options • APEC Business Travel Card model

Priorities for negotiations • ENTs • Removal (trade-off is quotas, but these are at least transparent and negotiable) • Regular notifications on their operation (decisions, time frames, criteria) • Transparency • Single windows for information and feedback • Notification/provision of implementation on how commitments actually implemented • Additional commitments on prior consultation for regulations affecting mode 4 • Over time, could lead to greater understanding and thus convergence between trade and migration communities.

Priorities for negotiation - recognition • Use of Article VI.6 • Use negotiations to gain more information and push for improvements • Including assistance to help developing countries both participate in negotiations and, where necessary, meet relevant standards • Implementation Article VII • Standing item on CTS to provide information on agreements in progress – including industry agreements – and presentations by relevant international associations; • National level - identify the problem: lack of information, interest or resources?

Priorities for negotiations • Linkages • Mode 4 and outsourcing (mode 1/2) - complements • Mode 4 and mode 3 (complements) • Mode 4 and trade in education services (modes 2 and 3) • Increasing dialogue between trade and migration policy communities • Dialogue to understand needs and constraints • Policy coordination to identify possible avenues for progress • Identifying necessary complementary measures

Thank you

Temporary movement of people as service suppliers - GATS mode 4