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October 2011, Volume 18, Number 4

GFMD: Migration, Trade, and Development

The Global Forum for Migration and Development, launched after a 2006 discussion at the UN, aims to highlight best practices to protect migrants, to reduce the costs of labor migration, and to improve data and coherence between migration and development policies. The GFMD annual meeting rotates between industrial and developing countries, and is being held in Switzerland in 2011 and Mauritius in 2012.

The 214 million international migrants in 2010 included four major sub-flows. The largest involved 74 million migrants who moved from one developing country to another, followed by 73 million who moved from developing countries to industrial countries. There were 55 million migrants from one industrial country in another, and 13 million migrants from industrial countries to developing countries.

GFMD-related conferences examined the linkages between low-skilled migrants, trade, and development emphasized three themes. First, most industrial countries have made it easier for foreign students and professionals to enter and stay, but have not opened new entry doors to the low-skilled workers who predominate in developing countries. Some assert that demography (shrinking populations in industrial countries) will force reluctant governments in industrial countries to open doors at the lower rungs of the job ladder, while others appeal to governments seeking control over irregular migration, arguing that opening doors to legal workers will reduce illegal migration.

The third argument for sending more low-skilled workers from developing to industrial countries is increased remittances and faster development. Economists who see the migration of workers as analogous to trade in goods have estimated that moving more workers from lower to higher wage countries could dramatically expand economic output. However, estimates of the potential gains from more migration have done little to pry open doors for low-skilled migrants because they assume full employment, no workplace and social frictions, and ignore public finance effects.

Those skeptical of these models point to high unemployment rates among low-skilled migrants from developing countries in many European countries to argue that opening doors wider to low-skilled migrants could add to unemployment and integration issues rather than employment and economic growth. There is agreement that remittances reduce poverty in families receiving them, but may not speed up the type of development that reduces pressures to emigrate.

Economics teaches that there are always alternative ways to combine inputs to produce output, including, for example, using low-skilled migrants to pick fruits and vegetables, using machines, or importing produce. Demographic, control and development arguments for opening more doors to low-skilled migrants sometimes ignore these alternatives. Restrictionists who argue that low-skilled migrants who settle may consume more in tax-supported benefits than they pay in taxes or fail to integrate successfully are often able to block calls for wider-open-doors for low-skilled migrants.

Trade. The World Trade Organization promotes freer trade, providing a forum for member countries to negotiate lower barriers to flows of goods and investment by making offers and seeking concessions, as when developing countries offer easier access to industrial country manufactured goods in exchange for lower barriers to their exports of farm goods. The Doha development round of negotiations, launched in 2001, aimed to liberalize trade in ways that accelerate development in poorer countries. Doha negotiations have stalled because of disputes over agricultural subsidies and intellectual property rights.

Many developing countries would like to use the WTO's General Agreement on Trade in Services (GATS) Mode 4 negotiations to open doors for their migrant service providers. Since services employ 80 percent of workers in industrial countries, and picking apples can be considered providing a service to farmers, GATS Mode 4 could apply to almost all jobs.

There are four major modes or ways to provide services across national borders: cross-border supply, consumption abroad, foreign direct investment (FDI) or commercial presence, and Mode 4 migration, which the GATS refers to as the temporary movement of "natural persons." Accountancy services, for example, can be provided on-line (Mode 1), by sending an accountant abroad to audit financial statements (Mode 4), or by having the client travel to the country where the service provider is located to receive services (Mode 2). Similarly, an IT service provider could visit a client abroad (Mode 4) or provide services to foreign clients via the internet (Mode 1).

Mode 4 accounts for less than five percent of trade in services, between $100 billion and $200 billion of the total $3.3 trillion trade in services in 2009. Developing countries led by India want to liberalize Mode 4 movements of service providers by persuading WTO member countries to reduce migration barriers. Industrial countries have been willing to liberalize the movement of intra-company transferees, who are managers and professionals employed by multinationals and shifted from one country to another within the same firm, but not low-skilled workers.

More low-skilled service providers could be admitted to industrial countries if they made four major changes. First would be elimination of the economic needs tests used in many countries to determine if employers can hire the foreign workers they prefer. Developing countries also want industrial countries to expedite the issuance of visas and work permits, facilitate credentials recognition so that service providers can obtain licenses and certificates needed to work abroad, and exempt temporary GATS service providers from work-related benefit programs and the payroll taxes that finance them.

The discussions of GATS Mode 4 often obscure the fundamental differences between trade in goods and migration. A trade transaction is often a one-time event, and the good traded does not care where it is consumed. Labor migration, on the other hand, involves continuous transactions between employers and employees over the level of effort required to keep the job, and employees outside the workplace may want a voice in shaping the rules under which they live and work.

Bilateral and regional free-trade agreements may offer more promise to liberalize labor migration than GATS. However, with the notable exception of the EU, most bilateral and regional FTAs limit freedom of movement to professional and skilled workers. Indeed, FTAs such as those in Africa include grand freedom-of-movement promises but limited implementation.

Development. One hoped-for effect of more migration and trade is faster development in poorer countries with large numbers of low-skilled workers. Many developing country governments lament the exodus of their best brains to industrial countries as students and workers, although some point to increased trade and Diaspora-led development as partial offsets to the net movement of brains toward high-wage countries. It is very hard to restrict the out-migration of the best and brightest seeking opportunity, prompting a variety of proposals to encourage circulation between countries of origin and destination to spur development.

Perhaps the simplest rule is that Diasporas can accelerate development in countries poised to develop, but remittances, Diasporas, and aid do little in countries that are not ready for an economic take off. The Diaspora as well as foreign investors take an interest in countries that are poised for rapid growth.

Low-skilled migrants are more numerous and more challenging to link to development. The EU and some southern European countries have embraced Mobility Partnership Agreements that oblige migrant-sending governments to help reduce irregular migration in exchange for the opportunity to send guest workers to the richer country, plus provisions for training and other projects aimed at accelerating development.

Trying to reduce low-skilled migration with faster economic development leads to a paradox. There can be more migration with faster development because more poor people in faster-growing societies want to and are able to emigrate, that is aspirations and capabilities change, producing a migration hump.

One way to see this is to consider the freer trade and investment between Mexico and the US unleashed by NAFTA after 1994. There were changes in both the US and Mexico, as factories making appliances, sewing garments, and assembling electronics closed in the US and in some cases reopened in Mexico to take advantage of lower wages. Simultaneously, farm commodities from more efficient US farmers flooded Mexico, signaling especially youth in rural families that they could not get ahead on small farms that depended on rainfall to produce corn and other crops.

The workers displaced in the US did not move to Mexico, but some of the farmers and their teen-age children who perceived that staying in rural Mexico meant a life of poverty moved to the US. Higher aspirations in a globalizing Mexico combined with more capability to move from Mexico to the US, especially when the peso crisis of 1994-95 dashed hopes for quick improvements in Mexico and the US economic boom of the late 1990s generated plenty of jobs (the US added a net 10,000 jobs a day in the late 1990s).

The result was a Mexico-US migration hump, precisely the opposite of what was predicted by then-Mexican President Salinas, who said that if Mexico sent more tomatoes to the US, it would send fewer tomato pickers. Instead, Mexican exports of both tomatoes and tomato pickers increased. The question is whether this Mexico-US migration hump peaked during the 2005-07 boom, when over 600,000 Mexicans a year moved to the US, or whether the apparent slowdown in Mexico-US migration is due to a combination of the 2008-09 recession and more enforcement on the Mexico-US border.

GFMD. The GFMD, launched in 2006, acknowledges that migration is occurring, is often controversial, and offers the potential to speed up development in emigration countries. The GFMD allows governments to share best-practices to ensure that migration hastens development, providing a forum to bring migration and development problems and opportunities to the attention of other governments. Experience suggests that finding win-win-win outcomes for migrants, employers, and sending and receiving countries is neither easy nor straightforward, but the GFMD allows governments to learn about new programs and follow up on promising links.

Discussions among the government representatives at the GFMD have evolved. There is more appreciation that there are no magic policies to ensure that migration benefits all. However, many representatives continue to make simplistic arguments that begin from the premise that labor surpluses in developing countries and shortages in industrial countries suggest renewed efforts to overcome protectionism, racism, and other factors that keep borders closed despite "natural" reasons to open them. There has been significant learning that there are no quick fixes in other areas, such as including low-skilled migration in bilateral or multilateral FTAs or counting on Disaporas to speed up development in migrant-sending countries.

GFMD discussions have called attention to the costs of migration, including recruitment and remittance costs. There has been considerably more progress made in lowering remittance than recruitment costs, perhaps because governments shared an interest after the 9/11 attacks in minimizing informal channels to send money over borders that could be used by terrorists. There has been less progress in reducing other migration costs, including the cost of securing a foreign job offer and traveling to fill it. In many Asian countries, workers pay a third of what they expect to earn over three years to obtain a foreign job offer, pay passport and visa fees, and travel to the job, meaning they will work one year simply to repay migration costs.

Perhaps the major message after five years of the dialogue on migration and development is simple: the migration and development relationship is complex. There are few on-the-shelf solutions just waiting to be implemented that assure win-win-win outcomes. Instead, the relationship between migration and development is more analogous to a loaded supertanker in the middle of the ocean. GFMD discussions can help to move the tanker one or two degrees in the direction of ensuring that migration stimulates stay-at-home development, but are unlikely to turn it around.