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130 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA tourism studies was established at the Institute of Higher Education to develop trainees for the tourism industry. According to the World Bank, Maldivian workers follow extensive training programmes, since there is a perception that quality of service is important. The industry is addressing quality in several ways. First, the faculty of hospitality and tourism studies in the Maldives College of Higher Education, in partnership with the Birmingham College of Food, Tourism and Creative Studies, is working hard to improve training for the industry. In turn, the EdExcel Foundation in the United Kingdom approves standards. The World Bank further adds that the resort chains in the Maldives are also sponsoring training in the country as well as overseas. The companies consider human resource development critical. There is a high level of training, with more than half of the staff having received training on the job. External training is particularly high and, indeed, many firms do send their employees overseas for training (often to Singapore). Unskilled employees, however, receive less training and this is probably where more emphasis should be given. The tourism industry relies heavily on foreign labour; some 45% of workers are expatriates. In order to overcome the obstacle relating to the shortage of skilled labour the Maldives should undertake commitments under Mode 4 both in tourism and education services. While foreign-skilled labour in the tourism industry can help sustain the high growth rate, in the long run it should develop its education system in such a way that it produces sufficient skilled labour for its tourism industry. Thus liberalisation of these two sectors – tourism and education – for the movement of various categories of persons seems crucial for the Maldivian economy. In tourism education there is an urgent need to develop collaborative arrangements between the Maldives and other South Asian countries for providing education and training to tourism professionals. Moreover, at a lower skill level, workers employed in the Maldivian tourism industry need training which could also be provided by South Asian countries. Thus it could be suggested that the Maldives should undertake commitments in all sub-sectors of the tourism sector. This will help in meeting its demand and also enable it to sustain the high growth rate. As it currently lacks the required capacity to deal with WTO negotiations, it may find it easier to be engaged in regional negotiatioins that will also help it multilateralise its regional commitments if it so desired in due course of time. Summary of Restrictions in the Maldivian Tourism Sector • No commitments in the tourism sector- neither sectoral nor horizontal • Access to finance • High cost of finance • Access to land • Shortage of skilled labour • All non-Maldivian citizens (unless holding a resident permit) staying in registered tourist resorts, hotels, guesthouses, and tourist-accommodating vessels pay the bed tax may be considered a nontariff barrier. In addition, it is a flat rate, the ad valorem incidence of the levy, which depends upon the room rate, falls more heavily on the cheapest resorts. Bhutan In its offer on services as part of accession negotiations Bhutan has proposed to undertake commitments in only one of the four sub-sectors of tourism – hotel and restaurant services. Thus its proposed commitments cover hotels and restaurants (excluding nightclubs) (CPC 641), food serving services (CPC 642), and beverage serving services for consumption on the premises (CPC 643). In the committed sub-sector under Market Access column, Bhutan has no restrictions under Modes 1 and 2 and under Mode 3 establishment would be limited to hotels with maximum capacity of 50 rooms in urban areas and a maximum capacity of 15 rooms in rural areas. Mode 4 is unbound and refers to the horizontal section. In the National Treatment column Modes 1, 2, and 3 are without any restrictions and Mode 4 is unbound except as in the horizontal section. In the horizontal section under Mode 3 Bhutan has allowed FDI with minimum size of foreign investment of $0.5 million and foreign equity limited to 70%. Also the business has to be incorporated in Bhutan. In the National Treatment column foreign investors are required to foster transfer of technology, introduction of management skills and provide training and employ Bhutanese nationals at all levels in the enterprise. In addition, the shares held by foreign nationals and juridical persons in locally incorporated companies are not transferable without permission by the government of Bhutan. From the analysis of the Bhutanese offer in services it appears that its commitments are limited to just one sub-sector of the tourism sector. In the committed sub-
T OURISM AND TRAVEL RELATED SERVICES 131 sector too there are quite a few restrictions under Mode 3 and Mode 4 is unbound. Overall, the picture emerges that the tourism sector in Bhutan is restrictive. According to ESCAP, Bhutan enjoys an exceptional comparative advantage in the tourism sector due to its unique culture and pristine natural environment (ESCAP 2003). The tourism sector is the single largest source of convertible currency earnings, with significant backward linkages in the economy and potential for employment generation. The sector was liberalised in 1999 and currently there are about 300 tour operators. However, it is unbalanced with more than 50% of the market share dominated by the top six travel agencies. Currently, this sector provides direct employment to 500 regular employees and over 2,000 temporary workers. Number of tourist arrivals has grown at a rapid rate of over 25% per annum during 2003–06 and in 2006 about 18,000 tourists visited Bhutan which was three times higher than that in 2002. Average length of stay of eight nights is also high by international standards and total tourism receipts in 2006 were about $24 million three times higher than that in 2002. Following a ‘high value, low volume’ tourism policy, the government administers tariffs in the tourism sector ranging from $165 in the low season to $200 in the high season per person per day. This tariff is inclusive of food, lodging, transport and guide services. The tour companies must pay 35% of the daily tariff to the government as royalty fees. The convertible currency receipts of the tour operators are channeled through the royal monetary authority, which retains the convertible currency and pays the (ngultrum – the Bhutanese currency) equivalent to the tour operator. Foreign investments in the tourism sector are limited to the hotel or resort construction sector, as tour operators’ licenses are restricted to Bhutanese nationals only. ESCAP suggests that foreign investment in this sector will help to improve the quality of services in the hospitality industry as well as allow investments in hotels of higher standards. Partnerships with foreign companies will also boost the marketing efforts of the local companies in the foreign countries. However, under GATS, the tourism sector liberalisation also includes the opening of distribution marketing and sales of tourism-related services. With liberalisation, Bhutan’s large tour companies could effectively monopolise the industry through partnerships with major international companies that control tourism-rated sectors including hotels, airline reservation, information systems, thereby reducing the market share of the small tour companies. Other countries could challenge the administered tariff system as being a non-tariff barrier. The onus will be on the government to prove that such a tariff is a necessary safeguard measure consistent with WTO membership. Furthermore, as foreign companies will want to repatriate profits earned in convertible currencies, Bhutan cannot restrict the profit repatriation of such currencies. The cultural and environmental policies of Bhutan could be also be undermined if the large foreign companies and their influential local counterparts, if any, place pressure on the government to open more areas for mass tourism (ESCAP 2003). Against this backdrop, it could be suggested that undertaking wider and deeper commitments at the WTO level would be a bit problematic for a tiny country like Bhutan. However, the SAFTA provides Bhutan with a better forum where it can liberalise as much as it could. Summary of Restrictions in Bhutan’s Tourism • Commitments limited to only one sub-sector of the tourism sector • Foreign equity ceiling of 70% and minimum amount being $0.5 million • Tour operators licences restricted only to Bhutanese nationals • Movement of foreign workers highly restrictive • Administrative tariff system could be challenged as being a non-tariff barrier. CONCLUSION AND SUGGESTIONS Discussion in this chapter suggests that the tourism is an important sector particularly in view the spillover effects this sector has on various other sectors of the economy. If properly nurtured, the sector can provide immense employment opportunities to the South Asian region. However, since the region fares quite badly in regard to receiving foreign tourists, the South Asian countries must take some drastic measures so that the tourism industry grows at a rapid pace. Regional integration in this regard could provide a big fillip to the growth of the sector. Tourism largely depends on the performance of other sector and it is a very sensitive business as if get affected by even a small incident. Though all issues cannot be addressed by regional integration, there are quite a few barriers that can be removed provided the region as a whole makes concerted efforts.
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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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9 Quantification of Benefits from T
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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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