home and host countries is greatest, were allowed to move and provide their services in developed countries. The existing empirical studies of factor mobility and the new estimates by Winters (2002) agree that there are huge returns to even relatively small movements of labor. For example, it is estimated that an increase in developed countries’ quotas on the inward movements of both skilled and unskilled temporary workers equivalent to 3 percent of their work forces would generate an increase in world welfare of over US$150 billion a year. Both developed and developing countries would share in these gains, and they would be largest if both high-skilled mobility and low-skilled mobility were permitted.

While these estimates are broadly plausible, neither of the polar models—trade or migration—captures the full essence of mode 4 mobility. From the host country point of view, temporary presence does avert some of the social and political costs of permanent migration but it entails other “turnover” costs, both for employing firms and society (e.g. in terms of recurring investment in firm-specific technical and limited social integration). From the home country point of view, temporary migration under mode 4 averts the costs of brain drain, implying a higher repatriation of incomes and skills, but it deprives migrants of opportunities for cumulative learning and saving – which could have significant long-term benefits for home countries, quite apart from immediate gains in terms of increased remittances.<sup>3</sup> More conceptual and empirical analysis of these issues is clearly necessary.

# **MODE 4 LIBERALIZATION PROVOKES LEGITIMATE POLITICAL AND SOCIAL CONCERNS—BUT MOST OF THESE CAN BE ADDRESSED THROUGH APPROPRIATE POLICIES**

As Winters (2003) points out, unlike with the mass migration of less skilled workers, fears about cultural identity, problems of assimilation, and the drain on the public purse are not really relevant to mode 4. Host country concerns, other than the purely xenophobic, pertain to national security, the difficulty in enforcing temporariness, and the impact on the labor market.

In some cases, these difficulties would be alleviated, though not eliminated, if it could be ensured that movement will be temporary, not permanent. A key challenge is to devise a pre-commitment mechanism in this respect. The enforcement difficulties are evidently less with intra-corporate transferees—the local juridical presence can be penalized—than with independent service providers. Some have proposed the posting of a bond as a solution to this problem (Hatcher, 2003).

In other cases, the fears about permanent presence are outweighed by fears about job instability and wage and salary erosion. On social equity grounds, there is a particularly strong concern about the impact of mode 4 liberalization on local less skilled workers.<sup>4</sup> The adjustment stresses that mode 4 liberalization could engender could be both large and concentrated on a vulnerable section of society (Winters, 2003). In the short run, sensitivity about the timing and extent of liberalization may contain the pressures and existing compensatory schemes could cope with those that actually arise. In the longer run, when deeper

> 3 A recent survey for the Public Policy Institute of California of more than 1,500 first-generation Indian and Chinese migrants in Silicon Valley found that 74 percent of Indian and 53 per cent of the Chinese ones said they hoped to start a business back home.  Furthermore, based on the finding that many members of this group frequently return home on business, it argues that “brain circulation” is a more appropriate way of describing what is happening to these groups than “brain drain” (Economist, November 2, 2002).

> 4 Some worker representatives emphasize a slightly different set of issues relevant to ensuring that workers, domestic and foreign, do not suffer adverse consequences (Waghorne, 2003).  They call for governments to ratify and respect workers’ rights, including those of foreign workers covered by GATS. These rights must include the right to belong to a trade union and to use grievance procedures.  In general, their concern is not so much that temporary employment could become permanent, but that the movement of workers could be used to undermine wages and working conditions.

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