Economic Implications of Economic Implications of mode 4 trade.mode 4 trade.

WTO Symposium on WTO Symposium on Mode 4Mode 4

September 2008 September 2008

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Joy KategekwaJoy Kategekwa

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Presentation structurePresentation structure

The case for mode 4 trade: BenefitsThe case for mode 4 trade: Benefits Drawbacks of mode 4Drawbacks of mode 4 Risks of mode 4: brain drain in the health Risks of mode 4: brain drain in the health

sectorsector Potential utility of flanking policiesPotential utility of flanking policies

Pursuing developing and least developed Pursuing developing and least developed country interests in WTO negotiations: country interests in WTO negotiations: Issues and ProcessIssues and Process

Towards overcoming resistance to mode 4 Towards overcoming resistance to mode 4 commitments in receiving countriescommitments in receiving countries

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Scoping mode 4 within overall migrationScoping mode 4 within overall migration

((Source IOMSource IOM))

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The case for mode 4:The case for mode 4:BenefitsBenefits

Presents great potential for real exploit of Presents great potential for real exploit of differencesdifferences in in resource endowments giving developing countries an resource endowments giving developing countries an opportunity to exploit labour as an abundant resourceopportunity to exploit labour as an abundant resource Global applied general equilibrium model by Global applied general equilibrium model by Winters et al, Winters et al,

finds that a $156 billion annual increment in economic finds that a $156 billion annual increment in economic welfare could result from a 3% increment in labour welfare could result from a 3% increment in labour mobility by receiving countries mobility by receiving countries ( Winters 2002) ( Winters 2002)

Gains are expected to be shared between developing Gains are expected to be shared between developing countries countries (in the form of remittances) and developed ones (in the form of remittances) and developed ones (through fees for licenses, certification of qualifications, (through fees for licenses, certification of qualifications, labour costs, living costs, insurance costs in host country, labour costs, living costs, insurance costs in host country, e.t.c)e.t.c)

Such gains are expected to Such gains are expected to exceed those that could be exceed those that could be obtained from liberalization in traditional areas of trade.obtained from liberalization in traditional areas of trade.

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Benefits cont’dBenefits cont’d

Remittances: Dramatic increment over the yearsRemittances: Dramatic increment over the years WB estimates: $167 billion in 2005WB estimates: $167 billion in 2005 Growing faster than FDI and Official Development Assistance over the Growing faster than FDI and Official Development Assistance over the

past decade past decade Increasing by close to 10% p.a between 2001 and 2005 (WB 2006)Increasing by close to 10% p.a between 2001 and 2005 (WB 2006) What does this mean for poverty reduction in sending countries?What does this mean for poverty reduction in sending countries?

At micro level, additional income for recipients stimulates consumption of At micro level, additional income for recipients stimulates consumption of other services e.g completion of education, access to basic services, other services e.g completion of education, access to basic services, health, water, sanitation, decent housing.health, water, sanitation, decent housing.

e.g In Indian state of Kerala, 1 in 6 work overseas, 1 in 3 are beneficiaries of e.g In Indian state of Kerala, 1 in 6 work overseas, 1 in 3 are beneficiaries of remittances.remittances.

At national level, adds to a country’ income and output contributing to At national level, adds to a country’ income and output contributing to poverty reduction poverty reduction

A source of foreign exchange and development finance A source of foreign exchange and development finance

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Country Value in remittances at 2005 estimates

(current $millions)

Remittances (% increase)

1990-2000

Remittances (%

increase)2000-2005

Value of remittances (per capita in current

$)

Uganda 291 22 11

Bangladesh 3 824 153 94 23

Cape Verde 92 47 6 197

Phillipines 13 379 324 115 141

Value of remittances and remittances per capita: LDCs and selected countries with high rates of emigration 1990-2005

(Source: UNCTAD LDC report 2007:ch.4)

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Benefits cont’dBenefits cont’dResponding to social economic realitiesResponding to social economic realities

Demographic differences; matching demand with supply Demographic differences; matching demand with supply Difference in education systems and specializations: Filling Difference in education systems and specializations: Filling

gaps created by upward knowledge sophistication and gaps created by upward knowledge sophistication and specializationsspecializations

Enhanced skills circulation; allowing for more comprehensive Enhanced skills circulation; allowing for more comprehensive movement of skills, resulting in more optimal technology movement of skills, resulting in more optimal technology transfer, and potentially more investment when people return transfer, and potentially more investment when people return home. For semi-skilled, results are enhanced technical skills home. For semi-skilled, results are enhanced technical skills out of experience on contracts abroad. out of experience on contracts abroad.

Inroads into curbing permanent migration: Ref. The Annex on Inroads into curbing permanent migration: Ref. The Annex on movement of natural persons supplying services under the movement of natural persons supplying services under the Agreement.Agreement.

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The case for commitments for semi skilled service The case for commitments for semi skilled service supplierssuppliers

Gains on productivity between host and home Gains on productivity between host and home countries are likely to be largest in area of semi countries are likely to be largest in area of semi skilled service suppliers. Their remittamces have been skilled service suppliers. Their remittamces have been found to offset original loss in leaving home found to offset original loss in leaving home countries. (Winters 2002)countries. (Winters 2002)

Problems identified with liberlising markets for semi Problems identified with liberlising markets for semi skilled workers like:skilled workers like: Cultural and integration problems, drains on the Cultural and integration problems, drains on the

public purse, slip into permanent migration, public purse, slip into permanent migration, Are Are less justifiable in the context of mode 4 owing to less justifiable in the context of mode 4 owing to its temporarinessits temporariness

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Commitments for semi skilled service suppliers, Commitments for semi skilled service suppliers, cont’dcont’d

Mandates in the GATS negotiationsMandates in the GATS negotiations: : Article IV: 1 of the GATS acknowledges the liberalization of market access in Article IV: 1 of the GATS acknowledges the liberalization of market access in

sectors and modes of supply of export interest to developing countries as a key sectors and modes of supply of export interest to developing countries as a key way in which their increased participation in international trade can be way in which their increased participation in international trade can be achieved. LDCs have identified semi.skilled as an area of export interestachieved. LDCs have identified semi.skilled as an area of export interest

The Annex on movement of natural persons supplying services under the The Annex on movement of natural persons supplying services under the Agreement does not have any exclusion as to skill categories. (Ref. Para 3 of Agreement does not have any exclusion as to skill categories. (Ref. Para 3 of the Annex)the Annex)

Paragraph 9 of the LDC Modalities emphasizes Mode 4 as presenting potential Paragraph 9 of the LDC Modalities emphasizes Mode 4 as presenting potential benefit to both sending and recipient Members. It is also acknowledged that benefit to both sending and recipient Members. It is also acknowledged that LDCs have indicated this Mode as one of the most important means of LDCs have indicated this Mode as one of the most important means of supplying services internationally. The Paragraph calls on Members to supplying services internationally. The Paragraph calls on Members to consider undertaking commitments to provide market access in Mode 4, consider undertaking commitments to provide market access in Mode 4, taking taking into account all categories of natural persons identified by LDCs in their into account all categories of natural persons identified by LDCs in their requestsrequests. .

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Do current schedules match this Do current schedules match this economic reality?economic reality?

Mode 4 remains the least committed mode in Members’s Mode 4 remains the least committed mode in Members’s schedulesschedules

The categories of service suppliers typically appearing in The categories of service suppliers typically appearing in members schedules include:members schedules include: Intra-Corporate TransfereesIntra-Corporate Transferees (ICT) – movement within juridical (ICT) – movement within juridical

spheres;spheres; Business VisitorsBusiness Visitors (BV) – Prospecting business opportunities, (BV) – Prospecting business opportunities,

preparing establishment of a branch etc;preparing establishment of a branch etc; Contractual Service Suppliers Contractual Service Suppliers (CSS) – Provision of a service on a (CSS) – Provision of a service on a

pre-obtained contract possibly within the context of a legal personpre-obtained contract possibly within the context of a legal person Independent ProfessionalsIndependent Professionals (IP) - an individual service supplier, such (IP) - an individual service supplier, such

as an architect, moves abroad to supply a service.as an architect, moves abroad to supply a service. All have high minimum qualifications.All have high minimum qualifications.

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Drawbacks of mode 4Drawbacks of mode 4 Loss of services of skilled people even temporarily reduces total Loss of services of skilled people even temporarily reduces total

output, tax base, scale economies , entrepreneurshipoutput, tax base, scale economies , entrepreneurship Potential slip into permanence with remittances decreasing over timePotential slip into permanence with remittances decreasing over time Outward movement in sectors like health has been portrayed as having Outward movement in sectors like health has been portrayed as having

lesser, compared e.g to ICTs, benefits for tech transfer or investment lesser, compared e.g to ICTs, benefits for tech transfer or investment in home countriesin home countries

In the absence of home policies especially aimed at ensuring In the absence of home policies especially aimed at ensuring temporariness, mainstreaming mode 4 suppliers as a major part of temporariness, mainstreaming mode 4 suppliers as a major part of national development plans, such benefits as brain gain and reducing national development plans, such benefits as brain gain and reducing costs of brain drain can be illusive costs of brain drain can be illusive

Downward pressure on wages in receiving country leading to Downward pressure on wages in receiving country leading to discomfort and social upheavaldiscomfort and social upheaval

Labour rights and issues related to decent workLabour rights and issues related to decent work Rights to join unions etcRights to join unions etc

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Risks of mode 4 liberalisation: Brain drain in the health sector

Brain drain Brain drain describes the movement of educated and skilled describes the movement of educated and skilled persons from one country to another, usually to the detriment persons from one country to another, usually to the detriment of the former.of the former. (IOM) (IOM)

Health is an essential service. The health sector is one of the Health is an essential service. The health sector is one of the faster growing sectors in the world economy, evidenced faster growing sectors in the world economy, evidenced through increased cross-border delivery of health services (e.g. through increased cross-border delivery of health services (e.g. through telemedicine) consumption abroad (e.g. through the through telemedicine) consumption abroad (e.g. through the influx of patients into India, South Africa, and Hong Kong-influx of patients into India, South Africa, and Hong Kong-China for medical treatment) commercial presence (e.g. the China for medical treatment) commercial presence (e.g. the presence of Cuban and Chinese doctors in Africa, who have presence of Cuban and Chinese doctors in Africa, who have set up commercial facilities) and through movement and set up commercial facilities) and through movement and presence of medical personnel supplying health services (e.g. presence of medical personnel supplying health services (e.g. doctors, nurses, physiotherapists, carers, etc).doctors, nurses, physiotherapists, carers, etc).

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Challenges of the health sector in Challenges of the health sector in developing countriesdeveloping countries

The availability of health care providers: from specialists The availability of health care providers: from specialists to general practitioners, from nurses and midwives to to general practitioners, from nurses and midwives to medical assistants, is limitedmedical assistants, is limited In South Africa, Martineau et al (2002) report that In South Africa, Martineau et al (2002) report that

almost 80% of rural doctors were non-South African in almost 80% of rural doctors were non-South African in 19991999

In Alberta Canada, South African doctors have been In Alberta Canada, South African doctors have been recruited to work in rural areas that are not attractive to recruited to work in rural areas that are not attractive to Canadian nationals. (Bundred & Levitt 2000)Canadian nationals. (Bundred & Levitt 2000)

In 2002 over 200 000 foreign doctors held provisional, In 2002 over 200 000 foreign doctors held provisional, full or limited registration in the UK. (Xaba & Phillips full or limited registration in the UK. (Xaba & Phillips 2001)2001)

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Challenges cont’dChallenges cont’d The level of specialized skill in the treatment of The level of specialized skill in the treatment of

diseases relevant to these countries is not at its highest diseases relevant to these countries is not at its highest potential; potential;

Disease surveillance and reporting systems function Disease surveillance and reporting systems function minimally, making it difficult to identify disease minimally, making it difficult to identify disease outbreaks and respond to the most urgent health needsoutbreaks and respond to the most urgent health needs

SSA has unprecedented health crises; cholera, TB, a SSA has unprecedented health crises; cholera, TB, a disproportionate burden of preventable diseases; disproportionate burden of preventable diseases; malaria, HIV/AIDS malaria, HIV/AIDS

Health centers are staffed by medical assistants, Health centers are staffed by medical assistants, nurses and increasingly because of staff shortages, nurses and increasingly because of staff shortages, health surveillance assistants health surveillance assistants

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Challenges cont’dChallenges cont’d

Empirical studies confirm that majority of health Empirical studies confirm that majority of health workers moving from developing into industrial workers moving from developing into industrial countries are better educated than the average countries are better educated than the average workforce remaining behind workforce remaining behind

There are direct links between positive health There are direct links between positive health outcomes and the density of professional health care outcomes and the density of professional health care workers. (World Health Report 2006)workers. (World Health Report 2006)

Difficulty in reaching targets, including MDGs, where Difficulty in reaching targets, including MDGs, where health systems are experiencing critical staff shortages health systems are experiencing critical staff shortages

Shortage of health service providers negatively affects Shortage of health service providers negatively affects meeting universal access to basic services obligations meeting universal access to basic services obligations

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Potential for flanking policiesPotential for flanking policies Brain drain is problematic as governments lose out on their Brain drain is problematic as governments lose out on their

investment, especially in the context of investment, especially in the context of migration migration of health of health professionals professionals

Is mode 4 migration? Is mode 4 migration? The short term, non-intrusion-on-domestic-employment The short term, non-intrusion-on-domestic-employment

market- nature of Mode 4 in the GATS, if managed well, is market- nature of Mode 4 in the GATS, if managed well, is part of solutions to brain drain (ref Para 2, Annex on the part of solutions to brain drain (ref Para 2, Annex on the Movement of Natural Persons Supplying Services Under the Movement of Natural Persons Supplying Services Under the Agreement; The Agreement shall not apply to measures Agreement; The Agreement shall not apply to measures affecting persons seeking access to the employment market of affecting persons seeking access to the employment market of a Member, nor shall it apply to measures regarding a Member, nor shall it apply to measures regarding citizenship, residence or employment on a citizenship, residence or employment on a permanent basis).permanent basis).

Part of the answer lies in developing government policies that Part of the answer lies in developing government policies that lock in temporariness to allow for reaping benefit of brain lock in temporariness to allow for reaping benefit of brain cirulation and gain cirulation and gain

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Pursuing DCs and LDC interests in Pursuing DCs and LDC interests in WTO negotiations:IssuesWTO negotiations:Issues

General issuesGeneral issues Enhanced horizontal commitments on mode 4Enhanced horizontal commitments on mode 4 Enhanced commitmetns for CSS and IPsEnhanced commitmetns for CSS and IPs De-link of mode 4 from mode 3 commitmentsDe-link of mode 4 from mode 3 commitments Reduction in ENTsReduction in ENTs Reduction in requirements for nationality and residencyReduction in requirements for nationality and residency Underpinning MA issues with DR disciplines e.g More recognition of Underpinning MA issues with DR disciplines e.g More recognition of

qualifications, eased licensing proceduresqualifications, eased licensing procedures Enhanced issuance of visas and work permits for mode 4 related activitiesEnhanced issuance of visas and work permits for mode 4 related activities LDC issuesLDC issues Broader definitions of categories to cover areas in which LDCs would have Broader definitions of categories to cover areas in which LDCs would have

export capacity as well, as identified in their May 2006 LDC group requestexport capacity as well, as identified in their May 2006 LDC group request A Waiver to allow for special priority market access to LDCsA Waiver to allow for special priority market access to LDCs

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Pursuing DCs and LDC interests in Pursuing DCs and LDC interests in WTO negotiations: ProcessWTO negotiations: Process

Set date for revised offersSet date for revised offers Assess quality of revised offers against Assess quality of revised offers against

plurilateral request on mode 4 and LDC group plurilateral request on mode 4 and LDC group requestrequest

In accordance with the guidelines and In accordance with the guidelines and procedures for negotiations, re-adjust procedures for negotiations, re-adjust negotiations to achieve outcomes for increased negotiations to achieve outcomes for increased participation of developing countries in participation of developing countries in international trade.international trade.

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Towards overcoming resistance to mode 4 commitments in Towards overcoming resistance to mode 4 commitments in receiving countriesreceiving countries

Confidence building measures to ensure temporariness Confidence building measures to ensure temporariness through cooperation agreements emphasising the difference through cooperation agreements emphasising the difference between labour mobility and supplying services in the mode 4 between labour mobility and supplying services in the mode 4 context.context.

Enhanced Enhanced government involvement in structuring movement government involvement in structuring movement (through retaining close oversight role in Identification of (through retaining close oversight role in Identification of opportunities, opportunities, application for visa and permit, provision of the application for visa and permit, provision of the service, possibility for renewal, conditions in the receiving service, possibility for renewal, conditions in the receiving country and return) country and return)

The role of bilateral cooperation agreements and best practices The role of bilateral cooperation agreements and best practices from countries already doing this is useful.from countries already doing this is useful.

Cooperation with other agencies like IOM.Cooperation with other agencies like IOM.

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Thank youThank you