Report

100 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA
window’ system to facilitate and encourage it
(UNCTAD-ICC 2003). There is also a consensus that
the country welcomes investors and that its regime is
liberal by South Asian standards.
Nepal is already very well involved in trade in
services with some of the South Asian countries. India
is obviously the most important trading partner and
also the largest investor in Nepal. Nepal receives a large
number of Indian tourists every year, whereas thousands
of patients and students from Nepal come to India
for medical treatment and education respectively. A
regional agreement will bring Nepal closer to other
South Asian countries particularly Bhutan and
Bangladesh due to their geographical proximity. Like
other countries in the region, Mode 4 is of special
significance to Nepal and it would like to ensure better
market access for its surplus labour force. In this regard,
the regional agreement would be a great facilitator of
movement of natural persons. Nepal may also gain by
exports via Mode 1 as it is developing its capability in
the area of IT. Mode 2 is already a proven area of
interest particularly given its advantage in tourism.
However, Nepal has huge import interest in Mode 3 in
all three service sectors, viz., construction, tourism and
education services.
The Maldives
The Maldives has recorded remarkable economic
growth over the past two decades, especially compared
with the rest of the South Asian countries. It reached
an impressive per capita income of $2,680 in 2006 from
$771 in 1984 and sustained a significant annual GDP
growth of 7.9% in the past 15 years until 2004. The
country has attracted a fairly high level of FDI. However,
due to a combination of factors including Tsunami,
for the first time in its history, the country recorded a
negative growth rate of 4.1% in 2005. But once again
the growth rate has bounced back and registered a
whopping 18.7% rate of growth in 2006 (Maldives
Data Profile, World Bank 2007).
According to the World Bank study, ironically,
although the Maldives lacks the resource endowments,
the scale of economies, and the geographical diversity
enjoyed by its South Asian neighbours, it has surpassed
all of them to achieve the highest per capita GDP levels
in the region (The World Bank 2006). However, the
study adds that the Maldives belongs to a special
category of countries called “Small Island economies,”
which are dependent primarily on tourism and therefore
on a narrow product or service range.
Services constitute by far most of the Maldivian
GDP (82%), as tourism is the economy’s mainstay
(33% of GDP) (Maldives’ TPR 2002). The Maldives’
economic growth has been largely based on tourism
development since the early 1970s. The legal and
regulatory environment for FDI in the Maldives is
relatively simple, liberal and generous (Maldives’ TPR
2002). The main legal instrument on FDI is the Law
on Foreign Investment, which requires an agreement
to be entered into between the investor and the government.
Areas to negotiate include, the sector of operation,
the royalty payable to the government, location
and duration of investment and operation, jurisdiction,
dispute settlement, investment guarantee, compensation,
and incentives, including land rent (and lease
period where applicable) and import duty concessions.
The Law broadly provides for 100% foreign
ownership, in addition to foreign – local joint venture,
and investment guarantee. The investor is permitted to
repatriate capital and profits. Employment of non-
Maldivians is allowed in cases when competent locals
for the post in question are not available. Incentives in
the form of waivers on import duty on machinery,
capital goods and construction materials are available.
Despite a relatively open regime and efforts to
attract FDI, inflows remain low. FDI grew, on average,
by between 10% and 20% annually from 1986 to 2000
(Maldives’ TPR 2002). This growth was from a small
base, with annual FDI inflows averaging $5 million
during 1985 to 1995, and $12 million from 1997 to
2000. FDI stock was $3 million in 1985, $118 million
in 2000 and $131 million in 2001. Much of this
investment was in tourism. The stock of inward FDI,
excluding tourism as of March 2000 comprised about
50 projects with a total investment of around $65
million. A few of these projects may have some bearing
on construction services but there does not appear to
be any investment in education services.
In spite of having a relatively liberal trade regime,
it can be suggested that the Maldives has among the
fewest commitments in services under GATS. Its
commitments undertaken during the Uruguay Round
are limited to just one service sector – business services.
(In services such as tourism, construction, and
education it has strong interests. In tourism it has
proven advantage and it should seek regional support
to further build on its growth and sustain it in the long
run. However, in education and construction services
it has an import interest and it should aim to gain from
regional integration. Particularly in education, other
South Asian countries could be of great help in respect