GATS Mode 4: Opening World Service Markets Could Replace H-1B and L-1 Programs

by George F. McClure

When the World Trade Organization’s (WTO) 148 member countries established a General Agreement on Trade in Services (GATS), they aimed to encourage liberalization of trade in services, ultimately to encourage economic growth. Most expect that WTO will achieve this goal through a progressive process that will involve successive rounds of negotiations, to balance rights with obligations for all WTO members. Ultimately, GATS will increase developing countries’ involvement in world trade in services by increasing their services export opportunities.

GATS Identifies Four Service Modes

Under GATS, four modes of supply exist:

• Mode 1: Cross-border supply, in which the service crosses the border, such as distance learning

• Mode 2: Consumption abroad, in which the consumer moves to the country of the supplier, as in study abroad

• Mode 3: Commercial presence, in which the service provider establishes facilities in another country, as in branch campuses or arrangements with local institutions

• Mode 4: Presence of natural persons, in which people temporarily travel to another country to provide service, as when professors or researchers work abroad

Modes 3 and 4 had different advocates. Developed countries favored Mode 3, as it would permit movement of capital for investment in services in other countries. Developing countries, on the other hand, favored Mode 4, since it would permit the free movement of natural persons in providing services to other countries.

WTO Members Interpret Mode 4 Differently

Interpretations and applications of Mode 4 vary tremendously. Self-employed or independent service suppliers paid directly by their customers fit into the category of natural persons who supply services to a member country. But another, fuzzier category includes natural persons of a member who are employed by a service supplier of a member.

In addition, a number of GATS commitments refer to short-term or temporary employment. As a way to comply with domestic labor law, some WTO members consider almost all types of temporary workers to be employees.

Definitions Lacking

Mode 4 allows temporary services to be performed anywhere. Sorting this out, Mode 4 generally covers:

• Persons providing services where a foreign service supplier obtains a contract to supply services to the host country company and sends its employees to provide those services

• Independent service providers abroad — individuals selling services to a host country company or to an individual

• Persons employed abroad by foreign companies established in the host country, excluding nations of the host country (www.iom.int)

The definition of “temporary” relative to providing services is crucial. Unfortunately, GATS provides no standard definition of “temporary”; member countries can make their own interpretations and define “temporary” differently for various service provider categories. Mode 4 excludes permanent migration specifically, but WTO members have called for periods ranging from a few months to a few years — a significant spread. Since service providers under Mode 4 currently may gain temporary entry for periods of three years or more, they can be considered to have entered the local labor market, potentially providing services local people could perform.

In addition, while service suppliers at all skill levels are included in Mode 4, in practice, WTO members have generally limited the application to high-skilled workers — managers, executives and specialists. But again, GATS has not defined these terms clearly.

A GATS Visa Could Replace H-1B and L-1 Visas

One of the Mode 4 concepts circulating considers the possibility of a GATS visa, which would facilitate entry of Mode 4 service suppliers by avoiding the detailed visa procedures currently required in many countries. In theory, GATS visas would be issued rapidly, would be time-limited, would cover both independent service suppliers and intra-corporate transferees, and would include appeal rights and sanctions for abuse.

Mode 4 and Engineering Careers

The deadline for completing Mode 4 negotiations was 1 January, but as this issue of Today’s Engineer went live, that deadline had not been met. IEEE-USA is planning to meet with the USTR to discuss the effects of GATS Mode 4 and the danger of horizontal concessions in negotiating agreements that could adversely affect engineers’ careers, as well as the ability of the United States to sustain preeminence in technological innovation (www.ieeeusa.org/policy).

To Dig Deeper

A good overview of this complex issue is the 28-page, A Quick Guide to the GATS and Mode 4, by Julia Nielson and Daria Taglioni, Trade Directorate, OECD, which has been quoted from in this article. The Guide  can be found on the International Organization for Immigration's Web site at www.iom.int.

In addition, Dr. Ron Hira's discussion of Mode 4 and its potential impact on Indian software firms can be found at www.cid.harvard.edu.

Initial offers concerning Mode 4 had been made by 37 WTO member countries, including the United States, by November 2003. Some of these offers have been made public; others have not. Twelve are currently available at www.wto.org. Six others can be accessed via national Web sites. The U.S. proposal is not available to the public.

The services sectoral classification list, including engineering and computer-related services, can be accessed from www.wto.org.

Link to a WTO study (ERSD-2004-07) of the impact of Mode 4 on trade in goods and services on the United States and other member countries from www.wto.org

George McClure is chair IEEE-USA's Communications Committee, a member of the IEEE-USA Career & Workforce Policy Committee, and technology policy editor for IEEE-USA Today’s Engineer. He can be reached at todaysengineer@ieee.org.

Opinions expressed in this article are the author's.