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98 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA requests on improved conditions for temporary movement of natural persons for purposes of supplying services and cross-border supply of services, among others. Apart from India Pakistan is another country from the region that has offered commitments in all three sectors – construction, education and tourism. In construction and education services Pakistan has strong import interests and thus offers an opportunity to other SAFTA member countries to supply these services. In tourism services the country has both export as well as import interests. Overall it appears that lack of adequate capital and skilled manpower is hampering the expansion of supply capacity of the country in these services. Pakistan has undertaken some reforms to liberalise its FDI regime in the services sector which has shown good results in attracting FDI. Pakistan being the second largest market in the region is of great value to other south Asian countries. In addition, Pakistan also needs to explore opportunity in order to export services in the region. Sri Lanka The services sector has emerged as the most important contributor to the output of the economy and employment in Sri Lanka, accounting for over 55% of GDP and 44% of total employment. Key services sectors contributing to the economy are tourism, telecommunications, banking, insurance, shipping and air transport (CUTS 2007). Considerable liberalisation has taken place over the last two decades on a unilateral basis than under the auspices of the GATS framework. Sri Lanka has made commitments in only three services sectors under the GATS in tourism and travel services, financial services and telecommunication services. In the ongoing GATS negotiations at the WTO, Sri Lanka has so far not made any substantial improvement in its existing commitments perhaps due to the limited number and low quality of market opening offers it has received. Sri Lanka has submitted its request list to various countries mainly in professional services, computer-related services, health related and social services, transport services and services auxiliary to all modes of transport. Sri Lanka’s primary focus in GATS negotiations like many other developing countries is to negotiate commitments in Mode 4. In return, Sri Lanka has also made an initial offer in telecommunications, financial services and tourism on the basis of existing level of liberalisation. Sri Lanka appears to have taken the position that if it makes any new or improved offers for further liberalisation of services, this will be done on the basis of the prevailing level of liberalisation. As it took very limited commitments during the Uruguay Round, overall, Sri Lanka’s services trade regime seen from the GATS angle paints a very restrictive and conservative picture. It has huge interest in the liberalisation of services like construction and education. However, unless it offers meaningful commitments it may not be able to obtain market access in the desired sectors. At a regional level Sri Lanka is a significant market and some of its services are of high standard. As an island country it has a relatively developed maritime transport system and it can play an important role in services trade at the regional level. Its desire to negotiate an agreement with India on services only substantiates the point that its services have reached a certain level where it can have some arrangement with India. At the same time, this indicates that while Sri Lanka may not be willing to undertake liberal commitments at a multilateral level it may do so at the regional level. The level of its engagement with India in services trade further reinforces the point as Sri Lanka is already an important trading partner in tourism, construction and education services. Sri Lanka is also engaged in services trade with other South Asian countries. Bangladesh The services sector has become the largest contributor to the GDP in Bangladesh. Currently its share in GDP stands at 57.50%. Wholesale and retail trade constituted 14.12%, transport, storage and communication contributed 10.01%, real estate, renting and other business activities accounted for 8.14%, community, personal and social services accounted for 7.52% (Bangladesh’s TPR 2006). However, its share in the country’s total employment was only 34.75% in 2004–05. Workers’ remittances contribute significantly to the economic development of the country by reducing unemployment and augmenting foreign exchange reserves and income. In 2004–05, the remittances from expatriate Bangladeshi workers as percent of GDP and commodity export stood at about 6.43% and 44.47% respectively. Although services account for more than half of Bangladesh’s GDP, inefficiencies and shortages in essential services hamper economic growth (Bangladesh’s TPR 2006). Trade in services only amounts to 5–7% of the country’s total trade in goods. The trade deficit for commercial services is between
T RADE IN SERVICES AND SOUTH ASIA: AN OVERVIEW 99 20–40% (Raihan and Mahmood 2004:6). Growth rates for trade in services fluctuated between 2000 and 2003. Between 1994 and 2003, services sector growth in Bangladesh exceeded overall GDP growth (Ibid: 5). Nevertheless, Bangladesh maintains one of the most liberal FDI regimes in South Asia, with no limits on foreign equity participation (Bangladesh’s TPR 2006). Possibly due to ‘a better enabling investment environment’ and reduction of investment expenditure (cost), annual FDI inflows into Bangladesh grew almost ninefold during 2002–04, increasing from $52 million to $460 million and outflows were $3 million and $4 million. Since the beginning of the 1990s, Bangladesh has adopted a number of policies to facilitate the expansion of the private sector and increase the inflow of foreign investment (UNCTAD-ICC 2000). The private sector is recognised as the engine of growth. Foreign companies are welcome. As already noted, the country offers perhaps the most liberal FDI regime in South Asia, with no prior approval requirements or limits on equity participation or restrictions on the repatriation of profits and income. UNCTAD-ICC also suggest that while discussing the investment climate in Bangladesh one of the weaknesses of the Bangladeshi economy is that it has low levels of skills and training in the workplace implying that foreign investors have an opportunity to invest in education and training (UNCTAD-ICC 2000). Similarly, it has been suggested that inadequate infrastructure provides immense investment particularly in the construction industry. This indicates that Bangladesh has strong import interest in both education and construction services and liberal commitments in these services would help the country meet the requirements of the economy. In Bangladesh, computer and related services, telecommunications, distribution services, life insurance and maritime transport services generally enjoy a positive balance of trade. Conversely, the following subsectors have shown a negative trade balance since 1999: rental and leasing services without operators; construction and related engineering services; education services; health-related and social services; tourism and travel-related services; news agency services; research and development services; and air transport services. Bangladesh’s import of tourism and travel-related services surpassed exports by $32.33 million. At $25.83 million, the deficit in the education sector is also comparatively high. Overall, the level of trade in commercial services in Bangladesh remains low. In the context of the ongoing services negotiations at the WTO, Bangladesh has not yet submitted its initial offer and the Uruguay Round commitments it has undertaken are limited to tourism. In fact, during the Uruguay Round, Bangladesh had undertaken commitments in just one sub-sector covering five star hotels and lodging services under tourism sector. Later in 1998, it also undertook commitment in telecommunications. However, as the paper argues, Bangladesh has strong import and to some extent exports interest in construction and education services and accordingly, it ought to undertake commitments in these services. Alongside, it needs to make wider and deeper commitments in tourism services as well. Nepal Nepal acceded to the WTO in 2004. As a result of the accession negotiations it has undertaken relatively liberal commitments in a number of service sectors. From GATS point of view, Nepal offers perhaps the most liberal services regime in South Asia. This assumes greater significance considering the fact that Nepal is an LDC. Nepal has undertaken commitments in all the services sectors being discussed here. Nepal however suffers from a variety of problems that commonly beset poor countries at an early stage of industrialisation (UNCTAD-ICC 2003). Skills and productivity in the workforce are at a low level. Infrastructure is insufficient and poorly maintained. There are also policy areas that need attention. One example is the labour law, which is widely seen in the business community as excessively restrictive. Services account for barely 39% of Nepal’s GDP which is only slightly higher than that of Bhutan’s GDP. The tourism and travel related service sector appears to be the area of its strength in services as the country has spectacular natural and cultural assets. Thus, while in tourism Nepal has strong export interest, in construction and education services it has import interests. Being a landlocked poor country any attempt to upgrade the state of its infrastructure will have economy-wide positive implications. Hence, attracting investment in the construction sector will be highly beneficial. Similarly, as the paper argues, in view of low skill level of the labour force, Nepal has to invest huge sums of capital to revamp its education commensurate to the requirements of its economy. In recent years Nepal has been moving towards creating a more hospitable environment for foreign investors (WIR 2004). In 1992, the government introduced a new policy on FDI and instituted a ‘one-
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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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14 Health and Related Services 1 IN
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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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