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Trends to Watch

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The Nationalism Effect: Global Change in Today's Environment

There is rarely an article today about global growth that doesn’t include the word “nationalism.” Heightened protective positioning around preserving in-country jobs for one’s own citizens and a narrowing focus on trade and immigration are changing the way countries and companies are planning both for economic development and for the growth of their workforces.

There are strong populist sentiments in the U.S., the U.K., and elsewhere. Because our worldwide multilateral system is made up of the majority of the world’s economies, if significant participants pull away from the global economy or established trade agreements, the impact can be substantial and extensive. The U.S. withdrawal this year from the Trans-Pacific Partnership (TPP)—the participants of which represent approximately 40 percent of the global economy and a third of world trade—casts doubt on whether the pact will continue without considerable renegotiation. Brexit creates uncertainty for the approximately 2 million European Union workers currently in the U.K.

Sweeping uncertainty in such an interconnected environment also affects business growth, forecasting, and compliance. “A changing policy environment can seriously harm planning, which can only reduce opportunity,” says Brendan Ryan, Fragomen managing director, global operations. David Crawford, managing partner of Fragomen’s office in Toronto, says, “There is an economic reality associated with the need for skilled labor to move between jurisdictions that presents in issues like skills and people shortages, deep specialization in some industries, countries fostering advanced skills in certain areas, and businesses that wish to groom their talent through international experience.”

Trade Agreements and Labor Mobility

Trade agreements open a door to progress and expansion that optimize what a country is able to do on its own: They support growth, foster development, and improve economic health—and help reduce poverty as well. With Brexit’s departure process, formally begun in March after the activation of Article 50 of the Lisbon Treaty, and the EU-U.S. Trade Deal (TTIP) and the Trade in Services Agreement (TiSA) seemingly shelved at present, what can we expect to see as the world responds to increased nationalism?

“The triggering of Article 50—while ostensibly a decision about a European trade agreement—certainly puts immigration front and center again,” says Caron Pope, managing partner of Fragomen’s London office. Dr. Axel Boysen, a partner in Fragomen’s Frankfurt office, wrote this in his recent Manager Magazin article,“The Misconception of the New Protectionists”:“The impact of Brexit on economic exchange and labor migration within Europe is currently unclear. In other European countries, too, centrifugal forces are increasing, which call into question a free movement of workers with high unemployment in individual EU countries. Elections in France, the Netherlands, and Germany could give these processes additional impetus. Brexit negotiations are therefore to be expected, for which a great deal of uncertainty and transitional arrangements are expected, especially on questions of immigration and work permits. Certainly, the negotiations will also influence the power policy distribution and balance in the remaining European countries, with a view to freedom of movement.”

From a Middle East perspective, Murtaza Khan, a Fragomen partner in the United Arab Emirates, observed that Brexit could actually strengthen ties between countries in that region and the U.K., as the British government has initiated multilayered discussions in its initiative to negotiate stronger trade deals and enhance trade with countries in the region. He also noted: 

“The Middle East region has a growing population with a demographic weighted heavily toward a younger population. Countries like Saudi Arabia, Oman, and Egypt with big populations face huge unemployment problems of their own. There is a strong focus on nationalization policies and giving preference to locals over foreign nationals. Accordingly, any such measures or provisions in the West will likely be better understood by countries in this region given their own context. Still, restrictions on business visits or uncomfortable or extreme vetting may be of a greater consequence to both trade and political ties.”

In the U.S., there are a number of current and potential challenges stemming from the new nationalism, including President Donald Trump’s campaign commitment to tighten borders, the executive orders he signed that sought to impose travel bans against persons from certain Muslim-majority nations—but which were stalled by court orders—and his stated desire to overhaul the North American Free Trade Agreement (NAFTA), although there has been little focus on NAFTA’s mobility provisions.

The Trump administration has also issued a number of directives aimed at nonimmigrant (temporary) work visa programs, especially the H-1B program. This includes an executive order in mid-April titled “Buy American and Hire American,” with H-1B provisions that are designed to protect American workers by ensuring that H-1B visas are awarded to “the most-skilled or highest-paid foreign workers,” and by directing government agencies to crack down on fraud and abuse.

“There is a definite move afoot in the United States to tighten up processes and increase investigative activities—both of which may have the result of making the sourcing and retaining of foreign talent more difficult,” says Bo Cooper, Fragomen partner and head of government strategies, in Washington, D.C. “Much of this has been buttressed by the perception that foreign nationals take jobs away from American workers, a perception that is not necessarily borne out by the data. Eliminating fraud and abuse, and increasing security, benefits everyone—including employers that play by the rules. We would hope that a way would be found to curtail activity deemed unlawful or abusive, without creating a chilling environment or insurmountable obstacles for highly skilled and needed foreign workers.”

Australia, a strong free trade agreement (FTA) supporter, has about 10 agreements already in place, and counts the U.S. and a number of Asian countries, including China, among them. The country also has another seven FTAs under negotiation. In the wake of the hobbled TPP, “it may be that Australia, and other affected countries in the TPP, will now focus on negotiating further bilateral trade agreements,” says Teresa Liu, co-managing partner of Fragomen’s Australia–New Zealand practice.

Some countries will benefit from other countries’ tightening policies. Boysen notes that “common economic areas are always also competitive areas,” and observes that the protectionist confusion in Europe and the U.S. has a “decisive consequence. … Clever entrepreneurs are doing well in these times, free from short-circuit reactions and prejudices, to observe the situation, to drive ahead and take advantage of their economic opportunities—whether in North America, Europe, or Asia.” Crawford says, “Over the last number of months, we have obtained new clients who were attracted to Canada because it is perceived to be open to trade and welcoming to outsiders. These clients felt these qualities were disappearing in their own countries. One entrepreneur told me that he wanted to move to Canada as a protest against Brexit and the thinking that made Brexit possible. As a result, a technology-​based business commenced in the EU will soon have its main operations located in Canada!”

Is Deglobilization in Progress?

In an environment where policymakers sometimes see their domestic problems as a global “other-country” issue, dissatisfaction with a broader economy is a characteristic that reinforces protectionism and isolationism. Current tensions about global trade have led some experts to theorize that there is a deglobalization phase in the works, a slowing of—and, in some cases, a stepping-back from—global advancements. One country might respond in kind to another’s nationalist stance. And because nationalist policies are easier to put in place than to remove, some of the progress made over decades could be at risk.

Trade negotiators must understand that migration provisions must be more fully developed beyond the general statements present in some current FTAs. For example, for international trade in services to succeed, trade agreements should provide for access to workers with the appropriate skills and mobility for people working in targeted industries. A good way to make sure mobility provisions are not abused is to keep them tied into trade agreements.

Because much of the nationalist sentiment stems from a concern about keeping jobs in-country, compliance increases in importance. “To enforce compliance, governments must have a regulatory system that includes audits of employers sponsoring foreign workers and penalties for breaches,” says Austin T. Fragomen Jr., chairman of Fragomen’s executive committee. “Those rules and processes must also be transparent and the penalties proportionate. Compliance is vital because it means that government can take steps to protect the local labor market and, in so doing, build confidence in immigration processes and outcomes. If sound compliance measures are in place, the government should aim to have a consistent policy which can help businesses plan with confidence, and add a level of comfort to a country’s citizens and leaders.”

Ian Robinson, a partner in Fragomen’s London office, notes some of the most effective ways, in the current nationalist environment, for countries and companies to ensure compliance, continue to import needed talent, and keep their workforces mobile. 

“For countries, it is about sanctions and scalable ways to police the system,” he says. “Sponsorship is a good example of the latter: Place responsibility for policing low-risk immigration on employers, and you free up resources to target higher-risk immigration. Then, if firms do not comply, they receive serious sanctions. For companies, it is about staying on top of changes, making sure you have competent people running the system, and for the people above them to take it seriously. Good legal advice clearly helps, too.”

In the face of uncertainty, some companies will put their growth plans on hold and wait to see what unfolds before making any further commitment. Others are more likely to take the push-pull of nationalism in stride. For example, India’s shift toward a more liberalized immigration scheme and focused policies—regardless of the current environment—will help companies mobilize more employees, from more diverse backgrounds. Fragomen partner Saju James notes that “India’s e-Visa policy, which allows for one single entry for a stay of up to 30 days, is now available to 161 countries. If deglobalization does occur over time, the primary focus will shift back to a closed immigration policy, which is more about securing borders and protecting the local labor force.”

A Delicate Balance

Fragomen Executive Director and Worldwide ERC® Chairman Robert J. Horsley predicts both challenge and change to immigration systems and regulations in a more nationalist environment: 

“We expect to see more lengthy application processes, intensified labor market tests, and amendments to immigration processes. We are already seeing the adoption of less-generous immigration quotas, firmer admission requirements, tougher integration requirements, stricter citizenship rules, and border controls.”

Despite the challenges that increased nationalism brings, most countries understand the delicate balance between managing immigration and the need for skilled foreigners to round out their workforces. Countries that rely on a mobile workforce are always looking for creative ways to make that happen, such as Mexico’s efforts to facilitate direct foreign investment, or China’s moves to expand options for moving talent into the country.

“Growth and expansion are natural, hard-wired initiatives for global companies,” says Fragomen. “Trade imbalances and economic fluctuations create tension that impacts this ‘organic’ business behavior—but governments, industries, and services are nonetheless interconnected and interdependent across countries and continents. At the same time, the public won’t stand for agreements that threaten local jobs. Now more than ever, it is important to achieve a balance [among] attracting workers with needed skills, enhancing security, and protecting domestic workforces.”

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