South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Poverty Reduction and Remittance
Published: The Kathmandu Post, 13 May 2005
By: Ratnakar Adhikari

The recent findings of National Living Standard Survey II produced by Central Bureau of Statistics (CBS) have become a major and hotly debated issue in the development community of Nepal. While some have doubted the accuracy of the poverty figures--an amazing decline by 11percentage point over the past eight years--others have expressed their support to these figures. Though increase in agricultural wages (by 25 percent in real terms) and growth in urbanisation have contributed to poverty reduction, remittance receipts remain the largest single contributor to poverty reduction.

It is estimated that more than one million Nepalese are currently working abroad and are remitting more than one billion dollars annually. The average remittance per person of Rs 23,900 is even more impressive compared to Rs 15,000 remitted eight years ago, even after accounting for inflation.

All sounds too good to be true, but we need to ponder upon three major questions. First, will it be possible for us to continue receiving such large amount of remittances? Second, will we be able to diversify the destinations in which our workers will be able to better utilise their labour? Third, how the money so received ought to be utilised by the family members of those workers in order to contribute to economic growth of the country? However, this column will focus on the first two questions, leaving the third question for future deliberations.

As far as the first question is concerned, it appears possible for these workers to continue their works in the respected countries as long as they continue to perform as per the expectations of their employers. However, a country strategy needs to be adopted in order to enhance the skills of the workers going to traditional destinations (mostly the Gulf and some Southeast Asian nations) such that they will be able to work in these countries in a better environment and send more remittances home. The answer to the second question is not so straightforward though. If our workers could go to the developed countries in Asia, Europe and North America, they will not only receive higher incomes, but will also be able to work in a more secure environment. This is more so particularly in the context where threat of terrorism still looms large in the Gulf countries.

However, our workers may continue to face barriers traveling to these countries for work. The developed countries, despite the rhetoric of free trade, have not liberalised their market for the movement of natural persons--one of the four modes of supply of services under the General Agreement on Trade in Services (GATS) of the World Trade Organisation (WTO). This is despite the finding that if a temporary visa system were introduced in rich countries permitting movement of labor up to 3 percent of the total labor force, world incomes would rise by nearly US$ 160 billion. Both developed and developing countries will gain from such liberalisation of labor markets. The only losers are the workers in the developed countries that will see their income decline due to abundance of labor.

But isn't that the way free trade works? When developed countries export their cheap goods to developing countries, industries in the latter are likely to suffer.

Therefore, they are advised to devise a compensatory mechanism. Similarly, when developing countries' workers travel to developed countries' market for temporary assignments, developed countries should also even out the impact on their workers through compensatory mechanisms.

When the costs of goods and services decline due to the arrival of foreign workers, consumers in the developed countries gain in the same way when the goods imported from developed countries lead to increase in consumer welfare in the developing countries. Moreover, such a movement will favor specialisation, more efficient allocation of resources, and make the developed countries' goods and services even more competitive in the global market. Finally, it will foster transfer of technology and skills (when the workers return to their respective countries).

Another important issue that needs to be highlighted is that out of the two mobile factors of production, developed countries do not want any restriction on the movement of capital (read investment), but they want to restrict the movement of labor. Ironically, they are the ones pushing for a full-blown investment agreement within the WTO so that their firms can have free entry into the developing countries. Is this the reciprocity of concession, which the multilateral trading system under the WTO espouses?

There is, however, a window of opportunity, which a country like Nepal needs to take advantage of, now that it is a WTO member. During the fourth Ministerial Conference of the WTO held in Doha during 2001, developed countries agreed, in principle, to the liberalisation of this mode of service delivery. Moreover, the July Framework Agreement, which deals with five major issues to be taken up for negotiations leading up to the sixth Ministerial Conference of the WTO to be held in Hong Kong in December 2005, also deals with the liberalisation of services sector. It also underscores the importance of liberalising the movement of workers.

Clearly, Nepal needs to prepare its position for the WTO negotiations such that temporary movement of its workers to the developed countries is facilitated. Since a least developed country (LDC) like Nepal is a relatively insignificant player in the multilateral trading system, it needs to push this agenda in close consultation and cooperation with other countries of the South Asian region as well as the other LDC members of the WTO.

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