Download Temporary movement of people as service suppliers

Temporary movement of
people as service suppliers
- GATS mode 4
Julia Nielson
OECD
May 2004
Structure of the presentation
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The context for mode 4 - temporary mobility
Defining GATS mode 4
Restrictions on mode 4
Gains from liberalization
What are the issues to manage?
•
•
•
•
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Labour market impact
Brain drain/overstaying
Remittance management
Security
Thoughts on priorities for the GATS negotiations
The context
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Migration flows no larger now relative to
population size than in 1850-1915
• Much is inter-regional and inter-developing
country
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But temporary movement is increasing
• More countries are exporters and importers
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New drivers
• Technological change
• Declining transport and communication costs;
• Global businesses and production chains
The context
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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
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Concentrated in certain sectors – ICT, health
• Some countries prominent - India H1-B, Philippines
labour exporter
The context
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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
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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
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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
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



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
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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
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Mode 4 is temporary movement
• Not defined, commitments range from
several weeks (business visitors) to 3-5
years (intra-corporate transferees)
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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
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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
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In the world of fragmented production chains,
definition of a service is shifting
Defining mode 4
• Mode 4 normally includes:
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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 (intracorporate transferees)
Business visitors (short term stays, no
remuneration received in host country)
Defining mode 4
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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)
Included
Excluded
Debated
Temporary movement
(undefined)
Permanent migration
(residence, citizenship or
employment in a permanent
basis)
Related to the supply of
services
Persons working in nonservice sectors – agriculture,
manufacturing
Scope of activities
included in “services
incidental to agriculture/
manufacturing”
Domestic (nationals of host
country) employees of foreign
companies established in the
host country
Foreign employees of
domestic companies
All skill levels (in practice,
commitments are for highly
skilled)
Foreign employees of
foreign companies
established in host country
Business visitors
Intra-corporate transferees
Contractual service
suppliers (self-employed or
as employee of a foreign
service supplier)
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
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Regulatory issues
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Wage parity, social security
Time consuming and burdensome visa procedures
Licensing and qualification requirements - recognition
Recognition
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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

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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
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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
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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
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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)
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
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
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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
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And thus reduce incentives for education
Gains from liberalisation
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Developing to developed countries, skilled labour:
• Reduces total output and tax base
• Can reduce capacity to entrepreneurship, ability to
absorb new technologies
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BUT
• Workers can be more productive in advanced economies
• Remittances may offset the loss
• Ideas, technology and networks
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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
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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.
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More work and research needed!
Gains from liberalisation
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Developing to developed country, unskilled labour
Skilled workers less friction BUT gains from trade
come from exploiting differences
• Promises higher returns
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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
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
What are the issues to manage?
• Impacts also vary according to policy
frameworks.
• Key issues to manage include:
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Labour market impact
Brain drain / overstaying and migration
regulator concerns
Remittance management
Security
Issues to manage – labour market
impact
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Hard to assess impact because countries use so
many devices to prevent real impact.
• – ENTs, wage parity, social security
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Wage parity pros:
• Prevents exploitation
• While quotas exist, benefits developing country workers
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Cons:
• Undermines comparative advantage
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Cost advantage developing countries currently shows up
more in outsourcing than mode 4
Another administrative hurdle before can hire foreign
worker
Issues to manage
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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:
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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
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Do foreign workers drive down wages?
• Are they complements or substitutes?
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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
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Do they contribute to outsourcing in the domestic
market and the casualisation of labour?
Issues to manage - overstaying
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Distinguish between legal and illegal
• Illegal - a risk with all forms of temporary
entry (tourists, students)
• Legal – can be managed, often used as preselection permanent migrants
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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
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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
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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
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Remittance management
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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.
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Facilitate transfers – e.g., ID cards.
Matching funds to encourage investment
in community projects
Issues to manage
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Security
• A reality which will complicate the trade
facilitation approach to labour mobility
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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)
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
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
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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
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Think both of this round and the longer term
• Liberalization on the ground more important
than seeing all reflected in GATS commitments
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Danger of going backwards if insist on all bound
Priorities for negotiations - who
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Contractual service suppliers (not tied to
investment)
• Individual service suppliers
• Companies sub-contracting
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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
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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
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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
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E.g., brain drain and loss of investment in education
for health workers
• Can allow for regulatory experimentation
• BUT MFN problem
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Time limited waiver – perhaps with notification
obligations?
Priorities for negotiations - who
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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)
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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
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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
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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
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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
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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
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Resource issues and capacity to implement
• Explore other options
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APEC Business Travel Card model
Priorities for negotiations
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ENTs
• Removal (trade-off is quotas, but these are at least
transparent and negotiable)
• Regular notifications on their operation (decisions, time
frames, criteria)
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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
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Over time, could lead to greater understanding and thus
convergence between trade and migration communities.
Priorities for negotiation recognition
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Use of Article VI.6
• Use negotiations to gain more information and
push for improvements
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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
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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