PART II
GATS AND GENERAL IMPLICATIONS

By Sh. Yousaf Haroon
Feb 02 - 15, 2004

TRADE RESTRICTIVE MEASURES IN GATS

ECONOMIC NEEDS TEST

Economic needs tests have been identified as a barrier to market access under Article XVI on Market Access of the WTO General Agreement on Trade in Services (GATS).

However, neither the definition of an economic needs test, nor the rules, criteria or procedures for its application were elaborated. As a result, economic needs tests may have a more or less distortive impact on trade depending on the manner in which they are implemented. At the same time, legal provisions are absent in the GATS to challenge any rejection on the basis of the economic needs test. This also limits the possibilities for comparison of the scope of needs tests among countries.

Though economic needs tests are scheduled with respect to all GATS modes of supply of services, i.e. cross-border trade (mode 1), consumption abroad (mode 2), commercial presence (mode 3) and presence of natural persons (mode 4), the last of these is the one most frequently subjected to tests, whether the service concerned is supplied under mode 4 or in conjunction with mode 3. Thus, the presence of economic needs tests remains a major trade barrier to the movement of natural persons as service suppliers.

Transparency is a prerequisite to being able to assess existing trading opportunities, but economic needs tests make this process less predictable and stable and more burdensome. The main issue is how to decrease the degree of subjectivity associated with economic needs tests.

GATS AND IMPLICATIONS FOR PAKISTAN

Pakistan is a founding member of the GATT and it had actively participated in all its nine (9) rounds of multilateral negotiations. Despite its initial reservations on the inclusion of some non-traditional areas in the Punta del Esta mandate of September 1986, the country had made its contribution in the successful conclusion of the Uruguay Round Agreement (URA) and on 15th April 1994 it was one of the 125 member governments who signed the Marrakash deal which established the WTO.

Initially, Pakistan made comprehensive initial commitments (as illustrated in Table 3a & 3b) wide Document No. MTN.GNS/W/170 of 20th September in 1993. It covered 20 services activities which fall under 5 service groups.

TABLE 3(A): PAKISTAN'S SECTOR SPECIFIC COMMITMENTS SCHEDULED ON 20TH SEPTEMBER, 1993

SECTOR OR SUB-SECTOR

LIMITATIONS ON MARKET ACCESS

LIMITATIONS ON NATIONAL TREATMENT

(A) BUSINESS SERVICES:

1. Services incidental to Agriculture, Forestry and Fishing (excluding hunting) (CPC No. 881+882)

(1) Ub, (2) Ub, (3) N, (4)N

(1) Ub, (2) Ub, (3) N, (4) N

2. Services incidental to Mining(CPC No. 883+5115)

(1) Ub, (2) Ub, (3) N, (4)N

(1) Ub, (2) Ub, (3) N, (4) N

3. Engineering Services for Building Infrastructures: Harbours, dams, hydel power, and airports, only(CPC No. 8672)

(1) Ub, (2) Ub, (3) R1 (4) N

(1) Ub, (2) Ub, (3) N, (4) N

4. Integrated Engineering Services(CPC No. 8673)

(1) Ub, (2) Ub, (3) R1, (4) N

(1) Ub, (2) Ub, (3) N, (4) N

5. Consultancy Services related to the installation of computer hardware(CPC No. 841)

(1) Ub, (2) Ub, (3) N, (4) N

(1) Ub, (2) Ub, (3) N, (4) N

6. Software Implementation Services(CPC No. 842)

(1) Ub, (2) N, (3) N, (4) N

(1) Ub, (2) N, (3) N, (4) N

7. Data Processing Services (CPC No. 843)

(1) Ub, (2) N, (3) N, (4) N

(1) Ub, (2) N, (3) N, (4) N

8. Data Base Services (CPC No. 844)

(1) Ub, (2) N, (3) N, (4) N

(1) Ub, (2) N, (3) N, (4) N

9. R & D Services on Natural Sciences(CPC No. 851)

(1) Ub, (2) N, (3) N, (4) N

(1) Ub, (2) N, (3) N, (4) N

10. Technical Testing & Analysis Services(CPC No. 8676)

(1) Ub, (2) N, (3) N, (4) N

(1) Ub, (2) N, (3) N, (4) N

11. On Line Information and Data Base Retrieval (CPC No. 7523)

(1) N, (2) Ub, (3) N, (4) N

(1) N, (2) Ub, (3) N, (4) N

(B) COMMUNICATION SERVICES:

12. On Line Information and/or Data Processing (CPC No. 843)

(1)Ub, (2) Ub, (3) N (Subject to use of Pakistan Telecommunication Corporation network), (4) N

(1)Ub, (2) Ub, (3) N, (4) N

(C) CONSTRUCTION AND RELATED ENGINEERING SERVICES:

13. Construction work for Civil Engineering for Bridges, Elevated Highways, Tunnels and Subways (CPC No. 5132)

(1)Ub, (2) Ub, (3) N, (4) N

(1)Ub, (2) Ub, (3) N, (4) N

14. Construction Work for Civil Engineering for Waterways, Harbours Dams and other Waterworks (CPC No. 5133)

(1)Ub, (2) Ub, (3) N, (4) N

(1)Ub, (2) Ub, (3) N, (4) N

(D) FINANCIAL SERVICES:

15. Insurance: Life Insurance (CPC No. 81211)

(1) Ub, (2) Ub , (3)R2, (4) N

(1) Ub, (2) Ub, (3)Ub, (4) N

16. Re-insurance Services and Retrocession(CPC No. 81299)

(1) Ub, (2) N, (3) Ub, (4) Ub

(1) Ub, (2) N, (3) Ub, (4) Ub

17. Services Auxiliary to Insurance (including broking & agency services) (CPC No. 8140)

(1) Ub, (2) N, (3) Representative Office Only, ,(4) N

(1) Ub, (2) N, (3) Ub, (4) Ub

18. Banking Services:
The following:
1.
Acceptance of deposits and other repayable funds from the public. (CPC No. 81116)
2.
Lending of Consumer credit, mortgage credit, and financing of commercial transactions.

(1) Ub, (2) Ub, (3) R3 ,(4) N

(1) Ub, (2) Ub, (3) Ub, (4) N

19. Trading of securities:
Insurance of Securities including and placement as Agents (whether publicly or privately) and provision of services relating to such issues (CPC No. 8132)

(1)Ub, (2) Ub, (3) N, (4) N

(1)Ub, (2) Ub, (3) N, (4) N

(E) HEALTH RELATED AND SOCIAL SERVICES:

20. Hospital services (CPC No. 9311)

(1) Ub, (2) N, (3) Nr, (4) N

(1)Ub, (2) N, (3) N, (4) N

I. (CPC) UN Central Product Classification

II. Modes of Supply: (1) Cross Border Supply (2) Consumption Abroad (3) Commercial Presence (4) Presence of Natural Persons

III. (Ub) Unbound (N) None (R1) = Maximum of 40 % of foreign share holding in engineering Consultancy companies, (R2) Maximum of 25 % of foreign share holding in existing life insurance companies, (R3) Subject to economic needs test and approval of Corporate Law Authority of Pakistan, the central bank may grant licenses for establishment of locally incorporated subsidiaries. Maximum share holding of a foreign financial institution in the local subsidiary not to exceed 30%. Permission of the central bank required for investment in shares of a banking company in excess of 4% of paidup capital of the local company and Nr = Subject to Pakistan Medical and Dental Council Regulations.

TABLE: 3(B): SUMMARY OF PAKISTAN'S SECTOR-SPECIFIC COMMITMENTS UNDER THE GATS AS OF FEBURARY 1998

 

MODES OF SUPPLY

SECTOR OR SUBSECTOR

CROSS-
BORDER SUPPLY

CONSUMPTION ABROAD

COMMERCIAL PRESENCE

PRESENCE OF NATURAL PERSONS

 

MARKET ACCESS/NATIONAL TREATMENT

1. BUSINESS SERVICES

A. PROFESSIONAL SERVICES

(e) Engineering services for building infrastructures: harbours, dams, hydal power, and airport, only

U/U

U*/U*

P/F

Uex/U

(f) Integrated engineering services

U/U

U*/U*

P/F

Uex/U

(h) Medical and dental services

U*/U*

F/F

P/F

Uex/Uex

B. COMPUTER AND RELATED SERVICES

(a) Consultancy services related to the installation of computer hardware

U/U

U/U

F/F

Uex/Uex

(b)Software implementation services

U/U

F/F

F/F

Uex/Uex

(c)Data processing services

U/U

F/F

F/F

Uex/Uex

(d)Data base services

U/U

F/F

F/F

Uex/Uex

C. RESEARCH AND DEVELOPMENT SERVICES

(a)R&D services on natural sciences

U/U

F/F

F/F

Uex/Uex

F. OTHER BUSINESS SERVICES

(e)Technical testing and analysis services

U/U

F/F

F/F

Uex/Uex

(f)Services incidental to agriculture, and forestry (excluding fishing and hunting)

U/U

U*/U*

F/F

Uex/Uex

(g)Services incidental to mining

U/U

U*/U*

F/F

Uex/Uex

2. COMMUNICATION SERVICES

C. TELECOMMUNICATION SERVICES

(a)Voice telephone services

P/U

P/U

U/U

Uex/Uex

(b)Packet-switched data transmission services

P/U

F/F

P/P

Uex/Uex

(c)Circuit-switched data transmission services

P/U

F/F

P/P

Uex/Uex

(d)Telex services

F/F

F/F

F/F

Uex/Uex

(e)Telegraph services

P/F

F/F

F/F

Uex/Uex

(f)Facsimile services

F/F

F/F

F/F

Uex/Uex

(g)Private leased circuit services

P/U

F/F

P/U

Uex/Uex

(h)Electronic mail

P/U

F/F

P/P

Uex/Uex

(j)Online information and data base retrieval

F/F

U/U

P/F

Uex/Uex

(n)Online information and/or data processing (incl. transaction processing)

U/U

U/U

P/F

Uex/Uex

(o)other VSAT for domestic data service

P/F

F/F

F/F

Uex/Uex

Video conferencing telemedicine and tele-education terminal and service

P/F

F/F

F/F

Uex/Uex

Trunked radio service

P/F

F/F

F/F

Uex/Uex

Satellite based telephony services including value added services operating over satellite

P/F

F/F

F/P

Uex/Uex

3. CONSTRUCTION AND RELATED ENGINEERING SERVICES

B. Construction Work for Civil Engineering for bridges, elevated highways, tunnels and subways

U*/U*

U*/U*

P/F

Uex/U

Construction Work for Civil Engineering for waterways, harbours, dams and other waterworks

U*/U*

U*/U*

P/F

Uex/U

4. FINANCIAL SERVICES

A. ALL INSURANCE AND INSURANCE RELATED SERVICES

(a)Life, accident and health insurance services

U/U

U/U

P/U

Uex/Uex

       

Table AIV.2 (cont'd)

(b)Non life insurance services

U/U

U/U

P/U

Uex/Uex

(c)Reinsurance and retrocession

F/U

U/U

U/U

Uex/Uex

B. BANKING AND OTHER FINANCIAL SERVICES (EXCL. INSURANCE)

(a)Acceptance of deposits and other repayable funds from the public

U/U

U/U

P/P

U/U

(b)Lending of all types, incl., inter alia, consumer credit, mortgage credit, factoring and financing of commercial transaction

U/U

U/U

P/P

P/Uex

(c)Financial leasing

U/U

U/U

P/F

Uex/Uex

(d)All payment and money transmission services including traveller cheques and banker's draft (but excluding credit, charge and debit cards)

U/U

U/U

P/U

Uex/Uex

(e)Guarantees and commitments

U/U

U/U

P/U

Uex/Uex

(f)Trading for own account only of:Money market instruments (cheques, bills, certificate of deposits, etc.)

U/U

U/U

P/U

Uex/Uex

Foreign exchange

U/U

U/U

P/U

Uex/Uex

Transferable securities

U/U

U/U

P/U

Uex/Uex

Other negotiable instruments

U/U

U/U

P/U

Uex/Uex

(g) Participation in issues of all kinds of securities, incl. only public underwriting and placement as agent & provision of service related to such issues

U/U

U/U

P/U

Uex/Uex

(i)Asset management only: cash or portfolio management; all forms of collective investment management; and custodial and depository services

U/U

U/U

P/F

Uex/Uex

(j)Settlement and clearing services for negotiable instruments (cheques, bills and promissory notes only)

U/U

U/U

P/U

Uex/Uex

(k)Financial and Investment advisory

U/U

U/U

P/F

Uex/Uex

(l)Provision and transfer of financial information, and financial data

U/U

U/U

U/U

Uex/Uex

5. HEALTH RELATED AND SOCIAL SERVICES

A. Hospital Services

U*/U*

F/F

P/F

Uex/Uex

6. TOURISM AND TRAVEL RELATED SERVICES

A. Hotels and Restaurants (including catering)

U*/U*

U/U

F/F

Uex/Uex

B. Travel Agencies and Tour Operators Services

U/U

U/U

F/F

Uex/Uex

Source: Trade Policy Review 2001: WTO Secretariat Report

SYMBOLS:

F No limitations, i.e. Pakistan agreed to place no constraints on the item in question.
P Partially bound, i.e. subject to specified limitations under GATS Articles XVI and XVII.
U Unbound, i.e Pakistan undertook no commitments with respect to the item in question.
U* Unbound due to lack of technical feasibility.
Uex Unbound except as provided by Pakistan's horizontal commitments.

These commitments were in the form of conditional offer and were made after consultations with the interested member countries and taking into account the requests made by them. Pakistan specified that its offer was conditional subject to the extent and nature of the commitments made by other participants particularly, in the sectors/sub-sectors and mode of supply of interest to Pakistan especially that relating to the "Movement of Natural Persons". While making these initial commitments the country reserved the right to change them at any stage depending on the satisfactory outcome of the Uruguay Round.

Until Uruguay Round, Pakistan has specific commitments under the General Agreement on Trade in Services (GATS) under document No. GATS/C/67 of 15 April 1994 in (6) service groups comprising of 47 activities, including (1) financial (banking and insurance), (2) business, (3) communications, (4) construction/engineering, (5) health, and (6) tourism/travel services; those concerning financial and basic telecoms services improved, inter alia, conditions for foreign presence, and were ratified. Pakistan's GATS MFN exemptions cover financial services, with a view to preserving reciprocity requirements, Islamic financing transactions, and joint ventures among Economic Cooperation Organization (ECO) countries, as well as accounting rates agreed bilaterally.

THE SCHEDULE OF SPECIFIC COMMITMENTS

It has two parts:

1) Horizontal commitments
2)
Sector specific commitments.

1) HORIZONTAL COMMITMENTS (Concerning all sectors included in the schedule):

These are stated below:

(a) LIMITATIONS ON MARKET ACCESS: THESE COVER MODES 3 & 4.

For mode-3 these are as follows:-

i) Except specified independently, commitments under 'Commercial Presence' are subject to incorporation in Pakistan with maximum foreign equity participation of 51% unless a different percentage is inscribed against a particular sector or sub-sector.

ii) All expenses of representative offices where specifically provided for in this Schedule, shall be met by remittances from abroad. Such offices shall restrict their activities to the undertaking of liaison work or of representing the interest of the parent company abroad.

For mode-4 these are:

Unbound, except for measures concerning the entry or temporary stay of natural presence up to a maximum of 50% in superior categories (namely, Executives and Specialists) in an undertaking. These natural persons shall have been employed juridical persons of another Member for a period of not less than one year prior to the date of application for entry into Pakistan, and shall be transferred render services to the juridical person in Pakistan. Executives and specialists have been defined in the schedule.

(b) LIMITATION ON NATIONAL TREATMENT: THIS IS ONLY FOR MODE-3.

Acquisition of real estate by non-Pakistanis entities and/or persons is subject to authorization on a case-by-case basis keeping into account the purpose and location of the undertaking.

2) SECTOR SPECIFIC COMMITMENTS:

These vary form sector to sector. These are, therefore, reviewed sector wise. Of the six service sectors Tourism and related services was a new addition to the earlier list. The three sectors of Business services, Construction and related Engineering services and Health and related Social Services did not undergo a change while the two sectors of Telecommunication services and Financial services have undergone substantial changes that is in terms of increase in coverage. We first cover the former sectors including tourism and then the latter sectors.

SERVICES SECTOR IN PAKISTAN

Services make up the largest part of the Pakistani economy. The share of services (including construction, electricity/gas distribution) in GDP rose from 57.2% in 1995/96 to 58.7% in 2000/01 (Table 4) and the employment levels remained relatively constant (Table 5).

TABLE 4: SHARE OF SERVICES SECTOR IN GDP (%, REAL)

 

1994/95

95/96

96/97

97/98

98/99

99/00

00/01

01/02

Services

49.3

48.5

49.5

48.6

49

49.1

50.2

50.9

Construction

4.0

3.9

3.8

3.7

3.4

3.5

3.4

3.3

Electricity, Gas, and Water

4.0

4.2

4.0

4.2

4.7

4.4

3.8

3.6

Wholesale and Retail Trade

16.3

16.2

16.1

15.4

15.2

14.9

15.3

15.1

Transport, Storage, and Communication

10.2

9.6

9.8

10.2

10.3

10.2

10.5

10.1

Finance and Insurance

2.5

2.7

2.9

2.2

2.5

2.3

2.3

2.3

Ownership of Dwellings

5.6

5.5

5.7

5.8

5.9

5.9

6.1

6.2

Public administration and Defense

6.4

6.2

6.3

6.2

6.1

6.5

6.4

7.3

Other

8.2

8.2

8.6

8.9

9.1

9.3

9.6

9.9

Source: Economic Survey of Pakistan 2001-02

 


 

TABLE 5: SHARE OF SERVICES SECTOR IN TOTAL EMPLOYMENT (%)

 

1995

1996

1997

1998

1999

2000

Services

42.7

42.7

44.7

42.6

42.6

42.6

Electricity, gas, and water

0.8

0.8

1.0

0.7

0.7

0.7

Construction

7.2

7.2

6.8

6.3

6.3

6.3

Transport

5.1

5.1

5.7

5.5

5.5

5.5

Commerce

14.5

14.5

14.6

13.9

13.9

13.9

Other

15.1

15.1

16.6

16.3

16.3

16.3

Source: WTO TPR Pakistan 2001-02

Between 1995 and 2000, the sector's share in total employment remained stable at around 42.7%. Wholesale and retail trade, and transport, storage, and communications have been by far the leading service activities in Pakistan; other important service activities were public services, ownership of dwellings, distribution of electricity, gas and water, and construction. Between 1995/96 and 2000/01, exports of non-factor services dropped by about 46% to US$1.0 billion; in 2000/01, exports of commercial services represented 13.6% of total exports of goods and non-factor services (Table 5.6). During the same period, imports, largely consisting of shipment services, fell by more than 45% to US$1.8 billion. "Other services" refer to inflows/outflows relating to the operation of missions/representations (foreign in Pakistan, Pakistani abroad), royalties, bank commissions and charges, technical/legal fees, and sundry insurance payments.

The international trade of Pakistan in services including FDI falls next to merchandise trade in importance for Pakistan. Merchandise trade has remained in the red through out the history of Pakistan except for two years. Contrary to that the services account (net) has remained surplus and that has helped the country to meet major part of the merchandise trade gap. If one looks at the components of the services, it is found that the country's payments were much higher than its receipts in the account of shipment as well as in the account of travel. However, its receipts have exceed payments in the account of other transportation. Workers' remittances account for the largest component of services and the country had exported a large number of workers. That has been fetching huge amounts of foreign exchange. These are shown under unrequited private transfers. Similarly, in the 90s foreign direct investment (FDI) had become a big item in the 90s with the launching of liberalization reforms in the country. Nevertheless, the payment against the account of foreign direct investment made by Pakistani abroad has remained an insignificant amount.

OVERALL COMMITMENTS UNDER THE GATS

Since its previous Review, Pakistan has undertaken commitments under the General Agreement on Trade in Services (GATS); in the context of the extended WTO negotiations on financial and telecommunication services, these commitments have been further improved and ratified. Pakistan's Schedule of Specific Commitments covers 47 activities within the financial (banking and insurance), business, communications, construction/engineering, health, and tourism/travel services. There are certain general (i.e. horizontal) market-access and national-treatment limitations relating to commercial presence or the presence of natural persons (e.g. presence of foreign executives/specialists, expenses of representative office, authorization for acquisition of real estate by foreign firms). Cross-border supply of services is unbound for all sectors. For a number of activities (e.g. certain business, construction, health, and tourism services), no bindings have been made due to lack of technical feasibility. Foreign commercial presence in certain sectors (e.g. insurance, banking) is subject to equity limitations and/or other specific conditions. Pakistan undertook to withdraw the exclusive rights of the Pakistan Telecommunication Company Limited (PTCL) by the end of the year 2003. Under Article II of the GATS, Pakistan has maintained MFN exemptions for financial services with a view to preserving reciprocity requirements, Islamic financing transactions, and joint ventures among ECO countries, as well as for telecommunication services in favour of countries/operators signatories of bilateral agreements on accounting rates with the PTCL.

Pakistan did not participate in the WTO negotiations on Maritime Transport Services; the authorities indicated that, given the state of development of domestic maritime transport services and of the negotiations, it was premature for Pakistan to play an active role in this area. It did, however, provide replies to the questionnaire on the accountancy sector in the context of the Working Party on Professional Services. At the Special Sessions of the Council for Trade in Services devoted to the new round of negotiations, Pakistan underlined, inter alia, the general lack of concrete market-access benefits to developing countries, and voiced concern on the implementation status of Article IV (Increasing Participation of Developing Countries) of the GATS. Stressing the comparative advantage of many developing countries in labour intensive services, it has, inter alia, submitted a paper discussing ways and means of upgrading commitments under Mode 4 (Movement of Natural Persons) and reducing the scope for discretionary interpretation and implementation.

MOVEMENT OF NATURAL PERSONS
Since 1971 to 1999, almost 5 million Pakistanis have gone abroad from Pakistan

According to a set of data prepared by the Overseas Pakistanis Foundation over 4,854,691 Pakistanis have gone abroad since 1971 to 1999 from Pakistan. The greatest number, that is 2,050,000 Pakistanis, went to United States of America. These include professionals and businessmen. According to the figures sent by Pakistan missions abroad 25 Pakistanis went to Afghanistan; 31 to Algeria; 20 to Argentina; 20,000 to Australia; 3,620 to Austria; 212 to Azerbaijan; 45,000 to Bahrain; 510 to Bangladesh; 3,500 to Belgium; 107 to Bosnia; 160 to Botswana; 77 to Brazil; 529 to Brunei; 4 to Bulgaria; 100 to Burundi; 20 to Cambodia; 130,000 to Canada; 50 to Congo; 305 to China; eight to Croatia; 1,000 to Cyprus; 40 to Czech Republic; 20,000 to Denmark; 820 to Egypt; 210 to Finland; 40,000 to France; 2,000 to Germany; 25,000 to Greece; 40,000 to Holland; 25,000 to Hong Kong; 60 to Hungary; 710 to Indonesia; 317 to Iran; 214 to Iraq; 2,000 to Ireland; 25,000 to Italy; 9,000 to Japan; 10,000 to Jordan; 506 to Kazakstan; 1,862 to Kenya; 7,577 to South Korea; 101,499 to Kuwait; 195 to Laos; 500 to Lebanon; 8,000 to Libya; 150 to Luxembourg; 400 to Malawi; 4,000 to Malaysia; 49 to Maldives; 70 to Morocco; 55 to Mexico; 15 to Moldova; 100 to Myanmar; 61 to Nepal; 3,000 to New Zealand; 6 to Niger; 3,000 to New Zealand; 270 to Nigeria; 19,748 to Norway; 70,463 to Oman; 1,000 to the Philippines; 35 to Poland; 2,000 to Portugal; 50,000 to Qatar; 925 to Romania; 3,230 to Russia; 900,000 to Saudi Arabia; 20 to Senegal; 700 to Singapore; 2,500 to South Africa; 5,000 to Spain; 270 to Sri Lanka; 100 to Sudan; 5,000 to Sweden; 1,410 to Switzerland; 2,100 to Syria, 13 to Tajikistan; 950 to Tanzania; 2,300 to Thailand; 19 to Tunisia, 250 to Turkmenistan; 24 to Turkey; 500,000 to United Arab Emirates; 700,000 to the United Kingdom; 2,050,000 to USA; 1,645 to Uzbekistan; 20 to Vietnam, 300 to West African countries; 205 to Yemen and 500 to Zimbabwe.

Source: http://www.pakavenue.com

Pakistan is a manpower surplus country. It has surplus labour which has been migrating to the UK and other Western countries. The oil boom in the Middle East in the 70s opened greater avenues of labour emigration to that region. The US and Canada also provide some job opportunities but mostly for educated and skilled labour. Pakistan experienced export boom of manpower during the period, 1976-77 to 1982-83 when almost 1/3 of its incremental labour force with an average outflow of 138 thousand workers per annum was absorbed in the Middle East. Home remittances (foreign exchange remitted to Pakistan) had increased from US $ 578 million in 1976-77 to US $ 2,886 million in 1982-83. After touching a peak in 1982-83 the remittances have started declining since 1983-84 and with their continued tapering off these had declined to a level as low as US $ 1,055.8 million during 1998-99. Workers remittances during 2001-02 ended up with impressive growth of 119.8 percent and aggregated at $ 2.389 billion, as against $ 1.087 billion recorded during 2000-01. Current fiscal year (2002-03), the workers remittances were targeted at $ 2.873 billion 20.3 percent higher than last year. During the first nine months (July-March), the target for the whole year was already achieved. Remittances during this period amounted to $ 3.230 billion, as against $ 1.627 billion in the same period last year thus registering an increase of 98.6 percent. Remittances have averaged $ 358.9 million during the first nine months and if this trend continues, total remittances for the fiscal year 2002-03 are likely to be $ 4.3 billion-highest ever in the country's history see Table 6.

TABLE 6: WORKERS REMITTANCES FROM ABROAD (IN US $ MILLION)

Region/ Country

1985-86

1990-91

1995-96

1998-99

1999-2000

2000-01

2001-02

Middle East

2,021.51

1,234.84

1,053.24

821.11

681.96

693.22

1070.12

UK

223.27

180.05

109.74

73.59

73.27

81.39

151.93

USA

194.46

190.23

141.92

81.95

79.96

134.81

778.98

Germany

35.27

32.62

26.06

11.93

10.47

9.20

20.52

Norway

21.51

21.28

11.72

5.26

5.60

5.74

6.55

Canada

7.71

11.26

5.67

3.46

3.86

4.90

20.52

Others

91.58

178.01

112.82

58.5

56.79

88.4

293.28

Total

2,595.3

1,848.29

1,461.17

1055.80

911.91

1,017.66

2,341.90

Source: State Bank of Pakistan Annual Report 2002-03

GATS AND PUBLIC POLICY IN PAKISTAN

With the above discussion it is pretty obvious that Pakistan's public policy framework is directly linked with WTO service sector liberalization commitments though many of service sectors still remain unbound. In order to determine Pakistan trade competitiveness position there is a need to review public policy framework which influences directly and indirectly services sector of Pakistan, which are elaborated as under:

STRUCTURAL & POLICY MEASURES IN PAKISTAN
Key Developments influencing Service Sector

MEASURE

DEVELOPMENTS INFLUENCING SERVICE SECTOR

MANAGING SUSTAINABILITY

ECONOMIC POLICY

Ministry of Planning heads the economic planning identifying focal points through which the country can achieve robust economic growth and stability. At the moment key sectors identified are: Agriculture, Information Technology, Oil and Gas, and Export Promotion.

TRADE POLICY

Focuses on export sector capacity building which predominately require marketing skills for regional and international business promotion. Ministry of Commerce, Export Promotion Bureau, Pakistan Software Export Board, Federal and Regional Chambers of Commerce are key institutions for capacity building for trade enhancement and promotion. Pakistan under goes a periodic trade review by WTO Trade Policy Review Body (TPRB) which measures Pakistan's conformity with policy measures taken for goods and services.

INVESTMENT POLICY

Over the years, Pakistan has been promulgating aggressive investment promotion policy which resulted in heavy investment in energy and oil & gas sectors. Currently GoP eyes to target on $ 600 million FDI. With a liberal investment policy services and infrastructure sectors are open for foreign participation through means of commercial presence and movement of natural persons under GATS, with minimum restrictedness. Currently, offers investments for direct and portfolio investments through privatization of national assets such as OGDCL, PTCL, etc.
Foreign investors can invest in the manufacturing sector on 100% equity basis (see priority sectors question below). In the non-manufacturing sector, foreigner can invest after meeting terms and conditions, as detailed in the investment policy. Investors can repatriate capital, capital gains, dividends & profits in full.
To ensure sector specific investments, Government of Pakistan has made sector regulatory institutions which will deal with all the regulatory matters and issues such as consumer protection, investment protection, dispute settlement, tariff bindings, universal service obligations, interconnection, pricing issues etc. Some of the regulatory agencies are PTA, NEPRA, OGRA, FRA, PEMRA for telecommunication, power, oil and gas, fertilizer and electronic media respectively.

COMPETITION POLICY

Pakistan by and large remains a closed economy with limited competition. There is no competition policy as such. Only Monopoly Control Authority exists which covers a very narrow scope of competition policy as such. Pakistan is under going a major capacity building program for competition policy under UNCTAD assistance.
To this date, the sector specific regulators are to some extent responsible for establishing level playing field, such as Pakistan Telecom Authority (PTA), has defined a comprehensive framework of "Fair Trade Practices" in telecommunications. Most of the deliberations by PTA, are the off-shoot of GATS Agreement on Basic Telecom, which provides a comprehensive framework for competition regulation in telecom services.

AGRICULTURE POLICY

Under the Asian Development Bank (ADB) Pakistan is currently developing key Agri-Business support services at the national level. For this purpose State Bank of Pakistan has reorganized Zari Traqiati Bank (ZTB), previously known as Agriculture Development Bank of Pakistan (ADBP). As agriculture sector includes, livestock, marine and fisheries, and framing, it contributes 25% of the GDP being the largest contributor to the national economy.

INDUSTRIAL POLICY

Main function of the industrial policy is to create an enabling environment that will promote industrial development, enhance value addition and exportability of products and services at competitive prices in a global economy. Industrial policy is vary wide in scope and breadth as it covers all industrial sectors of the economy in general, where every economic sector such as Fertilizer, Textile, Oil & Gas, Suger, Cement, Fisheries, Ghee, Pharmaceutical, Soap, Software and Telecommunications have their unique policy requirements which demand independent policy rather generic industrial policy.

EDUCATION POLICY

Services sector is a skill-oriented sector. With key focus on higher education with the inception of Higher Education Commission (HEC) Pakistan focuses on manpower competence development for R&D specially focusing science and technology. A number of higher education scholarships, loans and financial assistance is currently available from various sources including GoP and through International Bilateral Cooperation.
Literacy has become the most important parameter for economic growth of any country and is a key comparative advantage in the post 2005 WTO era.

LABOUR POLICY

Devises a comprehensive mechanism in conformity with ILO Conventions to consolidate labour laws, provision of social security and welfare of labour, training, dispute settlement, abolition of bonded labour and child labour, protection of labour rights, elimination of gender discrimination and skill enhancement and development.
There are special skill development programs such as TOKTEN which stands for Transfer of Knowledge Through Expatriate National. It is a UNDP funded programme to utilize the services of expatriate Pakistani consultants for modern know-how to the country through short duration visits for a period of 2 to 8 weeks, which will reduce the impact of brain drain through short and medium/long duration visits of expatriate nationals to Pakistan and accelerate the process of technical assistance through their knowledge.

HEALTH POLICY

The Policy covers among major nursing, dental, pharmaceutical, para-medical and allied subject such as maintenance of educational standard, education abroad, educational facilities for backward areas, and for foreign nationals. The Health Policy announced by the government of Pakistan emphasized more participation by the private sector. Foreign investors are also welcome to invest in the establishment of hospitals, medical colleges, diagnostic services etc. The investors can repatriate profits and their capital. The minimum foreign equity participation is US$ 0.3 Million.

TRANSPORT AND COMMUNICATION POLICY

Includes maritime, rail, road, air, and telecommunication utility sectors with focus to open up for foreign investment and competition gradually. Pakistan under GATS has set aggressive roadmap to open up Telecommunications sector under the Basic Telecom Agreement, where as Pakistan is not a signatory of Maritime Agreement.

ENERGY POLICY

Energy Policy comprises of Power Policy and Petroleum Policy. Both provide investment incentives to foreign investors. The key energy services include billing and collection services, exploration services, supply services and marketing & distribution services. In both sectors, the competition has been in power generation and oil exploration respectively.
Only the service provision of marketing of petroleum products has seen the light of the day under the marketing of Petroleum Products (Federal Control) Act, 1974. There is a robust competitive environment between foreign and local companies namely Shell, Caltex, Total, and PSO etc.

TOURISM POLICY

GoP establishes Tourism to be treated as an industry, contributing more aggressively towards socio-economic growth. The key policy objectives are to increase foreign visitors arrivals from 0.42 million in year 2000 to 6.5% annually over the next five years; to increase foreign exchange earnings from US$ 385 million in year 2000 to US$ 500 million over the next three years; on the recommendations of the Ministry of Tourism, land for hotels, motels, recreation parks, fun lands, athletic clubs, cultural centers etc., to be provided on non-commercial rates and on long lease basis by the development authorities at the Federal and Provincial levels; providing tax exemptions to tour operators (50%); and restriction on the number of Federal and Provincial taxes.

MEASURE

Developments influencing Service Sector

FINANCIAL MANAGEMENT

MONETARY POLICY

Endeavors to promote services through regulating flow of money through credit regulation, financial support. Financial Services under WTO by and large are regulated under the monetary policy of State Bank of Pakistan which covers Balance of Payments, Banking & Insurance etc.
At of 2001-02, 43 banks (4 nationalized banks, 4 specialized banks, 16 private domestic banks, and 19 foreign banks) operate in Pakistan. Three nationalized commercial banks (Habib Bank, National Bank, United Bank) control half of the deposits and advances of the banking sector; these banks have been slated for privatization, but little progress has been made partly because of their inadequate capital base. As of June 2001, the non-banking financial institutions (NBFI) comprised 16 investment banks, 33 leasing companies, 46 Modaraba companies, 41 closed- and open-ended mutual funds, 10 development financial institutions (DFIs), 4 discount and guarantee houses, 2 venture capital companies, and 4 housing finance companies. The state-owned National Development Finance Corporation (NFDC), and the Pakistan Industrial Credit and Investment Corporation (PICIC) are the leading development finance institutions (DFIs).
The recent decrease in T-Bill rates and trimming the interest rates on National Saving Schemes has steered the monetary flow from banking sector to investments in stock market, housing & construction and formal business sectors creating a opportunities in related service sectors.
At present there are 61 private insurance companies operating in Pakistan, of which four (two domestic, two foreign) underwriting life insurance; the remaining 57 (53 local, 4 foreign) transact general insurance. Three state-owned companies (State Life Insurance Corporation/life insurance, National Insurance Company Limited (formerly National Insurance Corporation)/insurance of all public-sector-owned properties (monopoly rights), and Pakistan Reinsurance Company Limited (formerly, Pakistan Insurance Corporation) also operate in the domestic market; two of these firms form part of the list of entities to be privatized by June 2002.

FISCAL POLICY

Fiscal Policy being the most important policy as it is about managing the national economy balancing between government revenue and expenditure. Central Board of Revenue, Customs and Taxation are the primary institutions to ensure implementation of fiscal policy in Pakistan. Government expenditure on defense, debt servicing and development has to be orchestrated through prudent fiscal measures.
Tax Rebalancing is a key fiscal strategy under WTO regime shifting the burden of government revenue collection from tariffs on imports to domestic direct and indirect taxation.

REFORM MANAGEMENT

STRUCTURAL REFORMS PROGRAMS

Its main ingredients are deregulation, and decontrols, diverting public sector enterprises, opening up the external sector by dismantling quantitative controls and reducing tariffs, market orientation of the exchange rate (devaluation to adjust over valued rupee), restrictive monetary and credit policy with its orientation to demand and supply forces and prudential discipline, tightening budgetary expenditure and expanding resource mobilization, and adequate incentives for foreign investment. This programme had initially enjoyed the support of the IMF, the World Bank and multilateral bilateral donors such as Enhanced Structural Adjustment Facility (ESAF). The key aim of these policies have been efficiency improvement and expenditure reduction through Fiscal and Monetary Policy measures to achieve macro-economic stability.

GOOD GOVERNANCE

Government Services, though not included in the GATS, directly influence the business practices in private sector. GoP has taken a institutional overhaul under the devolution plan initiated by National Reconstruction Bureau (NRB); a transparency mechanism under Electronic Government Directorate; a national accountability campaign under National Accountability Bureau (NAB). A number of legal framework initiatives are promulgated to protect intellectual property, electronic transactions, participation of women etc, influencing the service sector at large.

REFORM MANAGEMENT

CORPORATE GOVERNANCE

Under the Securities and Exchange Commission of Pakistan (SECP), a Code of Corporate Governance has been promulgated along with a number of prudential regulations to ensure ethical corporate and business practices ensuring the interest of public and investor. A number of financial services, investment advisory, board membership, brokerage services have been scrutinized under this corporate reform imperative.

EMIGRATION AND VISA FRAMEWORK

Pakistan grants multiple visa for foreign nationals for tourism, study, work and visit. The policy also provides room for multiple nationality both for foreigners and Pakistanis. Similarly, Pakistani nationals are offered equal terms on movement on natural persons. A number of Pakistanis hold British, US, Canadian, Australian and European nationalities. A large number of Pakistanis are also having work permits in the Middle East countries. There is an increasing demand of Pakistan semi-skilled and skilled workers abroad, including doctors, engineers, IT professionals and others. Ministry for Labour, Employment and Overseas Pakistanis and Overseas Employment Corporation (OEC) provide and facilitate manpower export services and look after the interests of Pakistanis abroad. Whereas, Overseas Pakistanis Foundation (OPF) looks after the interest of Pakistani nations in the country.

MICRO INITIATIVES

A number of micro-economic initiatives are promulgated to nurture the entrepreneurial spirit and to encourage economic participation. Institutions such as Small & Medium Enterprise Development Authority (SMEDA) and Khushali Bank are promulgated to promote small businesses by providing them advisory, consultancy and training as well as soft credits to strengthen financial strength resulting in up-gradation of technology and indigenous knowledge on commercial lines. On similar lines a number of venture capital companies and funds have been set up by the government and private sector to capture innovative business ideas.

POVERTY ALLEVIATION

Pakistan faces twin challenges of reviving economic growth and reducing poverty. The GoP adopts pro-poor economic and social policy imperatives under the Interim Poverty Reduction Strategy (IPRS) program having core principles based on engendering growth, implementing broad based governance reforms, improving income-generating opportunities, improving social sector outcomes and reducing vulnerability shocks.

ABOUT THE AUTHOR

Mr. Yousaf Haroon, is currently working as Assistant Professor (Management) at the National Post Graduate Institute of Telecommunications and Informatics Islamabad. Currently, his areas of research are commercial diplomacy; telecommunications policy, regulation and management; industrial competitiveness and WTO Service sector liberalization commitments. He is a management trainer and visiting professor on Telecommunication Business Management, Business Strategy, and Marketing. He can be reached by emailing at (emailharoon@yahoo.com or office tel: +92-51-4430247).