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108 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA engineering profession as well, India may allow existing engineers associations to negotiate with their counterparts in other SAFTA countries to develop MRAs that will ensure hassle free movements of engineers in the region. As regards architectural services since the regulatory body exists there should be less problem in negotiating MRAs. Pakistan During the Uruguay Round like India, Pakistan had also undertaken very limited commitments in the construction and related engineering services sector. Its commitments covered only one subs-sector, i.e. construction work for civil engineering and that too only for bridges, elevated highways, tunnels and subways leaving aside many other segments of this sub sector. Further, its commitments under Modes 1 and 2 were unbound albeit for the lack of technical feasibility. Mode 3 commitments had been subject to partnership and/or joint venture with Pakistani engineers or engineering companies. However, in the initial offer the scope of commitments has been expanded marginally by including some more segments such as waterways, harbours, dams and other waterworks from the same sub sector- construction work for civil engineering. Moreover, Modes 1 and 2 have now been fully committed though there is almost no change in the status of Modes 3 and 4. As regards horizontal commitments, which apply to this sub sector as well, it is stipulated that except in the case of representative offices, commitments under Mode 3 are subject to incorporation in Pakistan with maximum foreign equity participation of 60%. In this regard, Burki and Hussain (2007) explain that transfer of technology appears to be the motivation behind this limitation. However, this could be considered as a major restriction on Mode 3. Further, all expenses of representative offices shall be met by remittances abroad. Such offices shall restrict their activities to the undertaking of liaison work or of representing the interest of the parent company abroad. Under Mode 4 while the entry of intra-corporate transferees (ICTs) – managers, executives, and specialists – was already allowed during the Uruguay Round, now four new categories of natural persons – business visitors, professionals, independent professionals, and persons having other skills – have been added. Out of these four new categories of natural persons, the categories of independent professional and persons possessing other skills – are relevant to the construction sector. The category of independent professionals is akin to that of the Indian category and offers meaningful market access particularly to the export of professional services by developing countries to Pakistan. The category of persons possessing other skills has specifically been mentioned for construction engineering services though this is limited to imparting training in Pakistan. As the construction services sector also bank on the smooth supply of related professional services, we need to look at the state of commitments in these services. In this regard, it is noted that while in engineering and integrated engineering services Pakistan had undertaken commitments; during the current round it has proposed fresh commitments in architectural services. However, the level of liberalisation as reflected in the initial offer does not seem to be encouraging because Mode 1 remains unbound in all three services and for integrated engineering services even Mode 2 is unbound. Since architectural and engineering designs can be conveniently supplied through trans-border data flows (Mode 1), countries having relative comparative advantage are likely to benefit from liberalisation commitments under Mode 1. In light of this, it has very rightly been suggested that Pakistan has a pool of experienced and qualified professional engineers and architects, which is a source of comparative advantage to Pakistan (Burki and Hussain 2007). Therefore, liberalisation commitments under Mode 1 would be in Pakistan’s export interest. Burki and Hussain further suggest that Pakistan may also want to further rationalise its commitments under Mode 3 to enhance benefits from Mode 1, because arguably Pakistan may be able to export more through Mode 1 by attracting more foreign firms or joint ventures in architectural, engineering and related engineering services. Under Mode 3 there are quite a few restrictions in engineering and integrated engineering services – foreign shareholding of maximum of 51% in engineering consultancy companies is allowed. This however, is not applicable to those companies that are registered with the securities and exchange commission of Pakistan. In addition, the Mode 3 commitment is subject to partnership and/or joint venture with Pakistani engineers or engineering companies. As already noted, this restriction has been existing since the Uruguay Round and the only modification suggested in the initial offer is that this restriction also does not apply to those companies which are registered with the securities and exchange commission of Pakistan. In architectural services while Mode 2 is without any restrictions, Mode 3 has three limitations –
CONSTRUCTION AND RELATED ENGINEERING SERVICES 109 foreign equity ceiling of 51%; services shall be supplied by a natural person or by a registered firm having local partners in majority or in case of a company, 70% holding of Pakistani nationals; and economic needs test (ENT) based on inquiry to gauge if direct or indirect government subsidy is being provided. Burki and Hussain (2007) suggest that Pakistan maintaining market access restrictions on Mode 3 seem to have been designed to protect small players from foreign competition and to avoid displacement of domestic construction workers since foreign players would have comparative advantage in using more mechanised constructions with highly skilled workforce. However, they argue that shielding all local players (both small and large) from foreign competition by giving them a blanket cover may not be justified. Out of the three professional services inscribed in the Pakistani initial offer that are closely interconnected with the construction sector architectural services appear to be the most restrictive. The commitments proposed in the National Treatment column also carry many limitations – while Mode 1 has been kept unbound, Mode 3 is subject to fulfillment of all requirements and conditions applicable only to foreign investors/juridical entities and Mode 4 is unbound except as indicated in the horizontal section where though there are no limitations. Besides, all four modes – 1, 2, 3, and 4 – are unbound for subsidies. The overall picture that emerges from the above is not very bright and Pakistan needs to further improve its initial offer. The construction and related engineering services sector represents the fundamental activity in Pakistan that permeates all economic sectors and thus constitutes the single largest sector. It is thus not surprising that Pakistan has received the request from a number of WTO members to liberalise the sector. Burki and Hussain suggest that the request substantially covers subsectors from CPC 511 to CPC 518 (Burki and Hussain 2007). It specifically demands the elimination of any limitation (market access and national treatment) in Modes 1, 2 and 3. The request, however, does not cover movement of natural persons (Mode 4) limitations in the construction sector. Moreover, the request also deals with removal of some national treatment limitations pertaining to discriminatory registration and licensing procedures meant for foreign firms. Similarly, Pakistan has received a collective request to liberalise the architectural, engineering and integrated engineering services. The coverage of this request and the subsectors are: CPC 8671: Architectural services; CPC 8672: Engineering services; and CPC 8673: Integrated engineering services. In Mode 4 the request is for commitment in all categories with a special emphasis on contract service suppliers. Finally there is a request for removal of limitations regarding economic needs tests (ENTs) (across all modes). Other Restrictions: According to the State Bank of Pakistan, in 2006–07, the construction industry in Pakistan grew by 17.2% (State Bank of Pakistan 2007). This was not only higher than the 7.0% target, but was also the second highest growth recorded by this sub-sector since 1975–76. The resurgence is mainly attributed to higher development expenditures by the government, increased FDI in the construction sector and, record worker’s remittances. The sustained growth in the construction sector is important from its strong backward linkages with a number of industries and employment generation. In addition, construction also generates a range of employment opportunities from unskilled workers to architects. Although the construction sector has only a 2.3% share in Pakistan’s GDP, its share of the employed labor force was disproportionately large at 6.1% in 2006–07. In 2004– 05, the sector accounted for about three percent of the total FDI inflows into Pakistan. In 2006–07, exports of construction services by Pakistan were valued at merely $16 million whereas imports were at $143 million (Burki and Hussain 2007:18). This shows that though Pakistan has some capability of exporting construction services, it is indeed an important importer in the region. A recent study on Pakistan includes construction and related engineering services suggests that this sector is a potential import as well as export interest to Pakistan (Burki and Hussain 2007). Growth in this sector is critical for growth in national income and employment in the country. Hence its mainstreaming would help achieve national development goals. However, they argue that majority of constructors are small players who have weak financial positions, outdated labour-intensive technology and poor organisational structures and vision for growth and development. They are highly vulnerable to foreign competition. Most constructors have comparative advantage in small commercial buildings, small bridges and roads. It has been suggested that only a few sophisticated firms specialise in large earthwork and large construction work for civil engineering. While modernisation of this sector with entry of foreign firms may enhance efficiency and service quality in this sector, but the likely injury to small players would be a major challenge for the negotiators.
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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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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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