Trade in Services

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Regional Potential for Trade in Services: Pakistan's Perspective

Presentation at Ministry of Commerce by Dr. Vaqar Ahmed, Deputy Executive Director at Sustainable Development Policy Institute

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  • ZafarMahmood 2012, Gulzar 2011: A strategic framework of liberalizing trade in services for Pakistan. Paper presented at the 27th Annual General Meeting of Pakistan Society of Development Economics, December 13-15, Islamabad.
  • Source: SamanKelegama’s presentation at 5th South Asia Economic Summit
  • Source: SamanKelegama’s presentation at 5th South Asia Economic Summit
  • Source: SamanKelegama’s presentation at 5th South Asia Economic Summit
  • Source: Pranav Kumar’s Presentation at CUTS Centre for International Trade, Economics & Environment, India
  • Source: Pranav Kumar’s Presentation at CUTS Centre for International Trade, Economics & Environment, India
  • Source: Presentation by Mia Mikic, UNESCAP
  • Source: Pranav Kumar’s Presentation at CUTS Centre for International Trade, Economics & Environment, India
  • Source: Dr. ZafarMahmood’s Paper presented at 5th South Asia Economic Summit
  • Trade in Services

    1. 1. Regional Potential for Trade in Services Pakistan’s Perspective 1
    2. 2. • Current Trends and Competitiveness • Pakistan, South Asia and Services Sector • SAARC Agreement on Trade in Services • Policy Recommendations: 5th South Asia Economic Summit Outline
    3. 3. Pakistan Services Trade Balance (2012) Thousand USD Sectors Exports Imports Balance Transportation 1,503,388 3,509,983 (2,006,595) Travel 369,028 1,367,220 (998,192) Communications 211,957 178,906 33,051 Construction 24,697 62,330 (37,633) Insurance 88,789 279,065 (190,276) Financial Services 53,935 106,977 (53,042) Computer & IT 248,013 164,055 83,958 Royalties 7,135 150,888 (143,753) Business Services 813,120 1,554,601 (741,481) Recreational Services 4,084 3,168 916 Government Services 1,710,904 849,983 860,922 Total 5,035,050 8,227,175 (3,192,125) Source: State Bank of Pakistan
    4. 4. RCA Index by Category of Export of Services Year Transp ort Travel Comm Const. Insur. Finan. IT Royalt y & Lice. Fee Other Busin. Pers. & Cult. Govt. Serv. 2006 2007 2008 2009 2010 2011 1.52 1.21 1.20 1.41 1.56 1.46 0.32 0.32 0.32 0.30 0.28 0.28 1.93 1.38 0.86 2.92 9.54 8.36 0.34 0.60 0.32 0.14 0.06 0.02 0.28 0.42 0.69 0.43 0.26 0.41 0.21 0.16 0.13 0.29 0.61 0.56 0.56 0.66 0.79 0.81 0.81 0.93 0.19 0.11 0.10 0.01 0.00 0.06 0.50 0.44 0.41 0.44 0.45 0.42 0.02 0.04 0.06 0.04 0.03 0.04 14.16 16.17 18.36 15.30 12.53 14.07 Average 1.40 0.30 4.17 0.25 0.41 0.33 0.76 0.08 0.44 0.04 15.10 Source: Gulzar, A. (2011) Pakistan’s export competitiveness in transport is increasing over time. In communications and government services, it is very high and is increasing as well. In financial services competitiveness is weak but gradually improving.
    5. 5. Pakistan & South Asia
    6. 6. 0 10 20 30 40 50 60 70 80 90 2002200320042005200620072008200920102011 %Share Share of Services in GDP Afghanistan Bangladesh Bhutan Maldives India Pakistan Nepal Sri Lanka -20 -15 -10 -5 0 5 10 15 20 25 30 2003 2004 2005 2006 2007 2008 2009 2010 2011 %Share Growth in Services Sector Afghanistan Bangladesh Bhutan Maldives India Pakistan Nepal Sri Lanka 0 5 10 15 20 25 30 35 40 45 50 %Share Share of Transport in Services Afghanistan Bangladesh Bhutan Maldives India Pakistan Nepal Sri Lanka
    7. 7. SAARC Agreement on Trade in Services • Signed in 2010 • Based on ‘Positive list’ approach and ‘GATS Plus’ • Evidence indicates: – South Asia has more complementarities in services – Trade imbalance with India will be lower • Current progress very slow
    8. 8. SAARC Agreement on Trade in Services • Reasons for slow progress – Political buy-in still needed for services sectors – Apprehensions regarding takeover of local jobs – Security, law and order implications
    9. 9. Related Agreements • Some progress – Agreement on avoidance of double taxation – SAARC Arbitration Council
    10. 10. Major Interests in Negotiations • India – Mode 1, 2 & 4 • Sri Lanka and Nepal – Mode 2 & 4 • Pakistan and Bangladesh – Mode 4
    11. 11. South Asia: Major Hurdles under Mode-4 • Lack of interaction between sectoral associations • Prohibitive visa regimes • Lack of mutual recognition of professional qualifications • Imposition of discriminatory standards or burdensome licensing requirements • Payment of social security without corresponding benefits • Requirement of registration with or membership of professional association • Definitional issues under Mode-4 prevent comprehensive data collection
    12. 12. Barriers to Services Trade Market Access Supplier Transa ctions Operati ons Natural Persons Legal Entity Foreig n Capital National Treatment Tax Measures National Require ment Residency Registrat ion Authoriz ation Titles
    13. 13. Pakistan: Incentives for Export in Services • 35% of export proceeds can be held in foreign currency accounts in Pakistan. • A number of sector-specific schemes also assist export of services. For instance, exports of computer software and IT-related services are exempted from income tax until 2016. • A separate cell is established at the Trade Development Authority of Pakistan (TDAP) to function as a facilitator between the services sector and various arms of the government. • To support services industry, a Services Export Development Fund is being established
    14. 14. Recommendations • Ministry of Commerce should lead mode-specific strategies Need to expand trade in services especially under GATS Mode-1 (cross-border), Mode-4 (temporary movement of natural persons), and by attracting more foreign investment (Mode-3)
    15. 15. Recommendations • Pakistan Paper on Mode-4 A group of developing countries including Pakistan has tabled a paper on Mode-4. This paper mentions how developed countries can make Mode 4 commitments despite security illegal immigrant issues.
    16. 16. Recommendations • Improving the supply side Need for addressing bottlenecks identified in Framework for Economic Growth (Planning Commission), excessive regulatory controls and labor market rigidities While we stress upon policies for agriculture and industry, there are no defined policies having ownership at federal level in services sectors
    17. 17. Recommendations • Synchronizing strategies on services trade & FDI Currently little coordination seen between Ministry of Commerce and Board of Investment. Need for synchronizing incentive measures under services trade and FDI. Many service providers will require physical presence.
    18. 18. Recommendations • State monopolies hurting services trade Pakistan’s key services sector’s transport, construction, retail and wholesale, warehousing being hurt by state monopolies. Several cases already pending with Supreme Court and Competition Commission of Pakistan
    19. 19. Recommendations • Take a lead on SATIS Pakistan is positioned to have relatively greater gains from SATIS given its geo-strategic importance. Key sectors that will gain include, transport, communication and warehousing. Some minor sectors that will gain include religious tourism and IT. Sectoral associations should be encouraged to take lead
    20. 20. Recommendations • Intra-regional Trade & India Pakistan neighbors with two largest trading players in the world i.e. China and India. Arguments that allowed FTA to China should also allow liberalized trade with India. Greater economies of scale are possible through supply chain linkages with India’s transport, communication, warehousing and financial sectors. Possible energy trade with India also has forward linkages with services trade.
    21. 21. vaqar@sdpi.org www.sdpi.org, www.sdpi.tv 22 Thank You

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