South-North showdown on Mode 4 in services trade

Restrictions imposed by the US, the EU and Canada on the entry of service-providing workers from developing countries sparked a lively debate at a 17 June meeting of the WTO’s Council for Trade in Services.

by D. Ravi Kanth

GENEVA: India, China, Turkey, Bolivia, the African Group and the least-developed countries on 17 June clashed with the United States, the European Union and Canada at the WTO over their continued regulatory barriers imposed on the movement of natural persons under Mode 4 of the General Agreement on Trade in Services (GATS), several trade diplomats told the South-North Development Monitor (SUNS).

During the Uruguay Round negotiations on services, the initial deadlock on what was to be negotiated was resolved only when agreement was reached to limit the scope of the proposed accord to “trade in services” without defining “services” as such. In this regard, “trade in services”, it was further agreed, was to be defined as the supply of a service: (a) from the territory of one member country into the territory of any other member (Mode 1); (b) in the territory of one member to the service consumer of any other member (Mode 2); (c) by a service supplier of one member through commercial presence in the territory of any other member (Mode 3); and (d) by a service supplier of one member through presence of a natural person of a member in the territory of any other member (Mode 4).

At the meeting of the WTO Council for Trade in Services on 17 June, the developing and least-developed countries offered a graphic account of regulatory barriers imposed by the three trade majors – the US, the EU and Canada – in Mode 4 that effectively rendered market access meaningless.

The developing countries demanded an updated paper by the WTO secretariat on the developments in Mode 4 so as to throw light on how countries have implemented their Mode 4 commitments since the last major background note of 2009.

However, the three trade majors opposed this demand on the grounds that it would not be conducive at a time when a trade dispute is currently under the WTO dispute settlement process. The three also chose to stonewall questions on Mode 4 on the pretext that the issues raised by the developing countries involved market access, which can only be discussed at the special negotiating session of the Council for Trade in Services.

Indian paper

The sharp debate arose over the issues raised in a seven-page Indian paper on “Mode 4: Assessment of Barriers to Entry.” The paper offered a detailed account by citing the Mode 4 barriers that have been mentioned by the WTO secretariat, including:

l     Movement tends to be associated with a commercial establishment in the host country and contingent upon prior period of employment with the home-country company;

l     There are also numerical quotas and economic needs tests (ENTs) that are frequently imposed. ENTs are conducted in the absence of clearly defined criteria and procedures are comparable in effect to the absence of any policy binding;

l     Eligibility criteria for visa and work-permit-related requirements and procedures tend to have a bias towards persons who are highly skilled and educated at elevated functional levels;

l     Procedures relating to visas and work permits can act as an additional impediment since they often tend to be cumbersome, costly and administratively complex and time-consuming. Rejection rates are also high, and the procedures are sometimes opaque and arbitrary. The paper cited a study which estimates that the worldwide costs of processing visa/work permit applications represent around 0.3% of the world GDP;

l     Nationality and residency requirements, and non-portability of social security benefits, also act as Mode 4 barriers;

l     Mode 4 trade may be seriously affected even by non-discriminatory regulatory requirements, including assessment of an applicant’s credentials by taking into account only formal qualifications rather than considering skills and experience. Approval procedures may be complex and discretionary, particularly where no specified criteria exist for judging equivalence.

India provided an illustrative list of barriers in the US, UK and Canada, including some latest measures such as the recent report by the Migration Advisory Committee of the UK. India explained about the restrictive regime in Canada since 2012 which undermined predictability and impacted negatively on Indian companies. Some of the restrictive measures imposed by Canada, according to India, included a hike in visa fees, more restrictive guidelines on intra-corporate transferee (ICT) visas, mandatory customer certification, and frequent upward revisions in minimum salary. Commenting on the US measures, India said that it was raising only those issues that were outside the ongoing trade dispute with the US.

India said the increasingly complex nature of barriers to Mode 4 entry in the US, Canada and the EU included:

l     subjective definitions of Mode 4 categories such as managers, executives and specialists under the ICT category;

l     non-portability of social security contributions;

l     discriminatory salary thresholds;

l     lack of clarity in visa categories, massive increases in visa fees for certain categories of foreign professionals etc.

India maintained that these challenges/issues remained “generic” to Mode 4 access that the developing and the poorest countries invariably face in major markets. A large majority of developing and poorest countries wanted the Mode 4 issues to be addressed on a priority basis. Further, the Mode 4 regulatory barriers entailed huge costs for companies providing short-term services.

India said it remained disappointed as members could not reach consensus on issues related to Mode 4 since 2009. The WTO secretariat must update commitments undertaken by recently acceded members, including Doha offers, and more recent literature.

The US adopted a hardline stance that it will not discuss the Mode 4 issue now as it is part of the ongoing dispute with India. It also expressed its disapproval of any update by the secretariat on the issue.

The EU cast aspersions on India’s real intention by arguing that while it spoke of the Mode 4 measures being generic, India also drew attention to specific measures of specific members. The EU said it was disappointed because the Indian paper raised questions about the commitment of the EU to multilateralism. The EU also said that the Indian proposal on Mode 4 involved market access, which can only be discussed at the special negotiating session.

Canada disagreed with India’s illustrations on the Canadian measures, maintaining that it did not impose any barriers.

In sharp response, India told the US that the issues raised in its paper were outside the current dispute.

India reminded the EU that all issues of Mode 4 can be discussed at the regular sessions of the Council for Trade in Services as per paragraph 11 of the Nairobi Ministerial Declaration which called on members to continue work on all issues in the regular bodies.

Turkey said that Mode 4 remains the most neglected area of negotiations. It expressed concern that the commitments made in Mode 4 are few and far between, without any benefit to developing countries.

China said it agreed with India’s proposal for a comprehensive examination of barriers concerning Mode 4. It said it also faced similar problems in Mode 4 in major markets. China urged the secretariat to update its background paper by including all the latest data.

Morocco, on behalf of the African Group of countries, said that barriers under Mode 4 are constantly increasing. It said that “lack of recognition of qualifications” and lengthy procedures pose hurdles for Mode 4. Morocco added that the African Group has a “systemic” interest in Mode 4 issues, suggesting that it is going to table its concerns.

The least-developed countries said they fully support the Indian proposal because it contained the problems they have raised in their collective requests.

In short, the Mode 4 showdown between India, China and other developing and least-developed countries on one side, and the US, the EU and Canada on the other, revealed the classical North-South divide on issues concerning the movement of natural persons over the past 150 years, according to trade diplomats from the developing world. (SUNS8266)                                           

Third World Economics, Issue No. 619/620, 16 June – 15 July 2016, pp4-5