SEPTEMBER 2007
Abdel-Hamid Mamdouh
Director of the Trade in Services Division,
World Trade Organization (WTO, Geneva)
on
“Current trends in GATS Mode 4 Migration”
Ü Eurasylum: The General Agreement on Trade in Services (GATS) which, with some exceptions, covers all internationally-traded services, has defined four modes in which services can be traded. GATS Mode 4 covers people moving temporarily (from a few weeks to five years, although this is not defined explicitly in the Agreement), including both self-employed and those employed by foreign service suppliers in the WTO member states. To date, the interpretation and implementation of Mode 4, as well as the level of political commitment to the liberalisation of entry of foreign workers, have varied greatly among member states, and negotiations are on-going. Moreover, Mode 4 trade commitments appear to have been limited, in the main, to highly skilled categories of service providers (managers, executives, specialists), including a large proportion of intra-corporate transferees. Could you guide us through the main features, issues and current status of Mode 4 negotiations and commitments?
Ü Abdel-Hamid Mamdouh: Mode 4 is one of the four modes through which services can be traded under the GATS, and covers, essentially, the temporary movement of persons for the purpose of supplying a service. When committing to market opening in the services sectors of their choice, WTO Members have thus indicated, in the so-called schedules of commitments, the level of access they were guaranteeing to mode 4 service suppliers.
Thus far, the level of mode 4 liberalisation bound in WTO schedules is rather shallow. Market access conditions tend to be significantly more restrictive for mode 4 than for any other of the four GATS modes of supply. Only a handful of Member States have undertaken fully liberal commitments in this mode, and in most cases, access has been limited to intra-corporate transfers of managers and executives and to business visitors. Also, access conditions tend to be identical for all the different services sectors included in a Member’s schedule. It is also noteworthy that no significant differences exist between the commitments undertaken by developed and developing countries: both groups seem to have been equally hesitant in opening up mode 4 trade.
In light of the above, it is unsurprising that mode 4 has drawn considerable attention in the course of the new round of WTO negotiations. Developing country Members, in particular, have identified the movement of natural persons as one of the areas in which to seek improved market opening commitments. Their main interest lies in obtaining better access for categories of natural persons not associated with the establishment of a commercial presence, such as self-employed service professionals and “contractual service suppliers” (i.e. persons employed in their home country and sent abroad to supply a service pursuant to a services contract between the consumer and their employer).
Up to the end of 2005, the negotiations in mode 4, as in all other services areas, proceeded on the basis of bilateral request-offer exchanges. The bilateral negotiating process, however, was deemed by most commentators to have yielded very modest results, generally for all services areas and particularly so for mode 4. Out of a total of around 70 offers (counting the EC as one entity), only just over 30 propose upgrading mode 4 commitments.
In spite of the somewhat disappointing start, services talks were given fresh impetus by the Hong Kong Ministerial meeting of December 2005. In Hong Kong, Members agreed to intensify the negotiations in accordance with a set of objectives, some of which relate specifically to mode 4, and foresaw the possibility of pursuing the request-offer negotiations also on a plurilateral basis.
In keeping with this mandate, a plurilateral mode 4 process was launched in February 2006 though the submission of a collective request on mode 4, sponsored by around 15 developing countries and addressed to nine developed country Members. Unsurprisingly, the focus of the request is on better commitments for categories of natural persons whose movement is unrelated to a commercial establishment abroad.
The results of the plurilateral discussions will eventually be reflected in a second round of revised offers of improved commitments, for which there is at present no timeline.
Ü Eurasylum: Statistics relating to Gats Mode 4 migration are not collected in most member states, due in particular to a lack of uniform and comparable definitions, and to insufficient incorporation of Mode 4 concepts into national immigration regulatory frameworks. However, despite the small number of temporary migrants falling under GATS Mode 4, and the fact that Mode 4 trade only accounts for around 1% of total trade in services, the economic and financial potential of such movements appears to be noteworthy. For example, according to a WTO report published in 2004 (The Impact of Mode 4 Trade in Good and services, by Marion Jansen and Roberta Piermartini) temporary movements of service providers can have a significant effect on merchandise trade. The report suggests, in particular, that a 10 per cent increase in temporary movement of service providers increases US imports by around 3 per cent and exports by a percentage of between 1.8 to 2.7. According to some estimates, liberalisation of labour migration could provide global welfare benefits of USD 300bn, exceeding aid or FDI. Based on existing evidence, and current Mode 4 trade commitments in the WTO member states, could you review and discuss the main financial and economic benefits of Mode 4 migration for both the recipent and source countries?
Ü Abdel-Hamid Mamdouh: There is good reason to believe that reduced barriers to mode 4 trade will produce substantial global benefits. One study estimates that an increase in industrial countries’ quotas on the inward movement of both skilled and unskilled temporary workers equivalent to 3 per cent of their work forces would generate an increase in world welfare of more than US$150 billion a year (Winters et al., 2003). These gains would be shared between developed and developing countries. Although the type of movement considered in this study is wider in scope than mode 4, the benefits from greater liberalisation of mode 4 are nevertheless likely to be significant.
Amongst the beneficial effects for the originating country are reduced pressure on the labour markets and wages caused by high levels of unemployment; technology transfer and development of human capital, as temporary service suppliers make their experiences acquired abroad available to the home country upon return (thus averting the costs of brain drain, typically associated with permanent migration); financial inflows of remittances, which are likely to be boosted by the temporary nature of mode 4 movement, given the inverse relationship thought to exist between the amounts remitted and the duration of time spent abroad.
For developing countries, which have a strong comparative advantage in labour-intensive services, noteworthy gains are already being realised. One case in point is the Indian software industry some 60 per cent of India’s exports are provided through the movement of software engineers to the site of the consumer.
Beneficial effects for the receiving country include the possibility of addressing temporary and long-term labour shortages, while averting some of the social and political costs of permanent migration; alleviating the demographic challenge caused by the ageing population and therefore helping to re-equilibrate the share of the working population; and reducing the pressure of illegal immigration by providing an alternative through temporary movement.
Mode 4 liberalisation also includes significant indirect effects on merchandise trade, as you mention in your question, but also on services trade. Greater temporary movement of service providers can lead to increased trade in services through other modes of supply, by facilitating cross-border trade as well as inward and outward investment, via skill and technical transfers, development of specific knowledge, creation of networks and overseas contacts, reputation effects and risk reduction.
Although the liberalisation of trade in services under mode 4 can generate gains both for the importing and the exporting country, it also imposes some adjustment costs, arising from factors such as the temporary unavailability of skilled workers in the sending country and competition between domestic and foreign workers in the receiving country. In both cases an appropriate regulatory framework could ensure that the benefits of liberalisation are obtained and that the flow of service suppliers responds to the needs of the economy, thus minimising the risk of disruptions in the domestic labour market.
Ü Eurasylum: According to some commentators, Mode 4 provides for orderly and rational economic migration and can offer, potentially, an effective tool against irregular migration. Moreover, subject to appropriate adjustments regarding the rights and benefits environment of temporary service providers, and the return requirements, Mode 4 can be seen as a means for addressing structural labour shortages related to population ageing and skills imbalances in the OECD countries. Can you comment on the potential of Mode 4 to evolve, gradually, into an instrument able to match more closely the needs of both the immigration regimes and the labour markets in the main recipient countries, including in major regional host areas such as the EU, where discussions about the possible establishment of temporary and quota economic migration are on-going?
Ü Abdel-Hamid Mamdouh: I believe mode 4 to hold significant potential to help match the needs of both the immigration regimes and labour markets in recipient countries, but clearly only with regard to the types of movement it covers. It should not be forgotten, in fact, that the scope of mode 4 is limited. Whilst the GATS does cover the temporary movement of people, it is a trade agreement, not an agreement on migration. Its aim is to progressively liberalise trade in services, including through the opening up of access conditions for persons who are involved in supplying services. Moreover, as indicated in an Annex, the Agreement does not apply to jobseekers or to measures related to citizenship, residence or employment on a permanent basis.
Having said this, mode 4 is a well-suited instrument to help receiving countries match the needs of their immigration regimes and of their labour markets. The GATS allows Members to bind access conditions for natural persons that are providing specific services. In this sense, it offers the flexibility to be more open in certain sectors, such as those in which a country is experiencing a labour shortage, than in others. At the same time, mode 4 access conditions in GATS schedules are legally binding and enforceable through the WTO’s dispute settlement mechanism, thus providing foreign service suppliers with certainty and predictability. Such a stable regime for temporary movement is likely to be more conducive to regular and return migration.
For this potential to be realised, however, it is important, first and foremost, to enhance public understanding of mode 4. Trade is not an area that labour or immigration experts would normally be concerned with, the GATS is a relatively complex agreement and there is a conceptual and terminology gap between mode 4 definitions and immigration regimes. Fostering a better-informed dialogue between the trade and migration communities would be valuable both to advance recipient countries’ immigration and labour market objectives and provide impetus to the mode 4 negotiations under the WTO.
