Managing Global Mobility
Free Trade in Services in the Age of Terror

Ryan Walters - American Constitution Society
Vol. 6
May 2006
Page

The views contained in this article are exclusively those of the author and should not be attributed to the American Constitution Society.

Introduction

While world trade in goods exploded in the 1990s, the U.S. and the rest of the world quietly made strides towards freer trade in services. The world consequently moved towards greater international labor mobility; namely, the freedom of people to seek jobs across national borders. Immigrants provided a huge new labor force that allowed the U.S. economy to grow dramatically. In the aftermath of September 11, however, governments began imposing new restrictions on immigration, new controls on passports and visas, and new limits on outsourcing in the name of national and international security.

These new restrictions jeopardize the progress achieved towards freer trade in services during the 1990s. Increasing global labor mobility has greater potential to benefit worldwide development, peace, and prosperity than any other kind of reform. Failure to consider free movement for work as a vital component of our national economic infrastructure and our foreign policy will seriously restrict economic growth in the coming decades.

The following analysis will provide an overview of the benefits of, and compelling reason for, freer global labor mobility. It will review existing policies that regulate labor mobility and the services trade, including the General Agreement on Trade in Services, other regional measures and agreements, and domestic barriers to mobility. The article also considers how the U.S. response to September 11 has adversely affected foreign travel and commerce. As U.S. policy continues to develop, we must consider labor mobility not only as a ticket to improve sluggish economic growth but also as a way to moderate terrorist motivation. The analysis concludes by offering some prescriptions for both maladies.

[1] Especially since the end of World War II, many nations have focused on encouraging free trade in goods and raw materials. Even though an introductory course in economics teaches that production is not just a function of capital and natural resources, but also of labor,[2] little attention has been paid to liberalizing the global movement of people. Indeed, this area deserves a closer look: labor mobility is essential to global trade in services, allows the market to discipline industries and government, provides economic levers in common currency areas, and can promote understanding and tolerance.

A. Potential Gains from Increased Labor Mobility

The potential gains from increased labor mobility to the Gross National Product (GNP) are significant. A 1984 study by Bob Hamilton and John Whalley found that a global labor market with no immigration controls could more than double worldwide GNP.[3] While no one is seriously arguing for total global mobility, there are substantial benefits to GNP from even a marginal increase in labor mobility. A recent study found that a realistically attainable 3% increase in immigration quotas of forces could boost world GNP by 0.6% of world income.[4] While this figure may seem small, it is one and a half times the expected gains from removing all remaining restrictions on the trade in goods.[5] Facilitating labor mobility is the most important reform the planet can undertake to improve the lives of impoverished millions.

Moreover, developing countries would experience larger proportional gains than developed countries.[6] Harvard economist, George Borjas, figured that U.S. high school dropouts have their wages depressed by Mexican immigrants, and may earn approximately 8% more if no low-wage Mexican immigration were allowed.[7] Immigration, however, is still a net benefit to the U.S.. Since 1980, economists estimate that immigration has increased the income of native-born Americans by somewhat less than 1%.[8] Benefits are measured not just in increased income but also in lower prices. Thus, the total benefits of labor mobility as a whole are significant.

Since total labor mobility is not politically realistic, we must consider what restrictions on mobility are suitable and practical. Both developed and developing countries would benefit more from relaxed restrictions on unskilled labor rather than on skilled labor: developing countries have primarily unskilled labor to supply while developed countries only have unskilled jobs to offer.[9] Still unclear, however, is whether relaxed restrictions on movement of unskilled or on skilled labor could be sold more easily to developed countries. What is clear is that enhanced labor mobility would transform the lives of millions currently living in developing countries. Already, foreigners working in developed countries sent home $72.3 billion in 2001.[10] Such remittances constitute the largest source of developing countries' external funding after foreign direct investment.[11] Developing countries could potentially benefit substantially from increased labor mobility.

[12] Services are omnipresent; nearly everyone uses telephone, banking, insurance, tourist, Internet, medical, legal, or barber services. As a result, services are vital to our economy, both globally and domestically: the service sector constitutes 80% of U.S. employment and 64% of U.S. Gross Domestic Product (GDP).[13]

Trade in services has been rapidly expanding on a global level for more than a decade, which Table 1 and the following statistics indicate. U.S. services exports were $274 billion in 2000, and total world trade in services was $1.4 trillion.[14] In 2001, services constituted about 60% of the world's output.[15] In some developing countries, the services trade accounts for greater than 50% of all export revenues.[16]

Table 1. Growth in the value of world trade in commercial services by region, 1990-2000[17]

(billions of dollars and percentages)

Exports

Imports

Value

Annual percentage change

Value

Annual percentage change

2000

90-00

1998

1998

2000

2000

90-00

1998

1999

2000

World

1415

6

1

1

5

1400

6

2

2

5

North America

311

7

2

5

10

241

7

8

4

13

United States

274

8

2

4

10

199

7

10

4

14

Latin America

60

7

7

0

12

72

8

4

-5

13

Mexico

13

6

6

-3

15

16

5

7

10

18

Other

47

8

7

1

11

56

8

4

-9

12

Western Europe

629

4

7

0

-2

601

4

9

1

-1

EU(15)

560

4

7

1

-3

556

5

9

1

-1

Transition economies

48

9

1

-14

7

49

7

-2

-9

12

Africa

30

5

-1

10

...

38

4

0

-3

...

Middle East

33

7

4

9

...

43

3

-12

5

...

Asia

304

9

-13

4

13

359

7

-11

5

7

Japan

68

5

-9

-2

13

115

3

-9

3

1

China

30

18

-3

-1

25

35

24

-5

16

14

Hong Kong, China

43

9

-6

4

14

24

8

1

-1

3

Asia (5)*

66

10

-22

0

7

85

11

-25

4

15

*Indonesia, the Republic of Korea, Malaysia, Philippines , and Thailand.

Columbia University economist, Jagdish Bhagwati, defines two major classifications of services: those that require physical proximity between buyer and seller and those that do not.[18] The first group may be further divided into three categories. Category A, "Immobile User, Mobile Provider," consists of services that require the provider to go to the user. Category B, "Mobile User, Immobile Provider," is characterized inversely. Category C consists of services where mobility is symmetric. See Table 2 for examples of each category.

Labor mobility is required for a substantial portion of the trade in services because physical proximity, although not necessary for some services, are essential for others. Most of the growth in the global trade in services is attributable to growth in Class 2 services that do not require physical proximity, such as banking, insurance, and other financial and information services. These services are largely delivered via the Internet. Accordingly, they are more difficult to regulate and even harder to tax. For this reason, the global trade in services was able to expand significantly during the booming technology decade of the 1990s. In general, however, most services require physical proximity for delivery. For example, Class 1 services that require close physical proximity include educators, truckers, doctors, and barbers. International trade in these types of services requires mobile labor forces that can cross national boundaries to do their work.

There is tremendous potential for global economic growth by reducing barriers to the global services trade. In 2002, a University of Michigan study, co-authored by Robert Stern, found that a one-third reduction in barriers to the global free flow of services would increase global welfare by $427.2 billion annually. This dollar amount is far greater than the $267.3 billion increase caused by a comparable reduction in barriers to trade in goods.[19] The GNP of the U.S. would increase by over $134 billion while Western Europe would see a $142 billion gain.[20]

Since there is enormous potential for worldwide economic growth in the liberalizing of trade in Class 1 services requiring close physical proximity, many economists and policymakers have argued for the extension of the global policy of free trade in goods to include free trade in services. Economic theorists and empiricists have spent the past 250 years theorizing about the virtues of, and empirically proving the gains from, free trade.[21] While WTO, NAFTA, and other bilateral and multilateral agreements achieved major progress in liberalizing the trade in goods, humanity has only begun to liberalize trade in services. Such liberalization must necessarily focus on freer flow of labor over national borders.

[22]

[C]onsider a world in which there were free mobility of skilled labor. Skilled labor would then provide discipline. Today, a country that does not treat capital well will find capital quickly withdrawing; in a world of free labor mobility, if a country did not treat skilled labor well, it too would withdraw. Workers would worry about the quality of their children's education and their family's health care, the quality of their environment and of their own wages and working conditions. They would say to the government: If you fail to provide these essentials, we will move elsewhere.

Market inefficiency occurs when people who would otherwise eschew jobs with poor working conditions remain because immigration controls prevent them from moving to better jobs. Labor mobility corrects these inefficiencies by allowing workers to leave places in which they are dissatisfied. This mobility, in turn, leads to more competitive industries and more efficient economies.

International capital flows traditionally discipline markets, but capital flows can be volatile, impeding growth and increasing poverty.[23] Stiglitz compares labor market discipline to the free flow of capital discipline, and finds the latter wanting in comparison.[24]

Not only is growth not enhanced but poverty is increased through several channels. The high volatility increases the likelihood of recessions--and the poor always bear the brunt of such downturns.

Capital can flow in and out of a country overnight, increasing the risk premium associated with investment in developing countries. [25] Conversely, labor mobility, due to the relative reluctance of people to leave their homes, serves as a moderating force on the otherwise rapid effects of globalization while simultaneously providing market discipline.

[26] There are usually three principal levers available to governments to manage their economies: fiscal policy (the budget), monetary policy (interest rates), and currency revaluation.[27] When a country "dollarizes," it surrenders the control its domestic interest rates and its power to revalue a common currency. In poor countries, moreover, fiscal policy may not be a viable option. Without these levers to compensate for economic recession, people need to be able to emigrate to minimize the downward pressure on wages from excess labor supply or insufficient labor demand.[28] The European Monetary Union (EMU) recognizes this problem, and thus requires member countries to admit citizens of member states without visas or work permits.[29]

If the Americas continue to move closer to a common currency, the need for free movement of labor will become pressing, just as it did in the EMU. Already, nearly a dozen countries in North and South America are heavily "dollarized,"[30] either officially (like Panama) or unofficially (like Mexico, Peru, and most others).[31] Moving closer to a common currency is an issue that several regions around the world must manage and freer labor mobility could help compensate for potential problems in this area.

As the discussion in Section II shows, global labor mobility has potentially substantial benefits. Enhanced labor mobility would not only boost worldwide GNP, but also facilitate the global services trade, impose labor market discipline on government, and assist countries in moving towards a common currency. Now that we have looked at the justifications for labor mobility, Section III will discuss existing policies on labor mobility and services trade.

[32] Later made customary by King Louis XIV of France, these letters, which also requested that sovereigns grant the bearer safe passage through their lands, became known as passe ports.[33]

There was a time when the free movement of people across national borders was the rule, not the exception. For its first hundred years, the U.S. had no comprehensive federal immigration scheme.[34] The right to free travel reigned in Europe during the explosion of tourism that accompanied the height of rail travel. Until the 1920s, labor mobility between the U.S. and Canada was nearly perfect.[35] But passports were brought back as a "temporary measure" to ensure international security during World War I, and they have been with us ever since.[36] Although there is now a growing flow of temporary workers between the U.S. and Canada thanks to the North American Free Trade Agreement, the perfect labor mobility of the nineteenth century is non-existent today.[37]

[38] GATS is a component of the 1994 Marrakesh Agreement that established the World Trade Organization (WTO). All 149 member countries[39] of the WTO must accept all the agreements in the 1994 agreement, including GATS. As a member of the WTO, the U.S. is subject to GATS requirements.

[40] in all service sectors.[41] In principle, MFN requires that states not provide any trade advantage to a member state that it does not also provide to all other member states.[42] Under an exception, however, member states can give advantages to states that share a border as part of a regional trade agreement, like the European Union or the U.S., Canada, and Mexico under the North American Free Trade Agreement.[43]

[44] found below:

1. Cross-border supply: supply of services across borders, e.g. outsourced technical support services

2. Consumption abroad: supply of services in one's own country to foreigners

3. Commercial presence: supply of services in a foreign country to that country's consumers through a commercial presence in the foreign country

4. Presence of Natural Persons: supply of services in the foreign country through the temporary presence of service-providers in the foreign country

Each mode may limit the scope of a sector included on a country's schedule of commitments.[45] The country's schedule binds the country to conformity with GATS requirements for each agreed sector and mode.

With respect to the different modes, about 80% of global trade in services today occurs through Modes 1 and 3.[46] Mode 2 is mostly tourism and non-controversial. Mode 4, the Temporary Movement of Natural Persons (TMNP), is directly related to the unliberalized trade in services. At the end of the Uruguay Round, when most countries had completed their initial schedules, Mode 4 trade was excluded from 92% of the entries,[47] and limited the stay of temporary workers to very short time periods in the remaining 8%.[48] Those commitments that were made were largely (more than 90%) for movement only of higher-level personnel.[49] As we have seen, it is in medium and low-skilled labor that developing countries have a comparative advantage.[50] As a result, this vitally important mode of trade accounts for less than 2% of the value of the trade in services today.[51]

Table 2. Mapping of Bhagwati's classifications[52] to GATS modes[53]

Bhagwati Classification

GATS Modes

Examples

Class 1: Physical Proximity Essential

Category A: Immobile-User, Mobile Provider

3,4

Building construction

Category B: Mobile-User, Immobile Provider

2

Complex neurosurgery

Category C: Mobile-User, Mobile Provider

Any

Haircuts, lectures

Class 2: Physical Proximity Inessential (Long-Distance Services)

1

Financial and insurance services, other services delivered via the Internet

[54] These norms, called "specific commitments," are only enforced against service sectors listed in a country's schedule of sectors to which that country wants to extend GATS.[55] The "market access" requirement provides that GATS member countries open their listed sectors to foreign companies.[56] The principle of "national treatment" also requires countries to provide foreign companies regulatory treatment equivalent to that imposed on domestic companies in the same industry.[57] While not comprehensive, GATS provides a framework that does facilitate the worldwide trade in services for the first time in history.

[58] Instead, countries provide their own measures in their specific commitments to facilitate country entry.

The European Union (EU), with its common currency, is perhaps the most cognizant of the pressing need for labor mobility. The EU, under its own provisions, requires no visa or work permits for Europeans to access employment in EU countries.[59] Although the EU is linguistically and culturally more diverse than the U.S., EU workers enjoy limited rights to bring their families.[60]

Under the North American Free Trade Agreement (NAFTA) between the U.S., Canada, and Mexico, members must allow the temporary entry of NAFTA members' citizens, but this provision is limited to high-skilled workers.[61] While the outflow of high-skilled workers has limited benefit for developing countries, NAFTA does apply the entry provision to workers in both the services and goods sectors.[62]

In order to maximize the economic benefits of trade liberalization, governments must prioritize labor mobility over investment and the goods trade. Unfortunately, no existing trade agreement can be used to force the expansion of labor mobility beyond its current parameters.

D. Domestic Barriers to Labor Mobility

Free trade in services, and thus labor mobility, face many domestic barriers in the U.S.. The following subsection summarizes recent discussions of labor mobility, immigration, and outsourcing. Although there has been a lot of rhetoric about the impact of labor mobility on U.S. employment, Americans need not fear labor mobility on an economic basis.

The services trade, particularly outsourcing, has been a hotly debated item around the country. The 2004 U.S. Presidential Campaign featured outsourcing as one of the main economic problems or challenges facing the American electorate.[63] Also, politicians jumped on respected Harvard economist Greg Mankiw, the Chair of the President's Council of Economic Advisors, after he described outsourcing as "just a new way of doing free trade" and "a plus for the economy in the long run."[64] Democratic Senate Minority Leader Tom Daschle derided Maniw's comments as "Alice in Wonderland economics."[65] Republican House Speaker Dennis Hastert declared the idea of outsourcing fails "a basic test of real economics."[66]

Despite such political rhetoric, economists maintain that Mankiw's point was correct. Politicians are not economists, and their pronouncements on matters of economics should not be taken any more seriously than their pronouncements on scientific theories.[67]The Economist calls their political strategy "the new protectionism," a red herring that raises no new issues against the bedrock economic principle of comparative advantage.[68]

There is essentially no debate among economists over the merits of labor mobility and free trade, including outsourcing. Philip Martin, a professor at the University of California, Davis, explains that the economics of labor is essentially the same as the economics of goods.[69]

If people were goods, the solution to different wage and employment levels would be obvious: encourage the transfer of 'surplus' people from poorer to richer nation states, which should benefit individuals whose incomes rise, increase global GDP, and promote convergence in wages and opportunities between sending and receiving areas that eventually reduces migration pressures.

Economists are not politicians, and are sometimes too sterile and insensitive in their explanations. Comparing people to goods, for example, while an apt analogy, is probably a public relations gaffe.

Economists also supply ammunition to opponents of free trade by being honest about the details but providing insufficient explanations about the process. For example, the Michigan study predicts simultaneous declines in U.S. employment in many sectors because of services trade liberalization.[70] However, lower employment in certain sectors does not necessarily result in any overall increase in unemployment.[71] Trade liberalization benefits a country's population as a whole; some sectors will experience employment losses, but others will experience gains.[72] The net benefit from trade liberalization is not zero, but positive, for a net benefit to the welfare of the nation.[73]

Finally, not every individual member of the population will experience a net benefit. Some individuals will experience net losses, some individuals will experience net gains, but the cumulative gains will outweigh the cumulative losses. Given the unequal distribution of the gains from trade, it is important for countries to employ policies, such as trade adjustment assistance, to redistribute those gains to workers who are negatively affected.

Americans need not fear labor mobility on an economic basis. American firms can compete against developing country firms, in spite of the fact that developing country workers are paid dramatically less. This is because American productivity is dramatically higher than productivity in the developing world.[74] In fact, labor mobility was vital to U.S. economic growth in the 1990s.[75] The 1990s saw the greatest immigration wave in the history of the U.S. - nearly 14 million net new immigrants.[76] Overall, Americans should not fear labor mobility.

[77] and al-Qaeda's ability to acquire passport and visa documents dictated their plans,[78] the September 11 Commission has recommended stringent new controls on visa issuance and passport acceptance.[79] At the same time, American attitudes and policies have turned jingoistic and xenophobic, alienating many foreigners. The following sections describe the new visa requirements that further regulate country entry, which have led to national stereotyping and its chilling effect on travel, and increased travel costs that adversely affect entry into the U.S.

[80] At the time of their visa application, visitors must submit to digital finger scans and photographs.[81] This biometric data is compared to a database of known criminals and terrorists before visa issuance.[82] At the port of entry, the visitors' fingers and faces again are digitally compared to the information on file.[83] Eventually, this program will allow the Department of Homeland Security to verify the identity of, and account for all foreign visitors.[84]

In 2000, before the US-VISIT program was implemented, the State Department had eased controls on entrance to the U.S. via a visa waiver program that removed the need to obtain a visa for visitors from countries with a low risk of terrorism.[85] In his signing statement, President Clinton projected that the visa waiver program would dramatically benefit the country and "generate billions of dollars in tourist and business revenue for U.S. companies."[86] Soon however, even citizens from those low-risk countries will face the new US-VISIT restrictions.[87]

The new US-VISIT system is already disrupting travel to the U.S. Visa applications in 2003 were down 32% overall compared to 2001, while applications from the Middle East have declined 46%.[88] Despite the decrease, delays for visas have become so long that the U.S. State Department has created a special website where potential applicants can see average wait times.[89] While not typical, applicants in Rio De Janeiro, Brazil, can expect a 97-day delay for visitor visas for entry to the U.S.[90] Even when wait-times are not so long, the process can be arduous and expensive to the point of excluding visitors. In England, where the wait time at the London embassy is still 28 days,[91] one of the country's leading symphony orchestras has canceled its planned tour of the U.S. after it estimated the cost of obtaining visas would be £45,000.[92] The orchestra's chief executive, calling the visa process "mind-blowing," said that each performer would have to appear in person at the London embassy for an interview and fingerprinting. The U.S. refuses applications at consulates, requiring five hours of travel from the orchestra's base in Manchester to the main embassy in London. Even calls for appointments are charged at £1.30 a minute.

Traditional movement for work is also affected by the new restrictions. Workers from Canada and Mexico currently enjoy special immigration provisions under NAFTA. Under the Agreement, the U.S. issues renewable "Trade NAFTA" (TN) visas that last one year.[93] Canadians can get TN status at the border with a simple letter from their employer and payment of a $50 fee. [94] Mexicans must present a labor condition letter from their employer and obtain their visa for a $100 fee from the U.S. embassy in Mexico.[95] Under pressure from the September 11 Commission,[96] the U.S. will soon impose restrictions on citizens of Canada and Mexico similar to those required of the citizens of other countries. The American response to September 11 is dramatically increasing the costs of travel from both friendly and unfriendly countries alike.

[97] Similarly, a resident of England, who unknowingly taught English to the son of an Al Qaeda leader, could be detained.[98] According to Boyle, "[s]omeone's intention is clearly not a factor that would disable detention."[99] Detentions could take place at the military's Guantanamo facility, where foreigners have only limited rights enforceable in U.S. civilian courts.[100] A military review panel would decide when the foreigners would be released, if ever. U.S. policy has become so aggressive that even an indirect, unintentional, and removed connection to the terrorist group could be grounds for suspicion, or even detention.

Each of these events has increased the chilling effect on foreign travel to the U.S. Many foreigners are understandably concerned. In July 2004, after an account of suspicious Middle Eastern men aboard a U.S. domestic flight appeared on a stock market website,[101] the blogosphere erupted with demands for racial profiling of air travelers. The Middle Eastern men turned out to be a harmless Syrian band. [102] The writer's concerns were eventually debunked as paranoia by the New York Times,[103] but not before one online commentator suggested that had he encountered a similar situation aboard a flight, he would "have wrapped one of [his] complimentary soda cans into one of [his] socks and beat the shit out of the nearest [Arab]."[104] As this example demonstrates, September 11 changed not only policy, but also the social atmosphere. Unfortunately, if the paranoia and stereotyping continue, we will further chill beneficial foreign travel to the U.S.

[105] While interest surged in the 1990s, 2004 represents the third year of decline.[106] The visa application process and fee increases, which have made travel to the U.S. much more complex and costly for foreigners, are the principal reasons for the decrease in travel.[107] Many students fear that even if they are able to obtain a visa they may not be able to reenter the U.S. if they return home briefly for vacation.[108]

The real impact of fear and increased costs are cause for concern. In one notable incident, University of Texas alum, John Coetzee, declined to attend a university-sponsored celebration of his 2003 Nobel Prize for literature because of the hassle of traveling to the U.S.[109] As a result, the University of Texas began a program to reimburse foreign students for the $100 student visa fee.[110] More recently, a high-profile Swiss theologian at Notre Dame was forced to resign his faculty appointment when the State Department suddenly and inexplicably revoked his visa.[111] The statistics and the examples above demonstrate an unmistakable adverse affect on foreign travel to the U.S. that is readily apparent and troubling.

[112] Distressingly, the negotiations over the Free Trade Area of the Americas currently have no negotiating group dedicated to labor mobility.[113] Combined with current Congressional proposals to build a fence across the U.S.-Mexico border[114] and expel 12 million immigrants, the future of labor mobility is in serious doubt.[115]

A. Summary

The post-9/11 hassle of travel and immigration to the U.S. can be expected to continue to have negative effects, both direct and indirect, on both the American and world economies. As Fareed Zakaria pointed out, "[e]very visa officer today lives in fear that he will let in the next Muhammad Atta. As a result, he is probably keeping out the next Bill Gates."[116] Indeed, Bill Gates himself recently lobbied Congress to end U.S. limits on overseas hiring. "A policy that limits too many smart people coming to the U.S. is questionable," Gates said, and would have a negative effect on the country's economy in the long-term.[117]

For example, foreign students are vital to the nation's economic growth. Without foreign students, "we would not be at the same point we are in many of our… scientific endeavors and also economic growth," the Council of Graduate Schools asserts.[118] Foreign students constitute 50% of all science and engineering graduate students and they are important as teaching and research assistants. [119] These students make critical contributions to our nation's academic, scientific, and cultural growth.[120] Yet, as we have seen, xenophobic attitudes and paranoid policies are dissuading, even preventing important human resources from coming to the U.S. for study.

Most importantly, however, impediments to travel threaten labor mobility associated with the services trade. The situation is likely to get worse before it gets better as developed countries continue to roll out high-cost passport and visa security measures.

Finally, many have repeatedly made the case that the threat posed by terrorism is not sufficiently serious to warrant our new invasive and expensive security measures. As John Mueller, who is Woody Hayes Chair of National Security Studies at the Mershon Center at Ohio State University, recently noted:

[W]ith the September 11 attacks included in the count, the number of Americans killed by international terrorism since the late 1960s…is about the same as the number of Americans killed over the same period by lightning, accident-causing deer, or severe allergic reaction to peanuts.[121]

Without minimizing the seriousness of September 11, the threat posed by terrorism is about equal to the deaths caused by a few non-terrorist causes, and thus are not sufficient enough to warrant our current extreme responses. Mueller argues that the economic effects of terrorism-for example the possible collapse of the airline industry should terrorists decide to begin shooting down planes-are most efficiently resisted by dealing with public fear, not terrorists.[122] Even some politicians, including Arizona Senator John McCain[123] and Georgia Congressman John Linder,[124] have made this argument, only to be rebuffed by both parties.

B. Policy Prescriptions

The U.S. should immediately promote the global standardization of a GATS visa system to lower the costs of temporary labor movement[125] and help visitors feel secure enough to conduct business without fear of deportation or permanent incarceration. Although security and privacy concerns may hinder development of a streamlined visa or passport program,[126] governments must rationally weigh the costs and benefits.

The U.S. and its partners must also ensure that further development of free trade policy include measures that favor labor mobility. Embracing the free movement for work would be a brilliant opportunity for the U.S. to restart the currently stalled Free Trade Area of the Americas negotiations. More specifically, developed countries should allow low-skilled workers to move from developing countries. Artificial barriers to entry should be reduced, fees eliminated, and paperwork streamlined, to the fullest extent possible. Finally, the U.S. should publicly reject and abandon its arbitrary detention policy and reinstate America as a refuge and place of opportunity for the world's tired and poor.

Rationally weighing the benefits from our new cross-border security measures, against the potential gains from increased services, trade, and increased labor mobility, reason dictates favoring the latter at the expense of the former. If the 1994 Oklahoma City bombing by native sons Timothy McVeigh and Terry Nichols taught us anything, it is that agents of terrorism can be homegrown just as well as foreign. Keeping every foreigner out will not prevent terrorist acts against the U.S. mainland. Accordingly, the lesson of our post-September 11 security environment is that agency coordination and intelligence are more effective-and far more efficient-than expensive, brute force countermeasures.

Finally, the U.S. and the rest of the developing world should consider increasing labor mobility as a means to prevent terrorism. More mobility means greater integration and greater equalization. Ultimately, a greater mutual understanding and a diminished drive towards terrorism should flow from a more interconnected world.

President Reagan understood and believed in the idea of a more interconnected world. During his first successful presidential campaign, Reagan proposed a "North American Accord," which would produce "a North American continent in which the goods and people of the three countries will cross boundaries more freely."[127] Reagan spoke of providing a "safety valve" for Mexico's excess population and declared, "[w]e have to recognize the other man's problems."[128]

Cast as the legacy of Ronald Reagan, perhaps such a plan stands a chance, even among hard-line, fence-building conservatives. The U.S. and other developed countries must seize this opportunity to change the world's economic and labor system quickly and dramatically. Doing so would transform the lives of millions of the most impoverished people across the planet, and in the process, improve our own welfare and security.


[1] David Ricardo, On the Principles of Political Economy (London, 3rd ed., John Murray) (1821)

[2] Alan C. Stockman, Introduction to Economics 576 (2nd ed. 1999).

[3] Bob Hamilton & John Whalley, Efficiency and Distributional Implications of Global Restrictions on Labor Mobility, 14 J. Dev. Econ. 61, 74 (1984) [hereinafter Hamilton & Whalley]. The total income of a country is given by its Gross National Product. See Matthew Bishop, Pocket Economist 99 (2000), available at http://www.economist.com/research/economics/ (last visited Dec. 19, 2004). This term is not to be confused with the Gross Domestic Product, a slightly different measure of a country's economic performance.

[4] Terrie L. Walmsley & L. Alan Winters, Relaxing the Restrictions on the Temporary Movement of Natural Persons: A Simulation Analysis, Centre for Economic Policy Research Discussion Paper No. 3719 (2002), http://www.gtap.agecon.purdue.edu/events/Board_Meetings/2003/docs/Walmsley_Mobility.pdf (last visited Dec. 19, 2004) [hereinafter Walmsley & Winters]. Harvard economist Dani Rodrik has reached similar, independent results. A Modest Contribution, The Economist, Oct. 31, 2002, http://www.economist.com/displaystory.cfm?story_id=1402843 (last visited Apr. 11, 2006).

[5] Walmsley, supra note 4, at 3.

[6] Hamilton, supra note 3.

[7] Paul Krugman, North of the Border, The N.Y. Times, Mar. 27, 2006, http://select.nytimes.com/2006/03/27/opinion/27krugman.html?hp=&pagewanted=print (last visited Apr. 10, 2006).

[8] Id.

[9] Walmsley, supra note 4, at 3.

[10] World Trade Org., Global Economic Prospects 148 (2004).

[11] WTO, supra note 10.

[12] Jagdish Bhagwati, Economic Perspective on Trade in Professional Services, in Int'l Econ. Rel. 855 (4th ed. 2002).

[13] Press Release, Off. of U.S. Trade Rep., U.S. Services Offers in WTO Trade Talks (Mar. 31, 2003) http://www.ustr.gov/Document_Library/Press_Releases/2003/March/US_Services_Offers_in_WTO_Trade_Talks.html (last visited Dec. 19, 2004).

[14] John H. Jackson, et al. Legal Problems of International Economic Relations 853 (4th ed. 2002).

[15] Legal Problems of International Economic Relations 853 (4th ed. 2002).

[16] Center for International Development, Services, in The Global Trade Negotiations Home Page, at http://www.cid.harvard.edu/cidtrade/issues/services.html (last visited Dec. 19, 2004).

[17] World Trade Org., 2001 Annual Report 15, http://www.wto.org/english/res_e/booksp_e/anrep_e/wto_anrep01_e.pdf (last visited Dec. 19, 2004).

[18] Bhagwati,supra note 12, at 855-856.

[19] Drusilla K. Brown, Alan V. Deardorff, & Robert M. Stern, Multilateral, Regional, and Bilateral Trade-Policy Options for the U.S. and Japan 8, http://www.fordschool.umich.edu/rsie/workingpapers/Papers476-500/r490.pdf (last visited Dec. 19, 2004).

[20] Id.

[21] The New Jobs Migration, The Economist, Feb. 19, 2004, http://www.economist.com/agenda/displayStory.cfm?Story_id=2442040 (last visited Dec. 19, 2004). Accord Paul Krugman, In Praise of Cheap Labor, Slate, Mar. 21, 1997, at http://www.slate.com/id/1918 (last visited Dec. 19, 2004).

[22] Joseph E. Stiglitz, Globalism's Discontents, The Am. Prospect, Jan. 1, 2002, http://www.prospect.org/web/page.ww?section=root&name=ViewPrint&articleId=5992 (last visited Dec. 19, 2004).

[23] Id.

[24] Id.

[25] Id.

[26] Rüdiger Soltwedel, Dirk Dohse, & Christiane Krieger-Boden. European Labor Markets and EMU Challenges Ahead, 37 Fin. & Dev. 37 (2000), http://www.imf.org/external/pubs/ft/fandd/2000/06/soltwede.htm (last visited Dec. 19, 2004).

[27] This is an oversimplification. See U.S. State Department International Information Programs, Monetary and Fiscal Policy, in An Outline of the U.S. Economy, http://usinfo.state.gov/products/pubs/oecon/chap7.htm (last visited Dec. 19, 2004).

[28] Soltwedel, supra note 26.

[29] Background Paper, IOM/OECD/World Bank/WTO Trade and Migration Seminar 13 (Oct. 2004).

[30] "Dollarized" countries are those whose residents extensively use a foreign currency (confusingly, not necessarily the U.S. dollar) alongside or instead of the domestic currency. See Kurt Schuler, Basics of Dollarization (2000), at http://www.globalpolicy.org/nations/sovereign/dollar/2000/01basics.htm (last visited Dec. 19, 2004).

[31] Kurt Schuler, Currency Boards and Dollarization, at http://www.dollarization.org (last visited Dec. 19, 2004).

[32] The Passport Office of Canada, History of Passports, http://www.ppt.gc.ca/passport_office/history_e.asp (Dec. 20, 2004).

[33] In French, "passe port" literally means to pass through a port. Id.

[34] Kevin Johnson, Open Borders?, 51 UCLA L. Rev. 193, 214 (2003).

[35] Paul Krugman, Geography and Trade 91 (1991).

[36] Passport Office, supra note 32.

[37] Status of Women Canada, Engendering Canadian Trade Policy: A Case Study of Labour Mobility in Trade Agreements. ch. 3, http://www.swc-cfc.gc.ca/pubs/pubspr/0662367138/200406_0662367138_3_e.html (last updated Dec. 13, 2004).

[38] The older brother of GATS is GATT, the General Agreement on Tariffs and Trade, which seeks to expand the free trade in goods.

[39] World Trade Org., Members and Observers, http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm (last visited Apr. 11, 2006).

[40] GATS, Part II, Art II, § 1; http://www.wto.org/english/docs_e/legal_e/26-gats_01_e.htm (last visited Dec. 19, 2004).

[41] Except financial services, for which a special exception is carved. Hal S. Scott, International Finance 107 (11th ed., 2004).

[42] GATS, supra note 40.

[43] GATS, supra note 4040, Part II, Art II, § 3.

[44] GATS, supra note 40, Part I, Art I, § 2.

[45] Christopher Arup, The New World Trade Organization Agreements 105 (2000).

[46] Oonagh Sands, Temporary Movement of Labor Fuels GATS Debate, Migration Policy Institute, http://www.migrationinformation.org/Feature/display.cfm?id=231 (last visited Dec. 19, 2004).

[47] Arup, supra note 45, at 106-7.

[48] World Trade Org., supra, note 10, at 166.

[49] Id.

[50] Id.

[51] Id.

[52] Jagdish Bhagwati, Economic Perspective on Trade in Professional Services, in Legal Problems of International Economic Relations 856 (4th ed. 2002).

[53] GATS, supra note 40, Part I, Art I, § 2.

[54] Arup,supra note 47, at 103.

[55] Hal S. Scott, International Finance: Law and Regulation 106 (11th ed., 2004).

[56] Id.

[57] Id.

[58] Aaditya Mattoo & Pierre Sauvé, Regionalism and Trade in Services in the Western Hemisphere, in Integrating the Americas: FTAA and Beyond 343 (Antoni Estevadeordal et al. eds., 2004).

[59] Background paper, supra note 29.

[60] Id.

[61] Mattoo, supra note 58.

[62] Id.

[63] The outsourcing of services is usually Class 2, requiring no physical proximity between service provider and user. The political posturing and economic principles are the same as for services requiring labor mobility.

[64] Jonathan Weisman, Bush, Adviser Assailed for Stance on 'Offshoring' Jobs, Wash. Post, Feb. 11, 2004, at A06, http://www.washingtonpost.com/ac2/wp-dyn?pagename=article&node=&contentId=A30194-2004Feb10&notFound=true (last visited Dec. 19, 2004).

[65] Bush Adviser Backs Off Pro-Outsourcing Comment, CNN.com, Feb. 12, 2004, at http://www.cnn.com/2004/US/02/12/bush.outsourcing/ (last visited Dec. 19, 2004).

[66] Id.

[67] For an explanation of why non-economists have such a penchant for "debunking" fundamental economic principles, see Paul Krugman, Ricardo's Difficult Idea, http://web.mit.edu/krugman/www/ricardo.htm (last visited May 4, 2005).

[68] The New Jobs Migration, The Economist, Feb. 19, 2004, http://www.economist.com/agenda/displayStory.cfm?Story_id=2442040 (last visited Dec. 19, 2004).

[69] Philip Martin, Migration, in Global Crises, Global Solutions 443 (Bjorn Lomborg, ed. 2004).

[70] Brown, supra note 19, at 9.

[71] To understand why, see Paul Krugman, The Accidental Theorist 18-23 (1998), available at http://www.slate.com/id/1916/ (last visited Dec. 19, 2004), and Paul Krugman, Vulgar Keynesians, Slate, Feb. 7, 1997, at http://www.slate.com/id/1917/ (last visited Dec. 19, 2004).

[72] New Jobs Migration, supra note 68.

[73] Id.

[74] Stockman, supra note 2, at 888.

[75] Inés Bustillo & José Antonio Ocampo, Asymmetries and Cooperation in the FTAA, in Integrating the Americas 747 (2004).

[76] Andrew Sum, Neeta Fogg, & Paul Harrington, Immigrant Workers and the Great American Job Machine, paper prepared for the National Business Roundtable, Northeastern University, Washington, D.C., 2002, http://www.nupr.neu.edu/12-02/immigration_BRT.PDF (last visited Dec. 19, 2004).

[77] Although five additional would-be hijackers were prevented from obtaining visas to enter the U.S..

[78] Report of the 9/11 Commission 168-9 (2004), http://www.9-11commission.gov/report/ (last visited April 10, 2006).

[79] Report, supra note 78, at 389.

[80] Department of Homeland Security, US-VISIT: How It Works, http://www.dhs.gov/dhspublic/interapp/editorial/editorial_0525.xml (last visited Dec. 19, 2004).

[81] Id.

[82] Id.

[83] Id.

[84] Id.

[85] Clinton Signs Visa Waiver Law to Facilitate Travel, CNN.com, Oct. 31, 2000, http://archives.cnn.com/2000/TRAVEL/NEWS/10/31/clinton.visas.reut/ (last visited Dec. 19, 2004).

[86] Id.

[87] Report, supra note 78, at 388.

[88] Report, supra note 78, at 389.

[89] U.S. State Dept., Visa Wait Times, http://travel.state.gov/visa/tempvisitors_wait.php (last visited Apr. 10, 2006).

[90] Id.

[91] State Dept., supra note 89.

[92] David Ward, Trouble and cost of visas halts Hallé's US tour, The Guardian, Mar. 30, 2006, http://arts.guardian.co.uk/news/story/0,,1742626,00.html (last visited Apr. 11, 2006).

[93] Background Paper, OECD/World Bank/WTO Trade and Migration Seminar 70-71 (Oct. 2004).

[94] Until 2004, the U.S. also imposed a quota of 5,550 on the entry of Mexican professionals. Mattoo, supra note 58, at 344.

[95] Id.

[96] Report, supra note 78.

[97] Associated Press, U.S. Says Terrorism Net Must Be Wide, L.A. Times, Dec. 2, 2004, http://www.latimes.com/news/nationworld/nation/la-na-gitmo2dec02,1,5616918.story (last visited Dec. 19, 2004).

[98] Id.

[99] Id.

[100] Id.

[101] Annie Jacobsen, Terror in the Skies, Again?, WomensWallStreet.com, July 13, 2004, at http://www.womenswallstreet.com/columns/column.aspx?aid=578 (last visited April 10, 2006).

[102] Joe Sharkey, What Really Happened on Flight 327?, N.Y. Times, July 20, 2004, at C10, http://www.nytimes.com/2004/07/20/business/20road.html (last visited Dec. 19, 2004).

[103] Id.

[104] What Should They Have Done?, The Spoons Experience, July 16, 2004, http://www.thespoonsexperience.com/archives/002535.php#002535 (last visited Dec. 19, 2004).

[105] Drop in Foreign Grad Students Raises Alarms, CNN.com, Nov. 5, 2004, at http://edition.cnn.com/2004/EDUCATION/11/05/international.students.ap/ (last visited Dec. 19, 2004) [hereinafter Grad Students].

[106] Id.

[107] Id.

[108] Id.

[109] Id.

[110] Id.

[111] Peter Slevin, Lacking Visa, Islamic Scholar Resigns Post at Notre Dame, Wash. Post, Dec. 15, 2004, at A06, http://www.washingtonpost.com/wp-dyn/articles/A64700-2004Dec14.html (last visited Dec. 19, 2004).

[112] Weighed in the Balance, The Economist, Dec. 8, 2005, http://www.economist.com/displaystory.cfm?story_id=5283750 (last visited Apr. 11, 2006).

[113] Mattoo, supra note 58.

[114] From Sea to Shining Sea, The Economist, Jan. 12, 2006, http://www.economist.com/displaystory.cfm?story_id=5385459 (last visited Apr. 11, 2006).

[115] Peter Clark, Taking it to the Streets, Newsday, Apr. 11, 2006, http://www.newsday.com/news/nationworld/nation/ny-usimmi11x4698259apr11,0,3913931.story?coll=ny-nationalnews-print (last visited Apr. 11, 2006).

[116] Fareed Zakaria, Rejecting the Next Bill Gates, Newsweek, Nov. 29, 2004, at 33, http://www.msnbc.msn.com/id/6542347/site/newsweek/ (last visited Dec. 19, 2004).

[117] David A. Vise, Gates Cites Hiring Woes, Criticizes Visa Restrictions, Wash. Post, April 28, 2005, at E05, available at http://www.washingtonpost.com/wp-dyn/content/article/2005/04/27/AR2005042702241.html (last visited May 4, 2005).

[118] Grad Students, supra note 78.

[119] Id.

[120] Id.

[121] John Mueller, A False Sense of Insecurity, 27 Regulation 3, 42 (2004), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=604063 (last visited Apr. 11, 2006).

[122] Id at 43-44.

[123] Id at 45.

[124] Hearing on the Department of Homeland Security Authorization Act of FY 2006 Before the House Comm. on Homeland Security, Apr. 27, 2005 (statement of Cong. John Linder, Member, House Comm. on Homeland Security).

[125] World Trade Org., supra note 10, at 145.

[126] See Mathew L. Wald, New High-Tech Passports Raise Snooping Concerns. N.Y. Times, Nov. 26, 2004, at A28, http://www.nytimes.com/2004/11/26/politics/26passport.html?ex=1259125200&en=c1ed9ae0d27de86e&ei=5090&partner=rssuserland (last visited Dec. 19, 2004).

[127] NAFTA Timeline, North American Forum on Integration, at http://www.fina-nafi.org/eng/integ/chronologie.asp?langue=eng&menu=integ (last visited Dec. 19, 2004); accord Hedrick Smith, Reagan: What Kind of World Leader?, N.Y. Times, Nov. 16, 1980, at 47.

[128] Stephen S. Rosenfeld, Enter Reagan, Semi-Tough, Wash. Post, Nov. 16, 1979, at A21.

Citation
6 U.C. Davis Bus. L.J. 15 (2006)
Copyright
Copr. © Ryan Walters, 2006. All Rights Reserved.