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192 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA Mode 2 (Consumption Abroad) There also exists the potential to export education services through consumption abroad. Indian public and private medical institutions export medical education services through the provision of seats to foreign students from other countries in South Asia. Sri Lankan students come to Indian hospitals to study medicine. Pakistan, Sri Lanka and Bangladesh could invest in their education sector both directly and through collaboration with India to attract service seekers from within the region as well as globally. Pakistan could upgrade existing institutions of educational excellence such as the Lahore university of management sciences to attract overseas clients to serve the regional and even global markets. Thus apart from Modes 1 and 4, Mode 2 is also an important mode for supply of services in South Asia. In this regard, there are three services sectors viz. tourism, education, and health that largely depend on this mode. Health is an interesting sector as this involves tourism and education apart from being important in its own right. In the South Asian region, patients come from Bangladesh, Sri Lanka, and Nepal to India for medical treatment. Thousands of patients come from Bangladesh alone each year seeking treatment in various Indian cities. From Nepal and Sri Lanka similarly patients visit India in large numbers for medical treatment. They also help generate health tourism in India. Mode 3 (Commercial Presence) There is also scope to export education by establishing commercial presence overseas. Indian firms are increasingly emerging as exporters of capital. In segments like health services, some Indian companies are setting up with regional or international networks. There is growing interest among some Indian higher education services through establishment of offshore campuses as well as twinning and partnership arrangements. In both health and education services, there is potential for such commercial presence based exports of education services within the South Asian region. As Sri Lanka has a shortage of nurses, Apollo Hospital has also set up a nursing school. South Asian countries also have strong import interests in the services sector, mainly in the form of FDI participation in their economies (Chanda 2005). As noted, all these countries have significantly liberalised their FDI policies in the past decade. Foreign participation through joint ventures, technology and management tie-ups, and subsidiaries is increasingly being sought in services to alleviate infrastructural, financial, technological, and other constraints. However, in most of the South Asian countries services sectors other than tourism, education and construction have been the main drivers of FDI in the region. Pakistan, for instance, has moved from a restrictive policy on FDI to encouraging FDI in areas like software development, tourism, and construction services. It has given permission for 100% foreign equity participation and waiver of a joint venture requirement in the case of social and infrastructure services and permits full repatriation of profits. Bangladesh has similarly liberalised its investment and industrial policies since the 1990s to encourage investments in energy, telecommunications, ports, highways and other civil works, software development and tourism services. In all but five sectors, it allows 100% foreign private investment with no prior approval requirements, or limits on equity participation, or restrictions on repatriation of profits and income, although there are requirements of local incorporation and registration with the board of investment. In response to such liberalisation, FDI in Bangladesh has increased. The services sector attracted around half of the total FDI in 2002. Apart from natural gas which accounted for around 30% of the total FDI inflows into the country, other sectors which remained priority area for investment included road and water transport, airports, power generation, transmission, and distribution, telecommunications, health, and education services. It has been argued that the GATS negotiations provide the South Asian countries with an opportunity to bind in the autonomous liberalisation they have undertaken in the services sector. In particular, it enables them to signal their commitment to liberalisation of FDI policy in services and provide more transparent regimes for foreign participation. In this regard, the South Asian countries have significantly improved upon their earlier commitments, across all modes, and most noticeably in Mode 3. While India and Pakistan have made substantial improvements over their original commitments during the ongoing services negotiations, Sri Lanka has offered only marginal improvement. Nepal has already undertaken relatively liberal commitments during its accession negotiations. Bhutan an acceding WTO member country is also believed to have offered liberal commitments given the size of its economy and the country being an LDC. Bangladesh and the Maldives are the only two South Asian countries that have not so far offered to improve their original commitments. From a few studies done on
CROSS-CUTTING ISSUES AND CONCLUSION 193 Bangladesh, it is evident that Bangladesh has received request from a number of WTO member countries to undertake liberal commitments in various services sectors and the studies have also suggested Bangladesh to undertake commitments given its strong import and export interests in many services sectors including construction and education services. Alongside it ought to improve upon its commitments in tourism services. Thus remains the Maldives about which there is no idea what it is going to offer during the ongoing negotiations. It has been suggested that the commitments by the South Asian countries are on the whole more restrictive than prevailing policies, especially with regard to foreign commercial presence (Chanda 2005). Although the countries in this region have significantly liberalised their FDI policies and in several sectors have even permitted 100% FDI, for the most part, Mode 3 commitments by these countries are partial, with foreign equity being capped at a lower ceiling than that exists in practice. The commitments do not also cover some of those services which have been opened up to foreign participation. Thus, the commitments for the region clearly indicate the failure to lock in existing liberalisation. Mode 4 (Presence of Natural Persons) The area that is of immense significance to all South Asian countries (excluding perhaps Maldives) is Mode 4. India has been leading the negotiations on Mode 4 since the early 1990s in the multilateral trading system. India has invariably been supported by Pakistan in its efforts to seek market access for Mode 4. Sri Lanka has very clearly linked its further opening of the services sector to the satisfactory outcome on Mode 4 negotiations. As a leader of LDCs Bangladesh has always emphasised the need for having better market access for semi-skilled and low-skilled persons. Due to availability of a huge pool of trained and semi-trained workers, Pakistan expects most benefit from such flows. In fact, workers remittances play an instrumental role in the economies of six out of seven South Asian countries. South Asia received a total of but $40 billion of workers remittances in 2006 accounting for about 4% of the region’s GDP. 3 Moreover, for LDCs particularly Bangladesh and Nepal workers remittances account for a major share of their GDP. Workers remittances contribute about 15% to Nepal’s GDP. The total official assistance and aid received by Nepal in 2005 was only about a third of the amount of workers remittances. In Bangladesh, in 2003, the remittance earnings amounted to 46.76% of total export earnings; this volume was equivalent to 5.9% of GDP. Similarly, Pakistan’s remittances at present are recorded at around $ 4 to 5 billion per annum. From the data on labour flows to developed and developing countries from South Asia it is evident that all South Asian countries have a strong interest in exporting labour-intensive services, at all levels of skills. However, there is a need for expanding the category of persons allowed to deliver services and thus less skilled or unskilled service providers through instruments like special visas and authorised recruiting agencies must be allowed. What is however interesting about all south Asian countries regarding Mode 4 is that though they are very much interested in exporting services via Mode 4, all of them have a restrictive regime with respect to movement of natural persons. They have, thus, neither taken liberal commitments under the GATS regime nor have they liberalised this mode autonomously. Due to its dependence on foreign labour the Maldives seems to have a liberal Mode 4 regime in place and India has offered fairly liberal commitments on Mode 4 under the GATS particularly for professionals. Thus expatriates are allowed to work in Nepal if they obtain a work permit and such permits are granted for specialised technical expertise unavailable in Nepal and for key personnel of foreign investors. In all only 632 work permits were to foreigners in 1998–99, 663 in 1999–2000 and 806 in 2000–01. Foreigners other than Indians need a visa to enter Nepal. For India, a valid identification document issued by a government authority is sufficient. A similar restrictive regime exists in Sri Lanka, Bangladesh, and Bhutan. Apart from working on SAFTA the South Asian countries need to take a common position as far as possible under the GATS also. So far only India and Pakistan have submitted some common proposals during the negotiations. Even if other countries’ interests are restricted to a few sectors, still they can have a common strategy that will help them at the multilateral forum as well as at regional level. Construction, health and tourism could be some of the services sectors where this region can have some amount of convergence. Mode wise apart from Mode 4 there could be common interest in Mode 1 as well. What appears from the study is that though the South Asian countries have traversed quite a long 3 Author’s calculations based on the data in South Asia Data Profile, The World Bank, April 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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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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Part II BENEFITS FROM DEEPENING INT
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11 Construction and Related Enginee
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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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