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110 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA Some large sophisticated firms are also present in the construction sector that compete internationally due to specialisation and cost effectiveness, especially in the Middle East. The comparative advantage of these firms mostly lies in cheap skilled and unskilled labour, and experienced engineers who have previously worked for multinational companies in Pakistan or abroad. Two most significant factors that are linked with the success of these companies are (a) acceptability of engineering qualifications of engineers educated in Pakistan and (b) unrestrained flow of temporary movement of natural persons. If Pakistan is to gain from the ongoing negotiations in the Doha Round then its stand in the construction sector should be built around these factors. Since Pakistan’s comparative advantage lies in cheap labour and its pool of experienced professionals, Pakistan may not be able to effectively compete on foreign turf in the absence of Mode 4 clause while service providers from requesting Members are likely to gain from this clause. State of Liberalisation Market access for commercial presence is fairly open to bid for government contracts. In this regard, several Chinese public or private sector companies, Turkish companies and Korean companies have from time-totime operated in construction or civil engineering works (Burki and Hussain 2007: 26). Entrance of foreign construction and engineering firms has enhanced competition in their bid for mega projects. Moreover, various foreign companies of the Middle East or South East Asia origin are also involved in developing real estate projects in association with some Pakistani companies due to joint venture restrictions. Ironically, the study suggests that the policies relating to construction services come from various line ministries, departments and regulatory bodies. For example, the Ministry of Works is mandated to oversee most construction and engineering related legislation and to initiate policies after interministerial consultations. However, the Pakistan Engineering Council (PEC) is the regulatory body established by the Act of Parliament of Pakistan in 1976, which regulates engineering education, gives certification to professional engineers and advises government on all engineering and construction related issues. Moreover, all construction and engineering related firms are required to be licensed by PEC to operate in the country. PEC registers constructors and operators into three categories namely, C1, C2 and C3, which are based on the minimum paid-up capital requirement indicating a firm’s sound financial and technical capacity. From more than 24,000 constructors and 88 operators registered with PEC, only close to 600 qualify to the C1 category (largest contractors/operators) on the basis of a benchmark of Rs.20 million average annual value of work undertaken during the past three years. The foreign engineering consultancy service providers are also subject to the regulations of PEC. The Pakistan council of architects and town planners (PCATP) is another governing body established by the government to regulate the profession of architecture, which not only sets standard of conduct for its own members, but also advises government on architectural issues facing the industry. Even though there are no solely owned foreign architectural firms in Pakistan, JGC-Descon is a joint venture company of Descon Engineering with a leading Japanese company geared up to produce engineering and architectural designs for the global market. Foreign architectural firms seeking market access into Pakistan are subject to the condition of registration with PCATP. At another level, the construction and architectural services are subject to the by-laws of local governments. Hence each city district development authority has its own independent regulatory body to regulate construction plans and designs in their jurisdiction. But, there is no consistency in rules and regulations across cities due to lack of coordination between the federal and local governments. In addition to the above, the national highway authority is mandated to regulate construction of highways and elevated highways all over the country. Further, the Pakistan housing authority in the ministry of works formulates policies for the development of housing industry. In sum, the study suggests that construction work processes are generally too primitive and they need to change as soon as possible. Current regulations governing construction, engineering and architectural engineering services have several tiers. These regulations are highly diversified and their implementation is mostly lax in nature. Pakistan needs to revamp its multi-tiered regulatory framework in construction, engineering and architectural sectors before this sector is ready to cope with the risks of liberalisation. Pakistan’s regime is typical of those countries that have a federal structure. Although many of the limitations emanating from this kind of system may take a lot of time and energy to remove such limitations, what could be immediately done is to take wider and deeper commitments in construction and all related professional services. In this regard, particularly
CONSTRUCTION AND RELATED ENGINEERING SERVICES 111 important is to remove restrictions under Modes 3 and 4. Under Mode 3 there are some companies from the region already involved in providing construction services in collaboration with local partners. Further liberalisation in commercial presence will increase the possibility of trade in construction services at regional level. Similarly, Mode 4 needs to be made quite open by allowing entry of even low and semi-skilled workers from the region. Pakistan being the second largest market in South Asia all other countries would look at it for seeking market access for their workers. Finally there is no reason why there should be any restrictions on Mode 1. This is the mode in which India, Sri Lanka, Bangladesh and Nepal would be interested in the Pakistani market. At the same time Pakistan would be equally interested in this mode. Therefore, it would be in Pakistan’s interest if it removed all restrictions from this mode. Sri Lanka Sri Lanka undertook very limited commitments and in a few services sectors during the Uruguay Round. In fact, its sector specific commitments cover only three sectors, namely, tourism and travel related services, financial services, and telecommunications services. However, its horizontal commitments under Mode 3 indicate that foreign investors may invest in Sri Lanka in any sector other than the following: moneylending; pawn brokering; retail trade with a capital of less than $1 million; businesses providing personal services other than for export of tourism; and coastal fishing. This implies that foreign investors have not been prevented from investing in the Sri Lankan construction and related engineering services sector. This has further been clarified by the provision inscribed in horizontal commitments that foreign investment of up to 40% of equity in a company proposing to carry on a business activity listed below will be automatically approved by the BOISL and foreign investment in excess of 40% (and up to 100%) will be approved by the BOISL on a case-by-case basis in consultation with the relevant state agencies. The relevant sectors are the following: construction and residential buildings; mass transportation; telecommunications; mass communications; education; professional services; freight-forwarding; travel agencies; shipping agencies. This situation will be reviewed every two years with the aim of further simplification. Further, a provision has been made that if a foreign investor incorporates a company in Sri Lanka under the Companies Act and buys land in the name of the company, there will be no liability otherwise if a foreign individual buys land then s/he will be liable to pay a tax at 100% of the purchase price. There is one more provision in the horizontal section suggesting that in the relevant sectors when a joint venture partner is a public sector enterprise, while granting access, preference will be given to foreign service suppliers/ entities, which offer the best terms for transfer of technology. As regards Mode 4, the horizontal section stipulates that movement of natural persons is subject to Sri Lankan laws on immigration, consumer laws, and other relevant laws and regulations. Thus foreigners, who intend to work or to conduct business in Sri Lanka, shall have to obtain the relevant work permits in addition to complying with the immigration requirements. In light of the above provisions, it is clear that foreign investors can invest in the construction and related engineering services sector subject to the limitations inscribed in the schedule. However, this poses several problems. Lack of sectoral commitments in the sector implies that Sri Lanka has not given the due importance the sector deserves The construction sector in Sri Lanka accounts for 7% of GDP and posted strong growth rates in 2005–06, largely due to tsunami reconstruction projects (US Department of State 2007). Also, it can only be assumed that there are no commitments in Modes 1 and 2. Particularly, Mode 1 is a fairly significant mode for delivery of various services in the construction sector. Similarly, there are no sector specific commitments under Mode 4 and those, which are inscribed in the horizontal section, do not make things easier as all immigration rules and regulations apply. Same view can be expressed regarding the commitments on professional services. Thus one can only assume that all professional services can be supplied but only through Mode 3. Overall, what appears from the Sri Lankan schedule is that the commitments in the sector are not only restrictive but also ambiguous. Although Sri Lanka has submitted its initial offer as part of the requirement of the ongoing round of services negotiations, its offer has not been made public. However, as already noted in the previous chapter, Sri Lanka has not included the construction services sector in its initial offer. In consequence, the sector remains one of the most restrictive under the GATS regime. Sri Lanka being an important market in the region, non- Sri Lankan South Asian service providers may be affected by not having a liberal regime in that country.
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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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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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