GATS Mode 4 Negotiation and Policy Options

This study reviews the characteristics and issues of GATS Mode 4 and guesses the effects of Mode 4 liberalization on Korean economy and labor market to suggest policy options to Korea. Mode 4 negotiation started from the trade perspective, however, since Mode 4 involves international labor migration, it also has migration perspective. Thus developed countries, that have competitiveness in service sector, are interested in free movement of skilled workers such as intra-company transferees and business visitors. On the other hand, developing countries, that have little competitiveness in service sector, are interested in free movement of low-skilled workers. Empirical studies predict that the benefits of Mode 4 liberalization will be focused on developed countries rather than developing countries. The latter may suffer from brain drain and reduction of labor supply. Nevertheless developed countries are reluctant to Mode 4 negotiation because they can utilize skilled workers from developing countries by use of their own temporary visa programs. They are interested in Mode 4 related with Mode 3 in order to ease direct investment and movement of natural persons to developing countries. Regardless of the direction of a single undertaking of Mode 4 negotiation, the net effects of Mode 4 liberalization on Korean economy and labor market may be negative. The Korean initial offer on Mode 4 is the same as the UR offer. Since Korean position on Mode 4 is most defensive, it is hard to expect that Korean position will be accepted as the single undertaking of Mode 4 negotiation. Thus Korea has to prepare strategic package measures to minimize the costs of Mode 4 liberalization and improve competitiveness of service sector.