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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 (intracorporate 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) 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 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) 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 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 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: 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 preselection 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) 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 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