House of Commons - Business, Innovation and Skills Committee

Rebalancing the Economy: Trade and Investment - Business, Innovation and Skills Committee Contents

Further written evidence from Linda Kaucher

TRADE ISSUES AND ESPECIALLY MODE 4

This was prepared after a meeting with the Chair and the Clerk of the BIS Select Committee. It focuses on the issues that arose in the meeting.

MAIN POINTS

1. Why UK trade policy cannot be considered without reference to EU trade policy.
2. The Secretary of State's failure to provide key information to the Committee.
3. The absence of numerical limits on the relevant categories of the UK Points Based System.
4. Evidence of the UK government's disproportionate commitment intentions on Mode 4 temporary labour migration.
5. The trading of UK jobs for overseas investment opportunities that benefit transnational financial services but do not create jobs for people in the UK, and the Secretary of State's failure to inform the UK public of this trade-off.
6. The implications of BIS "trade policy" for SMEs.
7. FOI shows the unreliability of jobs information from UKTI re inward investment.
8. The cost and effectiveness of policing "temporary" labour entry.
9. Whether the Parliamentary Committee system is equipped to deal with cross-cutting issues that are essentially covert but that will nonetheless dominate the future of Britain?
10. How will these issues be addressed?

1. Why UK trade policy cannot be considered without reference to EU trade policy

While the enquiry was focussed on UK trade policy, it is impractical to consider this without reference to the following realities:

that UK trade policy is overridden by EU trade policy and that UK trade policy has to fit with this;
the implications of EU trade policy for the UK, in which Mode 4 is the aspect most likely to affect UK people, is likely to have a greater effect on them than other aspects of "trade", and is likely to affect them more than people in other Member States of the EU;
the influence of the UK-based transnational financial service lobby on UK input to EU trade policy; and
the influence of this transnational financial services lobby on UK "trade" and other UK domestic policy.

Evidence of this influence, including at the EU level, plus a full explanation of Mode 4 and how the UK is committing disproportionately in relation to other Member States to Mode 4 temporary labour migration are detailed in my submission to the Committee's enquiry.[34]

2. The Secretary of State's failure to provide key information to the Committee

In the written submissions and oral evidence for the Committee's enquiry entitled "Rebalancing trade and investment", which included oral evidence from the Secretary of State for BIS, Dr Vince Cable, attention was not drawn to the very significant aspect of the trade agenda that is about temporary labour migration, called Mode 4 in international trade terms, even despite the trade focus of the enquiry.

In a letter to two MPs (Appendix 1) Vince Cable indicates[35] the central importance of Mode 4 in the EU/India Free Trade Agreement. He also states that he expects that the negotiations on this Agreement would be completed last month, May 2011. Yet despite his presumption of an imminent conclusion, he has failed not only to provide information to the UK public on this even on the occasion of the high level "trade" delegation to India[36], but also to the House of Commons Select Committee to which he is answerable.

It should be noted that in the later sections of the letter[37], in the statements intended to provide reassurances, the language is so indeterminate as to be devoid of any reassurance.

Similarly, assurances of "safeguards",[38] when this only means Minimum Wage in a context of skilled work, is far from reassuring.

Without background knowledge of Mode 4, these points would be missed. The secrecy that has been maintained throughout on Mode 4, not least by BIS and its preceding incarnations (DTI, BERR), as well as by Vince Cable, has ensured that knowledge about Mode 4 has been difficult to acquire, and, consequently, is rare.

In keeping information from the Committee, Vince Cable appears to have assumed that this information would not emerge from other contributors and that the Committee would thus remain in ignorance of it.

There is also evidence of information being kept from the UK parliament in recent responses to Parliamentary Questions on Mode 4.[39]

3. The absence of numerical limits on the relevant categories of the UK Points Based System

There are no numerical limits on the PBS categories relevant to "trade". It is likely that Committee members are unaware of this very salient information because it appears not to have been revealed in the course of the enquiry even by Vince Cable who has been a particular proponent of it. This is despite the extensive enquiry that has been conducted.

The Government removed any numerical cap from the "Intracorporate Transferee" (ICT) Tier 2 category. Under this category, transnational corporations can bring in their own workers, temporarily. In fact most are currently then being supplied into other firms.[40]

Most ICTs are being brought in for less than a year for which a much lower "wage" is required (£24,000) (See previous submission) and no National Insurance is paid. However, Vince Cable tends to emphasise the higher wage (£40,000) for longer stay, including in his letter (Appendix 1).

Very low wages are currently being paid to some workers in fact there was basic payment below the Minimum Wage until Parliamentary Questions on this reveal that the low basic wage is then made up to low industry levels with "tax-free expenses".[41] The Public Accounts Committee has questioned this allowances situation.[42]

In addition there is a PBS category of "international agreements" (Tier 5) also without numerical limits.

The lack of any numerical limits on these categories fits with intended trade commitments on Mode 4.

Vince Cable has been the main proponent in the UK Coalition government for ICT opening. This has been supplemented with additional lobbying by, and even Parliamentary consultations with, Indian transnational corporations such as Tata, Infosys, Wipro, as well as NASSCOM, the Indian industry body.[43]

Yet in his evidence to the Committee Vince Cable failed to reveal his achievement of no numerical limits on key categories of the PBS, the Mode 4 aspect of trade deals, or how they are connected.

Some EU/UK Mode 4 commitments on the entry of ICTs were made in Uruguay Round of trade talks, which concluded in 1995, under the WTO Services Agreement (the GATS),[44] when both the GATS and the WTO itself came into being.

It would be useful to know the extent of the UK's existing commitments, how those very limited commitments have been expanded unilaterally in UK national labour migration policy, for instance by extending the length of stay, as well as what upcoming commitments are being considered on ICTs and on other Mode 4 categories which will permanently override UK national policy.

It seems that no information was offered by the Secretary of State on any of this, and the Committee, denied information, was not in a position to ask questions.

4. Evidence of the UK government's disproportionate commitment intentions on Mode 4 temporary labour migration

A leaked document from an EU Member State government shows the UK prepared to take 40% of the EU's commitment on the Mode 4 category of "Contractual Service Suppliers" (CSS).[45] This is workers brought into the country by transnational firms utilising the Mode 4 concession, then supplied into other firms by the transnational company. While this is happening now, informally, under the cover of "ICTs", this is the formal trade category for it.

The figures in this document received some publicity in the UK, although the press understanding was inadequate, automatically assuming that these figures would be a "ceiling" commitment. While further documentation from within the EU indicates other Member States' will use their very small commitment figures as a "ceiling", there have been no such assurances from the UK government, which in contrast to other Member State governments has failed to consult with labour organisations or to engage in public discussion. The lack of numerical limits in the national regulations suggests that the UK will use its percentage and numerical commitment as a "floor" rather than a "ceiling".

The proposed figures in the leaked document have subsequently been denied by the Trade Commission.[46] While the source is confidential, the table from the document is attached.[47] (Appendix 2).

5. The trading of UK jobs for overseas investment opportunities for transnational financial services which do not create jobs for people in the UK, and the Secretary of State's failure to inform the UK public of this

While this document shows a proposed 40% figure for the UK's share of EU commitment on the CSS category, alongside the Trade Commission denial, senior Trade Commission staff have in fact admitted that the EU/India Free Trade Agreement is actually "85%" a UK deal.[48]

Eighty five per cent of the "benefits" in the form of overseas investment opportunities are expected to accrue to "the UK", though this is in fact to the transnational financial services corporations based in London. These investment opportunities will not create UK jobs. Any jobs will go to workers in the country in question eg in India, or be brought into that country from cheaper labour areas.[49] UK workers will not be involved.

According to the same source, in return for overseas investment opportunities, the UK can expect to take "85% of the pain", that is the Mode 4 effect on the labour market.

This inevitably means displacement of workers here, with downward pressure on working conditions, and on an unlimited scale. There can be no pretence in the current economic conditions that this will be otherwise, for instance "extra jobs".

In a context of public spending cuts to which "outsourcing", at least at the government level, is becoming the accepted response, the PBS/Mode 4 continuum is set to facilitate cheap onshore outsourcing, offered by TNCs bringing in cheaper labour from outside of the EU.

While Vince Cable could have provided this overview to the Select Committee, of what the EU/India trade deal involves, including the extent to which this is a UK deal, he failed to do so.

In fact, in a trade deal such as this, TNCs tend to benefit both sides of the table, from cheap labour and from investment opportunities.

The emphasis on outward investment, which does not create jobs and for which UK jobs are being sacrificed, can be contrasted with the potential for investment here to directly create jobs. Surely this should be a higher priority for BIS and for the Committee.

6. The implications of BIS "trade policy" for SMEs, and of inward investment for UK jobs

Trade opportunities for SMEs are important to the UK economy and employment.

But "benefits for SME's" has become standard spin to push forward a trade agenda that is promoted by, and for the benefit of, transnational corporations. The overriding thrust of the trade agenda is to advantage TNCs to the detriment of SMEs.

Advantages of scale of production, but also global production chains utilising cheap labour areas of the world, and concessions allowing transnational corporations to move labour across borders, as well as access to credit, bargaining muscle and political influence, mean that TNCs are wholly advantaged over SMEs and national firms, an advantage that tends towards takeovers of smaller firms.[50]

The Trade and Investment White Paper has minimal and only tentative references to support for SME's though this is the aspect that BIS public relations emphasised to the press when the White Paper was launched. This underscores the point made at the start of this section, about spin.

7. Freedom of Information on the sources of UKTI jobs information re inward investment

Another main focus for the Committee is a UK business environment that encourages inward investment, for the jobs it supposedly creates and protects.

However in response to a 2010 Freedom of Information request, UKTI has revealed that UKTI information on both new jobs created and those "safeguarded" from being lost through inward investment, is based on unverified estimates from the investing employers and from company press releases.[51] And there is no differentiation between jobs filled by UK workers and jobs filled by migrants.

The Office of National Statistics repeatedly produces date indicating that most created jobs go to overseas workers.

The press and the public would tend to expect more accountability and rigour with figures supplied by a government department than those supplied by corporate Public Relations figures as these actually are.

As such jobs information is used by UKTI is used to defend the flow of ICTs to promote investment, the lack of differentiation between jobs for UK resident workers and ICTs or other overseas workers is especially significant.

Again, UKTI is part of the Department overseen by the Secretary of State, Vince Cable.

8. The cost and effectiveness of policing "temporary" labour entry

With EU Mode 4 commitments it is the responsibility of the Member State to police the return of "temporary workers". There is no bond system that puts the responsibility onto the transnational corporation. Current UKBA performance is judged to be inadequate, or "not fit for purpose" by both the Public Accounts Committee[52] and the Home Affairs Committee. Even at earlier stages ie before return is due, the UKBA is managing very little checking of sponsors or employment situations.

While benefits of bringing in workers accrue to the transnational firm, this additional hefty cost of policing, fall on the state, and the consequences of the out-of-control situation if this is not effective fall on the state and on workers. Yet no account of this appears to have been taken, and in fact the general secrecy around Mode 4 does not allow for this to be considered in advance.

Thus Mode 4 is set to exacerbate an already very serious situation of out-of-control illegal overstaying.

9. Whether the Parliamentary Committee system is equipped to deal with cross-cutting issues that are essentially covert but that will nonetheless dominate the future of Britain?

The UK Parliament lost the right to veto EU trade agreements when the Lisbon Treaty came into force[53] which makes it all the more urgent that public information is provided, in a timely way, on the implications of trade deals, before the negotiations and then the European Parliamentary "assent" process are finalised.

This is particularly the case when the main drivers for EU Agreements are transnational financial corporations based in London, with the benefits accruing to the same, while the negative effects will be primarily on UK workers.

But where in the Committee system will such pre-emptive and timely action be taken?

The Parliamentary Accounts Committee in its report on the PBS expressed concerns about unlimited ICT entry into the UK while there is high unemployment, including in the IT area for which the ICT pathway is primarily being used. But the Committee's recommendations failed to deal with this, though perhaps it was outside of its mandate to do so.

The EU Scrutiny Committee can only decide what to debate, but cannot vote, and thus cannot make any difference, even though trade deals are conducted at the EU level.

Culture, Media and Sport Committee has oversight of the Olympics. While foreign labour issues have apparently arisen in the business of the Committee in relation to Olympic construction, it is clear from the record that all input to the Committee's ongoing Olympics oversight has been from business, contractors and those directly involved with the Olympics, but not labour representatives.

UK workers have not been able to get onto the site. Public relations about "local" labour is used to cover this fact, but "local" includes anyone who has an NI number or is registered as self- employed from an address in a borough near the Olympics.

I have been informed that the Foreign Affairs Committee also deals with business. While I am sure this is the case, that Committee is unlikely to consider trade agreements, or to consider the implications of these for jobs in the UK, especially in the face of deliberate secrecy on these matters.

It appears that the BIS Select Committee has had no labour input into its enquiry on "Rebalancing Trade and Investment", despite the central importance of labour issues that have been revealed here.

The "Business" part of the "BIS" area of responsibility is taken into account and the business voice is very loud in the work of the Department and of the Committee.

However, in relation to coverage of "Innovation" and "Skills", it is accepted in economic theory that an effectively endless cheap labour supply is a disincentive to technological innovation and also a deterrent to skills development and skills transfer.

How jobs information is collected and then used to support the opening of ICT entry is an issue.

In relation to the seemingly "unbiased" academic input to the Select Committee's enquiry, at least one of the academics providing oral evidence has a vested-interest perspective. Dr Razeen Sally gave oral evidence to the Committee's enquiry, stating that he is an academic at the London School of Economics and also the Director of the European Centre for International Political Economy (ECIPE), which is funded by business, though glossing over this fact in terms of vested interest.

In fact ECIPE plays a very key role in Brussels alongside representatives of the main services lobbying mechanism in Brussels, the European Services Forum, and representatives of International Financial Services London, in pushing through trade agreements by providing similarly "unbiased academic" input to MEPs on the European Parliament's International Trade Committee.

This bias is reflected in the evidence he provided to the Select Committee in the oral evidence session.

10. How will these issues be addressed?

The issues raised here of information being kept from the UK Parliament and a Parliamentary Committee, as well as from the public , and the particular role of the Secretary of State in this, are very serious. I would expect the Select Committee to use its power to the maximum to pursue them.

There is an urgent need for attention to the Mode 4 element in the EU/India Free Trade Agreement, and for parliamentary discussion on this.

In addition, it is suggested here that:

there is a need for increased formal liaison between Committees to ensure that there is comprehensive and cross-cutting oversight of Departments;
there should be additional measures taken to encourage wider input to consultations, including proactive measures to obtain input from those likely to be affected, with preliminary distribution of information on possible scenarios as necessary; and
that the aims of consultation processes be defined and documented, with mechanisms in place to monitor and evaluate how those aims are being met, towards accountability.

Linda Kaucher, MA Journalism, MSc Human Geography Research

4 June 2011

34 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmbis/writev/735/kaucher.htm Back

35 P1 last para. Back

36 Vince Cable was on the Prime Ministerial delegation to India in July 2010. Back

37 P2. Back

38 P1 para 4. Back

39 PQ Clappison 23.5.2011 http://www.theyworkforyou.com/wrans/?id=2011-05-23b.57176.h Back

40 http://www.whatdotheyknow.com/request/60461/response/153597attach/5/2011%2002%2009%20FOI%2017156%201341%
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20Sponsors%20010110%20161210 Back

41 http://www.theyworkforyou.com/wrans/?id=2011-03-30a.288.0
http://www.theyworkforyou.com/wrans/?id=2011-03-14a.26.0&s=laird#g26.1 Back

42 http://www.publications.parliament.uk/pa/cm201011/cmselect/cmpubacc/uc913-i/uc91301.htm Back

43 http://www.thehindubusinessline.in/2011/01/19/stories/2011011951181800.htm Back