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112 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA Other Restrictions 4 : In Sri Lanka, there is a need for development of infrastructure, particularly in the construction of highways, bridges, railways, roads and buildings. Sri Lanka has given priority to the development of infrastructure by encouraging private participation, both domestic and foreign, through attractive fiscal and tax concessions such as full tax holiday, concessionary tax and import duty exemption on capital goods. It is interesting to note that several Indian companies have entered the Sri Lankan market and are engaged in building and civil construction. The most important investors in residential construction are the Ansals and SMS Property Developers. Both have wholly owned subsidiaries in Sri Lanka. The reasons cited for choosing Sri Lanka are geographical proximity, initiatives taken by the Sri Lankan government in attracting Indian investment and demand for housing. However, the Indian construction companies have faced many barriers. For instance, a number of clearances have to be obtained from multiple agencies. Moreover, the government has failed to provide infrastructure and other ancillary services required for residential complexes. Lack of information on the housing market has made it difficult for the Indian investors to gauge the demand for housing. However, perhaps the most limiting factor has been the lack of adequate housing finance. In the case of civil construction activity, there is a lack of transparency in the bidding process and cumbersome safety and environmental regulation poses added problems. Investors have also pointed out that they prefer to have a strategic local partner because of lack of information on the Sri Lankan market. Difficulties in import of equipment for construction purposes are also to be a barrier. As in construction services there are quite a few restrictions in engineering and architectural services in Sri Lanka. Although it is not legally binding for an engineer to register with the institute of engineers of Sri Lanka (ISEL), there are a few government bodies such as Colombo municipal council and the urban development authority that require an engineer to be registered with IESL. Requirements for architects to serve in Sri Lanka are laid out by the institute of architects of Sri Lanka (IASL), which is governed by the IASL law and is based on international union of architects (UIA) in Paris. Sri Lankan and other foreign nationals are allowed to practice in Sri Lanka provided their degree is recognised in UIA and that they clear the examination conducted by the IASL. Several foreign architects work in Sri Lanka, but the requirements to practice are often violated. Foreign architects, including Indian architects, either go through the BOI agreed investments or go for a short term to provide services on a visitor’s visa. From South Asia it appears Sri Lanka has received requests from India to make full commitments under the Market Access column in architectural and urban planning and landscape architectural services in Modes 3 and 4. Under the National Treatment column, India has requested Sri Lanka to remove nationality/ citizenship requirements, if any. India has also requested Sri Lanka to make additional commitment on MRAs for qualification and licensing requirements to practice (use of professional title). It could be suggested that Sri Lanka may undertake wider and deeper commitments in the sector covering all the subsectors and in all related professional services. It should also undertake commitments in all modes. If not under the GATS regime then under the regional arrangement it must do so. Sri Lanka is an important market at the regional level, being a country with relatively high per capita income of $1300 in 2006, which is only next to the Maldives in the region. 5 Bangladesh In the construction and related engineering services sector, Bangladesh neither undertook any commitments during the Uruguay Round nor proposed to so during the ongoing Doha Round . However, Singapore, the EU, Japan, Norway and the United States have requested Bangladesh to open its construction and related engineering services, and professional and business services (Raihan and Mahmood 2004: 41-42). The construction and related engineering services sector accounts for 8.63% of the Bangladesh’s GDP. This sector also accounts for three percent of overall employment in Bangladesh (World Bank 2007) The sector has been identified as one of the services sectors of major interest to Bangladesh in which it has been suggested that it should offer market access commitments (Raihan and Mahmood 2004). However, the study also suggests that Bangladesh should follow 4 The discussion in this section is largely based on Taneja, Nisha, Mukherjee, Arpita, Jayanetti, Sanath, and Jayawadhana, Tilani (2004). Indo-Sri Lanka Trade in Services: FTA II and Beyond, Indian Council for Research on International Economic Relations (ICRIER), India and Institute of Policy Studies (IPS), Sri Lanka, November 2004. 5 Sri Lanka Data Profile, The World Bank, http://devdata.worldbank.org/external/CPProfile.asp?PTYPE=CP&CCODE=LKA, last visited on 31 October 2007.
CONSTRUCTION AND RELATED ENGINEERING SERVICES 113 a cautious approach with respect to import of construction and related engineering services. Although Bangladesh took very limited commitments in a few services such as tourism, financial and telecommunications services during the Uruguay Round and spillover negotiations, it ought to undertake commitments in many other services if it is to sustain a relatively high rate of economic growth. Bangladesh being an LDC seems to have taken the stand thus far that LDCs should not be asked to undertake commitments in the sectors it does not wish to. However, the study strongly argues that LDCs should stop insisting that they do not need to open any sectors. Many sectors would benefit through an open policy regime and a predictable competitive environment. Others also suggest that inadequate infrastructure in Bangladesh provides immense investment opportunity particularly in the construction industry (UNCTAD-ICC 2000). As technology transfer plays a significant role in the development of this sector and it has high stakes for domestic service providers, as well as substantial imports, Raihan and Mahmood suggest that liberalisation of this sector should be balanced. As of now there are no major restrictions in the sector. FDI is allowed and even labour movement is permitted though subject to existing laws. Bangladeshi construction workers go abroad to work on construction sites and it gains substantial amount of foreign exchange as workers remittances. Their foreign work experience would be an advantage while working in South Asia. But for that to happen Bangladesh needs to undertake commitments in the sector. Bangladesh should undertake wider and deeper commitments in the sector and in all modes. Although it may find it difficult to make such liberal commitments under the GATS regime, it must do so as part of SAFTA. By so doing in fact, Bangladesh would gain more by liberalising its services sector as it will have access to bigger markets in the region. Nepal Nepal is one of the few LDCs, which have recently acceded to the WTO. As part of its accession negotiations it was asked to undertake relatively liberal commitments in as many services sectors as it could. As a consequence, what we have today is undoubtedly one of the most liberal schedules of commitments in services undertaken by any South Asian country. In the construction and related services sector Nepal has undertaken commitments in two out of five subsectors – general construction work for civil engineering (CPC 513) and other (CPC 511+515+518). Unlike Pakistan which has proposed commitments in some segments of the only one subsector of the construction sector at four-digit level classification, these two subsectors as committed by Nepal are at three-digit level implying that its commitments fully cover the two subsectors. Further, Nepal has inscribed no restrictions of whatsoever nature in Modes 1 and 2 and Mode 3 stipulates that the entry is subject to incorporation in Nepal with a maximum foreign equity capital of 51% though Mode 4 is unbound and refers to the horizontal section. Specifically for the subsector – general construction work for civil engineering (CPC 513) the commitment states that foreign equity participation will be increased to 80% after five years from the date of accession which will come into effect in April 2009. In the National Treatment column in both subsectors Modes 1, 2, and 3 are without any sectoral limitations and Mode 4 remains unbound referring to the horizontal section. As regards the horizontal commitments which apply to the construction sector, under Mode 4 entry of three kinds of natural persons is allowed – services sales persons, persons responsible for setting up a commercial presence and ICTs. Unlike India and Pakistan, Nepal has not made any provisions for professionals or independent professionals. Under the National Treatment column also there are some limitations. Under Mode 1 national treatment has not been accorded with respect to foreign exchange provided to foreigners (excluding those categories of persons covered by Nepal’s schedule) to pay for any cross-border services. Under Mode 3 a foreign investor reinvesting earnings is required to obtain the permission of the Department of Industry, all foreign investments except for financial services require approval by the Department of Industry, and incentives and subsidies are available only to enterprises wholly owned by Nepalese nationals. Under Mode 4 national treatment is accorded to only those categories of natural persons referred to in the market access column. Moreover, it has been made clear that the selling and buying real estate is the constitutional right of every Nepalese citizen. The civil code prohibits anyone from selling, mortgaging, gifting or endowing or disposing any real property to a foreign individual. Apart from the limitations inscribed under Market Access and National Treatment columns Nepal has also undertaken some additional commitments. The first commitment stipulates that an environmental impact is required and approval of an investment will not normally be withheld except for failure to meet
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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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8 Impact of SAFTA on Inward and Out
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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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