Temporary Entry of Natural Persons As Service Providers

JOINT WTO-WORLD BANK SYMPOSIUM ON

MOVEMENT OF NATURAL PERSONS (MODE 4)

UNDER THE GATS

WTO, Geneva, 11-12 April 2002

Temporary Entry of Natural Persons as service Providers:

Issues and Challenges in Further liberalization under the

Current GATS Negotiations

Richard Self

B. K. Zutshi

Introduction

It was in the post-World War-II period that the growth of services in the OECD countries showed dramatic increases. This growth was largely driven by advances in information technology and telecommunications. Services were considered largely non-tradable before the advent of these technological developments because of being non-storable and having to be simultaneously produced and consumed. Computerized storage of data and remote delivery of services by modern means of communications helped in dramatically increasing the tradability of services. This fostered bilateral trade exchanges in many service sectors with developed countries being the major suppliers. This in turn resulted in pressures within developed countries to seek changes in the regulatory environment to make it possible for services to be exchanged on cross border basis.

Inclusion of ‘trade in services’ as an issue for negotiations in the Punta Del Este Ministerial Declaration, which launched the Uruguay Round Negotiations in Sept. 1986, was preceded by a long andcontroversial debate on the ‘tradeability’ of services and hence on its relevance as a subject for multilateral trade negotiations. This included the issue of applying trade rules to investment in services, since regulations and the marketplace required establishment in the host country as a condition for doing business. Investment had never been recognized as “trade” under the GATT, and this contributed to the difficult debate on treadeability. The debate continued well into the Round and was coloured by sharply differing perceptions between the developed and the developing countries on the possible impact of multilateral rules and disciplines in services trade on their economic and developmental interests, even though there was no clarity about the nature of such rules and disciplines. The possible application of the GATT paradigm for goods raised, not only doubts about its appropriateness for the services sector, but also great fears and anxieties among the developing countries about its implications for their development aspirations, given the significance of the sector in economic terms and its strategic role in development. Reluctant participants in the beginning, developing countries, however, turned enthusiastic supporters of a multilateral regime of rules in services trade towards the end of the Uruguay Round, even more so than the demandeurs, whose earlier expectations of generating trade liberalization were not being realized. This change in attitude of developing countries had to do as much with the emerging structure of the framework agreement as with the autonomous liberalization undertaken by them in their quest for greater integration into an increasingly interdependent global economy, greatly fostered by technological developments in computing and telecommunications.

A major achievement of the Uruguay Round Multilateral Trade Negotiations was bringing services into the multilateral trading system through the General Agreement on Trade in Services (GATS) and the initial commitments made under the agreement through extended negotiations. Having said that it may also be pointed out, (and as is generally accepted now) that the actual commitment to liberalize trade in various sectors was modest, with the exception of telecommunication services and, to a lesser extent, financial services. The present commitments, except in these two sectors, indicate a standstill, or even a roll-back in some cases i.e. the then applicable regimes were more liberal than those bound under the agreement. If Members take account of autonomous liberalization since the conclusion of the extended negotiations, the gap between the applicable and the bound regimes has further widened, particularly in case of developing countries. Even by these modest standards of liberalization, little was achieved in case of the temporary entry of natural persons (known as “mode four” under the GATS framework). Commitments were horizontal, mostly for movement associated with the establishment of a commercial presence (known as “mode three” under GATS). and confined to intra-corporate transferees at senior levels and high-skill professionals and specialists. Additionally, commitments were subject to conditions and qualifications such as various kinds of needs tests, wage-parity requirements etc. which further reduced their value in providing effective market access.

The procedural requirements for grant of visas and work permits remained unchanged as the result of Uruguay Round commitments and subject to considerable discretionary powers to the issuing authorities, resulting in further erosion in access opportunities. In the case of professional services, there are strongly held views that the recognition of qualifications and verification of professional competence, without which no effective access is possible, has left much to be desired in implementation. There is, however, a contrary view on this issue which suggests that in practical terms absence of mutual recognition agreements and harmonized rules does not act as a constraint to temporary movement in most licensed professional services, as the professional provides his service as a “consultant”, leaving it to a locally licensed associate to meet the legal requirements of authenticating, by signature, say audit reports and architectural plans. On that basis it is held that recognition and harmonization of qualifications are less relevant to providing services through mode 4. This argument also holds that, in a negotiating environment, it will be difficult—probably impossible—to achieve improved temporary entry regimes and to harmonize professional qualifications. This will need to be explored further.

Issues which have a bearing on equity (contributions without benefits) and possibly on the conditions of competition (raising costs) such as social security payments were left unresolved, as participants differed over the ability to manage such complex issues through negotiations over temporary entry and stay under mode 4. The present negotiations provide an opportunity to address all of these issues, substantive and procedural, that are seen as standing in the way of effective market access under mode 4.

Fortunately, the present is a propitious time to do so in view of the revolutionary developments in computing and information technology, the demand- supply imbalance in skilled manpower among groups of countries, demographic changes in global population, resulting in age- profile changes; all of these several factors resulting in labour shortages in developed countries` markets. This is evident from recent changes effected in Germany, France and the UK in their immigration policies and regulations to attract foreign workers. The United States has also enhanced the H-1-B quota ceiling. Developing countries, on the other hand, are labour- abundant and some of them have this abundance in skilled and professional categories. There is, therefore, mutuality in the needs and benefits from movement of natural persons between developed and developing countries. The opportunity provided by the ongoing services negotiations in the WTO must be exploited to promote liberalization in temporary movement of natural persons under the GATS to the mutual benefit of developed and developing countries. The process for the realization of this objective has to start by involving all stake holders in a discourse on the issue, including in particular labour representatives and immigration authorities, the service industry, academicians, trade policy experts and negotiators. This discourse has to start with a better understanding and appreciation of the GATS provisions on MONP, on the one hand, and, demystification of immigration laws and regulations relating to temporary movement, on the other.

This joint WTO-World Bank symposium is a commendable initiative in setting up of this discourse and we hope that it is the first of a series of such initiatives. One of the principle objectives of this debate between stakeholders should be to allay apprehensions about a possible inundation of developed country labour markets by cheap labour from developing countries, which is a sensitive issue in a number of developing countries as well. Apart from the fact that the GATS only seeks to liberalise cross-border movement of natural persons on a temporary basis for the provision of services, developing countries themselves do not appear to be interested in the migration of their skilled manpower as that is not in the interests of long term prospects of their growth and development. The other area of concern is the possibility of abuse of temporary entry under the GATS for entry into the labour market of developed countries on a permanent basis. This concern has to be addressed and one of the ways of doing so may be home and host country cooperation in enforcement.

The rest of this paper is organized as follows:

Section 1 deals with scope and coverage of mode 4, giving a brief history of negotiations establishing the definition of trade in services and the emergence of mode 4, in addition to interpretation of the legal provisions of the GATS relevant to mode 4.

Section 2 examines the up to date mode 4 specific commitments, their brief negotiating history, analysis of commitments by major developed countries and an assessment of the political and regulatory dynamics leading to mode 4 commitments to date.

Section 3 is on issues and challenges in the current negotiations in respect of mode 4, starting with an analysis of the negotiating mandate, an assessment of the current negotiating environment in regard to mode 4 liberalization compared with that of the Uruguay Round. This section also covers issues relating to classification of natural persons as service providers and approaches to liberalization negotiations, barriers to and challenges in effective market access through and under mode 4. It also addresses possible means of facilitating temporary entry of service providers under the GATS. The section closes with an examination of related GATS disciplines having a bearing on effective market access under this mode.

Section 4 draws some conclusions and makes some recommendations.

Section 1

Mode 4: Scope and Coverage

a) Establishing the definition of trade in services and the emergence of Mode 4

Although still a long way from the definition of trade in services in Article 1 of the GATS, an important step towards this definition was taken in the mid-term review Ministerial Meeting in Montreal in December 1988. Ministers directed that “work on definition should proceed on the basis that the multilateral framework may include trade in services involving cross-border movement of services, cross-border movement of consumers, and cross-border movement of factors of production where such movement is essential to supplies”(MTN/TNC/11). This conceded the principle of parity/symmetry in the treatment of capital and labour , a core demand of developing countries in any multilateral framework of rules in services trade. For developed countries, the language had its own significance, as it represented a breakthrough in gaining agreement to include investment in services. The definition was also to be examined further in the light of: cross-border movement of service and payment, specificity of purpose, discreteness of transactions and limited duration. Inclusion of these four elements, along with the caveat on ‘essentiality’ in factor movement, while preserving the negotiating position of developing countries (which at that stage continued to view the inclusion of services in the multilateral trading system as being against their developmental interests), reflected a balance in the perceived interests of the two sides.

The three elements of specificity of purpose, discreteness of transactions and limited duration, along with the essentiality caveat on factor movement reflected developing countries reservation about the framework becoming an investment agreement in services and also preserved developed country opposition to uncircumscribed labour movement as a part of the services agreement. As will be seen in the following paragraphs, these elements inform not only the definition of trade in services, but some important elements of the structure of GATS itself, though not necessarily in the way and to the effect intended by participants at the time. We would argue that the modal approach to the definition, if not embedded in these elements, was implied therein. Further that it was also inherent in the insistence on formal parity/ symmetry in factor movement, In the immediate post mid-term review period, negotiations on definition were put on the back burner, for delegations wanted to have a better understanding and feel about the kind of regime appropriate for services before they would come to grips with the issue.

In order to gain that kind of understanding, the post mid-term review period examined the implications and applicability of the main GATT rules and principles to particular sectors. This exercise in the fall of 1989 proved of immense help to negotiators in realising the enormous challenges in addressing the diversity and complexity of different service sectors, subject to divers regulatory regimes, across sectors and countries, through a single set of framework rules. It was duringthis process that the idea of sectoral annexes for the purpose of identifying and addressing sector-specific issues was raised,resulting in the appointment of sectoral working groups consisting of negotiators and sectoral experts. Among the eight groups set up, one was on labour mobility, mandated to examine (i) the need for a specific annotation/annex on labour mobility and (ii) and the possible nature and content of such an annotation/annex. The group was unable to provide any consensus- based recommendations on both the need for and the nature and contents of an annex on labour mobility.

The Negotiating Group on Services (GNS), consisting of GNS negotiators and sectoral experts, was appointed in August 1990 to take stock of the work of the sectoral working groups and finalise draft texts of sectoral annexes/annotation wherever these appeared necessary. Although there was no consensus nor even any clarity about the need and contents of an annex on labour mobility, the work in the labour mobility group and informal consultations on definition had led to a consensus on the modal approach to the definition of trade in services. The text of Article 1:2 in the Rev 1draft (page 333) is the same as in the GATS in respect of modes 1,2 and 4., except for the technical change of ‘Party’ to ‘Member’. The text for mode 3 was partly in square brackets as developing countries continued to maintain tactical opposition to establishment based trade, in part because some important mode 4 issues were far from settled at that point in time. Since the Annex on Movement of Natural Persons Supplying Services Under the Agreement (hereinafter referred as Annex on MONP) is a part of the definition of trade in services, we will briefly touch upon the negotiating history of the Annex, before reverting to a further analysis of the definition and scope and coverage under mode 4.

The issues in negotiations on a possible annex on labour mobility before the Brussels Ministerial Meeting were:

1. Mobility to relate to temporary movement of physical persons performing particular services in respect of which access commitments have been undertaken.

1. Exclusion of individual job seekers and access to the employment market from coverage.

1. An illustrative list of physical persons performing particular services covering broad categories of sectors and skill levels to be established.

1. Market access commitments specifying the categories for the provision of a particular service to be negotiated in accordance with Article XVI of the framework drawing on the illustrative list.

1. Application of national treatment to persons admitted under a market access concession on mode basis.

1. Flexibility to parties to regulate the temporary entry and stay of natural persons to ensure integrity of and orderly movement across borders on the one hand, and, on the other, to ensure non-frustration of benefits through the application of national laws, regulations and administrative practices relating to the temporary movement of physical persons.

1. Treatment to be accorded to the integration of labour markets.

It will be observed from the text of the Annex on MONP that all the issues/elements, other than an illustrative list of physical persons performing particular services and the treatment of labour market integration have been incorporated in the Annex. At that stage in negotiations there was still no clarity on the scope of application of the Annex to temporary movement of natural persons associated with commitments under mode 3. This issue was discussed in the post-Brussels negotiations. It will be recalled that the Brussels Ministerial was designed to conclude the Uruguay Round, but it failed to do so. However, negotiations continued in earnest during 1991, and at the end of the year produced the “Draft Final Act” under the authority of the Chairman of the Trade Negotiating Committee. The services components of this document, later to become the GATS, were, with some exceptions, kept largely intact at the conclusion of the Uruguay Round in 1993. The labor market integration issue was conceded at the end of the Round and put under article V bis.

Negotiating an illustrative list of natural persons performing services did not fructify for want of wide spread support and enthusiasm and the perception that the task would be difficult to bring to a meaningful conclusion in the time frame of the UR negotiations. While some developed country delegations were in favour of drawing such an illustrative list in respect of natural persons associated with mode 3 commitments, some developing countries led by India were looking for an illustrative list covering different levels of skills and not only high-skill professionals and executives associated with mode 3. As has been indicated later in this paper, a remarkable degree of uniformity in classification of professionals and executives associated with mode 3 movement did emerge in the process of commitment negotiations, without a formal decision to that effect. The idea of classification of natural persons for the purpose of undertaking commitments in order help promote liberalization under mode 4 and bring about a degree of certainty and uniformity in commitments has been revived in the current negotiations. The issue has been dealt with later in this paper.

Thus it would appear that by the time of the Brussels Ministerial meeting in December 1990, although there were formal and tactical reservations about some elements of the definition of trade in services in Article 1:2, and the precise content of a labour mobility annex, there was a general understanding among negotiators about the modal approach to the definition of trade in services and possible coverage of issues under the labour mobility annex, except for the coverage of natural persons movement associated with modes 3. Not much thought had been given to the movement of natural persons associated with mode 3 from the perspective of the annex. The understanding was clear on the temporary nature of the movement, exclusion of access to the employment market of a Member and of citizenship, residence or employment on a permanent basis and the need for considerable flexibility to members in regulating temporary entry of natural persons subject to non frustration of specific commitments. The contentious issue of the scope of the temporary movement in terms of skill levels was settled by agreeing to leave it to specific commitments negotiations covering all categories of natural persons. It may be observed that the understanding on the natural persons movement under the agreement being temporary, without any such qualification for investment under mode 3, implied a modification in the negotiating stance of developing countries on ‘limited duration’ as an element of symmetry in factor movement (capital and labour).