The Hindu Business Line : GATS: Dealing with brain-drain

Mode-3 of GATS relates to the presence of foreign firms. Under this Mode, developing countries are to expand their markets to include more foreign service providers.

Mode 4 deals with the movement of individuals in the consumer's territory to provide the service.

Mode-3 deals with issues of capital mobility, while Mode-4 handles matters relating to labour movement.

The developed countries do not allow labour mobility but instead seek full freedom of capital flow and complete market access in developing countries.

GATS does not deal with the welfare issues of migration. Nor does it have a provision to deal individually with skilled and unskilled migration.

Skilled migration, for example, results in brain-drain in developing countries.

Therefore, considerable thought must be given to welfare advantages of migration to developing countries in the existing GATS framework.

The asymmetry between capital and labour mobility arises because the income earned on the capital invested aboard is income for the sending country, while a substantial portion of migrant income lies outside the domain of sending country.

In capital mobility, both the sending and receiving countries profit, whereas in labour mobility only the receiving country stands to gain.

However, this outcome can be reversed in the case of unskilled migration, or if skilled migrants are treated as part of developing countries, thus ensuring the welfare advantages of these countries.

For developing countries, the migration of skilled workers to developed nations entails huge costs — on education, for instance.

Empirical evidence shows that Sub-Saharan Africa countries lost 30 per cent of their skilled personnel between 1960 and 1987.

The Caribbeans are also hard hit, presumably because of the proximity to the US and the relative ease in emigrating there. For instance, Jamaica had to train five doctors in order to keep one.

A study by Bhagwati and Hamada (1974) found the effects of brain-drain where private mortgage product (PMP) was not equal to social mortgage product (SMP), because emigration leads to integration of the domestic market for professional labour into the higher-paid global market.

However, migration can contribute in the form of remittances.

Another study found that sufficiently large remittances can neutralise the brain-drain effect.

Moreover, migration prospects may foster investments in education, provided the returns are higher abroad. And skilled migration may well be turned into `brain gain'.

However, this is small consolation as the number of foreign students in developed countries is only increasing and, often, these students stay back.

So there is still the problem of brain-drain.

Skilled migrants may loose links with their home country if they migrate permanently and as they are more likely to move their also, their remittances could taper off.

In India, its effect is visible in the IT sector.

Since the early 1990s, there has been an exodus of IT professionals to developed countries, wooed by promises of higher incomes.

This trend is very much on the rise resulting in a drop in demand and wages of such professionals.

Since neither developing nor developed countries can do much to confine a skilled professional to home turf, the practical thing would be to improve the welfare policy.

This must include taxation of migration, or utilisation of externalities and flow of remittances.

There are several proposals to garner resources for developing countries affected by brain-drain.

The Report of Contact Group on Industrialisation and Transfer of Technology, Paris (1977), recommended that special arrangements, including establishing special funds, should be made to compensate the developing countries for the loss they incur due to brain drain.

One study suggested that the developing country impose a tax on migrants that would be collected by the developed countries and passed on to the former through a multilateral treaty.

Further, the study suggested an exemption for contribution made by these migrants to developmental and charitable organisations working in the developing countries

Another study suggested extending the US practice of earmarking a part of the taxes to finance the Presidential elections to immigrants from a developing country being allowed to set apart a portion of their incomes for contributing to a designated multilateral agency for developmental spending.

Welfare issues of migration are beyond GATS.

Ironically, these issues have not been tackled by any other international organisations. Several professional institutions provide only consultancy on migration-related issues and do not handle welfare issues.

Since the World Trade Organisation is the recognised multilateral institution in the field of international trade, GATS should strengthen the definition of a multilateral framework for migration, by expanding its surveillance role and by providing it with additional resources.

(The author is faculty, International Business Area Institute of Management, Nirma University of Science and Technology, Ahmedabad. Response can be sent to Deepak@nim.ac.in)