http://www.cepr.net/professional_protectionists.htm

September 9, 2003

Executive Summary

The term "free trade" has been grossly misused in trade
debates. Free trade has generally meant removing barriers on trade in
goods, the effect of which is to put downward pressure on the wages of
the three quarters of the work force without a college degree. A
consistent proponent of "free trade" would also be arguing strongly
for the removal of barriers to trade in professional services. Putting
highly paid professionals in direct competition with professionals in
developing countries would lead to large gains to consumers and the
economy. In addition, it would be a more equitable approach to trade.

For the last fifty years U.S. trade policy has focused
primarily on removing barriers to trade in goods. Trade policy has not
only reduced or eliminated direct barriers, such as tariffs and
quotas, it has also worked to reduce indirect barriers, such as rules
governing foreign investment, product safety and environmental
standards.

However, U.S. trade negotiators have made no comparable
effort to reduce barriers to trade in highly paid professional
services, such as doctors', dentists', lawyers' and accountants'
services. To the contrary, in some cases barriers to foreign
professionals working in the United States have increased in recent
years. This paper documents some of the barriers that prevent foreign
professionals from working in the United States. It also produces
calculations of the potential gains to consumers and the economy if
free trade applied to highly-paid professional services. The paper
also discusses some of the mechanisms that could be put in place to
ensure that developing countries share in the gains from an increased
flow of professionals to the United States.

The paper notes that:

· The issue of foreign professionals working in the United
States is one of trade, not immigration. Even a very large influx of
foreign professionals would barely make a dent in the total number of
immigrants to the United States. Also, current professional
restrictions do not prevent foreign professionals from living in the
United States, only from providing their services.

· There is a long list of explicit and implicit barriers that
make it difficult for foreign professionals to work in the United
States. Comparable barriers in the case of goods would be blatant
violations of numerous trade agreements. For example:

1) Current law prohibits the U.S. government from hiring
foreigners (including green card holders), unless no U.S. citizen
could be found to do the job. A comparable restriction for goods would
prohibit the government purchase of any imported item, as long as the
same good was produced in the United States.

2) The requirement for a green card can be a substantial obstacle
to employment for foreign professionals. The delays and the
uncertainties in the process provide a strong incentive for employers
not to hire foreign professionals.

3) Prevailing wage laws would prevent an employer (for example, a
hospital) from explicitly hiring foreign professionals with the
purpose of saving money. A comparable law for goods imports – one that
prohibited companies from importing goods in order to save money –
would be a blatant violation of numerous trade agreements.

· The potential gains to consumers from freer trade in
professional services are enormous. Assuming that a reduction in trade

http://www.cepr.net/professional_protectionists.htm

September 9, 2003

Executive Summary

The term "free trade" has been grossly misused in trade
debates. Free trade has generally meant removing barriers on trade in
goods, the effect of which is to put downward pressure on the wages of
the three quarters of the work force without a college degree. A
consistent proponent of "free trade" would also be arguing strongly
for the removal of barriers to trade in professional services. Putting
highly paid professionals in direct competition with professionals in
developing countries would lead to large gains to consumers and the
economy. In addition, it would be a more equitable approach to trade.

For the last fifty years U.S. trade policy has focused
primarily on removing barriers to trade in goods. Trade policy has not
only reduced or eliminated direct barriers, such as tariffs and
quotas, it has also worked to reduce indirect barriers, such as rules
governing foreign investment, product safety and environmental
standards.

However, U.S. trade negotiators have made no comparable
effort to reduce barriers to trade in highly paid professional
services, such as doctors', dentists', lawyers' and accountants'
services. To the contrary, in some cases barriers to foreign
professionals working in the United States have increased in recent
years. This paper documents some of the barriers that prevent foreign
professionals from working in the United States. It also produces
calculations of the potential gains to consumers and the economy if
free trade applied to highly-paid professional services. The paper
also discusses some of the mechanisms that could be put in place to
ensure that developing countries share in the gains from an increased
flow of professionals to the United States.

The paper notes that:

· The issue of foreign professionals working in the United
States is one of trade, not immigration. Even a very large influx of
foreign professionals would barely make a dent in the total number of
immigrants to the United States. Also, current professional
restrictions do not prevent foreign professionals from living in the
United States, only from providing their services.

· There is a long list of explicit and implicit barriers that
make it difficult for foreign professionals to work in the United
States. Comparable barriers in the case of goods would be blatant
violations of numerous trade agreements. For example:

1) Current law prohibits the U.S. government from hiring
foreigners (including green card holders), unless no U.S. citizen
could be found to do the job. A comparable restriction for goods would
prohibit the government purchase of any imported item, as long as the
same good was produced in the United States.

2) The requirement for a green card can be a substantial obstacle
to employment for foreign professionals. The delays and the
uncertainties in the process provide a strong incentive for employers
not to hire foreign professionals.

3) Prevailing wage laws would prevent an employer (for example, a
hospital) from explicitly hiring foreign professionals with the
purpose of saving money. A comparable law for goods imports - one that
prohibited companies from importing goods in order to save money -
would be a blatant violation of numerous trade agreements.

· The potential gains to consumers from freer trade in
professional services are enormous. Assuming that a reduction in trade
barriers led to a 15 percent increase in the supply of four types of
highly paid professionals - doctors, dentists, lawyers, and
accountants - the paper calculates that the gains to consumers would
range from $160 billion to $270 billion a year. By comparison, the
cost to consumer of the steel tariffs imposed last year has been
estimated at just $3 billion a year.

· The efficiency gain from having access to an influx of
foreign professionals would be between $12 and $20 billion annually.
This efficiency gain is a benefit to the economy beyond the transfer
from professionals to consumers.

· The United States could easily design mechanisms to ensure
that developing countries would share in these gains. Even with no
governmental action, developing countries would benefit from an
increased flow of remittances from emigrant professionals. The United
States could also ensure that part of the earnings of foreign
professionals would be paid to home-country governments to compensate
for those countries' investment in educating professionals. Since
professionals must have their licenses renewed on a regular basis,
coordinating this transfer should be straightforward. If, in addition,
the U.S. government increased its foreign assistance by an amount
equal to the efficiency gains from the inflow of foreign professionals
(ignoring the gains to consumers), the resulting transfer of funds
would more than double the foreign aid budget.