The Impact of Free Trade Agreements on Labour Mobility

Free Trade Agreements (‘FTA’s) are a common method of trying to boost trade of goods and services between countries. Usually bilateral, FTAs can be multilateral as well.  An oft overlooked element of FTAs is its impact on how labour moves from one country to another and if it aids such movements or otherwise. This article explores these issues and more.

Introduction

As of the date of this article, Singapore has in force 11 Free Trade Agreements (‘FTA’s), including those with ASEAN and the European Union.¹ Apart from the Common Effective Preferential Tariff Agreement which was signed in 1993 and which implemented the ASEAN Free Trade Area (‘AFTA’), all of Singapore’s FTAs were concluded within the last six years. Singapore is currently negotiating a further 10 FTAs. ASEAN, of which Singapore is a member, is in negotiations with the People’s Republic of China, Australia and New Zealand, India, Japan and Korea for future economic and trade co-operation. Under the purview of the World Trade Organisation (‘WTO’), more than half of the Regional Trade Agreements (‘RTA’s) that have been negotiated came into existence only after 1995.

International movement of labour is affected by several factors. Some of these are: availability of employment, political stability, standard of the social network, for example availability of accommodation for the individual’s family in the event of a relocation, ease and extent of repatriation of income back to the individual’s country of origin, international recognition of the individual’s qualifications and of course, the opportunity for higher income or a higher standard of living away from home.

With the shift in economic climate brought about by FTAs, movement of people will follow. Several facets of FTAs have direct or indirect implications on labour mobility. Naturally, each FTA will be unique, addressing the particular concerns of the relevant parties involved. However, there are some common threads among the numerous FTAs that Singapore is party to, which we will address. This article will look at FTAs and the movement of labour generally and then delve into the various factors affecting labour mobility and assess the impact of FTAs.

Free Trade Agreements and the Movement of Labour

One hundred and forty-two of about 200 countries around the world are members of the WTO, with another 32 being observer governments.² Under the General Agreement of Tariffs and Trade, which is administered by a council made up of representatives from all WTO member countries, RTAs must satisfy the following conditions: the agreement must firstly reduce trade barriers within parties, and secondly, the agreement cannot raise trade barriers for non-party members.³

In this era of increased economic co-operation and regional trade, changes are taking place in several areas of the economy. The aim of FTAs is the reduction of trade barriers resulting in an increase in volume of trade between member states. As to cross-border trade and labour issues, the experience of the European Community (‘EC’) was traditionally to treat the two as distinct and rules for movement of people were decided based on individual states’ concern about their own growth and economic development. However, economic and political integration have pushed members of the EC towards acceptance of co-operation in policies pertaining to movement of persons. Today, the Treaty of Rome recognises that the common market needs free circulation of goods, services, capital and labour in order to succeed.⁴ In North America, the North American Free Trade Agreement provides for relatively free movement of highly skilled individuals as well as business visitors. It also provides for certain foreign workers to enter member states without requiring them to undergo labour market testing.

ASEAN has a vision of creating an ASEAN Economic Community (‘AEC’) by 2020. The AEC involves, among other initiatives, the removal of non-tariff barriers to the flow of goods and services between member countries so that they can flow freely as if the AEC is one country composed of 10 provinces.⁵ Among the ASEAN initiatives in trade in services was the signing of the ASEAN Framework on Services (‘AFAS’) in 1995 with the aim of reducing restriction to trade in services. Although the AFAS documents do not contain any specific provisions on mobility of labour, movement of natural persons is classified as one of four modes of service supply. Supply of services under the AFAS is classified in the same way as under the General Agreement on Trade and Services which includes in its definition of service suppliers ‘the supply of a service … by a service supplier of one member, through presence of natural persons of a member in the territory of another member’.⁶

The Free Trade Area of the Americas (‘FTAA’) is possibly the most ambitious regional trade agreement, involving every nation on the American continent except  Cuba. The FTAA allows members to opt out of certain contentious areas, which led to the criticism that this will render the FTAA practically ineffective.⁷ This allowance recognises the sheer number of negotiating parties and the huge disparity in each state’s level of development, concerns and economic policies. Criticism of the US-Central America Free Trade Agreement (‘CAFTA’) stems from the agreement being negotiated between unequal trading partners. Where labour is concerned, the CAFTA only requires members to comply with domestic labour laws, not with international labour standards. This is seen by some as regression since domestic labour laws in Central America are indisputably inadequate. On the other hand, studies have shown that increased labour mobility has the effect of generating greater financial benefits for poor countries than free trade.⁸

One other complaint against FTAs is that they push for corporate globalisation at the expense of labour and environmental standards as well as the rural and lesser developed parts of member states.

The examination of some factors affecting labour mobility in the second part of this article is approached from the perspective of the several existing FTAs that Singapore is a party to, as well as FTAs that Singapore is in the process of negotiating. Singapore, like many other economically driven states, has placed a huge emphasis on reduction of international trade barriers. This is to Singapore’s advantage as Singapore itself is an economy with very few trade barriers.

The Singapore Perspective

With the exception of the Southern tip of Peninsula Malaysia, Singapore is not conveniently linked, geographically speaking, to any other part of the world. A unique facet of Singapore’s FTAs is that several of them are negotiated with parties that are not Singapore’s immediate neighbours. In terms of the movement of people, these two factors have great implications for Singapore. Even if there are ample provisions for the free movement of people, there is the physical barrier that will hinder the migration of labour as a result of FTAs entered into by Singapore. Singapore has been careful in choosing its partners in FTA negotiations, especially those involving more than two parties. From the agreements that have been negotiated, one visible trend is that such arrangements were initially concluded with states that have complementary levels of economic developments and political concerns. Subsequently, more ambitious negotiations have been undertaken, such as the Trans-Pacific Strategic Economic Partnership Agreement between Brunei, New Zealand, Chile and Singapore, which was entered into in August 2005. The agreement joins four vastly different nations in terms of culture and also involves some disparity in levels of economic development.

We turn now to analyse various factors that affect labour mobility, seen from the perspective of the FTAs to which Singapore is a party.

Factors Affecting Labour Mobility

Opportunities for employment outside the domestic market

A key element leading to migration of labour is the push factor of lack of domestic employment opportunities coupled with the pull of opportunities outside the domestic market. In this regard, the labour force can be divided into two main categories, unskilled labour and skilled professionals. The first category of labour usually involves movement of labour into industrialising nations that require such labour volume. The second category involves movement of professionals to economies with increasing international trade and investment significance.

With increased globalisation and the flow of trade brought about by FTAs, there is a move away from the traditional view of foreign labour as unwanted external competition. The fear of most governments traditionally is that an inflow of cheap foreign labour coupled with better qualified foreign professionals will result in loss of jobs for the domestic labour force. However, with the opening up of economies, this perceived threat of foreign labour to the domestic force is reduced, largely because it then becomes obvious that the benefits of allowing the free flow of trade and labour far outweigh any possible benefits that a protectionist attitude may have.

Through the FTAs, previously protected sectors in the economy are now opened to qualified individuals from overseas. For example, art 22 of the Agreement between New Zealand and Singapore on a Closer Economic Partnership (‘ANZSCEP’) acknowledges the need to ensure that measures relating to professional qualification and registration requirements do not constitute unnecessary barriers to trade. In the ANZSCEP, Singapore and New Zealand have identified specific professional areas in which measures will be discussed and taken in respect of mutual recognition and registration. The list of professions covered under art 22 is a non-exhaustive list that includes lawyers, accountants, engineers, doctors, management consultants and geologists. There is further provision for ongoing dialogue and also for review at least every two years.⁹

It has been said that decentralisation, deregulation and globalisation have a marked effect in the enhancement of labour flexibility.¹⁰ This trend of mutual recognition and relaxation of registration controls between different countries will see an increase in the mobility of previously domestically limited professions. Professionals will in future no longer be confined to practising only in the country where they received their training and qualifications. Accordingly, these professionals will now be able to move to where their expertise may be needed most, or where it will be most rewarding for them to practise. One prime example in Singapore’s context is the relaxation of the requirements for practising as a lawyer in Singapore. Previously, only graduates from Singapore’s own law school and a select number of English universities could be admitted into practice. Today, the list of law degrees that are recognised in Singapore include universities from Australia, New Zealand, Canada and the United States.

A statement in the preamble of the ANZSCEP goes: ‘New Zealand and Singapore, ... mindful that liberalised trade in goods and services will assist the expansion of trade and investment flows, raise the standard of living, and create new employment opportunities in their respective territories …’. This statement no doubt reflects the mindset of governments in negotiating FTAs. The Singapore Ministry of Trade and Industry is also keenly aware of the ability of FTAs to connect Singapore to key economies around the world, giving businesses in Singapore an advantage over other economies.¹¹

As a direct result of various FTAs and economic considerations, several centralised sectors in Singapore and elsewhere have been liberalised in the past few years. In Singapore, we have seen the privatisation of the media, telecommunication, energy, and public transportation markets. The opening up of these sectors creates opportunities for the entry of market players, both local and foreign. With that, the flow of expertise follows.

The general breakdown in barriers to trade brought about by the FTAs means that businesses and individuals are no longer confined to the domestic arena. A gradual outflow of expertise arises, from places of lower need to places of 
higher need.

Movement of natural persons

Labour mobility cannot be viewed only as long-term relocation of labour. Movement of labour takes different forms, from short, project-based trips, to being stationed up to several years with relocation of not only the individual, but his family as well. It is important to note at this juncture that the Singapore FTAs do not deal with measures regarding citizenship, permanent residence or employment on a permanent basis.

Changes to immigration visa requirements and quotas as set out in FTAs will have a direct impact on ease of movement of labour. In the United States for example, there is a fixed annual quota for the number of H1-b professional employment visas issued to foreigners entering the United States. However, thanks to the United States-Singapore Free Trade Agreement, Singaporean professionals applying for long-term employment visas in the United States can apply instead under a newly created visa for Singaporeans, the H1-b1 visa, with its quota of 5,400 Singaporeans annually. Under the H1-b1 visa, there is also no necessity for the employer to prove that no other American can take the job that the Singaporean is applying for before an employment visa can be granted.¹² This means that the chances for Singaporeans obtaining the necessary visas to enter into the United States are greatly increased.

Several of the FTAs that Singapore has negotiated contain a section relating to movement of natural persons in some form. The general approach adopted by Singapore is to have a wide allowance for free movement of persons between members with certain exceptions provided for. This allows for flexibility to make further improvements and adjustments over time as conditions change. By virtue of the FTAs, there are now specific provisions for the temporary movement of business persons between Singapore on one hand and the United States, Australia, Japan, New Zealand and the European Free Trade Association (consisting of Iceland, Liechtenstein, Norway and Switzerland) on the other. Under these provisions, business visitors will be entitled to stay from a short term such as 90 days to an indefinite period of time. Under the Agreement between Japan and Singapore for a New-Age Economic Partnership, investors and engineers will be allowed to stay for an indefinite period of time, as long as the applicant continues to meet the criteria and conditions stipulated at the time of his entry. Under the Singapore-Australia FTA, intra-corporate transferees will be allowed to stay for up to 14 years in the partner country.

The relaxation of educational and professional requirements will also reduce the barriers to movement of persons. It is also foreseeable that the increase of movement of individuals between party states to FTAs will result in the reduction of immigration control as greater understanding and mutual recognition are established between these states over time.

Legal protection of foreign labour

Another element affecting movement of labour is the availability of protection for foreign labour. Dispute resolution mechanisms must not only be impartial, they must also be easily accessible. Protection in the form of fair treatment of foreign labour must also be present in forms such as equal treatment of foreign and local workers, and reasonable immigration rules and requirements. One can also expect to see the movement of labour from a site of lower to a site of greater labour protection.

Pursuant to the Trans-Pacific SEP, a Memorandum of Understanding (‘MOU’) on Labour Co-operation was agreed upon. The first objective stated in the MOU is to ‘promote better understanding of each Party’s labour systems, sound labour policies and practices and improve the capacities and capabilities of the Parties, including non-government sectors’. The MOU will allow for the countries to work closely together on labour issues and provide opportunities for the countries to share views and experiences, with the objective of promoting and enhancing the well-being of workers. It is foreseeable that with the increased interaction between these countries and such an exchange of views, there will be a convergence of labour standards and policies. This will in turn result in a consistent standard of labour protection and expectations of employees across borders in the countries concerned. It is natural to expect that personnel who are looking to be posted overseas would look to places where the standards of labour are similar to or higher than that at home. Furthermore, if information on labour policies is readily available and labour standards are consistent between several states, this may be a draw to potential foreign workers.

Remittance and repatriation of income and investment profits

Needless to say, a person relocating for purposes of employment would be concerned about his ability to repatriate earnings to his country of origin as and when he wishes, or at least upon the eventuality that he moves back to his home country. The proportion of earnings that can be remitted must also be considered. In this regard, rates of income taxation, rules against double taxation and foreign exchange controls become relevant.

The terms of the India-Singapore Comprehensive Economic Co-operation Agreement agreed to review the Avoidance of Double Taxation Agreement (‘DTA’) already entered into by India and Singapore, with a view to enhance its provisions. The DTA provides for avoidance of double taxation of income earned in Singapore or India by a resident of the other state and makes clear the taxing rights between the countries on all forms of income from cross-border economic activities. The DTA thus helps to facilitate the flow of trade, investment, technical know-how and expertise between Singapore and India by eliminating double taxation of income. This is particularly important because in the event that a person remitting foreign income or profits from investments to his home state is subject to taxes both in the foreign country and in his home country, this may cause a significant reduction in his earnings.

One aim of FTAs is to encourage foreign investments into one’s country. A key element in attracting foreign investments is to allow for easy repatriation of investment profits. With the FTAs, we may see relaxation of foreign exchange and remittance controls as party states take steps to encourage mutual investments in their respective economies. This will have a direct impact not only on businesses investing in these countries, but also on individuals wishing to repatriate their earnings and investment profits. Overall, this may stimulate and further increase the level of investment and business transactions in 
participating nations.

Conclusion

FTAs clearly have a major impact on labour mobility. Only time will tell if success will follow. The irony perhaps is that increased trade and communication brought about by FTAs may also have some impact in reducing the actual need for individuals to move away from home for the purposes of work. As a result of the increased flow between party states, it is possible that tasks and jobs that previously required travelling or relocation can now be done from the home country with just as much efficiency and possibly at a lower cost. Open flow of trade will allow businesses access to the advantages of international labour from the comforts of home.¹³

It appears clear that one end result of the various trade arrangements within the region is the reduction of barriers to labour mobility, thus facilitating the movement of labour and expertise within the region and beyond. This can only take place both as a by product of the measures taken to facilitate regional trade and also as a direct result of efforts by the relevant governments to open up their labour markets, both to receive and to send out their labour pool.

Francis Xavier

Chou Tzu

Rajah & Tann

E-mail: francis.xavier@rajahtann.com;

tzu.chou@rajahtann.com

Notes

1    The FTAs concluded with individual countries to date are with Australia, the United States of America, India, Hashemite Kingdom of Jordan, Japan, Korea, New Zealand and as of 1 March 2006, Panama. Other FTAs are the ASEAN Free Trade Area, the Singapore-European Union Free Trade Association and the Trans-Pacific Strategic Economic Partnership Agreement (Brunei, New Zealand, Chile and Singapore). See Ministry of Trade and Industry, Free Trade Agreements, retrieved 11 July 2006 from http://www.fta.gov.sg.

2    With the exception of the Holy See, observers must start accession negotiations within five years of becoming observers.

3    Center for International Development at Harvard University (2004) Regionalism Summary retrieved 8 March 2006 from http://www.cid.harvard.edu.

4    Treaty Establishing the European Community, 25 July 1957 (as amended by subsequent treaties).

5    Reyes, Romeo A, ‘The ASEAN Model of Economic Integration’, The Jakarta Post, 19 July 2004.

6    Nielson J, ‘Current Regimes for Temporary Movement of Service Providers’, Joint WTO-World Bank Symposium on Movement of Natural Persons (Mode 4) under the GATS, (April 2002).

7    See n 3 above.

8    Washington Office on Latin America, ‘Fair Trade or Free Trade? Understanding CAFTA’, July 2004, retrieved 13 March 2006 from http://www.wola.org.

9    Agreement between New Zealand and Singapore on a Closer Economic Partnership, art 22, and Annex 2.2.

10 Amicorum L, ‘Labour Law and Industrial Relations at the Turn of the Century’, The Hague, Kluwer Law International (1998).

11 Ministry of Trade and Industry, Singapore’s Free Trade Agreements, overview, retrieved 1 March 2006 from http://app.fta.gov.sg.

12 This is a requirement for all other foreigners applying for an employment visa in the United States.

13 Ilovehunter, ‘Free Trade Must Include Labour’, 2006, retrieved 8 March 2006 from http://www.dailykos.com.