Economic Implications of mode 4 trade. WTO Symposium on Mode 4 September 2008

1. Economic Implications of mode 4 trade.WTO Symposium on Mode 4September 2008 ------------------------ Joy Kategekwa

2. Presentation structure • The case for mode 4 trade: Benefits • Drawbacks of mode 4 • Risks of mode 4: brain drain in the health sector • Potential utility of flanking policies • Pursuing developing and least developed country interests in WTO negotiations: Issues and Process • Towards overcoming resistance to mode 4 commitments in receiving countries

3. Scoping mode 4 within overall migration(Source IOM)

4. The case for mode 4:Benefits • Presents great potential for real exploit of differences in resource endowments giving developing countries an opportunity to exploit labour as an abundant resource • Global applied general equilibrium model by Winters et al, finds that a $156 billion annual increment in economic welfare could result from a 3% increment in labour mobility by receiving countries ( Winters 2002) • Gains are expected to be shared between developing countries (in the form of remittances) and developed ones (through fees for licenses, certification of qualifications, labour costs, living costs, insurance costs in host country, e.t.c) • Such gains are expected to exceed those that could be obtained from liberalization in traditional areas of trade.

5. Benefits cont’d • Remittances: Dramatic increment over the years • WB estimates: $167 billion in 2005 • Growing faster than FDI and Official Development Assistance over the past decade • Increasing by close to 10% p.a between 2001 and 2005 (WB 2006) • What does this mean for poverty reduction in sending countries? • At micro level, additional income for recipients stimulates consumption of other services e.g completion of education, access to basic services, health, water, sanitation, decent housing. • e.g In Indian state of Kerala, 1 in 6 work overseas, 1 in 3 are beneficiaries of remittances. • At national level, adds to a country’ income and output contributing to poverty reduction • A source of foreign exchange and development finance

6. 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)

7. Benefits cont’dResponding to social economic realities • Demographic differences; matching demand with supply • Difference in education systems and specializations: Filling gaps created by upward knowledge sophistication and specializations • Enhanced skills circulation; allowing for more comprehensive movement of skills, resulting in more optimal technology transfer, and potentially more investment when people return home. For semi-skilled, results are enhanced technical skills out of experience on contracts abroad. • Inroads into curbing permanent migration: Ref. The Annex on movement of natural persons supplying services under the Agreement.

8. The case for commitments for semi skilled service suppliers • Gains on productivity between host and home countries are likely to be largest in area of semi skilled service suppliers. Their remittamces have been found to offset original loss in leaving home countries. (Winters 2002) • Problems identified with liberlising markets for semi skilled workers like: • Cultural and integration problems, drains on the public purse, slip into permanent migration, Are less justifiable in the context of mode 4 owing to its temporariness

9. Commitments for semi skilled service suppliers, cont’d • Mandates in the GATS negotiations: • 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 way in which their increased participation in international trade can be achieved. LDCs have identified semi.skilled as an area of export interest • 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 the Annex) • Paragraph 9 of the LDC Modalities emphasizes Mode 4 as presenting potential 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 supplying services internationally. The Paragraph calls on Members to consider undertaking commitments to provide market access in Mode 4, taking into account all categories of natural persons identified by LDCs in their requests.

10. Do current schedules match this economic reality? • Mode 4 remains the least committed mode in Members’s schedules • The categories of service suppliers typically appearing in members schedules include: • Intra-Corporate Transferees (ICT) – movement within juridical spheres; • Business Visitors (BV) – Prospecting business opportunities, preparing establishment of a branch etc; • Contractual Service Suppliers (CSS) – Provision of a service on a pre-obtained contract possibly within the context of a legal person • Independent Professionals (IP) - an individual service supplier, such as an architect, moves abroad to supply a service. • All have high minimum qualifications.

11. Drawbacks of mode 4 • Loss of services of skilled people even temporarily reduces total output, tax base, scale economies , entrepreneurship • Potential slip into permanence with remittances decreasing over time • Outward movement in sectors like health has been portrayed as having lesser, compared e.g to ICTs, benefits for tech transfer or investment in home countries • In the absence of home policies especially aimed at ensuring temporariness, mainstreaming mode 4 suppliers as a major part of national development plans, such benefits as brain gain and reducing costs of brain drain can be illusive • Downward pressure on wages in receiving country leading to discomfort and social upheaval • Labour rights and issues related to decent work • Rights to join unions etc

12. Risks of mode 4 liberalisation: Brain drain in the health sector • Brain drain describes the movement of educated and skilled persons from one country to another, usually to the detriment of the former. (IOM) • Health is an essential service. The health sector is one of the faster growing sectors in the world economy, evidenced through increased cross-border delivery of health services (e.g. through telemedicine) consumption abroad (e.g. through the influx of patients into India, South Africa, and Hong Kong-China for medical treatment) commercial presence (e.g. the presence of Cuban and Chinese doctors in Africa, who have set up commercial facilities) and through movement and presence of medical personnel supplying health services (e.g. doctors, nurses, physiotherapists, carers, etc).

13. Challenges of the health sector in developing countries • The availability of health care providers: from specialists to general practitioners, from nurses and midwives to medical assistants, is limited • In South Africa, Martineau et al (2002) report that almost 80% of rural doctors were non-South African in 1999 • In Alberta Canada, South African doctors have been recruited to work in rural areas that are not attractive to Canadian nationals. (Bundred & Levitt 2000) • In 2002 over 200 000 foreign doctors held provisional, full or limited registration in the UK. (Xaba & Phillips 2001)

14. Challenges cont’d • The level of specialized skill in the treatment of diseases relevant to these countries is not at its highest potential; • Disease surveillance and reporting systems function minimally, making it difficult to identify disease outbreaks and respond to the most urgent health needs • SSA has unprecedented health crises; cholera, TB, a disproportionate burden of preventable diseases; malaria, HIV/AIDS • Health centers are staffed by medical assistants, nurses and increasingly because of staff shortages, health surveillance assistants

15. Challenges cont’d • Empirical studies confirm that majority of health workers moving from developing into industrial countries are better educated than the average workforce remaining behind • There are direct links between positive health outcomes and the density of professional health care workers. (World Health Report 2006) • Difficulty in reaching targets, including MDGs, where health systems are experiencing critical staff shortages • Shortage of health service providers negatively affects meeting universal access to basic services obligations

16. Potential for flanking policies • Brain drain is problematic as governments lose out on their investment, especially in the context of migration of health professionals • Is mode 4 migration? • The short term, non-intrusion-on-domestic-employment market- nature of Mode 4 in the GATS, if managed well, is part of solutions to brain drain (ref Para 2, Annex on the Movement of Natural Persons Supplying Services Under the Agreement; The Agreement shall not apply to measures affecting persons seeking access to the employment market of a Member, nor shall it apply to measures regarding citizenship, residence or employment on a permanent basis). • Part of the answer lies in developing government policies that lock in temporariness to allow for reaping benefit of brain cirulation and gain

17. Pursuing DCs and LDC interests in WTO negotiations:Issues • General issues • Enhanced horizontal commitments on mode 4 • Enhanced commitmetns for CSS and IPs • De-link of mode 4 from mode 3 commitments • Reduction in ENTs • Reduction in requirements for nationality and residency • Underpinning MA issues with DR disciplines e.g More recognition of qualifications, eased licensing procedures • Enhanced issuance of visas and work permits for mode 4 related activities • LDC issues • Broader definitions of categories to cover areas in which LDCs would have export capacity as well, as identified in their May 2006 LDC group request • A Waiver to allow for special priority market access to LDCs

18. Pursuing DCs and LDC interests in WTO negotiations: Process • Set date for revised offers • Assess quality of revised offers against plurilateral request on mode 4 and LDC group request • In accordance with the guidelines and procedures for negotiations, re-adjust negotiations to achieve outcomes for increased participation of developing countries in international trade.

19. Towards overcoming resistance to mode 4 commitments in receiving countries • Confidence building measures to ensure temporariness through cooperation agreements emphasising the difference between labour mobility and supplying services in the mode 4 context. • Enhanced government involvement in structuring movement (through retaining close oversight role in Identification of opportunities, application for visa and permit, provision of the service, possibility for renewal, conditions in the receiving country and return) • The role of bilateral cooperation agreements and best practices from countries already doing this is useful. • Cooperation with other agencies like IOM.

20. Bibliography • Carnegie Endowment for International Peace. 2003. "Decoding Cancun: Hard Decisions for a Development Round." Policy Brief. Washington D.C. • Commander S, Kangessniemi M and Winters L A (2002) “The brain drain; curse or boon? A survey of the literature”, paper for the International seminar on international trade, Stockholm, May 2002. • Institute of International Economics. 1999. "The Globalization of Services: What has Happened? What are the Implications?" Working Paper No. 99-12. Washington, DC. • International Organization for Migration. 2003. "Defining Migration Priorities in an Interdependent World." Migration Policy Issues, 1. Joint WTO-World Bank Symposium on Movement of Natural Persons (Mode 4) under the GATS. April 2002. • Kategekwa, Extension of Mode 4 commitments to include unskilled workers in the WTO. A win win situation, especially for LDCs • Paper for the OECD Development Centre Panel on Migration and Development. WTO Public Forum 2006-What WTO for the XXIst Century? Geneva, 25-26 September 2006. • Kategekwa, Liberalization of Trade in Health Services: Balancing Mode 4 Interests with Obligations to Provide Universal Access to Basic Services • January 2008, South Centre research papers. • OECD. 2003 "Service Providers on the Move: The Economic Impact of Mode 4." Working Party of the Trade Committee. Paris: OECD • UNCTAD 2003, "Increasing the Participation of Developing Countries through Liberalization of Market Access in GATS Mode 4 for Movement of Natural Persons Supplying Services." • UNCTAD LDC Report, 2006, On line Available http://www.unctad.org • UNCTAD, LDC Report 2007, On line Available http://www.unctad.org • UNCTAD, Handbook of Statistics, 2004. Also see Participation of the developing economies in the global trading system, WT/COMTD/W/136. • Winters, Alan L. et al. "Negotiating the Liberalization of the Temporary Movement of Natural Persons." Discussion Papers in Economics. (2002) No. 87. Brighton: University of Sussex. • Winters, Alan L " The Economic Implicaions of libealising mode 4 trade, paper prepared for the Joint WTO-World Bank Symposium on Movement of Natural Persons " (Mode 4) under the GATS. April 2002.

21. Thank you