A Migration Empire: Western Union

A Migration Empire: Western Union

Ace New York Times migration reporter Jason DeParle has yet another good 'un, this time on the incredibly vast network of agents handling remittances for the American firm Western Union. Western Union is by far the world's largest money transfer operator. Indeed, we can probably say that the sun never sets on Western Union. As migration has grown worldwide, so has the need for sending home migrants' remittances. While the vast reach of Western Union's network is an advantage, it has not escaped scrutiny in that it is usually the highest cost option for migrants sending home remittances. That is, it usually charges the highest fees and is especially able to do so when there are few competitors for a particular "corridor" such as, say, from Mali to France as in the example given in the story.

I've previously written about the NGO group TIGRA faulting Western Union over high fees. The NYT article explains why TIGRA has not gained so much traction as a movement against Western Union. It seems that the company has made inroads into various communities by championing migrants' rights. For back reference, here too is a link with details on the class action suit by Mexican migrants that eventually resulted in Western Union and MoneyGram settling to the tune of $375 million. Has Western Union become a force for good since then?

To glimpse how migration is changing the world, consider Western Union, a fixture of American lore that went bankrupt selling telegrams at the dawn of the Internet age but now earns nearly $1 billion a year helping poor migrants across the globe send money home.

Migration is so central to Western Union that forecasts of border movements drive the company’s stock. Its researchers outpace the Census Bureau in tracking migrant locations. Long synonymous with Morse code, the company now advertises in Tagalog and Twi and runs promotions for holidays as obscure as Phagwa and Fiji Day. Its executives hail migrants as “heroes” and once tried to oust a congressman because of his push for tougher immigration laws.

“Global migration is the cornerstone of how we’ve grown,” said Christina A. Gold, Western Union’s chief executive.

With five times as many locations worldwide as McDonald’s, Starbucks, Burger King and Wal-Mart combined, Western Union is the lone behemoth among hundreds of money transfer companies. Little noticed by the public and seldom studied by scholars, these businesses form the infrastructure of global migration, a force remaking economics, politics and cultures across the world.

Last year migrants from poor countries sent home $300 billion, nearly three times the world’s foreign aid budgets combined [that figure appears to be from a UN study which estimates both formal and informal remittance flows. Western Union-handled remittances are, by definition, formal].

Western Union’s dominance of the industry casts it in a host of unlikely new roles: as a force in development economics, a player in American immigration debates and a target of contrasting attacks.

Its unparalleled reach gives millions of migrants a safe way to transmit money, and may even increase the amounts sent. But critics have long complained about its fees, which can run from about 4 percent to 20 percent or more. And the company’s lobbying for immigrant-friendly laws has raised the ire of people who say it profits from, or even promotes, illegal immigration.

Western Union tracks migrants so closely that it has made pitches to illegal immigrants just released from detention camps. Its agent in Panama offered customers legal aid to keep them from being deported.

After settling a damaging lawsuit that accused it of hiding large fees, Western Union set out a few years ago to recast its image, portraying itself as the migrants’ trusted friend. It has spent more than $1 billion on marketing over the past four years, selectively cut prices and charged into American politics, donating to immigrants’ rights groups and advocating a path to legalization for illegal immigrants.

While some migrant groups still complain of predatory pricing, the company has won unlikely praise. “Western Union has become a company that values and protects its customers,” said Matthew J. Piers, the Chicago lawyer who sued the company over its fees. “Nobody was more surprised at the change than me, because I was Western Union critic Numero Uno.”

Western Union’s zealous pursuit of migrants can be seen in a government office in Manila, where a half million Filipinos a year wait to have their papers processed before leaving for overseas jobs. Everything in the waiting room is labeled “Western Union”: the backs of the chairs, the tops of the desks, the bottom of the queue sign and the front of the menu in the adjacent cafeteria. The walls are even painted Western Union yellow.

The Philippines requires each outbound migrant to attend a predeparture seminar. Western Union paid to offer migrants instructions on sending money home. “We tell them about the services of Western Union,” said Steve Peregrino, the marketing director in the Philippines, “with the basic idea of seeking out Western Union when they go abroad.” In and around the waiting room, reviews are positive.

Ernald Vincent Mendoza, a restaurant supervisor in Saudi Arabia, dismissed his wife’s argument that the company’s pricing hurt the poor. Though banks are cheaper, the money can take a week to arrive, he said, while Western Union sends it instantly. “If they have good quality and service, you have to pay for that,” he said.

Emmanuel Ellorian, a waiter in Dubai, said Western Union agents came to the hotel where he worked and processed the transfers there. “If any of the Filipino clubs have an event,” he said, “one of the sponsors is Western Union...”

In 1998, Mr. Piers sued the company, alleging that Western Union and a rival, MoneyGram, deceived customers with advertisements like “Send $300 to Mexico for $15,” since the companies typically made much more (in this case an additional $25) by setting foreign exchange rates to their advantage. While denying any wrongdoing, the companies paid millions to settle the case.

Western Union appeared “money oriented” and “cold,” warned an internal marketing document that called for a more empathetic image. The goal, as one plan put it, was to capture a “share of mind” and a “share of heart” to preserve a “share of wallet.”

Having once stressed efficiency (“the fastest way to send money”), Western Union now emphasizes the devotion the money represents. One poster pairs a Filipino nurse in London with her daughter back home in cap and gown, making Western Union an implicit partner in the family’s achievements. “Sending so much more than money” is a common tag line.

The company sponsors hundreds of ethnic festivals, concerts and sporting events, from cricket matches for Indians in Dubai to sack races for Jamaicans in Queens. Last year it paid a Filipino pop star, Jim Paredes, to record a Tagalog song urging migrants to send money home. It paid the producers of a Bollywood film, “Namastey London,” for a scene in which a Western Union wire transfer helps rescue the heroine...

“Every time an immigrant is forced outside the country, we lose a potential customer,” said the agent, Jaime Lacayo, who provided the legal services for two years and still runs the radio show. “We have participated in many marriages of foreigners marrying Panamanian ladies, because that is the best way to legalize your status.”

Western Union boasts of 320,000 locations worldwide. Many agents are large organizations, like the Chinese postal system or grocery store chains. (About 60 percent of Western Union’s person-to-person transfers occur wholly outside the United States.) But companies also battle block by block for trusted local figures.

Among them is Michael Lee, 35, who owns an electronics store called World Top Communications in New York’s Chinatown. Sharing a building with a “lupus and tumor consultant,” on a block of East Broadway that smells of dried shrimp, he was told by Western Union to expect a few hundred transactions a month.

He now does 100,000 a year, he said. Mr. Lee, who earns about $2.50 per transaction, is so enthusiastic he persuaded his landlord to paint the building yellow, and the company donated $16,000 worth of paint.

Many of his customers are in the country illegally. Mr. Lee, who was once an illegal immigrant, said his business fell by about 40 percent last spring after a series of nationwide immigration raids. “A lot of people don’t have green cards — they are afraid,” he said.

Salo Eduardo Levy, Western Union’s Mexico director, echoed that theme at a September meeting of industry executives. “We have customers calling agents before they go: ‘Is it safe? Is La Migra around?’”

A 2006 survey by the Inter-American Development Bank found that illegal immigrants made up 41 percent of the Latin Americans in the United States who used money transfer companies.

Western Union says it does not know what share of its customers are illegal immigrants, but at times it has made pitches directly to them. As Central Americans surged across the Texas border in 1999, an overflowing federal detention center bused them to a homeless shelter in Brownsville, the Ozanam Center. Western Union sponsored a lunch there, dispensing T-shirts, bandannas and fliers in Spanish with the company’s toll-free telephone number.

Western Union also held marketing events around the same time for people deported from the United States to Honduras and El Salvador.

“They would arrive in a special holding area, and we would have an agent in there — a young lady in tight jeans, tight T-shirt” to promote Western Union products, said a former company official who spoke only on the condition of anonymity. “We knew that within a week they would be back on their way to the U.S.”

Fred Niehaus, a company vice president, said, “I can tell you that’s something the company would not do now.”

Western Union’s views on immigration have brought conflicts with Tom Tancredo, the Republican congressman who represents the Denver suburb where the company has its headquarters, Three years ago, when Mr. Tancredo, a fierce critic of illegal immigration, proposed taxing the money that migrants send, First Data formed a political action committee to drive him from office.

“We’re tired of his antics,” Mr. Niehaus told The Rocky Mountain News. “We’re opting for change.”

After winning re-election, Mr. Tancredo attacked Western Union for co-sponsoring a Spanish guide that he said promoted illegal immigration. The guide said that schools and clinics would not check migrants’ papers and advised them to “always carry the name and number of an attorney.”

Mr. Tancredo, who is running for president, said the company’s activities occupied “a gray area” between aggressive marketing and “aiding and abetting illegal immigration.”

“Western Union wants to encourage illegal immigration in order to expand the number of people in their market,” he said. “Believe me, if I were president, I would ask the Justice Department to look into it.”

In 2004, Charles T. Fote, then First Data’s chairman, gave a speech calling for “comprehensive” reform, a term used by supporters of legalization plans for illegal immigrants.

The company sponsored public forums to promote the idea and donated $100,000 to a group unsuccessfully fighting Proposition 200 in Arizona, which requires proof of citizenship from people seeking to vote or collect certain public benefits.

As the debate moved to Washington, Western Union gave money to many groups supporting legalization plans. The United States Chamber of Commerce received “in the high six figures,” a Chamber official said, while an Illinois group used some Western Union money to bring busloads of immigrants to Capitol Hill. When a bipartisan Senate bill emerged last spring, company officials flew to Washington to lobby directly, urging Senator Ken Salazar, a Colorado Democrat, to support the measure. He did, though it ultimately failed.

“Most companies are afraid to speak up,” said Frank Sharry, executive director of the National Immigration Forum, which has received $40,000 from Western Union in the past three years. “When it got hot, they stayed with it.”

But proponents of stricter border controls see commerce, not courage, at play. “Western Union has decided that its business model depends on a continuing flow of illegal immigrants,” said Mark Krikorian, director of the Center for Immigration Studies, which advocates low levels of immigration...

The company spun off from First Data a year ago, and it has an estimated global market share of 14 percent, versus 3 percent for its closest competitor, MoneyGram. Though Western Union has responded to increased competition by cutting its charges, it typically remains the most expensive service.

An Oakland group, the Transnational Institute for Grassroots Research and Action, began a boycott campaign in September, demanding that Western Union lower its prices and increase its corporate giving. But it has gained little traction, in part because of the company’s recent courtship of migrant groups.

China Backs Down in Subsidies Case

US Trade Representative Susan Schwab has come to an agreement with her Chinese counterparts over the subsidies case filed at the WTO Dispute Settlement Body. Yes, China engaged in all sorts of posturing, but at the end of the day, it backed down. Score one for the USTR [U-S-A! U-S-A!] The National Association of Manufacturers is understandably elated as well. It seems American politicians are keen on capitalizing on these gains by ramming through all sorts of legislation aimed at making China "play fair." Will China also give in on the intellectual property dispute, for instance? You could argue that China is keen on not angering the world with yet more subsidized exports as the US and EU are getting quite angry over mounting trade imbalances. IP is a more difficult issue though as policing the world's most populous nation for pirated software is not exactly an easy task. Anyway, let us begin the beguine with a Bloomberg recap that provides a good overview of things:

China agreed today to abolish subsidies that the U.S. had challenged at the World Trade Organization. Officials from the two nations signed an agreement in Geneva in which China agreed to eliminate a series of tax rebates on exports by the end of this year, the U.S. trade office said today. Another subsidy will end by the end of next year. In the meantime, the U.S. will suspend its WTO complaint.

``The agreement demonstrates the two great trading nations can work together to settle disputes to their mutual benefit,'' U.S. Trade Representative Susan Schwab said at a press conference in Washington.

The breakthrough bolsters the Bush administration as it tries to pry open the Chinese market to more U.S. products and head-off legislation in Congress aimed at punishing China for what many lawmakers says are unfair policies.

Treasury Secretary Henry Paulson, Schwab and other Cabinet officials are to travel to China early next month for a summit on issues ranging from easing caps on U.S. bank investments to clamping down on piracy of U.S.-made movies, music and software. [That's for the Strategic Economic Dialogue.]

The resolution of this complaint demonstrates that ``real results'' can come from engagement with China, Schwab said. ``This clearly shows the wisdom of serious dialogue over some legislative approaches that would simply impose retaliatory tariffs,'' she said.

China ran a record $187.6 billion trade surplus with the U.S. in the first nine months of this year, putting it on course to exceed last year's $232.5 billion trade gap and prompting complaints among lawmakers, union officials and small manufacturers.

In February, the U.S. lodged its complaint against China at the WTO, the largest one to date against the world's fastest growing major economy. The U.S. argued that the Asian nation violated global trade rules by unfairly subsidizing its steel, wood products, information technology and other industries. The case centered on tax rebates for foreign investors, including U.S.-owned companies, and Chinese exporters.

This is the second time a U.S.-filed WTO complaint has caused China to reverse course and withdraw provisions that the Bush administration argued violated global trade rules. China scrapped a rebate on a value-added tax on semi- conductors after the U.S. filed a case in 2005. A dispute over anti-dumping duties on kraft linerboard, a type of heavy-duty paper used in cardboard boxes and other shipping applications, was settled the day the U.S. was to file its complaint to the WTO.

Three other WTO cases are still pending: One on auto parts and two others concerning protections for intellectual property rights. Critics of the Bush administration say the resolution of this case shows that the U.S. needs to take tougher action against China to get it to remove barriers to exports, raise the value of its currency and clamp down on dangerous products, such as toys coated with lead paint.

For years, Democrats in Congress have presented to the U.S. Trade Representative's office a list of WTO cases the U.S. should bring. They are also mulling legislation that would make it easier for U.S. producers to get tariffs on Chinese imports to compensate for the effect of government subsidies or a weak Chinese currency.

``This is an overdue, yet welcomed step toward holding China accountable for its trading violations,'' Representative Sander Levin, a Michigan Democrat and chairman of the House Ways and Means trade subcommittee, said in a statement. Levin said his committee would still push for new measures aimed at China. ``We need a comprehensive trade policy toward China, requiring action on piracy, import safety, dumping and currency manipulation,'' he said. [Miss anything, Levin? Maybe you should throw in giant jellyfish as well.]

Others argued that the agreement today demonstrates the limits of U.S.-China summits, such as the one Paulson and Schwab will participate in next week. ``When the U.S. uses its power, it's effective with China,'' said Robert Cassidy, who helped negotiate China's accession to the WTO as a U.S. trade official in the 1990s. ``A more assertive trade policy would bring more real results.''

UPDATE: The Financial Times has a few more interesting tidbits on the emerging story in line with the idea that China was in the process of rolling back subsidies anyway:

The case, which covered a variety of industries including steel, wood products and information technology, had the potential to affect hundreds of millions of dollars’ worth of trade and tie up the countries in a lengthy legal dispute at the WTO. In Thursday’s deal, China agreed to eliminate illegal subsidies by January 1.

An official at the Chinese mission in Geneva denied that the agreement represented a total climbdown by Beijing. The official said that some of the subsidies had already been repealed and some were due for repeal under a new income tax law for enterprises. Other subsidies, such as a refund on value-added taxes for Chinese companies buying domestically produced equipment, were not prohibited under WTO rules, the official said.

Brendan McGivern, a lawyer at White & Case in Geneva, said the US had learned that threatening litigation concentrated minds in Beijing and made a negotiated settlement more likely. “Litigation kicks an issue right up the political system and raises its profile in the minds of senior officials,” he said.

Lawyers say China, which joined the WTO in 2001, appears to have moderated its initial view that WTO litigation was an intrinsically hostile and inflammatory act. The US, with the EU threatening to follow suit, has increased its use of legal tools in its many trade disputes with China, also imposing so-called “countervailing duties” against Chinese imports it considers to be illegally subsidised.

And here is the press blurb from the US Trade Representative's site. I've been a Susan Schwab admirer, strangely enough [1, 2], and this episode just shows you that she's a woman of action. There's a PDF file of her full remarks as well:

U.S. Trade Representative Susan C. Schwab today announced that China has agreed to terminate subsidies that the United States alleged were illegal under World Trade Organization (WTO) rules.

"I am very pleased that today we have been able to sign an agreement with China that should lead to full elimination of these prohibited subsidies. This outcome represents a victory for U.S. manufacturers and their workers. The agreement also demonstrates that two great trading nations can work together to settle disputes to their mutual benefit,” said Ambassador Schwab.

“Earlier this year, when China had not removed these market-distorting subsidies after we repeatedly voiced our concerns about them, the United States took action. This outcome shows that President Bush’s policy of serious dialogue and resolute enforcement is delivering real results. While many challenges still remain, today’s news is concrete and welcome.”

The Memorandum of Understanding (MOU) is designed to settle a WTO case the United States and Mexico initiated in February of this year. The United States had alleged that China was maintaining several subsidy programs prohibited under WTO rules and that these programs were providing significant benefits across the spectrum of industrial sectors in China − including steel, wood products, information technology, and many others. Mexico also filed as a co-complainant.

Most of the challenged subsidies were tied to exports, giving an unfair competitive advantage to Chinese products and denying U.S. manufacturers the chance to compete fairly with them in the United States and in third country markets. The remaining subsidies, known as “import substitution” subsidies, encouraged companies in China to purchase Chinese-made goods instead of imports. These subsidies were designed to give Chinese-made goods a significant edge in the China market over high-quality, fairly priced goods from the United States and other countries.

Under the MOU, China has committed to complete a series of steps by January 1, 2008 to ensure that the WTO-prohibited subsidies cited in the U.S. complaint have been permanently eliminated, and that they will not be re-introduced in the future. U.S. companies and workers will benefit from the removal of China’s trade-distorting subsidies much sooner than would have been possible if the United States had litigated this case to its conclusion. At the same time, if for any reason China does not meet its MOU commitments, the United States has the right to re-start WTO proceedings.

I don't like tooting my own horn, but yes, I did say in February...

I would be wary of using the term "protectionist" here. Going by the WTO rule book, some of China's measures are difficult, nay, almost impossible to defend.

However, I am unsure whether this move by the Chinese is a prelude to giving in on currency revaluation and intellectual property. China likely moved on the subsidies matter in line with its goals to reduce pollution-intensive production (why subsidize it?) and lessen trade frictions a bit. As the Bloomberg article notes, EU and US officials will soon visit Beijing. On currency revaluation I think China will be more reluctant to make big moves, though I may be wrong. In any event, the yuan seems to be revaluing at a pretty decent clip that Chinese officials can point to as an act of good faith when EU officials visit soon and the SED begins again. Don't expect all parties to be holding hands and signing "kumbaya" anytime soon.