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CONSTRUCTION AND RELATED ENGINEERING SERVICES 109<br />
foreign equity ceiling of 51%; services shall be supplied<br />
by a natural person or by a registered firm having local<br />
partners in majority or in case of a company, 70%<br />
holding of Pakistani nationals; and economic needs test<br />
(ENT) based on inquiry to gauge if direct or indirect<br />
government subsidy is being provided.<br />
Burki and Hussain (2007) suggest that Pakistan<br />
maintaining market access restrictions on Mode 3 seem<br />
to have been designed to protect small players from<br />
foreign competition and to avoid displacement of<br />
domestic construction workers since foreign players<br />
would have comparative advantage in using more<br />
mechanised constructions with highly skilled workforce.<br />
However, they argue that shielding all local<br />
players (both small and large) from foreign competition<br />
by giving them a blanket cover may not be justified.<br />
Out of the three professional services inscribed in<br />
the Pakistani initial offer that are closely interconnected<br />
with the construction sector architectural services<br />
appear to be the most restrictive. The commitments<br />
proposed in the National Treatment column also carry<br />
many limitations – while Mode 1 has been kept<br />
unbound, Mode 3 is subject to fulfillment of all<br />
requirements and conditions applicable only to foreign<br />
investors/juridical entities and Mode 4 is unbound<br />
except as indicated in the horizontal section where<br />
though there are no limitations. Besides, all four modes<br />
– 1, 2, 3, and 4 – are unbound for subsidies. The overall<br />
picture that emerges from the above is not very bright<br />
and Pakistan needs to further improve its initial offer.<br />
The construction and related engineering services<br />
sector represents the fundamental activity in Pakistan<br />
that permeates all economic sectors and thus constitutes<br />
the single largest sector. It is thus not surprising that<br />
Pakistan has received the request from a number of<br />
WTO members to liberalise the sector. Burki and<br />
Hussain suggest that the request substantially covers<br />
subsectors from CPC 511 to CPC 518 (Burki and<br />
Hussain 2007). It specifically demands the elimination<br />
of any limitation (market access and national treatment)<br />
in Modes 1, 2 and 3. The request, however, does not<br />
cover movement of natural persons (Mode 4) limitations<br />
in the construction sector. Moreover, the request<br />
also deals with removal of some national treatment<br />
limitations pertaining to discriminatory registration and<br />
licensing procedures meant for foreign firms.<br />
Similarly, Pakistan has received a collective request<br />
to liberalise the architectural, engineering and<br />
integrated engineering services. The coverage of this<br />
request and the subsectors are: CPC 8671: Architectural<br />
services; CPC 8672: Engineering services; and CPC<br />
8673: Integrated engineering services. In Mode 4 the<br />
request is for commitment in all categories with a special<br />
emphasis on contract service suppliers. Finally there is<br />
a request for removal of limitations regarding economic<br />
needs tests (ENTs) (across all modes).<br />
Other Restrictions: According to the State Bank of<br />
Pakistan, in 2006–07, the construction industry in<br />
Pakistan grew by 17.2% (State Bank of Pakistan 2007).<br />
This was not only higher than the 7.0% target, but<br />
was also the second highest growth recorded by this<br />
sub-sector since 1975–76. The resurgence is mainly<br />
attributed to higher development expenditures by the<br />
government, increased FDI in the construction sector<br />
and, record worker’s remittances. The sustained growth<br />
in the construction sector is important from its strong<br />
backward linkages with a number of industries and<br />
employment generation. In addition, construction also<br />
generates a range of employment opportunities from<br />
unskilled workers to architects. Although the<br />
construction sector has only a 2.3% share in Pakistan’s<br />
GDP, its share of the employed labor force was<br />
disproportionately large at 6.1% in 2006–07. In 2004–<br />
05, the sector accounted for about three percent of the<br />
total FDI inflows into Pakistan.<br />
In 2006–07, exports of construction services by<br />
Pakistan were valued at merely $16 million whereas<br />
imports were at $143 million (Burki and Hussain<br />
2007:18). This shows that though Pakistan has some<br />
capability of exporting construction services, it is indeed<br />
an important importer in the region. A recent study on<br />
Pakistan includes construction and related engineering<br />
services suggests that this sector is a potential import<br />
as well as export interest to Pakistan (Burki and Hussain<br />
2007). Growth in this sector is critical for growth in<br />
national income and employment in the country. Hence<br />
its mainstreaming would help achieve national<br />
development goals. However, they argue that majority<br />
of constructors are small players who have weak financial<br />
positions, outdated labour-intensive technology and<br />
poor organisational structures and vision for growth<br />
and development. They are highly vulnerable to foreign<br />
competition. Most constructors have comparative<br />
advantage in small commercial buildings, small bridges<br />
and roads. It has been suggested that only a few<br />
sophisticated firms specialise in large earthwork and<br />
large construction work for civil engineering. While<br />
modernisation of this sector with entry of foreign firms<br />
may enhance efficiency and service quality in this sector,<br />
but the likely injury to small players would be a major<br />
challenge for the negotiators.