Report

106 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA
and finishing work (CPC 517), and other (CPC 511 +
515 + 518). During the Uruguay Round however India
undertook commitments in only one out of the five
sub-sectors, namely construction work for civil
engineering. Even this sub-sector was not fully covered.
The commitments were limited to Mode 3.
Apart from expanding the scope of commitments
by covering all sub-sectors, the revised offer has also
expanded it modal coverage and has proposed full
commitments in Modes 1 and 2. In the Market Access
column, under Mode 3 the foreign equity ceiling of
51% has been removed thereby making this mode free
from any foreign equity cap. This should also be
considered a major improvement. However, the
establishment would still be only through incorporation
and a new regulation has been added that commercial
presence is subject to the condition that in the case of
foreign investors having prior collaboration in this
sector in India, FIPB approval would be required.
Although Mode 4 remains unbound and refers to the
horizontal section, there is significant improvement
under this Mode too since the horizontal section allows
delivery of engineering, integrated engineering,
architectural, and landscape services through
contractual services suppliers (CSS) – employees of
juridical persons and/or independent professionals (IPs).
The coverage of India’s commitments is thus broader
and deeper and offers a lot of opportunity to other
developing countries for delivery of construction and
related engineering services. India’s Mode 4 horizontal
commitments for independent professionals are
particularly path breaking and would be of immense
economic value to all other South Asian countries.
In the National Treatment column, Modes 1, 2 and
3 are without any restrictions, implying that services
rendered via these modes would be accorded national
treatment. This is good for foreign service providers as
there would be no discrimination between the domestic
and foreign players. However, as in the Market Access
column, Mode 4 is unbound in National Treatment
column and refers to the horizontal section.
In the professional services that are considered
relevant to the delivery of construction services India
had previously committed only one sub-sector, i.e.
engineering services for which Modes 1 and 2 in the
Market Access and National Treatment columns were
unbound and Mode 3 was subject to the foreign equity
ceiling of 51% and the establishment only through
incorporation. However, in its revised offer India has
proposed to undertake fresh commitments in architectural,
urban planning and landscape services and
integrated engineering services. In all these professional
services Modes 1 and 2 in the Market Access and
National Treatment columns have no restrictions at all.
However, under Mode 3 and particularly for architectural,
urban planning and landscape architectural
services apart from the condition that the establishment
would be only through incorporation as partnership
firm constituted by architects and subject to the condition
that in the case of foreign investors having prior
collaboration in these services in India, FIPB approval
would be required. Finally, Mode 4 is unbound and
refers to the horizontal section. Likewise for engineering
and integrated engineering services also there are
requirements under Mode 3 that the establishment
would be only through incorporation and subject to
the condition that in the case of foreign investors having
prior collaboration in these services in India then FIPB
approval would be required. As usual, Mode 4 is
unbound except as in the horizontal section.
There are a few points worth mentioning here. The
first is that though India has removed the foreign equity
ceiling of 51%, this is now subject to the condition
that in the case of foreign investors having prior
collaboration in this sector in India, FIPB approval
would be required. On the face of it, it does not appear
a major restriction, as the FIPB is just another route
through which FDI enters though not automatic. But
the moot question is why a company which has already
invested should be asked to pass through a nonautomatic
route whereas a fresh investor would have
signal free entry. As the stipulation suggests the same
investor who as a fresher did not face any barriers now
would have to undergo a screening procedure of the
FIPB. Foreign investors will certainly consider it as a
barrier and India may have to rethink over it. This is
also technically problematic. According to GATS, as a
member country can only improve its existing
commitments, it is not expected to inscribe any
additional barriers of whatsoever nature and this might
be treated as a new barrier. Though in certain
circumstances a member can add restrictions, this can
be done under other provisions of GATS.
The second point is that though India has offered
a relatively liberal market access environment under
Mode 4 for the supply of engineering, integrated
engineering, architectural and landscape services, the
level of services allowed is still relatively high and unless
the skill level is brought down other South Asian countries
may not fully exploit the Indian market. A large
number of Indian workers such as carpenter, electrician,
fixer/fabricator, foreman, mason, mechanic-AC,