Opinion of the European Economic and Social Committee on the General agreement on trade in services (GATS) — Mode 4 negotiations (movement of physical persons)
Date: 2005-06-08
Institutions: European Economic and Social Committee
Subjects: GATS, brain drain, free movement of persons, migrant worker, migratory movement, occupational migration, trade agreement

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Opinion of the European Economic and Social Committee on the General agreement on trade in
services (GATS) — Mode 4 negotiations (movement of physical persons)

(2005/C 286/06)

On 20 January 2003, the Commission, in a letter from Commissioner Lamy, decided to consult the Euro-
pean Economic and Social Committee, under Article 262 of the Treaty establishing the European Com-
munity, on the General agreement on trade in services (GATS) — Mode 4 negotiations (movement of physical
persons).

The Section for External Relations, which was responsible for preparing the Committee's work on the
subject, adopted its opinion on 20 May 2005. The rapporteur was Ms Florio.

At its 418th plenary session, held on 8 June 2005 the European Economic and Social Committee adopted
the following opinion by 134 votes to 1 with 7 abstentions.

Introduction

The EESC has established constructive relations of cooperation
and dialogue with the European Commission's Directorate
General Trade in various fora (conferences, opinions, institu-
tional meetings). In particular, during his mandate, the previous
Commissioner, Pascal Lamy held several discussions with the
European Economic and Social Committee on issues relating to
international trade, human rights, and the WTO negotiations.

The EESC now presents its proposal for a discussion of the
GATS Mode 4 negotiations, which are considered to be a key
element in ongoing WTO negotiations for opening up interna-
tional trade in services. The free movement of services in the
European Union and beyond its borders is rightly considered to
be a potential instrument for regenerating the economy and
employment. A more detailed analysis of the obstacles and
risks could contribute to balanced development in this sector in
an economically and socially sustainable framework of new
international agreements.

The temporary physical presence of someone operating on
behalf of a business or company that wishes to supply services
in another country where he is not a resident, requires deeper
analysis for both developing countries and EU Member States.

1. The GATS agreement

1.1
The GATS agreement was negotiated during the
Uruguay Round (1986 — 1994) and entered into force in the
beginning of 1995, when the World Trade Organisation

replaced the GATT Secretariat. The need for some kind of
multilateral rules for trade in services was generally recognised
in the 1980s when growth of the service sector (about two
thirds of GDP and employment in the EU) and trade in services
accelerated and the borderline between goods and services
became ever more difficult to define. Increasingly exports of
goods require exports of services, such as installation, training
and back-up or other services. Also the trend towards more
market-based approaches to state or local monopolies, e.g. elec-
transport,
telephone and telegraph, urban and rail
tricity,
opened interesting new markets for international
trade in
services (1). Although the principal aim is the liberalisation of
trades in services, the GATS agreement does not force any
Member to liberalise to a greater degree than that with which
they feel secure and may also limit both the MFN (Most
Favoured Nation) principle and National Treatment of Foreign
suppliers. The right to regulate and introduce new regulations
in the service markets is also clearly stated. No sectors are in
those involving ‘the exercise of
principle excluded, except
public authority (2)’.

2. The modes of supply

2.1 The logic between the different modes

2.1.1
‘trade in services’ is defined as the supply of a service:

According to Article I para. 2. in the GATS agreement

a) from the territory of one Member into the territory of any

other Member;

(1) Refer to the European Economic and Social Committee's activities
during the Dutch Presidency in 2004. ESC opinion on the prepara-
tion of the 4th WTO Ministerial Conference in Qatar: ESC position,
17 October 2001 (OJ C 36, 8.2.2002 p. 85). ESC opinion on The
European Airline Industry: from Single Market to Worldwide Chal-
lenges of 26 January 2000 (OJ C 75, 15.3.2000 p.4). EESC opinion
on the Green Paper on Services of General Interest of 11 December
2003 (OJ C 80, 30.03.2004 p. 66). EESC opinion entitled For a
WTO with a human face: the EESC's proposals of 26 March 2003
(OJ C 133, 6.6.2003 p. 75)

(2) These services and their regulation vary from country to country.

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b) in the territory of one Member to the service consumer of

any other Member;

c) by a service supplier of one Member, through commercial

presence in the territory of any other Member;

d) by a service supplier of one Member, through presence of
natural persons of a Member in the territory of any other
Member.

2.1.2
These modes of supply are usually called Modes 1, 2,
3 and 4. Mode 1 is when services are provided remotely (by
post, fax, telephone or internet). Under Mode 2, the consumer
travels abroad to receive the service (tourism is the most
common example); Tourism is the most typical example of
Mode 2, Mode 3 is about establishing a commercial presence in
another Member (investment) and Mode 4 is when people
enter a country (temporarily) to provide a service — either
because personal contact with the client is needed or because
services must be performed on-site.

2.1.3 Modes 3 and 4 are often closely interlinked. Compa-
nies often rotate their senior level personnel and specialists
between offices in different countries — this internal mobility
is essential
the services they
provide. But the provision of services through Modes 1 and 2
can also be facilitated by Mode 4. Thus, for example, business
visitors can negotiate and conclude contracts through these
modes of supply.

to the effective provision of

2.1.4
Due to the interlinkages between the modes of supply,
the macroeconomic effects — trade creation, growth and
employment, competition, better service supply and lower
prices for the consumers — of further liberalisation of just one
Mode, e.g. Mode 4 — is almost impossible to estimate, as an
OECD study on GATS Mode 4 states (3). Studies of the trade,
growth and employment effects of Mode 4 liberalisation are
further hampered by the lack of statistics on temporary move-
ment under Mode 4. The real issue is not the extent of the
benefits to be obtained under Mode 4 but rather which benefits
may be guaranteed and which negative impacts can be mini-
mised. Many businesses claim that trade has been obstructed by
the red tape involved in securing visas and work permits.

GATS Mode 4 covers a very particular form of move-
2.1.5
ment of persons.
is
It has three essential
temporary; 2) it is decided, and its purpose is controlled by the
service supplier; 3) it neither defines nor protects the rights of
the employees concerned, which may be regulated by any State

features: 1)

it

of destination that is a WTO Member. Labour migration under
GATS Mode 4 is temporary migration at the initiative of the
service supplier for the provision of a service. Mode 4 could
also apply to situations where the service supplier could oblige
an employee to travel beyond his natural boundaries in order
to work.

2.1.6
It is important to note that Mode 4 is substantially
different from the principle of free movement of labour in the
EU/EEA. In the EU it is about the individual's right to choose
where to live and work. In the case of Mode 4 it is about the
right of a service supplier to enter a country (the EU) for a
certain period of time in order to provide a service.

international

trade. There is a risk that

labour comes primarily under

the
2.1.7 Movement of
purview of immigration and labour market policies rather than
that of
temporary
labour mobility will lead to a situation, whereby under WTO
rules labour becomes a commodity. The governing principle in
the ILO is that ‘Labour is not a commodity’ (4). Mode 4 is about
people, human beings. Human rights, workers' rights and
working conditions are nevertheless not mentioned in the
GATS agreement, but could and should be observed in both
Members requests, offers and commitments as the EU and the
Member States have done.

2.2 Mode 4 and the Annex on Movement of natural persons

supplying services under the Agreement

seeking access

2.2.1
The link between trade, migration and labour market
regulation embodied in Mode 4 is recognised in the GATS
Agreement by a specific Annex. Point 2 in this annex states
that the GATS shall not apply to measures affecting natural
persons
to the employment market of a
Member, nor shall it apply to measures regarding permanent
migration, residence or employment on a permanent basis. In a
footnote to the Annex it is stated that: ‘the sole fact of requiring
a visa for natural persons of certain Members and not for those
of others shall not be regarded as nullifying or impairing bene-
fits under a specific condition’. Finally, the Annex states that
countries should remain free to regulate the entry of natural
territory,
persons
(including visa policy) provided that the measures adopted do
not have a trade restrictive effect. A visa requirement
for
certain nationalities is not regarded as having a trade restrictive
effect. The annex makes it clear how sensitive an issue
temporary mobility is for WTO Members.

temporary stay in,

into, or

their

their

(3) http://www.oecd.org/document/25/

0,2340,fr_2649_34145_31773849_1_1_1_1,00.html

(4) ILO International Labour Conference, Philadelphia Declaration,

1944

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2.3 EU commitments

2.3.1
The commitments that WTO Members have made for
Mode 4 differ from those made for other Modes in certain
respects, the most important being that they have tended to be
made horizontally, applying to all sectors cited in a Member
State's list of commitments. This is a reflection of the way that
immigration officials regulate temporary migration, with rules
applying on the basis of purpose of entry, skills, education and
other factors regardless of the sector involved.

Although most countries made commitments

for
2.3.2
Mode 4 at the end of the Uruguay Round, it is estimated that
over 90 % of those commitments apply only to highly skilled
workers (senior managers, professionals and specialists with
proprietary knowledge) or to business visitors. Even for the
highly skilled, most commitments have value only if the service
provider is also able to set up a commercial presence in the
host country (Mode 3) — so-called ‘intra-company transfers’.
Very few countries have made commitments in relation to
service providers who do not have a commercial presence in
the host country — whether they are employees of a firm
established overseas, or independent service providers (free-
lance, individual professionals or entrepreneurs etc). Even fewer
have covered what might be considered to be middle or lower
levels. In fact, most countries have made 90 % of the
skill
commitments for highly skilled workers only.

2.3.3
As such, Mode 4 commitments barely touch on the
level of activity that could take place, and — indeed — is
crucial in certain sectors where Mode 4 delivery is the main
mode of supply (e.g. professional services, including health care
workers) or where there is no commercial presence (e.g.
construction services,
requiring on-site
presence).

computer

services

2.3.4
In the Uruguay Round, the EC and its Member States
made certain commitments which allow some foreign nationals
to temporarily enter the European Union for the purpose of
the provision of services. They include commitments made
during the extended negotiations on Mode 4 after the end of
the Uruguay Round.

— Business Visitors (BVs): A representative of a foreign
services supplier who temporarily enters the EU for one of
the following purposes: (a) to negotiate the sale of services;
(b) to conclude contracts to sell services; or (c) to set up an
establishment (subsidiary, branch or office). BVs must not
themselves supply services in the EU.

— Contractual Service Suppliers (CSSs): This category
includes employees of juridical persons (EJP) and, on the
basis of the European Commission's new offer, could also
include Independent Professionals (IP). EJPs temporarily
enter the EU as employees of an overseas enterprise that
has obtained a service contract in the EU.
IPs are self-
employed persons who temporarily enter the EU to fulfil a
service contract
they themselves have
obtained.

in the EU that

2.5 EU requests to other WTO Members

2.5.1
The EU made specific requests to increase the level of
commitments for Mode 4 to 106 WTO Members, which were
modulated to reflect the level of development of the Member
concerned and its importance as a trading partner. This reflects
the EU's own export interests for this mode of supply. The EU
is seeking to bring most major WTO partners up to a similar
level of commitment. The following requests were made:

1) Intra-corporate transfers (ICT): Allow transfers between
affiliated companies of key personnel (managers, executives
and specialists) for up to three years and also include short-
term training objectives in these agreements.

2) Business visitors (BV): transfers for stays of up to 90 days.

3) Contractual service providers (CSS): The initial requests
were made in relation to employees of juridical persons
only. Only certain service sectors were covered (e.g. Profes-
sional and business services, environmental services), with
different lists of sectors requested of OECD countries and
developing countries. In addition, requests under this cate-
gory have not been made to least developed countries. The
requests
in January were
restricted to Independent Professionals for major trading
partners.

submitted to WTO partners

2.4
The European Commission divides Mode 4 service
suppliers into three broad categories — and other WTO
Members use similar ones:

2.6 Requests by WTO Members

— Intra-corporate Transfers (ICTs): An employee of an
enterprise who is temporarily transferred from an establish-
ment of
that enterprise outside the EU (head office,
subsidiary, branch) to an establishment within the EU.

2.6.1 With regard to negotiations,
the European Union
received over 50 requests from other Member States to develop
Mode 4 at various levels: on the one hand greater transparency
regarding commitments was requested, whereas, on the other
hand, some requested the abolition of almost all restrictions
applicable to most services.

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A large majority of

2.6.2
the requests have come from
developing countries, and for almost half of these developing
countries,
it consisted in the elimination of all restrictions
(which would imply complete free movement of people), to
cover lower skill levels, to remove economic needs tests and
labour market testing linked to Mode 4. Three countries effec-
tively want us to abolish our visa regime and grant an auto-
matic right of entry and stay. Several want recognition of third
country qualifications or the extension of the EU Directives on
Mutual Recognition to third country nationals who have
obtained their qualifications in the EU.

2.6.3
The Second LDCs Trade Ministers meeting in Dhaka,
Bangladesh, 31 May — 2 June 2003 stated in its Dhaka
‘Free access to developed country
Declaration: para. 15 iv.:
markets for temporary movement of natural persons, particu-
larly unskilled and semi-skilled service providers, under Mode 4
by inter alia recognising professional qualification, simplifying
visa procedures and without asking for Economic Needs Test’.

5. Temporary stays, the labour market and social cohesion

5.1
The problems relating to Mode 4 cannot be restricted to
trade. They also concern broader migration and labour policies.
The world of migration includes the subset of
temporary
migration, which in turn includes migration for purposes of
employment. The GATS Mode 4 constitutes another subset.

However, Mode 4's scope is not clearly defined. It is
5.2
necessary to clarify the link between temporary migration for
employment purposes and temporary migration to establish a
commercial presence. But, above all, the term ‘temporary’ must
be defined as it could mean anything from a few months to
over five years. In addition, the types of employment covered
have not yet been defined. Furthermore, the EU (Treaty) and
the WTO do not apply the term ‘temporary migration’ in the
same way.

3. EU offer

Significant improvements are being offered in a number
3.1
of areas:
for contractual service suppliers (CSS), commit-
ments have been agreed on 22 sub-sectors (mostly professional
and business services), as well as another four sectors for inde-
pendent workers, for a stay of up to six months. For the same
core group, the EU has committed itself not to apply Economic
Needs Tests (ENT), but, instead, to introduce a numerical cap
on the number of service suppliers covered by this commit-
ment. The level of the cap and the modalities of its application
still need to be determined. Furthermore, for young people,
training for a maximum period of 12 months could be foreseen
for intra-company transfers. This EU offer is unquestionably
amongst the most ambitious and proactive offers made.

and

personnel

highly-qualified

It is clear that Mode 4 should only apply to a restricted
5.3
stratum of
independent
contractor professionals. However, if, in the future, the applica-
tion of Mode 4 were to be extended to other employment cate-
gories, a far more specific and restrictive definition of
‘temporary’ would be required, as would a more precise defini-
tion for ‘service suppliers’. In any case, and bearing in mind
that trade agreements are not ideally suited to dealing with
labour laws, an element of clarity could be brought to Mode 4
by applying the terms of the 1998 ILO Declaration on Funda-
mental Principles and Rights at Work and its Follow-up (5). The
latter is in itself a legal reference point. The Charter of Funda-
mental Rights adopted in Nice is of primary importance to EU
Member States, especially since it has now been incorporated
in the Constitutional Treaty.

This would be very important for many independent
5.4
contractor professionals, as well as for all
issues relating to
pension schemes and fighting unemployment. Clearly, emigra-
tion must be managed at national level and not by the WTO.
Similarly, certain labour-related aspects, including human rights
and social security, should be dealt with at an international
level by organisations such as the ILO.

4. Third country offers

6. Conclusions and recommendations

Only a few (38) WTO Members have made preliminary
4.1
offers for further liberalisation of trade in services within the
last deadline laid down in the Doha Declaration, despite the
fact that this covers 91.6 % of world trade. The level of offers
for both industrialised and developing countries remains rela-
tively low and limited, even in terms of quality. Nevertheless, it
should be borne in mind that certain countries, i.e. India, the
Philippines, Thailand,
reformulated their
and Indonesia,
requests on the basis of the new EU offer.

The European Economic and Social Committee recog-
6.1
nises the importance of a further liberalisation of the global
trade in services for economic growth in both developing and
industrialised countries. Nevertheless, there is still no impact
analysis for
social consequences and the labour
markets in the service supplier's country and the host country.

the real

(5) http://www.ilo.org/dyn/declaris/DECLARATIONWEB.INDEXPAGE?-

var_language=EN

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6.2
The EESC also recognises the importance of the right of
WTO Members to regulate and to introduce new regulations
on the supply of services.

which, in recent months, has been at the centre of a particu-
larly contentious debate;

6.2.1
The EESC supports the preliminary offers for a further
liberalisation made by the EU under the GATS Mode 4, but
conditional on the observance of core labour
standards,
national labour law and existing collective agreements in host
countries. The Committee approves and welcomes the fact that
the Commission has included workers' rights in its list of
commitments.

6.2.1.1
The proposal to add a category of Intra-Company
Trainees to the offer might be of great interest both for EU
multinational companies and for young managers and compa-
nies in third countries and is thus welcomed. Needless to say,
the ‘training’ nature of
these relationships must be clearly
defined to avoid the risk that they might translate into under-
paid work in the service sector that would be in breach of
national training regulations — whether in the form of legisla-
tion or collective agreements — or of international labour stan-
dards.

6.2.2
The EU also proposes new commitments concerning
Independent Professionals as Contractual Service Suppliers,
although only in a number of sub-sectors and for highly quali-
fied experts (6).

3) establish a clear distinction between services of general
interest (including health, education, energy, gas); economic
and non-economic services; services for commercial and
non-commercial purposes, and services of another nature.

6.3
The EESC is in principle favourable to the proposal
made by the European Service Forum to create a GATS Permit.
This would make the movement of service providers both from
and to the EU smoother and also make monitoring of the use
of Mode 4 more transparent.

6.4
For many developing countries the risk for a ‘brain-
drain’ is a reality. Many developing countries face a shortage of
e.g. nurses, as they move to developed countries where there
are shortages of skilled personnel. The EESC proposes that the
commission and the MS should develop rules or practices (as
the health sector in the UK has done, particularly in the
nursing profession, where a code of ethics for recruitment
polices has been drawn up) to avoid a situation whereby devel-
oping countries lose their competent and specialised workforce
and thus their ability to take care of the needs of their own
populations.

the

The EESC underlines

taking
importance of
6.2.3
measures by the Members
to enforce the protection of
temporary workers and to guarantee non-discrimination and
the introduction of proper surveillance mechanisms, e.g. along
ILO Convention No. 95 concerning the
the principles of
protection of wages.

In particular,

6.2.4
the most recent enlargement or the
forthcoming enlargement(s) of the EU with countries where
collective agreements are rare will require the introduction of
equally effective control mechanisms.

6.2.5
trade in services, the EU should first take steps to:

The EESC considers that in order to further liberalise

1) specify that the Directive on Posted Workers is also the

basis for the temporary movement of workers;

2) clarify which legislative reference framework is to apply to
the liberalisation of services within the EU internal market
(see draft Directive on Services in the internal market),

(6) The UNICE report on Cancun, Moving Forward Together,

July
2003, defines Mode IV as ‘temporary movement of key business
personnel’.

6.5
The EESC urges the EU and the MS not to accept any
widening of Mode 4 to semi-skilled or unskilled workers for
the time being. This would effectively lead to a situation, in
which the basic principle of the International Labour Organisa-
tion (ILO), that ‘labour is not a commodity’ could be jeopar-
dised. Semi- and unskilled foreign workers are almost always in
a weak position in the labour market. Foreign managers and
experts or highly skilled independent professionals are usually
in a strong position and are well protected.

6.6
The EESC cannot accept that the temporary movement
of workers, de facto temporary migration, would primarily be
regulated through the WTO and the GATS agreement, without
any guarantees for human rights or the observance of core
labour standards, such as non-discrimination. A functioning
cooperation between WTO and at least the ILO, the Interna-
tional Migration Organisation (IMO) and the UN to protect the
rights of temporary migrants must be a prerequisite for further
enlargement of the scope of the Mode 4 in the WTO. In this
respect, the ILO's role would be enhanced as a tripartite focal
point for dialogue, and as a possible coordinating body.

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temporary migrants;

6.7
The EESC believes that European Governments should
reconsider ratification of the UN's International Convention on
the Protection of
the Rights of All Migrant Workers and
Members of their Families, which came into force in July 2003.
That Convention defines rights of
for
example, ‘specified-employment workers’. Even in the absence
of ratification, as a set of internationally recognised standards,
this Convention should be used to guide policy (7).
ILO
Convention No. 146 has been ratified by six EU and accession
states (before and after enlargement) and four other European
States. Its provisions should be applied, along with those of
Recommendation No. 151. The relevant Articles of the Euro-
pean Social Charter (Council of Europe) must be applied. The
measures taken by the EU under GATS Mode 4 must be
compatible with those standards, especially those to which EU
Members have adhered.

The EESC welcomes the European Parliament GATS
6.8
resolution (12 March 2003), especially points 5, 10 and 11,
and urges the Commission and the Member States to take it
into account in the GATS negotiations.

Point 5: Recalls that the GATS is a voluntary agreement and
that its principles do not impose either privatisation or deregu-

lation, nor do they prescribe a particular degree of liberalisation
as such; insists, however, that developing and least developed
countries should not be pressured to liberalise services, in par-
ticular public services.

Point 10: Welcomes the offer to grant developing countries, in
particular, better opportunities to supply services to the EU
market through temporary cross-border movement of qualified
personnel, but insists that negotiations must ensure protection
of cross-border workers against all forms of discrimination;
recalls that in all these cases, EU and national working condi-
tions, minimum wage requirements and any collective wage
agreements must continue to apply, regardless of whether or
not the employer is registered in an EU Member State.

Point 11: Stresses that ‘commercial presence’ (investment) must
continue to be governed by domestic tax, social and other regu-
latory measures; insists on the right to make foreign commer-
cial presence conditional on respect
for the ILO Tripartite
Declaration of Principles concerning Multinational Enterprises
and Social Policy and the (in summer 2000) revised OECD
Guidelines for Multinational Enterprises.

Brussels, 8 June 2005

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

(7) For example, the GATS agreements make no mention of the rights

of spouses or children.