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

1. Regional Potential for Trade in Services
Pakistan’s Perspective
1

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. 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. 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. Pakistan & South Asia

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. 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. 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. Related Agreements
• Some progress
– Agreement on avoidance of double taxation
– SAARC Arbitration Council

11. Major Interests in Negotiations
• India – Mode 1, 2 & 4
• Sri Lanka and Nepal – Mode 2 & 4
• Pakistan and Bangladesh – Mode 4

12. 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

13. 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

14. 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

15. 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)

16. 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.

17. 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

18. 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.

19. 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

20. 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

21. 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.

22. vaqar@sdpi.org
www.sdpi.org, www.sdpi.tv 22
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