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126 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA international traffic. The growth of traffic is also sustained by the growth of tourism industry in Sri Lanka. Sri Lanka has also introduced visa-on-arrival, which is now applicable to 73 countries including all SAARC countries. Sri Lanka has actively promoted cooperation related to tourism development within SAARC (ESCAP 2005). Since 2003, Sri Lanka has chaired the official working group on tourism. It has served as the lead country on tourism within BIMSTEC. Agreements were reached to implement several tourism projects when Sri Lanka hosted BIMSTEC meetings in 1999 and 2000. Sri Lanka facilitates travel within the South Asian region since the government initiated an open-sky policy (ESCAP 2005). For several years, the national carrier has been expanding operations to connect almost every country in the South Asian region. It has a liberal regime that allows foreign investors to invest in to hotels with 100% equity. Sri Lanka has a hotel school that accommodates 1,000 students for tourism training at all levels (ESCAP 2005). As a result, the number of tourist inflow increased from 0.3 million in 2001 to 0.5 million in 2003. However, during the next three years there has not been any substantial increase in the number of tourist arrivals as in 2006 only 560,000 tourists arrived which was just 2% more than the number in 2005 though tourism receipts grew at 17% to $410 million. 4 Tourism in Sri Lanka created more than 175,000 direct and indirect jobs in 2003 (ESCAP 2005). In recent years, the country has become an important tourist destination. From the South Asian region, India is the most important market. In 2002, India was Sri Lanka’s largest tourist generating market and in 2003 with a share of 18% of the total number of tourists arriving in Sri Lanka, it was at second place, next only to the United Kingdom (Taneja et al. 2004). Likewise, Sri Lanka is an important market for India. Taneja et al also suggest that Indian hotels are setting up operations in Sri Lanka. For instance, the Taj group has three hotels in Sri Lanka. Indian travel agency Sita Travels has a wholly owned subsidiary in Sri Lanka. Sri Lanka offers incentives such as a fiveyear tax holiday, import duty exemption on capital goods and concessionary taxes for investment in hotels or travel agencies. Apart from big hotels, medium-sized hotels have also shown an interest in entering the Sri Lankan market. In their study Taneja et al. suggest that these hotels have pointed out that lack of information has deterred them from making an entry in Sri Lanka (Ibid: 20). They have also pointed out that small size hotels face a problem in recognition of standards. Some 4 Ibid. Indian restaurant/fast food chains such as Amravati and Barista have already established their presence in Sri Lanka. They have however pointed out that acquiring real estate in the desired location and ENT are two major problems affecting their operation and expansion plan in Sri Lanka. Summary of Restrictions in the Sri Lankan Tourism Sector • No commitments in tourist guides services • No commitments in restaurant (including catering) services • Modes 1 and 2 unbound in hotel and lodging services • Mode 2 unbound in travel agencies and tour operators services • No sectoral commitments under Mode 4 • Lack of information deterring small size hotels from making an entry • Small size hotels face a problem in recognition of standards • Acquiring real estate in the desired location is a problem for small hotels • Small size hotels also face the problem of ENT. Nepal Nepal took commitments in tourism and restaurants hotels, lodging services (CPC 6411) (star hotels only); graded restaurants (CPC 6421–23); and travel agencies and tour operators services (CPC 7471) during its accession negotiations. The relatively high level of Nepal’s commitments indicates that the tourism sector is of prime importance. For all committed services Nepal has inscribed no limitations in Modes 1 and 2 in the Market Access and Modes 1, 2 and 3 in the National Treatment column. Under Mode 3 for market access the commitments provide that FDI is allowed. But FDI is allowed only through incorporation in Nepal with a foreign equity cap of 51% for travel agencies and tour operators services and 80% for hotels, lodging services and graded restaurants. The only mode being unbound in both columns is Mode 4 referring to the horizontal section, which however does not provide any access to those categories of persons who are relevant to tourism services since persons covered are limited to ICTs, service sales persons and persons responsible for setting up a commercial presence. In the horizontal section there is a provision under Mode 1 in the National Treatment column stating that
T OURISM AND TRAVEL RELATED SERVICES 127 national treatment will not be accorded with respect to foreign exchange provided to foreigners to pay for any cross-border services. Thus for the tourism services provided by foreigners via Mode 1 while paying foreign exchange national treatment is not guaranteed. This implies that there could be discrimination between national and foreigners while payment is made in foreign exchange for services rendered through Mode 1. However, those categories of persons have been excluded who are covered by Nepal’s commitments. Incidentally, there are only a few categories of persons who are covered by the schedule of commitments. Under Mode 3 in the National Treatment column a foreign investor reinvesting earnings is required to obtain the permission of the department of industry. Further, all foreign investments except for financial services require approval by the department of industry. Besides, incentives and subsidies are available only to enterprises wholly owned by Nepalese nationals. The tourism sector is largely dependent on various other sectors. In this regard, the most important sector is air transport without which the existence of today’s tourism would be extremely difficult. However, the air transport is only partially covered by GATS. According to Paragraph 3 of the Annex on Air Transport Services, only three services related to air transport – aircraft repair and maintenance services; the selling and marketing of air transport services; and computer reservation system (CRS) services are covered by GATS and services related to traffic rights which are the main activities in air transport remain outside GATS. The partial coverage of the sector does not really favour developing countries as the sector is dominated by innumerable bilateral agreements dictated generally by advanced countries. Generally speaking, for developing countries a multilateral agreement is preferable to a bilateral one since their concerns could be better addressed when there are a large number of parties involved rather than the bilaterals where a strong party can always thrust its will over the weak counterpart. In this regard, the review of air transport services is an important exercise in the WTO. Nevertheless, a few peripheral services covered by the GATS – which are actually support services to air transport – have not been liberally committed by member countries. Thus it is not surprising that barring Nepal no other South Asian WTO member country has made any commitments in services related to air transport. Nepal’s commitments relate to maintenance and repair of aircraft (CPC 8868) and there are no restrictions in Modes 1 and 2. Under Mode 3 the commercial presence is allowed through incorporation in Nepal and with a maximum foreign equity capital of 51%. However, foreign equity cap will be increased to 80% after five years from the date of accession. In the National Treatment column, Modes 1, 2, and 3 are without any restrictions. Mode 4 is unbound under both Market Access and National Treatment columns and refers to the horizontal section where there is nothing specific for this sector. Tourism accounts for about one-third of Nepal’s services receipts. SAARC countries offer a very healthy market to Nepal tourism – India being the biggest market for Nepal in the region. However, Nepal tourism has witnessed little growth during 1995–2005. Thus, number of tourist arrivals has been almost stagnant during the past eleven years. Tourism plays a very important role in the economy of Nepal. Employing some 600,000 people, it is the second largest sector of employment after agriculture (UNCTAD-ICC 2004). It is also a prominent foreignexchange earner, contributing 21% of the total value of merchandise exports, 10% of total foreign exchange earnings and 3% of the country’s GDP. The economic importance of tourism in Nepal has been due to economic linkages, foreign exchange earnings, employment and improved socio-economic conditions in remote rural areas (ESCAP 2005). As tourism in Nepal has hitherto been concentrated in the Kathmandu valley, Pokhara and Chitwan, it has been suggested that new areas can be developed in other parts of the country by setting up resorts that can be destinations on their own, such as the national parks and wild-life reserves (UNCTAD-ICC 2004). The Nepal Tourism Board has been providing small-scale skill development training covering most areas of the tourism industry for local stakeholders to strengthen their capacity (ESCAP 2005). The government has established the Nepal Academy of Tourism and Hotel Management and there are four private sector training institutes in Kathmandu and two in Pokhara. The major tourist-originating market for Nepal has traditionally been India, which account for nearly 20% of the total arrivals. This is a foundation that can be built on, for Indian tourists are among the highest spenders in Nepal and they are especially likely to visit in the summer months when non-Indian arrivals decline. The latest development in this area is the status granted to Nepal by the People’s Republic of China as one of the outbound destinations for Chinese tourists. According to the UNCTAD-ICC study, Tourism is an area with enormous potential. There are spectacular
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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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9 Quantification of Benefits from T
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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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