Executive Summary

In recent decades, the world has witnessed greater cross-border integration through increased trade in goods and services, foreign direct investment, financial flows and international migration. These flows have been facilitated through lower transportation costs, rapid information and communication technology developments and the removal of barriers by governments.

Of all cross-border interaction, the movement of people for temporary or permanent settlement remains the most restricted. This is understandable because the consequences of the movement of people are broader and more complex than those of the exchange of physical goods, cross-border service supply or financial flows.

This report reviews the international and New Zealand literatures on the interaction between enhancing cross-border trade and investment, through negotiations and agreements, and international migration. There is a two-way interaction: increased trade will affect migration and increased migration will affect trade. Both directions of this two-way interaction are reviewed in the report. The report also briefly reviews the benefits and costs of migration to the extent these might feature in trade and migration negotiations. The extent to which lessons for New Zealand can be drawn from the international literature is assessed.

International migration flows are becoming more complex. While income and job opportunities remain important determinants, people may move abroad for other than economic reasons, and their migration may be permanent, or temporary. Return and repeated migration are becoming increasingly common. Both migrants and host countries may benefit from 'work to residency' policies in which migration for a limited term of employment is followed by the right of permanent residency.

1. Trade, immigration, labour market and social policies overlap. Trade officials need to consider immigration and labour market perspectives, while immigration and labour policy officials need to pay attention to trade policy issues. Firm policy guidelines and cross-departmental coordination appear essential.
2. The report reviews World Trade Organisation (WTO) agreements and regional agreements relevant to New Zealand. In the WTO framework for trade negotiations, only mode 4 of the General Agreement for Trade in Services (GATS) is directly concerned with the cross-border movement of people to carry out services abroad. Within the GATS, this is referred to as the 'movement of natural persons'. This is defined as temporary movement only, in which temporary is not further specified.
3. Trade liberalisation of the service sector could offer even more significant gains than liberalisation of international goods trade. Trade in services cannot prosper if the movement of people is not promoted. The main barriers to trade in services under mode 4 of GATS are: immigration policy and social security issues; potential discriminatory treatment of foreign providers of services; and inadequate recognition of qualifications.
4. There is broad agreement in the literature that the wording of GATS, especially mode 4, is rather vague. Although mode 4 is potentially ambitious, relatively few commitments to open markets have been made. The actual temporary migration policies of countries tend to be more open than their potential GATS commitments. This is also the case in New Zealand. While the international movement of 'natural persons' for the provision of services abroad is likely to increase in the future, this will take place irrespective of whether such movement is negotiated under GATS mode 4 or not.
5. GATS is unlikely to have a major impact on immigration policy for several reasons. Firstly, GATS is only concerned with temporary movement. Secondly, the most favoured national (MFN) clause is unlikely to be acceptable to countries in this context. Under MFN, discrimination between trading partners is not allowed and any favourable concessions granted must be extended to all WTO members. Thirdly, once agreements are made these are difficult to reverse and countries will wish to maintain flexibility to adjust future immigration policy in response to changing domestic conditions.
6. Developing countries may seek access to New Zealand's labour market as a condition for opening their own markets to goods trade and professional services supplied by New Zealanders. Such negotiations are more likely on a bilateral than multilateral basis.
7. Countries such as New Zealand already impose few barriers on the short-term movement of business people. The establishment of 'offshoots' of foreign services providers under GATS mode 3 is likely to trigger an associated need for temporary migration of intra-corporate transferees. Again, existing arrangements already accommodate such movement, so that GATS mode 4 is not essential to negotiation in this context.
8. International trade in goods or services, or the movement of factors of production other than labour, may be able to substitute for the movement of people. However, there are also plausible economic theories that suggest that migration and trade are complements. Similarly, foreign direct investment (FDI) can be a substitute or a complement to migration. In the short-run it is likely to be a substitute and in the long run a complement to migration.
9. In recent years, there has been rapid growth in outsourcing of services. The main benefit is the wage differential between developing and developed countries in the cost of skilled labour. Outsourcing leads to a redistribution of job opportunities and income, but the impacts of outsourcing vis-à-vis immigration have yet to be assessed. A specific form of outsourcing that is growing rapidly is e-labour: internet-based knowledge-intensive services exported by low wage countries.
10. Trade facilitation involves the recognition and reduction of trade barriers, including barriers due to a range of different standards and requirements. It can be argued that trade facilitation is a substitute for migration.
11. Immigrants foster international trade through their demand for home country outputs and through their ability to facilitate trade between the host and home countries. Migrant networks are important in this context. The impact of immigration on exports is less than the impact on imports.
12. Migration stimulates the export of tourism services. In addition, tourism growth is often seasonal and leads to a greater demand for temporary migrant workers. There is also likely to be an impact of immigration on the export of educational services, but this impact has yet to be quantified.
13. The report reviews costs and benefits of immigration that trade negotiators may take into account when considering migration concessions. Migration enables human resources to locate to where they are most productive. The migrants benefit from this (through higher incomes), the sending countries benefit (through remittances and also perhaps through increasing the marginal product of labour and therefore wages of those left behind) and the receiving countries benefit (through the so-called immigration surplus that accrues to the owners of capital and the workers with skills complementary to immigrants).
14. While sending and receiving countries benefit in aggregate, there will be a redistribution of income that will make some people better off and others worse off. The distributional impact of immigration may be much larger than its net aggregate impact. This explains why it is very difficult to reach a political consensus on immigration. Nonetheless, meta-analysis shows that any adverse impacts of immigration on wages and employment of the host population are likely to be very small.
15. Developing countries are concerned about a 'brain drain' of highly skilled workers and there is some empirical evidence of significant adverse brain drain impacts. If a brain drain problem exists, then this can be alleviated by embracing the 'brain circulation' concept. This requires a commitment of sending and receiving countries to facilitate temporary movement of highly skilled workers. Countries such as New Zealand may be attractive destinations for hosting foreign 'talent' through offering a high quality of life.
16. There exist a number of ways to help maximise the benefits and minimise the problems caused by the trans-border movement of people. Besides benefits to both host and source countries from temporary migration of highly skilled or seasonal workers, it has also been argued that in the case of permanent immigrants, there may be benefits from applying some kind of 'tariff' (i.e. a tax or social security differential, or entry fee).
17. Historically, immigration of workers into import substitution industries may have substituted for New Zealand imports that faced tariff and quota barriers. In recent years, immigration, emigration (specifically to Australia) and international trade are likely to have been complements. An expansion of temporary work policies will have economic benefits for New Zealand and its trading partners.
18. More rigorous studies of the relationships between trade and foreign direct investment and patterns of international migration are needed. Extending the global trade models to cover negotiations and scenarios of particular interest to New Zealand, would be very useful. Also, the relative benefits and costs of outsourcing and immigration should be compared.
19. The most rapid growth in international labour movement in the years to come is likely to be that of temporary labour movement. This development is encouraged from the perspective of immigration policy as it provides more flexibility and effective pathways to subsequent permanent settlement. The likelihood that further temporary movement agreements would be negotiated under GATS mode 4 is still to be investigated further, but existing arrangements already impose few barriers on business and professional temporary movement, so that GATS mode 4 is not essential to negotiation in this context.
20. From a policy perspective, the linkages between migration, foreign investment and trade cannot be fully addressed within a purely economic framework. The report highlights the paradox of diversity. Economic benefits of opening up borders to trade or immigration are at their largest, the more different the countries are. In addition, greater labour mobility helps to facilitate trade and increases the cross-border demand for domestic output. The nurturing of cultural diversity may further enhance trade. However, social cohesion and the accumulation of social capital are not natural outcomes in increasingly diverse societies, but require resources to be allocated to the promotion of desirable social outcomes. Thus, the social evaluation of greater cross-border mobility resulting from greater international economic integration must go hand in hand with the economic assessment.