Mode 4 – a charter for exploitation

The German TUC (DGB) warned recently that a draft European Union law will allow big business to bring in cheap labour from poor countries to carry out skilled work for very low wages, the process known as social dumping.


The new directive will allow transnational companies (TNCs) to temporarily transfer their third-country employees, or ‘intra-corporate transferees’ (ICTs) into the EU on low wages.

“This is a huge problem for us,” warned DGB’s Brussels office spokesperson Gloria Mueller.

The UK has opted out of this EU directive, but an EU Free Trade Agreement (FTA) with India, that the Commission says is almost entirely a UK deal, has similar provision for cheap labour entry.

In the EU/India FTA, ‘Mode 4’ labour access for transnationals to bring in their own ICTs, as well as to supply labour for any other firm, is the single demand that India is making. In preparation, the UK government has recently exempted the Tier 2 ICT labour migration category from any limits, while the ‘international agreement’ category in Tier 5 has no limits either.

In return for the Mode 4 opening, western TNCs will gain public procurement rights and investment opportunities in India. This will impact on banking, insurance, public procurement, transport, retail and the production of generic medicines there. Widespread Indian protests, including by Indian unions, contrast with the dearth of information on Mode 4 effects on workers here.

A recent, restricted Commission report on the EU-India Free Trade Agreement negotiations states “the full ambition of the FTA can not be achieved without Mode 4 – which currently faces a range of barriers like wage-parity conditions”.

So while the rest of the EU gets the ‘benefit’ of unlimited cheap labour via the directive, the UK is willing to allow transnational corporations to undermine UK workers in Mode 4 arrangements, confirmed in leaked EU documents.

German unions warn the proposed EU directive will allow a German transnational company with a branch in India to import skilled Indian workers to German factories on minimum wages, massively undermining current pay rates for German workers.

And if the industry lacks a minimum wage, the employer could pay even less.

The German TUC is further concerned the possibility of shunting low wage country workers to a firm’s subsidiary in, for example, Bulgaria, at the even lower Bulgarian wage, will encourage the shifting of work from Germany to cheaper Eastern European countries.

The EU directive will have a fast-track entry procedure for ‘managers’, ‘specialists’ and ‘graduate trainees’, but there are big questions about how people qualify for these categories.

European TUC general secretary John Monks warns that vague categories such as “manager” and “specialist” are virtually meaningless. According to Frank Schmidt-Hull from the German union IG Bau “the only requirement for recognition as a specialist is the evidence of a witness”. He assesses that the move would “overturn the minimum wage system within the EU” and massively drive down wages.

The social dumping process is already happening within the EU as a result of the EU’s ‘four freedoms’ – of capital, goods, services and labour, a corrupted neoliberal version of the four freedoms that Roosevelt proposed – of speech and expression, of worship, from want, and from fear.

Employers have been using these so-called EU ‘freedoms’ to move workers from eastern Member States to drive down wage levels in western EU states. European Court of Justice rulings have backed business rights and undermined the rights of workers to protect wages and conditions in cases such as Laval, Viking and Ruffert.
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Having introduced the mechanism of the ‘free movement’ within the EU to undermine pay rates, national agreements and effective trade union representation, Brussels is now negotiating the temporary ‘free movement’ of labour from outside the EU to impose even lower rates of pay.

“We need a European approach on labour migration that allows our economies to receive the migrants they need,” according to Cecilia Malmström, European Commissioner for Home Affairs, but not the Commissioner dealing with employment and the labour market.

Ironically Ms Malmström claims her proudest moment was bringing legislation against human trafficking.

These new measures will further diminish the skills base and training opportunities in Britain and other member states if transnational capital can simply tap into an inexhaustible, reserve army of migrant labour.

The directive and the Mode 4 provision are in a similar direction. Mode 4 is in all the EU trade agreements, but the Indian deal is crucial for workers because in this, Mode 4 is the main aim of the Indian government.

The directive includes manufacturing, hence the concern of the German manufacturing union, and does not require that there is any trade agreement with the labour source country. Mode 4 is for ‘service workers’, though almost all workers can now be made to fit that, especially if supplied to another company.

Combined, these legalised structures take social dumping up the skills ladder and across sectors such as manufacturing, as well as IT and other white collar industries.

While the directive has vague skills categories, undermined anyway by the additional category of ‘trainee’, the EU stipulates that Mode 4 workers should be ‘graduates or equivalent’. But India has millions of graduates and graduate unemployment here is very high.

Wages for lower skilled work is already undermined by EU free movement of workers and services.

While an EU directive will be very hard to reverse, Mode 4 commitments, made at the level of international trade law, beyond the EU, will be effectively irreversible, enforced by the threat of corporations suing governments that do not keep to commitments.

Neither the EU directive, nor any EU Mode 4 commitments, including in the UK-focused EU/India deal, have any number limits.

An important difference, though, is that while there is a very public reaction against the directive on the part of German unions, here there is no reaction to the huge Mode 4 component of the EU/India FTA.

In a letter to the Trade Commissioner, the European TUC has expressed concern about the parallels between Mode 4 commitments and recent ECJ judgments. The International TUC has rejected the inclusion of Mode 4 in trade agreements.

Surely it is the role of the TUC to counteract the very deliberate official secrecy on Mode 4, the remote intricacies of EU directives, and the real nature of changes to UK labour migration regulations, for its union affiliates? A TUC information seminar on these massive assaults on labour is urgently needed.