Policy Imperatives for CARICOM Trade Policy Imperatives for CARICOM Trade in Construction Servicesin Construction Services

T. M. Lewis and C. A. C. ImbertT. M. Lewis and C. A. C. Imbert

OutlineOutline The Construction SectorThe Construction Sector

The Construction Sector in the CaribbeanThe Construction Sector in the Caribbean

CARICOM and the CSMECARICOM and the CSME

Relationship of Construction to GDPRelationship of Construction to GDP

Intra and ExtraIntra and Extra CARICOM trade issues CARICOM trade issues

Accreditation of QualificationsAccreditation of Qualifications

Regional LegislationRegional Legislation

Recognition of ReciprocityRecognition of Reciprocity

Free Movement of Natural PeopleFree Movement of Natural People

OutlineOutline

Market Access (GATS Article XVI)Market Access (GATS Article XVI)

Subsidies (GATS Article XV)Subsidies (GATS Article XV)

Right of EstablishmentRight of Establishment• Cross Border SupplyCross Border Supply

RecommendationsRecommendations• Leveling the Playing FieldLeveling the Playing Field• Training and Recognition of QualificationsTraining and Recognition of Qualifications• Intuitional StrengtheningIntuitional Strengthening• Information Flow and AccessInformation Flow and Access

In most developing countries the In most developing countries the construction sector plays an important construction sector plays an important role in the developmental process. role in the developmental process.

Developed countries can also derive the Developed countries can also derive the benefits of the construction industry.benefits of the construction industry.

Construction is a major consumer of Construction is a major consumer of products from the primary sector as well products from the primary sector as well as the manufacturing sector. as the manufacturing sector.

In developing countries, manufacturing In developing countries, manufacturing typically caters to the production of typically caters to the production of aggregate, bricks, lumber, nails and the aggregate, bricks, lumber, nails and the inputs of other factors of production. inputs of other factors of production.

The Construction SectorThe Construction Sector

The Construction SectorThe Construction Sector

In the more industrially advanced In the more industrially advanced developing countries, materials such developing countries, materials such as tiles, steel, nails, roofing sheets, as tiles, steel, nails, roofing sheets, electrical and plumbing materials and electrical and plumbing materials and other construction products may also other construction products may also be manufactured. be manufactured.

The construction sector therefore The construction sector therefore provides critical backward and provides critical backward and forward linkages. forward linkages.

The sheer size of the market internationally The sheer size of the market internationally presents significant opportunities for presents significant opportunities for competent firms and are not restricted to competent firms and are not restricted to larger firmslarger firms

Like elsewhere, regional firms must receive Like elsewhere, regional firms must receive political, economic and other support from the political, economic and other support from the Governments of the regionGovernments of the region

It is claimed that firms within the Caribbean It is claimed that firms within the Caribbean Community (CARICOM) are not as competitive Community (CARICOM) are not as competitive as they should beas they should be

The Construction Sector in the CaribbeanThe Construction Sector in the Caribbean

The Construction Sector in the CaribbeanThe Construction Sector in the Caribbean

A significant number of professionals in A significant number of professionals in the region are of the opinion that the the region are of the opinion that the support, subsidies and incentives (albeit support, subsidies and incentives (albeit often hidden) available to foreign firms often hidden) available to foreign firms create unfair terms of trade create unfair terms of trade

The region is also faced with the The region is also faced with the phenomenon of cheap labour from phenomenon of cheap labour from countries such as China and questionable countries such as China and questionable working conditions. working conditions.

CARICOM is in the process of establishing CARICOM is in the process of establishing a Caribbean Single Market and Economya Caribbean Single Market and Economy

CARICOM has to negotiate with other CARICOM has to negotiate with other trading blocs as well as simplifying the trading blocs as well as simplifying the trading relationships between the trading relationships between the countries involved (intra-regionally) countries involved (intra-regionally)

One of the key sectors in this liberalization One of the key sectors in this liberalization process is that of services, and the process is that of services, and the construction industry is a significant part construction industry is a significant part of the services sector of the services sector

CARICOM and the CSMECARICOM and the CSME

The construction industry, more than The construction industry, more than any other, covers the gamut of any other, covers the gamut of commercial activity with more commercial activity with more commonality than any other commonality than any other engineering industry in the regionengineering industry in the region

The construction industry also touches The construction industry also touches

on more issues on international trade on more issues on international trade in services such as the free movement in services such as the free movement of people, market access, subsides, of people, market access, subsides, and the right of establishment. and the right of establishment.

CARICOM and CSMECARICOM and CSME

The following Figure shows the The following Figure shows the variation of the contribution of variation of the contribution of construction to GDP and the construction to GDP and the proportion of GDP that is proportion of GDP that is construction output for the period construction output for the period 1966 through to 2002 for Trinidad & 1966 through to 2002 for Trinidad & Tobago. Tobago.

Relationship of Construction to GDPRelationship of Construction to GDP

Relationship of Construction to GDPRelationship of Construction to GDP This shows clearly how closely related This shows clearly how closely related

they are. When construction GDP they are. When construction GDP increases so does the share of increases so does the share of construction in overall GDP, when it construction in overall GDP, when it falls, so does its share in total output.falls, so does its share in total output.

Intra and Extra CARICOM Trade IssuesIntra and Extra CARICOM Trade Issues

Accreditation of Qualifications; Accreditation of Qualifications; Harmonisation of Regional Legislation; Harmonisation of Regional Legislation; Mutual Recognition and Reciprocity; Mutual Recognition and Reciprocity; Free Movement of Natural People; Free Movement of Natural People; Market Access; Market Access; Subsidies; Subsidies; Right of Establishment and the Four Modes Right of Establishment and the Four Modes

of Trade; of Trade; Restrictions on the Provision of Services.Restrictions on the Provision of Services.

Accreditations of QualificationsAccreditations of Qualifications The overall objective is to establish The overall objective is to establish

common standards and measures for common standards and measures for accreditation or where necessary for the accreditation or where necessary for the mutual recognition of diplomas, mutual recognition of diplomas, certificates and other evidence of certificates and other evidence of qualifications. qualifications.

The basic academic qualification for entry The basic academic qualification for entry into the engineering profession is an into the engineering profession is an undergraduate degree in engineering. The undergraduate degree in engineering. The professional engineering organisations in professional engineering organisations in the region are consistent in this the region are consistent in this stipulation. stipulation.

Accreditations of QualificationsAccreditations of Qualifications The engineering degrees from UWI are currently The engineering degrees from UWI are currently

accredited by foreign institutionsaccredited by foreign institutions The Caribbean Accreditation Council for The Caribbean Accreditation Council for

Engineering and Technology (CACET) will soon be Engineering and Technology (CACET) will soon be established and should established and should become a signatory to the become a signatory to the Washington Accord.Washington Accord.

Discussions are taking place for the Discussions are taking place for the

establishment of a (general) Caribbean establishment of a (general) Caribbean accreditation agency by the Council for Human accreditation agency by the Council for Human and Social Development (COHSOD) of CARICOM.and Social Development (COHSOD) of CARICOM.

There is a need for an agreed standard for There is a need for an agreed standard for

accrediting skilled artisans, tradesmen and accrediting skilled artisans, tradesmen and craftsmen, which is being addressed by the NTAs craftsmen, which is being addressed by the NTAs and CANTA.and CANTA.

Harmonization of Regional Legislation Harmonization of Regional Legislation

In order for the profession to be protected, In order for the profession to be protected, and for that protection to be enforceable, and for that protection to be enforceable, appropriate legislation must be passed. appropriate legislation must be passed.

For there to be regional equivalency, it is For there to be regional equivalency, it is necessary that similar legislation be necessary that similar legislation be enacted in each country. enacted in each country.

In the interim qualified Caribbean In the interim qualified Caribbean engineers in countries without legislation engineers in countries without legislation can register with the registration boards in can register with the registration boards in CARICOM countries where these exist. CARICOM countries where these exist.

Mutual Recognition and ReciprocityMutual Recognition and Reciprocity It is felt that the principles of mutual recognition It is felt that the principles of mutual recognition

and reciprocity should guide trade negotiations. and reciprocity should guide trade negotiations.

If a CARICOM based engineer has to register with If a CARICOM based engineer has to register with the Professional Institution(s) in a foreign country the Professional Institution(s) in a foreign country to work there then a foreign engineer should have to work there then a foreign engineer should have to register with the local Professional Bodies to register with the local Professional Bodies when working in CARICOM. when working in CARICOM.

In Caribbean countries where there are no In Caribbean countries where there are no registration bodies engineers from outside the registration bodies engineers from outside the region should have to register with a registration region should have to register with a registration board in a CARICOM country where one exists. board in a CARICOM country where one exists.

Free Movement of Natural PeopleFree Movement of Natural People Anecdotal evidence suggests that some Anecdotal evidence suggests that some

foreign contractors use indentured-type foreign contractors use indentured-type labour in the Caribbean at minimal cost.labour in the Caribbean at minimal cost.

There is no doubt that their presence is There is no doubt that their presence is

resented (and in some cases feared) resented (and in some cases feared) locally. Contractors may also be in locally. Contractors may also be in violation of accepted and/or legal violation of accepted and/or legal standards of compensation, working standards of compensation, working conditions, accommodation etc. conditions, accommodation etc.

Free Movement of Natural PeopleFree Movement of Natural People TThis makes these contractors highly his makes these contractors highly

competitive, though unfairly so, on competitive, though unfairly so, on purely financial terms.purely financial terms.

TThe sudden influx of a large itinerant he sudden influx of a large itinerant

workforce into an area with limited workforce into an area with limited socio-economic infrastructure can socio-economic infrastructure can have damaging effects, particularly have damaging effects, particularly in this region of high unemployment in this region of high unemployment and a fairly literate labour pool. and a fairly literate labour pool.

Market Access (GATS Article XVI)Market Access (GATS Article XVI)

Firms within the region are more Firms within the region are more concerned, at this time, with concerned, at this time, with unfair competition at home than unfair competition at home than access to extra-regional access to extra-regional markets. markets.

Under-pricing, particularly by Under-pricing, particularly by foreign firms, should not be foreign firms, should not be tolerated in the construction tolerated in the construction industryindustry

Subsidies (GATS Article XV)Subsidies (GATS Article XV) Most industries in countries within the larger Most industries in countries within the larger

trading blocs receive hidden subsidies that help trading blocs receive hidden subsidies that help them compete abroad. them compete abroad.

The European and American agricultural subsidies The European and American agricultural subsidies are enormous and massively distort the world are enormous and massively distort the world trade in agricultural commodities. trade in agricultural commodities.

Quite apart from such home-country subsidies the Quite apart from such home-country subsidies the countries of the Caribbean also offer inducements countries of the Caribbean also offer inducements to foreign firms that work against the interests of to foreign firms that work against the interests of their own nationals. One form of a local subsidy is their own nationals. One form of a local subsidy is in the granting of tax concessions. There are in the granting of tax concessions. There are others.others.

Right of Establishment Right of Establishment (Protocol 2, Articles 35 b & c)(Protocol 2, Articles 35 b & c)

Model 1 - Cross Border SupplyModel 1 - Cross Border Supply• Electronic communications including e-Electronic communications including e-

commerce have facilitated the supply of commerce have facilitated the supply of construction services at a distance. Architectural construction services at a distance. Architectural and structural design are good examples.and structural design are good examples.

• However, there are a number of specific However, there are a number of specific problems particularly in relation to service problems particularly in relation to service providers from outside the region. providers from outside the region.

• Design parameters may be affected by factors Design parameters may be affected by factors like the locally available materials, the culture, like the locally available materials, the culture, work ethic, climate and seismicity that may not work ethic, climate and seismicity that may not be familiar to the foreign engineer.be familiar to the foreign engineer.

General RecommendationsGeneral Recommendations

Leveling the Playing FieldLeveling the Playing Field

Training and Recognition of QualificationsTraining and Recognition of Qualifications

Intuitional StrengtheningIntuitional Strengthening

Information Flow and AccessInformation Flow and Access

Leveling the Playing FieldLeveling the Playing Field Avoid combination/multi-stage contracts, which Avoid combination/multi-stage contracts, which

make them too big for local firms, for example, make them too big for local firms, for example, financing, construction and installation works as financing, construction and installation works as in major turnkey contracts. in major turnkey contracts.

Review pre-qualification criteria, particularly the Review pre-qualification criteria, particularly the weighting given to ‘local experience’, which weighting given to ‘local experience’, which should be significant. should be significant.

Promote the use of uniform standards and Promote the use of uniform standards and specifications relevant to the region. specifications relevant to the region.

Facilitate access by local firms to funds to enable Facilitate access by local firms to funds to enable interest rate equalization and in the provision of interest rate equalization and in the provision of insurance and bonds to alleviate disadvantages of insurance and bonds to alleviate disadvantages of the small size of the economy and firms.the small size of the economy and firms.

Leveling the Playing FieldLeveling the Playing Field Address the issue of unfair tax concessions Address the issue of unfair tax concessions

for foreign consultants and contractors.for foreign consultants and contractors.

Restrict the right to Commercial Presence Restrict the right to Commercial Presence by a foreign firm when this can be shown by a foreign firm when this can be shown to be detrimental to local firms.to be detrimental to local firms.

Local firms need to collaborate, as Local firms need to collaborate, as

consortia or joint ventures where consortia or joint ventures where appropriate, with other firms to gain size appropriate, with other firms to gain size and financial strength to compete for and financial strength to compete for larger contracts. larger contracts.

Training and Recognition of QualificationsTraining and Recognition of Qualifications Strengthen technical and technology-Strengthen technical and technology-

based training in the region.based training in the region.

Promote standardisation of technical and Promote standardisation of technical and technology-based training in the region.technology-based training in the region.

There should be mandatory local There should be mandatory local registration of all professionals and firms registration of all professionals and firms as a precondition for offering construction as a precondition for offering construction and installation services in the region. and installation services in the region.

For regional equivalency and reciprocity, it For regional equivalency and reciprocity, it is necessary that similar registration is necessary that similar registration legislation be enacted in each country. legislation be enacted in each country.

Training and Recognition of QualificationsTraining and Recognition of Qualifications

The Caribbean Accreditation Council for The Caribbean Accreditation Council for Engineering and Technology (CACET) Engineering and Technology (CACET) should be established as soon as possible should be established as soon as possible and become a member of the Washington and become a member of the Washington Accord.Accord.

There is a need for a system for reciprocal There is a need for a system for reciprocal recognition of similarly registered and recognition of similarly registered and licensed professionals from other countries licensed professionals from other countries and regions. and regions.

Limit foreign personnel to professional and Limit foreign personnel to professional and senior supervisory staff. senior supervisory staff.

Intuitional StrengtheningIntuitional Strengthening Local associations need institutional Local associations need institutional

support for the further development of the support for the further development of the professional bodies (e.g. tax-free status as professional bodies (e.g. tax-free status as a charitable body).a charitable body).

Professional associations should have Professional associations should have institutional representation on Boards of institutional representation on Boards of Directors of engineering related public Directors of engineering related public sector institutions.sector institutions.

Government regulatory/approval agencies Government regulatory/approval agencies need strengthening with adequate need strengthening with adequate professional resources.professional resources.

Information Flow and AccessInformation Flow and Access Both Governments and the private sector Both Governments and the private sector

organisations have a responsibility:organisations have a responsibility:• To facilitate and encourage information flow To facilitate and encourage information flow

through the local sector, especially through the local sector, especially documentation and access to project proposals documentation and access to project proposals and data, trade negotiations and agreements.and data, trade negotiations and agreements.

• To carry out further studies into the performance To carry out further studies into the performance of the construction sector for baseline data on of the construction sector for baseline data on construction costs, educational and training construction costs, educational and training programmes and human resources in the various programmes and human resources in the various categories of skills.categories of skills.

• To initiate a process whereby Governments, To initiate a process whereby Governments, developmental and lending agencies would developmental and lending agencies would provide information on development plans, provide information on development plans, proposals and tenders.proposals and tenders.