4 years ago

Cross-border mobility, Covid-19 and global trade

WTO headquarter in Geneva
WTO headquarter in Geneva

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International trade and investment have always relied on the cross-border mobility of individuals. Transporting goods across borders involves humans, and will do so for the foreseeable future despite important technological advances. In addition, face-to-face contact continues to play a critical role in addressing some of the information and transaction costs involved in trading goods internationally.

Physical proximity between producers and consumers is essential for many types of services trade. In some instances, this proximity is achieved when individuals cross international borders. Indeed, the temporary cross-border movement of natural persons is one of the four modes (i.e. mode-4) through which services may be traded in the General Agreement on Trade in Services (GATS), while services purchased abroad by consumers is another (mode-2). Individual mobility is also a factor beyond these two modes, since business travel is frequently part of services provision through the establishment of a commercial presence abroad (mode-3) or remotely, for instance online (mode-1). Indeed, the modes of supplying services are often bundled, with varying degrees of substitutability amongst them. In this sense, human mobility constitutes services trade in its own right, while also enabling trade in goods and other services.

With the objective of containing the Covid-19 pandemic, governments around the world have imposed temporary travel or immigration restrictions, which have severely restricted the cross- border movement of individuals. While these mobility-related measures are not motivated by trade considerations, but by public health reasons, they have a significant impact on trade. Perhaps paradoxically, this has brought into sharper focus the role of international mobility in international trade.

This note will begin with a brief presentation of the mobility-related measures implemented by WTO members. It then offers an overview of their trade impact and outlines how governments have, in a second-phase response to the pandemic, fine-tuned their policies. It concludes by discussing possible international cooperative paths to build trade resilience for the future. It draws on, and builds upon, an earlier WTO information note on "Trade in Services in the Context of COVID-19".

COVID-19 AND MOBILITY-RELATED MEASURES: As part of their attempts to curb the spread of Covid-19, WTO members have implemented a range of temporary mobility-related measures, such as entry bans, exit guidelines, quarantines and travel restrictions.

These measures include entry restrictions for individuals who have recently been to places where the virus is widespread, temporary bans on entry for all non-citizens and non-residents, official advisories against all non-essential travel abroad or to more severely affected areas, requirements for travellers to undergo medical screening or quarantine upon entry, and the temporary closure of consular posts and visa application centres for non-emergency services. Some members also enacted entry and exit restrictions within national borders to isolate epicentres of Covid-19 outbreaks.

The World Health Organization (WHO) had traditionally advised against the application of travel restrictions to countries experiencing a public health emergency, citing concerns about the effectiveness of such measures and their negative economic consequences. However, the WHO recently advised that such measures may be justified at the beginning of an outbreak, in order to allow countries to buy time to implement effective preparedness measures. It has also called for such restrictions to "be based on a careful risk assessment, be proportionate to the public health risk, be short in duration, and be reconsidered regularly as the situation evolves". Although motivated by public health considerations, mobility-related measures have a significant impact on trade.

TRADE IN SERVICES: The effect of border closures and travel restrictions is being felt, first and foremost, by services trade.

Services traded through consumption abroad (GATS mode 2)

The most obvious impact is on the mobility of service consumers, or mode-2 of the GATS. Tourism is the most striking case in point. It is mostly traded through individuals (i.e. tourists and business travellers) travelling abroad to consume services such as hotel and restaurant services.

Globally, tourism accounts for one in four of net jobs created over the past five years and an estimated 10 per cent of economic output.4 In recent years, the sector has become a particularly important source of growth for many developing economies and several least-developed countries (LDCs), contributing to over one-third of GDP in some South Asian and Central American economies, for instance.

The Covid-19 pandemic has triggered an unprecedented crisis in the sector. In 2020, international tourism is expected to register its worst performance, in terms of the number of travellers and of revenue, since 1950. For economies dependent on tourism, the sector has turned from a source of growth into a vulnerability. For instance, in Vanuatu, where tourism accounts for 40.0 per cent of GDP, 70.0 per cent of tourism jobs have been lost since mid-March 2020, according to the national tourism office. In Tanzania, the number of tourists visiting Serengeti National Park dropped from 6,000 per day to 24 in the wake of the crisis. In Rwanda, some 20 conferences and meetings scheduled for March and April, which had been expected to generate around US$ 8 million for the economy, were postponed as a result of travel bans.6

In an attempt to recoup the revenues lost due to the collapse in international arrivals, some WTO members are trying to boost domestic tourism, and as a second step, to revive regional tourism. However, this means that regions reliant on foreign tourists are likely to be hardest hit.

The situation is analogous, albeit less extreme, for education services: universities and other higher education institutions have traditionally relied on the physical presence of international students to export their services, though online courses have been growing. Tuition fees account for the largest share of most universities' revenue, with the current number of over 5.0 million international students typically paying higher fees than their domestic counterparts. For most institutions, international students' fees are also an essential source of funding for academic research, a key reputational factor that, in turn, helps attract both foreign and domestic students.

Covid-19-induced border closures and travel bans, together with local lockdown measures, have forced many higher education institutions to close campuses and switch to online teaching and examination methods. Many foreign students have returned home. University systems in Australia, Canada, the United Kingdom and the United States, which have invested in attracting a growing number of foreign students, are especially vulnerable to the crisis, with some institutions preparing for a potential drop in international student enrolment of between 50 and 75 per cent.

In the longer term, uncertainty surrounding the evolution of the pandemic and the possibility of new travel restrictions may lead to an enduring decline in the number of international students attending schools in person, and an associated fall in exports of education services. In April 2020, the American Council on Education projected that international enrolment would drop by 25 per cent.

It is nevertheless possible that new export markets and avenues may emerge as a result of the health emergency. Online distance learning is bound to accelerate, as a means to retain students whose in-person attendance is constrained and, through lower fees and more flexible arrangements, to attract new students who previously could not afford foreign education. To the extent that students increasingly choose to move intra-regionally to study, for instance within areas exhibiting similar infection levels (see the discussion of travel "bubbles" in Section 5), greater South-South, or even South-North, exports may be spurred.

Although relatively less traded than education services, health services exported through mode-2 have also been severely affected by travel restrictions implemented to contain the spread of the pandemic. Global spending on so-called "medical tourism" was already growing rapidly before the Covid-19 epidemic, increasing from US$ 2.4 billion to US$ 11 billion between 2000 and 2017, although, even when all modes of supply are included, overall health services exports are estimated to have accounted for just 0.4 per cent of total international services trade in 2017. Until the virus is brought under control, the lifting of travel restrictions is unlikely to see medical tourism growth resume at the pre-crisis rate.

Services traded through the movement of natural persons (GATS mode- 4)

For services trade that relies on the cross-border movement of individuals (mode-4), Covid-19- induced travel restrictions have had a devastating impact. With the limited exception of individuals working in "essential" sectors, all such trade has effectively come to a halt.

That said, mode-4 trade is estimated to have accounted for only 2.9 per cent, or US$ 0.4 trillion, of total services trade in 2017. Nevertheless, this mode of supply is important for certain members and certain sectors, such as professional and other business services. For instance, in 2017, even though the dominant export mode was cross-border supply (mode 1), some 13 per cent of India's exports of information technology (IT) services, which overall totalled over US$ 52 billion in value, were exported through the deployment of IT professionals abroad.

Anecdotal evidence suggests that Covid-19 has resulted in a collapse of in-person visits. One sector that has drawn specific attention in recent months with regard to mode-4 movements is the health-related services sector, given the vital contribution of foreign health professionals to many domestic health systems. In Organisation for Economic Co-operation and Development (OECD) countries, the share of foreign-trained or foreign-born doctors and nurses has continued to rise over the years, with nearly one-quarter of all doctors born abroad and close to one-fifth trained abroad, and, among nurses, nearly 16 per cent foreign-born and more than 7 per cent foreign-trained. Although only some of these foreign health professionals fall under the scope of mode-4, the severe strain that Covid-19 has placed on domestic health systems has led many countries to recognise these workers as key assets and has reportedly resulted in additional movements, specifically associated to the pandemic, of foreign workers.

Facilitation of GATS modes 1 and 3

Beyond the direct effect it has on modes 2 and 4, the international mobility of individuals also impacts trade in services indirectly. Although Covid-19 has led to an increase in the online provision of many services, including across borders (i.e. via mode-1), face-to-face interactions may be expected to continue to play an important role in facilitating the remote supply of a number of services. Even if advances in IT have enabled the outsourcing of unregulated parts of certain services, such as basic plan preparation in architecture, bookkeeping in accounting, or research and documentation in legal services, the final stage of the supply chain often requires the physical presence of the professional.

Personal contacts are also key enablers of the international supply of services through commercial presence abroad (mode-3), as well as of international investment more generally. Business travel is essential to establish new commercial relationships, interact with customers, set up new investments and manage existing operations.

Indeed, empirical evidence shows that when visa restrictions hamper personal contacts across borders, there is a detrimental effect on both trade and foreign direct investment (FDI). For instance, with unilateral border restrictions, bilateral trade and FDI have been estimated to fall by 19 and 25 per cent, respectively. If mobility restrictions are symmetrical, the negative effect on trade is larger, at up to 25 per cent, while the impact on FDI is essentially the same as with unilateral restrictions.

Other than that, an increase in the temporary employment of foreign workers generates, over time, significant indirect effects on services trade through other modes of supply, as well as increases in merchandise trade. These effects are a result of skill and technology transfers, the development of specific knowledge, reputation effects, and the creation of networks and contacts abroad. Further empirical evidence from the United States and the European Schengen travel area additionally shows that, although all trade responds significantly to restrictions on international mobility, some types of trade are particularly sensitive, notably services, and particularly those whose production depends on relatively scarce or highly specialized skills, and which emanate from micro, small and medium- sized enterprises (MSMEs) and from non-traditional sources.

TRADE IN GOODS: Mobility barriers significantly affect trade in goods, through their impact on transport services and on information and transaction costs.

With regard to transport services, border closures, the re-imposition of frontier controls and other travel restrictions have directly impacted the sector, as they have prevented maritime crew disembarkations and changeovers and led to shipping disruptions, affected aircraft operations by requiring the quarantining of crews, and engendered congestion and delays for cross-border freight transport.

Due to border closures, some least-developed countries (LDCs) have been reporting difficulties in importing goods other than medical supplies, including foodstuffs, as well as in exporting to neighbouring countries. These difficulties are causing significant losses, particularly in terms of seasonal products and for MSMEs. Difficulties in virus-testing truck drivers at borders in East Africa have caused serious delays and prompted the East African Community (EAC) to introduce an electronic tracking system for drivers, in order to help mitigate the disruption of domestic, regional and global supply chain systems serving the region.

Travel restrictions have also had indirect repercussions on the transport sector more broadly, with the grounding of many passenger flights leading to a sharp reduction of air cargo capacity. These outcomes have made goods trade slower and more expensive and uncertain, and have impacted the operation of value chains.

Concerning information and transaction trade costs, mobility restrictions have negatively impacted trade in goods by hindering face-to-face contacts and access to information. As noted above, face- to-face contacts allow the establishment of the business and social networks that can generate trade, and international mobility often promotes trade with foreign nationals' countries of origin.

Distances between buyers and sellers create search and contracting challenges that increase the cost of trading internationally. Mobility helps address these challenges. A study of Nigerian wholesale importers of consumer goods shows that although business travel is expensive - accounting for roughly 10 per cent of the value of goods purchased on an average trip, or the equivalent of the costs of shipping and paying tariffs and fees combined - two-thirds of these importers travelled internationally to meet suppliers and make purchases.

It should be acknowledged, however, that border closures have also prompted members to devise innovative means to minimise the disruption to trade. For instance, as it became unfeasible for officials to travel to other countries to assess whether prospective imports meet regulatory requirements, some governments introduced alternative measures for conformity assessment and regulatory compliance, thus allowing trade flows to continue. These include new online tools for the verification of certificates, remote inspections through video links and verification through documentary analysis, in lieu of on-site visits. That said, these substitute measures notified to the WTO are, for the time being, temporary.

In addition, while increasing distance between two places typically reduces the amount of trade between them, international mobility has been found to reduce this negative impact. Recently arrived temporary foreign workers help firms and their customers overcome informal and, in particular, informational barriers to trade with their country of origin. Hiring one additional foreign worker is estimated to lead to a 4.0 per cent average increase in the hiring firm's exports of goods to the foreign worker's home country and, in line with the findings described in the previous section, an even higher 6 per cent average increase in its exports of services to that destination. Unskilled foreign workers are particularly important for goods exports, whereas skilled foreign workers appear to have a bigger impact on the export of services.

RESUMING INTERNATIONAL MOBILITY - GRADUALLY: The sweeping travel restrictions initially introduced by governments in response to the pandemic have in many cases given way to more fine-tuned policies, in part out of recognition of the importance of international mobility to production and trade.

In the first instance, measures sought to ease the movement of "essential" foreign staff across borders. Governments have created dedicated entry avenues, with special visas or extended visa validities for health and social care workers, air and maritime crews, and seasonal agricultural workers. The OECD finds that, with the onset of the pandemic, many OECD countries already reliant on foreign health workers implemented additional measures to ease their entry and the recognition of their professional qualifications. In this regard, as few countries are likely to have sufficient medical personnel to deal with significant surges in case numbers, there have been calls for greater international collaboration on imports and exports of health services, to help mobilise a pool of health professionals that could fight emerging health issues and alleviate capacity constraints.

Some economies are now lifting some border restrictions even for some "non-essential" international mobility, such as for business travellers, international students and foreign tourists. This is motivated by a desire to resume the trade and economic activity enabled by these movements.

Some governments have set up quarantine-free mobility travel corridors, or "bubbles", involving smaller groups of countries, typically neighbours, with comparable infection rates. These bubbles allow travel to resume while the health situation is closely monitored, with plans subject to change as contagion evolves. Examples include the Baltic bubble among Estonia, Latvia and Lithuania and the "Trans-Tasman" bubble between Australia and New Zealand. The bigger the bubble, the bigger its economic benefits, and there has been interest in enlarging bubbles as conditions permit.

A number of countries require incoming arrivals from certain places to quarantine for 14 days, rendering most short-term visits unfeasible. To try and overcome this obstacle, some destinations have implemented measures that give international travellers the option to pay for on-arrival Covid- 19 tests and wait for the results at the airport to avoid a quarantine period. Alternatively, bilateral "fast track" entry channels have been set up to permit businesspeople to work around lengthy quarantines. For instance, China and the Republic of Korea have put in place a bilateral arrangement that allows executives to travel between the two countries with only a 24- to 48-hour observation period at a quarantine facility, before being allowed to continue with their journey. Similarly, Singapore and China have launched a "fast lane" agreement to facilitate essential travel for business and official purposes from six Chinese provinces/municipalities. Travellers undergo pre-departure and post-arrival testing, submit health declarations and have their temperature screened prior to departure. Upon arrival, travellers are transferred directly from the airport to the declared accommodation, where they remain isolated for a couple of days until the test results are released and thereupon, provided the results are negative, they must adhere to a controlled itinerary to minimise their exposure to the rest of the population. In addition, Chinese Taipei has set up a test protocol for international travel to assess whether quarantine periods might safely be shortened. A number of travellers were tested in their country of origin before flying out, tested again upon arrival in Chinese Taipei, and thereafter tested every two days, with the aim of finding the shortest possible quarantine period. Thailand and Japan have also been discussing allowing a limited number of business travellers to move between the two countries. Japanese guidelines require travellers to have a clean Covid-19 test before they fly and to take another test upon arrival, and, depending on their country of origin, they may also have to file a detailed itinerary of their intended movements and download a tracking application to their mobile phones.

Effective testing and tracing systems could prove indispensable to easing mobility restrictions by enhancing governments' ability to identify and suppress new waves of contagion. Rapid and reliable tests, the isolation of infected individuals along with measures to ensure quarantines are respected, and tracing mechanisms that take due account of privacy concerns are some of the means that could facilitate international mobility. Information sharing with the international community could help foster reassurance and mutual trust, and could lower the bar for mutual recognition of testing and tracing standards across countries.

CONCLUDING OBSERVATIONS: To contain the spread of Covid-19, governments have introduced temporary travel and mobility restrictions. While they are driven by public health considerations, these measures have significant trade implications, as human mobility across borders is a key facilitator of trade in goods and services, and an important type of services trade in its own right.

It is also becoming evident that restarting the international mobility of individuals will prove much harder than it was to stop it. The resumption of international travel is unlikely to proceed in a linear fashion. Measures affecting trans-national mobility have obvious cross-border spill-overs, which means there is a case to be made for supplementing domestic action with international cooperative efforts.

After the pandemic begins to recede, WTO members may wish to look back at their responses and their effects on trade. To better prepare for future crises, they could, for example, consider exchanging information on their experiences with travel restrictions and their trade implications, and sharing lessons they may have drawn. This exercise could help governments identify ways to implement travel measures that meet public health protection objectives while keeping trade- distortive effects to a minimum. G20 trade ministers have suggested developing voluntary guidelines for cross-border travel for this and future public health emergencies.



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