International Trade Negotiations and the Trans-Border Movement of People: A Review of the Literature
Lessons for New Zealand
Section 2 of this report focused on international economic agreements of particular relevance to New Zealand. However, Sections 3 to 5 were much more international in focus, examining the impact of trade and FDI on migration, and vice versa, and a short review of some key benefits and costs of migration. In the current section, we revisit these topics with a focus on the literature and issues of particular relevance to New Zealand.
International trade agreements can provide an important platform for bargaining across issues (Banda and Whalley, 2005). The importance of linking complex and interacting negotiations in different areas of international relations is becoming increasingly clear (Crump, 2007). In New Zealand, good examples are visa-waiver agreements and working holiday arrangements that are negotiated in the broader context of bilateral relations, including trade. Bedford and Lidgard (1998) provide examples of 1990s foreign policy initiatives in New Zealand with respect to relations with Asian countries that had both people movement and trade dimensions.
The impact of trade and FDI on migration
Goods and Migration - Substitutes or Complements
Before CER, at the time when commodity trade faced significant restrictions, labour migration would have been able to substitute for some of the trade in commodities. Protected industries faced labour shortages that were addressed by active immigration policies. Hence rather than importing certain manufactured goods to meet increasing domestic demand, import substitution industries recruited foreign workers.
Similarly, rather than exporting certain goods and services to Australia, New Zealand may have exported some of its workers. This substitution effect is likely to have been of minor importance. Historically, real wage differentials were not large and throughout the period of relatively high trade restrictions, trans-Tasman migration remained relatively balanced. By 1966, there were about 52,000 New Zealanders born living in Australia and 43,000 Australians born in New Zealand. Subsequent trade liberalisation did not reduce migration but instead increased it because the much lower productivity of New Zealand's manufacturing led to significant job shedding during the 1984-94 reform decade once protection was removed. By 2006, the number of New Zealand born in Australia had increased to 389,000 while the number of Australia born in New Zealand increased to a mere 63,000. However, with Australia being more capital intensive, the flow of capital would have been towards New Zealand (where the rate of return to new investment would be higher) as is evidenced by Australian ownership of many large New Zealand companies (see also Nana and Poot, 1996). Two thirds of migration from Australia to New Zealand consists of New Zealanders returning, but Australia born migrants are likely to be professionals whose trans-Tasman migration is linked to the presence of Australian companies and Australian ownership of New Zealand companies.[17]
Services
Walmsley et al. (2005a) model bilateral migration flows in the Pacific region resulting from possible liberalisation under GATS mode 4 negotiations. They assume a 1 percent increase in the quotas of skilled and unskilled labour from the Pacific Islands into Australia and New Zealand, with results suggesting that the resultant labour force increases in Australia and New Zealand would raise welfare in both countries. While Pacific economies could gain from the movement of unskilled workers, loss of skilled workers could lead to welfare declines for those that remain, in the absence of capability building efforts. These kinds of estimates of the income gains from migration and the consequent labour flows could be improved by comparing the earnings of the immigrants to what they would have earned in their home country (Gibson, 2006).
An issue of particular significance to New Zealand is the relatively high need for seasonal workers. The service that these migrants provide cannot usually be substituted by other modes of supply, unless activities are moved overseas. For example, consider fruit pickers and shearers (Bell and Ward, 2000). In Central Otago, vineyards and orchards needed about 4000 workers in the summer 2005/06, of which 3000 positions had been filled by migrant workers. The New Zealand government alleviated this demand by implementing a fast-track work permit policy. Furthermore, a Worker Holiday Scheme also allows for 30,000 young overseas persons to come to New Zealand for seasonal employment, lasting up to six months (Fea, 2005).
For seasonal workers, bilateral labour agreements have become very important, with several hundred such agreements currently existing (World Bank, 2006, p. 73). Such agreements can improve confidence and certainty in origin and destination countries and New Zealand is making increasing use of these kinds of agreements. For example, due to ongoing labour shortages in the horticulture and viticulture industries, the government has recently launched the Recognised Seasonal Employer (RSE) Work Policy, which seeks to facilitate the temporary entry of overseas workers in these industries. Work includes planting, maintaining, harvesting and packing crops in the horticulture and viticulture industries. The RSE Work Policy is currently capped at 5000 places annually, though this can be adjusted in response to market demand (DOL, 2007). Workers under this scheme are able to stay in New Zealand for seven months during any 11 month period.[18] The RSE Work Policy gives preferential access to workers from the Pacific, as this policy is also trying to encourage economic development, regional integration and good governance within the region (MFAT, 2007).[19] Among other conditions, employers are required to guarantee a minimum number of hours of work, ensure workers are paid the market rate and provide pastoral care including suitable accommodation, translation, transportation, opportunities for religious observance and recreation, and induction to life in New Zealand. Like all immigration policy, RSE Work Policy is designed to ensure employment opportunities for New Zealanders are put first, and employers have strong incentives to train and upskill the domestic workforce and utilise unemployed labour before looking to the RSE.
A potential problem with policies that free up the temporary movement of labour is the possibility of overstayers. However, the New Zealand government is clearly aware of this issue, for example incorporating requirements such as a return ticket (of which the employer pays half) and the need for applicants to show they genuinely intend a temporary stay in New Zealand when applying for entry under the RSE Work Policy (DOL, 2007). Nadkarni (2006) provides several specific suggestions to alleviate the overstaying problem, including holding some of the earnings in an interest bearing account which the worker will receive on departure and for employers to supply guarantees for the workers.
Technology
The e-labour concept may be of particular interest to New Zealand, given our geographic isolation. This is a possible way of expanding the local economy. As noted by Hufbauer and Stephenson (2007), internet based services are a new frontier of services trade and there will be significant opportunities and challenges for New Zealand in this area. In addition, the internet may help New Zealand increase the export of educational services, through selling distance education abroad.
FDI
The New Zealand Government supports a strategy of developing international ties, including both inward and outward FDI. Furthermore, the government does not generally discriminate against any country. The Index of Economic Freedom confirms this, showing New Zealand as one of the countries most open to FDI, along with Singapore, Hong Kong, Sweden, the Netherlands, Ireland and Luxembourg (Heritage Foundation, 2006). Nevertheless, the promotion of inward investment has received more attention by the Government than outward investment. In China, New Zealand's proportion of the FDI stock is at most 0.001 percent (MFAT, 2007). However, the recent investment of Fonterra in the dairy sector in China is an example of how economic growth is affecting 'offshore' activities of New Zealand companies. This will have migration implications also. Investment may in the future become an increasingly two-way street, with implications for the movement of labour to service and support this increased globalisation of investment.
Side agreements
New Zealand negotiators have made use of side agreements in the past, e.g. using the framework of the Environment Cooperation Agreement and the Labour Cooperation Memorandum of Understanding (MFAT, 2007). The future may bring much greater scope for the development of side agreements on a range of issues, including labour movement, where the dynamic interactions between agreements will need to be recognised and carefully managed.
The impact of migration on trade and FDI
In Section 4.1 we reviewed several empirical studies that confirmed that immigrants have a positive impact on trade. The presence of immigrants from a particular source country is likely to be associated with the presence of significant bilateral trade with that country. Both imports and exports are affected and we noted that the consensus of the literature is that the effect on imports of a given increase in the stock of immigrants is greater than the effect on exports. However, such analyses typically only capture short-run effects. Sanderson (2004) argues that immigrants can be a means of knowledge transfer, which enables a country to adopt more easily the latest technological innovations. This may stimulate both process and product innovations that in the long run could make the effect of immigration on exports exceed that on imports. Such a long run effect is, however, hard to identify empirically.
Using New Zealand international trade data, Bryant et al. (2004) demonstrate that the impact of New Zealand immigration on trade is consistent with the international evidence. While there are noticeable selection effects (whether or not there is trade with a country at all, is linked with whether or not there is immigration from that country), the elasticity of the relationship between migrants and trade is greater for imports than for exports.
Migration induced education and tourism are likely to be of particular relevance to New Zealand. This suggests that New Zealand should be active in its negotiations on these areas to maximise the potential benefits. The tourism industry has grown dramatically in both New Zealand and Australia, which has led to a need for developing tourism training programmes (Williams and Hall, 2000; Statistics NZ, n.d.). In New Zealand this has led to the setting up of tourism education facilities such as Sir George Seymour College have been set up and also there has been increased significance of tourism studies in universities. International educational markets have also undergone rapid development in recent years and we have previously discussed the rapid rise, and subsequent fall, in international student numbers in New Zealand (see Bedford and Ho, 2006).
Benefits and costs of migration
As discussed in Section 5, the international movement of people brings many potential mutual benefits for both source and destination economies. Some of these benefits are directly linked to trade, as noted above.
In many countries, including New Zealand, a significant proportion of the resource costs of education are funded through government taxes. This subsidy is linked to the public benefits of education. Therefore government and its taxpayers have an interest in reaping the public return on this investment. However, when migrants go overseas they take their accumulated education with them and New Zealand may thereby effectively subsidise economic growth in other countries. Furthermore, New Zealanders can receive subsidised health care and can qualify for superannuation. If they go overseas then they avoid the New Zealand taxes which fund these activities but they may later return to New Zealand, making use of the health care and superannuation, and thereby imposing costs on New Zealand taxpayers (Bushnell and Choy, 2001). Given the increased mobility of the population, government have responded to this issue through international sharing of some social security costs. For example, the public pension in Australia and New Zealand is funded by contributions from both countries in proportion to the time worked in each country.
Research reported in Carmichael (1993) and by Bushnell and Choy (2001) suggests that emigration from New Zealand to Australia occurs across the full range of occupations. While there have been greater emigration rates in some occupations than in others, Bushnell and Choy argue that there is little evidence of a brain drain in New Zealand. This is because immigrants have substituted for emigration of New Zealanders, and a high skill level has been the one of the most important immigrant selection criteria, particularly in recent years. International migration statistics show that New Zealand lost, in net terms, about half a million citizens to other countries during the last thirty years, but replaced these emigrants with some 700,000 citizens of other countries who settled in New Zealand. Bushnell and Choy (2001) confirm that the skill distribution of departing New Zealanders has not changed greatly, but that those that are arriving are becoming increasingly more skilled. In addition, most of the people leaving are in the 15-24 year age group and those arriving are in the 25-39 year age group, i.e. with greater labour market experience.
People are increasingly becoming more internationally mobile, especially younger people who may benefit from development of their skills, incomes and careers. The student loan scheme has also encouraged university graduates to move temporarily overseas in order to accumulate savings at a faster rate than would be possible in New Zealand, and thereby increasing their ability to repay the loan faster. For some migrants, particularly in knowledge intensive professions, there is the potential of earning much higher incomes, for instance doctors, nurses, scientists, engineers and consultants (Gera et al., 2005). Professional migrants, however, may be faced with the problem that their qualifications are not recognised and that they therefore cannot apply for certain jobs. This is a further barrier which must be overcome in order to effectively liberalise world labour markets and it is a barrier that may affect people moving to and from New Zealand. As discussed earlier, the TTMRA is an agreement alongside CER which has effectively removed this barrier in trans-Tasman migration. However, development of such agreements needs to be continued and expanded in coverage so that the movement of people is not unduly hindered by unrecognised qualifications. There are of course political difficulties to be overcome, particularly when professional groups have vested interests in limiting entry into their professions, and there may be issues associated with the compatibility of qualifications.
Gaps in the literature and potential areas for future research
As previously noted, literature that integrates international trade negotiations and the movement of people is relatively sparse. This may reflect the limited negotiations on movement of people within trade agreements and it may also reflect the fact that some of these negotiations remain confidential (particularly in bilateral and regional agreements). In addition, the international movement of people is a politically sensitive topic in most countries, and it may be difficult to negotiate access to a country's labour market by those charged with trade negotiations, given the complexity of the issues and difficulty in assessing the potential trade-offs.
In this context, it is useful to point out that 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 Nation (MFN) clause is unlikely to be acceptable to countries in this context. Under MFN, discrimination between trading partners is not allowed and any more favourable concessions granted must be extended to other 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.
Nonetheless, it is likely that developing countries 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 to be on a bilateral than multilateral basis. There may be particular pressure to cover permanent labour movements, since some temporary work policies are already covered under existing arrangements.
There exists limited quantitative modelling of the economic impacts of international migration flows, particularly for New Zealand.[20] There is also very little modelling that simulates the likely impact of trade agreements that include increased movement of people. The Global Trade Analysis Project (GTAP) database and dynamic model could be used in conjunction with a new international bilateral migration database (Parsons et al., 2005; Walmsley et al., 2005c) to undertake significant new modelling in this area. While Walmsley et al. (2005a) present a very interesting paper with some results for increased labour movement under mode 4 of GATS for the Pacific and Australasia, the authors are clear in their warning that this work currently has significant limitations and further research in this area is required.
Given current interest in liberalising temporary migration, more rigorous studies of the relationships between trade and FDI and patterns of international migration are needed (Manning and Bhatnagar, 2004). Extending global modelling work 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.
In analysing the impact of bilateral trade negotiations and immigration, the New Zealand situation is rather unusual because of the importance of trans-Tasman population movement. While highly cyclical, this movement has, since the late 1960s, been predominantly in the direction of Australia as noted earlier in this report. One of the main causes has been average economic growth and employment growth in Australia exceeding that of New Zealand. Further research on trade negotiations by Australia and New Zealand with other countries and their implications for international migration with such countries, as well as within Australasia, is obviously another topic that would be of interest to New Zealand.
A central issue in discussion of trade negotiations, immigration and services provision under GATS mode 4 is the extent to which any liberalisation will increase the share of GDP that is exported and improve New Zealand's productivity growth. Both export growth and productivity growth have been disappointing in recent years and these outcomes are clearly linked. Export-led growth is a long established recipe for improved long-run economic performance. Similarly, the recruitment of skilled 'talent' from abroad is seen as another means of improving productivity growth. However, the link between these policies has not yet been investigated thoroughly.
Finally, it is clear that the most rapid growth in international labour movement in the years to come is that of temporary labour movement. Earlier in the report we noted that this development is encouraged from the perspective of immigration policy as it provides more flexibility and effective pathways to subsequent permanent settlement. It is clear that more research is needed to design policies to maximise the potential of temporary worker schemes and to provide incentives to minimise potential social costs. Again, the likelihood that further temporary movement agreements would be negotiated under GATS mode 4 is still to be investigated further.
With respect to the movement of business people, this likelihood is small. Countries such as New Zealand already impose few barriers on the short-term movement of business people. The establishment of 'offshoots' of foreign firms in the services sector under GATS mode 3 is likely to trigger an associated need for temporary migration of intra-corporate transferees. Existing arrangements already accommodate such movement, so that GATS mode 4 is not essential to negotiation in this context.
[17] Alternatively, they may be Australia born children of New Zealanders, returning after residing some years in Australia.
[18] Nine months for workers from Tuvalu and Kiribati (DOL, 2007).
[19] New Zealand has a history of offering special concessions for immigration from Pacific nations. In particular, there is a Samoan Quota scheme for up to 1,100 Samoans and the Pacific Access Category (PAC) which allows up to 250 nationals from Tonga, 75 from Kiribati and 75 from Tuvalu, to become permanent residents if specific criteria are met (Stahl and Appleyard, 2007). These policies are rather unique, with Stahl and Appleyard (2007) commenting that they “cannot think of another developed country that admits migrants as a part of its perceived duty to assist their economic development”.
[20] A three year research programme, funded by the Cross-Departmental Research Pool (CDRP) and coordinated by the Department of Labour will be completed in 2008. This research programme covers a range of topics, such as labour market, housing, fiscal and productivity effects of immigration. The various sub-projects will also inform simulations with a multi-sectoral CGE model of the New Zealand economy.