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106 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA and finishing work (CPC 517), and other (CPC 511 + 515 + 518). During the Uruguay Round however India undertook commitments in only one out of the five sub-sectors, namely construction work for civil engineering. Even this sub-sector was not fully covered. The commitments were limited to Mode 3. Apart from expanding the scope of commitments by covering all sub-sectors, the revised offer has also expanded it modal coverage and has proposed full commitments in Modes 1 and 2. In the Market Access column, under Mode 3 the foreign equity ceiling of 51% has been removed thereby making this mode free from any foreign equity cap. This should also be considered a major improvement. However, the establishment would still be only through incorporation and a new regulation has been added that commercial presence is subject to the condition that in the case of foreign investors having prior collaboration in this sector in India, FIPB approval would be required. Although Mode 4 remains unbound and refers to the horizontal section, there is significant improvement under this Mode too since the horizontal section allows delivery of engineering, integrated engineering, architectural, and landscape services through contractual services suppliers (CSS) – employees of juridical persons and/or independent professionals (IPs). The coverage of India’s commitments is thus broader and deeper and offers a lot of opportunity to other developing countries for delivery of construction and related engineering services. India’s Mode 4 horizontal commitments for independent professionals are particularly path breaking and would be of immense economic value to all other South Asian countries. In the National Treatment column, Modes 1, 2 and 3 are without any restrictions, implying that services rendered via these modes would be accorded national treatment. This is good for foreign service providers as there would be no discrimination between the domestic and foreign players. However, as in the Market Access column, Mode 4 is unbound in National Treatment column and refers to the horizontal section. In the professional services that are considered relevant to the delivery of construction services India had previously committed only one sub-sector, i.e. engineering services for which Modes 1 and 2 in the Market Access and National Treatment columns were unbound and Mode 3 was subject to the foreign equity ceiling of 51% and the establishment only through incorporation. However, in its revised offer India has proposed to undertake fresh commitments in architectural, urban planning and landscape services and integrated engineering services. In all these professional services Modes 1 and 2 in the Market Access and National Treatment columns have no restrictions at all. However, under Mode 3 and particularly for architectural, urban planning and landscape architectural services apart from the condition that the establishment would be only through incorporation as partnership firm constituted by architects and subject to the condition that in the case of foreign investors having prior collaboration in these services in India, FIPB approval would be required. Finally, Mode 4 is unbound and refers to the horizontal section. Likewise for engineering and integrated engineering services also there are requirements under Mode 3 that the establishment would be only through incorporation and subject to the condition that in the case of foreign investors having prior collaboration in these services in India then FIPB approval would be required. As usual, Mode 4 is unbound except as in the horizontal section. There are a few points worth mentioning here. The first is that though India has removed the foreign equity ceiling of 51%, this is now subject to the condition that in the case of foreign investors having prior collaboration in this sector in India, FIPB approval would be required. On the face of it, it does not appear a major restriction, as the FIPB is just another route through which FDI enters though not automatic. But the moot question is why a company which has already invested should be asked to pass through a nonautomatic route whereas a fresh investor would have signal free entry. As the stipulation suggests the same investor who as a fresher did not face any barriers now would have to undergo a screening procedure of the FIPB. Foreign investors will certainly consider it as a barrier and India may have to rethink over it. This is also technically problematic. According to GATS, as a member country can only improve its existing commitments, it is not expected to inscribe any additional barriers of whatsoever nature and this might be treated as a new barrier. Though in certain circumstances a member can add restrictions, this can be done under other provisions of GATS. The second point is that though India has offered a relatively liberal market access environment under Mode 4 for the supply of engineering, integrated engineering, architectural and landscape services, the level of services allowed is still relatively high and unless the skill level is brought down other South Asian countries may not fully exploit the Indian market. A large number of Indian workers such as carpenter, electrician, fixer/fabricator, foreman, mason, mechanic-AC,
CONSTRUCTION AND RELATED ENGINEERING SERVICES 107 painter, plumber, technician, welder, supervisor, surveyor, fitter, and labourers/helper go abroad to supply their services (ESCAP 3003). Likewise Pakistan, Bangladesh, Sri Lanka, and Nepal are also sending construction workers to different parts of the world, the Middle East being the most popular destination in this regard. The categories of workers mentioned above are mainly involved in the construction sector. This sector is in fact unique in the sense that it requires services at all possible levels of skills and even unskilled. From this point of view the sector is considered crucial with respect to providing employment opportunities to poor countries. Other Restrictions: India is becoming an increasingly important player in international trade in construction services. In 2005, India’s exports of construction services were valued at $828 million and imports at $774 million (WTO 2007). Interestingly, in Asia, after Japan and the People’s Republic of China, India was the third leading construction services exporting country in 2005. However, what is more relevant is that with imports of $774 million of construction services India offers an attractive market to other South Asian countries. Though the construction sector has been witnessing a growth rate of 7–8% for the past several years and there are quite a few big Indian companies operating in the country, from a global perspective this sector is still small and fragmented. Most Indian construction companies specialise in specific industries and are not in a position to undertake large turnkey projects (Taneja et al. 2004). Almost 90% of the construction companies are engaged in the domestic market with only a few of them engaged in exports, concentrated mainly in South Asian and Middle East markets. The construction services exports include project management, engineering and architectural consultancy, design engineering and maintenance services. Entry into foreign markets through competitive bidding remains limited. In recent years, some of the large Indian construction companies have started entering foreign markets through a consortium. While the sector does not appear to be highly regulated, it has been constrained by cumbersome land registration procedures, regulation on land ceiling, complex tenancy laws, rent control, stringent regulations on hiring of contract labour and poor enforcement of building codes and byelaws (Kumar 2005). The cumbersome procedures of land registration have, to some extent, been simplified and stamp duties reduced and some progressive measures have also been taken with respect to urban land ceiling in many states. However, the major problem is that there are regulations at various levels and India being a large country there is no uniformity in the regulations. The sector as covered in India’s revised offer allows 100% FDI. In the South Asian context India’s offer of commitments in construction and related engineering services clearly stands out as one of the most liberal. India, however, needs to allow construction workers if not for the entire WTO membership then for its South Asian trading partners as part of SAFTA so that India could offer other SAARC member countries more meaningful market access for their Mode 4 exports. It would be equally interesting to find out what India expects from other countries in the sector. In this regard, its request to New Zealand may be indicative of its overall request in the construction and related professional services sectors. From India’s request to New Zealand it is clear that the Indian construction industry is very much interested in the delivery of construction services via Mode 3 and has sought full commitments from New Zealand in all sub-sectors of the construction sector. 3 Similarly, India has also made such requests in engineering and integrated engineering services. In these services India has sought full commitments under Modes 2 and 3 and under Mode 4 it has asked for full commitment particularly for professionals like civil engineer, electrical engineer, chemical engineer, electronics and telecommunications engineer, mining engineer, metallurgical and related professionals, cartographers and surveyors, etc. India has also asked New Zealand to recognise the qualifications of Indian engineering and related professionals. In light of this, India would expect market access from other SAARC countries for its construction and related professional services. Given India’s relative strength in the sector, it would like other South Asian countries to allow import of construction services via all modes. However, Modes 1, 3, and 4 would be of particular interest to India. The two groups of major professional services – engineering and architectural services – are important for construction services. While architects are regulated by the council of architecture (COA), there is no law governing the profession of engineering in India. Though efforts are on to have a statutory body for the 3 India’s request List to New Zealand, commerce.nic.in/wto_sub/services/newzealand.pdf, last visited on 1 November 2007.
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QUANTIFICATION OF BENEFITS FROM ECO
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QUANTIFICATION OF BENEFITS FROM ECO
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Preface Our consultations with seni
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viii CONTENTS 7. Revenue and Welfar
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Executive Summary OBJECTIVE This st
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EXECUTIVE SUMMARY xiii Table 1 EAMA
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EXECUTIVE SUMMARY xv India A full S
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EXECUTIVE SUMMARY xvii indicates th
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EXECUTIVE SUMMARY xix ments on basi
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Part I BENEFITS FROM TRADE, INVESTM
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4 QUANTIFICATION OF BENEFITS FROM E
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10 QUANTIFICATION OF BENEFITS FROM
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2 Literature Review and Rationale f
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4 Effective Additional Market Acces
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6 Impact of SAFTA on Member Countri
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7 Revenue and Welfare Implications
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15 Prospects for the Telecommunicat
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APPENDICES
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Appendix 8 Intra SAARC FDI Collabor
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Appendix 11 Table A11.1 On an Emplo
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Appendix 12 Original Commitments/In
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Appendix 14 Table A14.1 Telecommuni
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Appendix 15 REFERENCE PAPER Scope T
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Bibliography Abelson, P. (1996),
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BIBLIOGRAPHY 241 Cuba (2002), Negot
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BIBLIOGRAPHY 243 (2004), Impacts of
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BIBLIOGRAPHY 245 Silva, Patricia an
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BIBLIOGRAPHY 247 (1998), Tourism Se
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