UK: Trade And Migration - Inseparable Twins?

Last Updated: 15 February 2017
Article by Bernardine Adkins

Migration has been front page news both in the US and UK in recent months and should remain prominent in forthcoming elections in other EU Member States.

Yet trade and migration have gone hand in hand ever since merchants began travelling the Silk Road over two millennia ago to trade luxuries between China and Europe. This is certain to continue in earnest as international trade in goods begins to be eclipsed in importance by international services.

Here, we explore the place of migration in modern free trade agreements. If the UK is truly to be a global champion for free trade post-Brexit, then the current international trade rules and Realpolitik dictate that it will also need to support and encourage trade-related migration.

We also explore what the status of migration is likely to be as a matter of EU law in the forthcoming Brexit negotiations; this is significant as it will dictate the parameters of such negotiations.

MIGRATION IN WTO LAW

The legal framework for international trade under the World Trade Organisation (WTO) - which appears to be under review by the current US administration - includes a General Agreement on Trade in Services (GATS).

GATS categorises cross-border trade in services according to four 'modes' of supply:

  1. cross-border services - provided remotely (e.g. by post or telecommunication);
  2. consumption abroad - where the customer moves to the supplier's country to buy services (e.g. students travelling abroad);
  3. commercial presence - of the supplier in the customer's country, e.g. by using a local agent;
  4. presence of natural persons - for example by seconding employees or by independent professionals visiting the customer's country to provide services.

With the exception of mode 1, trade in services therefore implies - at least in the majority of cases - the movement of individuals across national frontiers.

WTO members offer commitments (in a series of schedules) dictating the level of free trade they are willing to permit all other WTO members - both in goods and services.

Currently, the UK uses the EU's WTO trade schedules. However, as Prime Minister May indicated recently, Britain will be leaving those parts of the common customs union which prevent the UK from negotiating its own WTO schedules. It is therefore likely that UK trade policy - including migration - will become a subject of internal debate and external negotiation in the near future.

The UK's new WTO schedules (including under GATS) will form the bedrock of its future world trading position.

Most favoured nation principle

It is a key principle of WTO membership that commitments offered under its schedules are available to all members (about 140 countries) on a non-discriminatory basis - the so-called "most favoured nation" (MFN) principle. If a member does not adhere to its commitments as listed in its schedules, the WTO treaties contain dispute resolution procedures through a system of 'panels' (essentially international arbitrators), to make decisions permitting others to impose trade sanctions on the defaulting member.

Trade-related migration is, though, likely to apply only to individuals staying in the UK for a short period of time. An annex to GATS explains that it does not apply to national legislation regulating citizenship, residence or employment on a permanent basis.

Nor does it affect national rules (for example visa requirements) restricting entry or temporary stay in the member's territory. However:

such measures are not [to be] applied in such a manner as to nullify or impair the benefits accruing to any Member under the terms of a specific commitment.1

FREE TRADE AGREEMENTS

A permitted exception to the MFN rule applies where member countries conclude bi-lateral or regional free trade area (FTA) agreements among themselves to give a greater degree of market access than otherwise.

An important caveat to this exception is only permitted where the free trade agreement removes tariffs on 'substantially all' trade within the free trade area. So, for example, the EU treaties and NAFTA are both within the WTO 'free trade area' exception.

It is this principle that will make it particularly difficult for the UK government to adopt a selective sectoral approach in any negotiations with the EU.

EU-CANADA (CETA)

As a 'state of the art' free trade agreement, the EU-Canada CETA is useful in demonstrating how migration for the purpose of supplying services fits with the current free trade regime.

Chapter 10 of CETA determines some detailed joint commitments on migration. CETA specifically deals with services provided under modes 3 and 4 of GATS and also for personnel being seconded between members of a group of companies.

With the exception of employees being seconded to a specific post within the same group (where a longer three year period was agreed in CETA), the free movement of people only applies for stays of up to 12 months - less for 'short term' business visitors travelling for meetings etc. Significantly, these CETA commitments only apply to certain types of individuals - usually those having a university level education - and not to those wishing to enter to seek employment.

THE WTO SYSTEM FIT AND THE CURRENT UK MIGRATION POLICY

The 2015 commitment to reduce annual migration to the UK to fewer than 100,000 individuals has not been changed by the current government. This commitment therefore questions the definition of 'migration'.

We have seen from CETA, 'last generation' free trade agreements generally only apply to migration for up to 12 months and do not affect long-term migration. The UK Office for National Statistics (ONS) also collects one set for short term migration of up to a year and another for long-term migration. This separation follows UN definitions of short and long-term migration.

However, the statistical methods used to estimate long and short-term migration to and from the UK are different. For long term migration, the ONS can produce estimates of net migration into the UK from the international passenger survey interviews it regularly conducts.

For short-term migration, the position is more complex in terms of keeping track of movements across the UK border. In particular, it isn't possible to tell if the same individual has entered the UK several times during the year. The ONS therefore produces two estimates for short-term migration:

  • the number of short term migrants in the UK ("stock"); and
  • the flow of short term migrants crossing the UK border.

For the 'flow' figures - likely to be those used by politicians and the press as part of a measure of 'immigration', the ONS notes:

Flow estimates refer to the number of migrations commenced (migrant moves) as opposed to the number of people who commence migrations (migrants). This distinction is important when estimating [short term migration] annually because a person could migrate more than once in the same period. For example, a single person migrating twice in a year for 3 months on each occasion would appear in the short-term flow estimates as 2 (migrant moves), not as 1 (migrant).

and

It is not possible to calculate net migration for short-term migrants, as the definition of a migrant is different for the inflow (who must be a foreign resident moving to England and Wales) and the outflow (who must be a resident of England and Wales moving overseas).2

It would appear from this that government immigration targets which include short term migration will necessarily overstate the "immigration" figures: the short-term figures are not 'net' and may include an element of double counting.

UK immigration legislation permits controls on all people wishing to enter the UK, except those arriving from the Channel Islands or the Republic of Ireland. The conditions which may be attached to their entry to the UK vary - with nationals of EU Member States being treated on a non-discriminatory basis with UK nationals and so not subject to entry conditions. Conditions may be attached to the entry of other nationals, including the length of their stay and whether or not they need a visa in advance of arrival.

SCHENGEN AND FREE TRADE

All EU Member States must allow near unconditional entry to their territories for citizens of other members. Most, except the UK and Republic of Ireland, are also signatories of the Schengen treaty which allows free movement across national frontiers within the Schengen area free of controls - unless there is a serious risk to national security or order. Seen from the village of Schengen in Luxembourg - where the treaty was originally signed - this seems a rather obvious thing to do. Luxembourg is the Continent's smallest EU Member State and sits in a bend of the Mosel River. Cross one bridge and you are in Germany, another and you are in France.

As with trade, so with immigration: a single 'free movement' area requires a common visa and entry control policy. Since the Treaty of Lisbon (2009), EU institutions have exclusive competence to make external trade treaties - on behalf of all EU member States (including the UK) - across all of the services covered by GATS, including trade-related migration.

But if the reason for the entry of an individual into the EU is not related to a GATS transaction, the EU's exclusive trade competence does not apply. This distinction was considered by (British) Advocate General Sharpston in her recent Opinion on the EU-Singapore Free Trade Agreement (EUSFTA).

EUSFTA contains commitments- dealing with trade in services and other issues requiring migration of individuals. The Court of Justice of the EU (CJEU) has been asked for a decision by the European Commission on whether the EU's sole competence over international trade matters (to and from the EU) gives it the ability to implement EUSFTA without the need for separate ratification by each Member State.

Advocate General Sharpston considered two main arguments put forward by some Member States to assert that they also had competence over the relevant part and therefore needed to agree to it. The first was that some forms of movement of individuals, which might be for the purpose of a GATS-related mode of international service supply, could also be for the purpose of overseeing or arranging a foreign direct investment (FDI). This meant, so they argued, that the EU's exclusive competence was removed in those cases.

The second argument was that, in some areas of service provision (notably financial and professional services), the EU has not yet fully adopted relevant EU implementing legislation - which means that Member States remain free to make their own (domestic) legislation. Since the EU's powers to regulate trade with third countries mirror its powers to regulate inter-State trade within the Single Market, it could not have sole competence to conclude the EUSFTA to the extent it had not legislated on services for 'internal' EU purposes.

Mrs Sharpston rejected this second argument. Provided that the EUSFTA rules are within the remit of the EU's internal powers, the fact that the detail of how the type of service is to be regulated in the EU has not been the subject of secondary EU legislation does not relieve the EU of its external competence to conclude trade agreements in that area, such as EUSFTA.

For the 'dual purpose' argument, AG Sharpston noted that the purpose of 'FDI' could also be seen as a provision of services. She noted:

Where foreign direct investment serves to establish a commercial presence for the purposes of supplying a service, it is covered by trade in services and therefore falls within the common commercial policy.3

She continued:

EU measures that are essentially intended to promote, facilitate or govern foreign direct investment and have direct and immediate effects on foreign direct investment and investors fall within the EU common commercial policy. [...]

...investment and trade are essential components of an effective and unified common commercial policy. In an increasingly globalised economy, it must be assumed that decisions on export and import markets and on where to produce depend both on trade and on investment policies and regulation.

If this view is followed by the CJEU (decision pending), this means that rules on migration relating to the provision both of GATS services (under all modes) and of FDI - e.g. the free movement of hedge fund managers to supervise the fund's investments in in EU-based companies - will be governed by the EU's common commercial policy.

WHY THIS IS IMPORTANT FOR BRITAIN

This conclusion has important implications for the UK's Brexit negotiations with the EU. The finding that all GATS trade and FDI-related migration is under the EU's sole competence, and will not require the agreement of 27 Member States, could well make a UK-EU FTA easier to conclude. And the fact that related migration rules will need to be inserted into the future UKEUFTA will then mean that UK immigration rules post-Brexit will need to allow EU migrants meeting the FTA's migration criteria to enter the country for at least the period set out in UKEUFTA (likely to be up to 12 months).

GATS does not require WTO members to abandon frontier controls for trade-related migration - so EU businessmen will still have to show their passports at Heathrow as they do now. However, they would not be excluded simply because the right of free movement under EU law no longer applies to the UK after Brexit.

This will also mean that professional Britons travelling to Schengen to provide services - including FDI (so, hedge fund managers) - will have greater migration rights than other Britons.

Rights to travel to the EU for employment (other than intra-company secondments) or study - and possibly even leisure - will need to be negotiated separately after Brexit and such migration policy changes will require the agreement of all Member States. Given the firm stance taken by the UK government against 'uncontrolled' migration to the UK, it is very unlikely that the remaining EU members will be willing to continue with the current liberal arrangements as they stand.

But the inescapable link between migration and trade will unavoidably impact on the UK's future trade negotiations within the WTO. Since Britain is a large net exporter of international services, it will be in its interests to establish a broad openness to international services trade in order to prompt and possibly require other WTO members to do likewise.

So its future WTO schedules under GATS will need to permit wide access to the UK's services markets. Reciprocity is likely to be required here - it is wholly implausible that other WTO members will wish to open their markets to UK international service providers without reciprocal rights for their nationals to trade services in the UK.

This will mean that short term inward migration from non-EU countries will likely increase both generally and in particular for those countries with which the UK concludes FTAs. Quite what the impact of that increase on the government's immigration target will be is difficult to tell.

However, given the UK's need to trade on the world market going forward - and therefore to accept trade-related short term migration - coupled with the statistical difficulties in including short term migration figures in any 'immigration target' in any sensible and analytically robust way, we suspect that the Conservative manifesto commitment may have to be re-read so as to apply only to long-term net migration.

Again, it remains to be seen whether the government recognises this soon enough for potential negotiating difficulties to be avoided as serious trade talks with the EU and potentially with other trade partners start in earnest later this year.

Footnotes:

[1] Annex on movement of natural persons supplying services under the Agreement

[2] Migration statistics first time user guide retrieved 26 January 2017

[3] Opinion, paragraphs 326-329

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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