Image source: https://blog.ipleaders.in/analysis-post-contractual-obligations-international-contract/

This article has been written by Vidhya Sumra pursuing the Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.

Introduction

International trade has seen its ultimate growth as the world rapidly progresses in building a network connecting all countries throughout the world in the form of trade, communication, education, and a variety of other aspects.  Over the last few decades, the amount of international trade in services has increased faster than that of goods trade. From 1980 to 2011, global goods trade increased at an annual rate of 7.3 percent, while services trade grew at an annual rate of 8.2 percent (WTO 2013). Many developed countries witnessed rapid immigrant growth during the same period. It is achieved by a trade agreement that connects two or more countries for international trade, thereby improving the economies of multiple countries.

What is the trade agreement? 

The trade agreement governs the exchange of goods and services between two or more countries. An agreement may cover all imports and exports, specific goods categories, or even just one.  This can be bilateral or multilateral i.e. between two or more countries about their trade relations. 

What is international trade?

International trade is defined as the buying and selling of goods and services across international borders. The impact of international trade on migration and vice versa is determined by several factors, including the type of origin country, the type of markets in both the origin and destination countries, the type of immigrants, the size of the immigrant community in the host country, and migration patterns.

India currently has 42 trade agreements (including preferential agreements) in effect, signed, negotiated, or proposed, according to the Asian Development Bank Institute. (These are available on https://commerce.gov.in/international-trade/trade-agreements/). The United States now has 320 trade agreements in place with other countries. However, some large trade arrangements have changed trade policy.

The most important trade agreement is the General Agreement on Tariffs and Trade (“GATT”). This was signed on October 30, 1947, by 23 countries.  It was a legal agreement that aimed to reduce barriers to international trade by removing or decreasing quotas, tariffs, and subsidies while maintaining considerable regulations. The GATT was created to help the world’s economy recover after World War II by rebuilding and liberalizing global trade.

The connection between immigration and trade

Most studies on the connection between immigration and trade examine the impact of immigration on the trade of products and services. The presence of large movements in a country is often linked with growth in bilateral trade between the migrant’s host countries and country of origin. This phenomenon is referred to as the nostalgia trade.  

The links between trade and migration are as old as the history of products and people movements. The desire to do business is often the motivating force, but the necessity to send personnel to help with the transactions quickly follows. Recognition of this phenomenon is incorporated in The Immigration and Nationality Act (INA), which includes provisions for individuals who enter the United States only as “treaty merchants” and “treaty investors”.  Many studies show that immigrants increase final service exports in general and to their native country in particular. They also cut down on several sorts of intermediary services imports. When the trading partners are more culturally and institutionally distinct, the consequences are stronger.

How do immigrants impact services trade?

Immigrants can help domestic companies overcome cultural and institutional hurdles to the international market by lowering the costs of exporting and importing services to and from their native countries. This cost reduction may be especially important in the context of products trade because offering a service abroad typically involves a cultural understanding that goes well beyond what is required when selling a physical good abroad. For example, selling business services internationally necessitates a deep understanding of the foreign market’s business culture, whereas selling legal services internationally involves a deep understanding of the legal system.

To summarise, international trade and immigration are two important components of globalization. Even though governments are willing to open their borders to trade, their immigration policies have not been so flexible. However, it has been proposed that there may be a constructive connection between immigration and trade.  So, is it possible for countries to welcome immigrants to increase international trade? If yes, is there a point at which immigration becomes inundated after which positive impact vanishes?

Pros and cons of immigration and trade

Pros

Cons

  • Immigration and international trade have a casual affirmative connection. 

  • An increase of 10% in the number of immigrants can stimulate trade by about 1.5 percent on average.

  • Almost no research has revealed a negative impact.
  • The econometric approaches adopted for some of the diversity in the estimated effect of increasing immigration on trade.
  • The expected effect of immigration on trade in most research does not differ for different immigrant stocks.
  • Cross-sectional study results should be considered carefully because they may exaggerate the impact of immigrants.

The effect of migration on bilateral trade: 

Immigrants’ connections to their home countries may help to boost bilateral trade between the two countries. Bilateral trade is said to be impacted by migration in two ways:

a. Effect of Transaction Costs:

Migrants usually have in-depth knowledge of the market, social and commercial networks, language, and business procedures in their home countries. This information, combined with access to the markets of their host countries, can help them save money on imports and exports.

b. Effects of immigrant preference: 

Imports of these “nostalgia commodities” to host countries increase as immigrants’ demand for things from their home countries grows. In the long run, if the immigrant group develops large enough for local enterprises in the host country to create these goods, imports may decline.

As mentioned above, immigrants can reduce the transaction cost since they have deep knowledge about home country markets, customs, traditions, laws, and business practices.  When the host and home countries have extremely diverse cultures, languages, and institutions, and when alternative sources of information are limited, this direct trade-stimulating effect is likely to be greatest—that is, when the informal trade barriers generated by these characteristics are greatest. Transaction costs are likely to be affected by both exports and imports. Immigrant preference effects are expected to raise only imports into the host country because they occur through consumption channels because of the demands of immigrants for products from their home countries. 

Is immigration good for the economy?

Immigration gives significant economic benefits, such as a more flexible labor market, a larger skills base, increased demand, and greater innovative variety. It is a feature of communal and economic life in many countries. So, is it good or bad? 

Sometimes, immigration is also challenging.  It is disputed that immigration causes overcrowding, congestion, job insecurities, liability on taxpayers, and threatens culture. Others argue that immigration stimulates economic growth, fills skill gaps, and contributes to a more vibrant society. Immigrants definitely generate large economic benefits, according to the evidence. However, there are economic and social costs on a local and short-term basis. 

The primary role that immigrants play in economic development is often overshadowed by training methods to keep immigrants out, much as it is in trade disputes, where protectionist tendencies tend to overshadow the longer-term need for more open societies. Policies that allow the benefits to pay for the losses must be identified as a solution.

Why is there so much concern about immigrants when they play such an important role?

Some people believe that immigrants take employment and cause havoc on economies. This is factually incorrect. In the United States, immigrants have been originators of companies such as Google, Intel, PayPal, eBay, and Yahoo! Despite making up fewer than 15% of the population, talented immigrants account for more than half of Silicon Valley start-ups and more than half of patents. Research at the Federal Reserve Bank of San Francisco concluded that “immigrants expand the economy’s productive capacity by stimulating investment and promoting specialization, which produces efficiency gains and boosts income per worker”.

It will become even more critical in the future to secure a strong labor supply, which will be supplemented by international workers. The world’s population is aging. In 1950, there were only 14 million people above the age of 80. Today, there are well over 100 million individuals over the age of 80, and current forecasts show that by 2050, there will be approximately 400 million people over the age of 80.

However, there are valid worries about large-scale migration. Social dislocation is a serious possibility. The positive features of globalization, which is a powerful force for good in the world, are diffuse and frequently intangible, while the negative aspects bite deep for a small group of people. Yes, these disadvantages must be addressed. 

However, that management must take into account the fact that migration has always been one of the most essential drivers of human development and dynamism. Immigration is beneficial. Barriers to migration are a challenge to economic growth and sustainability in the age of globalization. Free migration, like completely free trade, remains a distant dream, despite the fact that it has proven to be feasible in some regions (such as Europe).

Conclusion

International service trade and immigration are two of the most rapidly expanding areas of globalization. We discover that there are significant economic linkages between these events, implying that immigration policies may have an impact on service firms’ export and offshore operations. Because trade in services necessitates overcoming cultural and institutional hurdles to a far higher extent than the trade in products, immigrants’ participation in enabling services trade may be more significant and statistically meaningful than their role in facilitating goods trade. At the same time, we show that immigrants may reduce offshoring of services with significant cultural content, which is an important distinction in the immigration-trade link.

References

  1. https://migrationdataportal.org/themes/migration-and-trade.
  2. https://www.weforum.org/agenda/2016/01/how-immigration-has-changed-the-world-for-the-better/.
  3. https://wol.iza.org.

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