Free Trade Area of the Americas - FTAA

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October 24, 2000

Original: Spanish
Translation: FTAA Secretariat



Name Colegio de Ingenieros de Chile A.G.
(if any)
Professional engineering body (as named above)

Proposal on engineering services

1. Initial considerations

Given the considerable dynamism the service sector as a whole in our continent has displayed in recent years, the College of Engineers and the Association of Consulting Engineers recognize that the engineering sector in particular represents high potential for growth and hemispheric projection. This needs to be fostered through an institutional framework based on respect for fair trade practices and transparent market rules, together with reciprocity in legislation and regulations, as well as in rights and obligations.

The integration process needs to be nurtured in an institutional framework that provides clear and transparent rules for carrying on activities, and encourages regionwide processes of business complementation. This requires a coordinated effort by member States, aimed at correcting or eliminating factors that could undermine the competitiveness of engineering firms in the region.

Despite this sector’s significant growth potential, trade in engineering services has certain characteristics that reduce its competitiveness compared to trade in goods. These peculiarities can be grouped under the following headings:

• Obstacles to freedom of travel and registration of professional people
• Problems arising from the need for this type of export to be accompanied by the provision of financial services, insurance, etc.
• Domestic barriers that discourage international trade in services.

2. Recommendations

a) Obstacles to freedom of travel and registration of professional people and firms

To overcome these problems an agreement needs to be reached whereby the parties, through their respective national organizations in each country, standardize criteria for recognizing university degrees, professional diplomas and specialties, including granting equivalence.

In addition, a joint agreement needs to be established to standardize and streamline procedures for validating and recognizing degrees; and temporary professional registries need to be set up.
There have been cases of discretionary action in the granting visas and work permits, as well as general travel problems, such as the treatment of visas and work permits for family members of professional people.
With regard to customs-type restrictions, the existence of customs duties on professional documents, project models, training materials, publications, software and other tools needed to provide services to clients, represents a barrier to free trade in engineering services.

b) Common procedures for temporary entry of goods

Along with freedom of travel for professional people, common procedures need to be defined relating to the temporary entry of goods (equipment/tools) for carrying out consulting services.
The procedure to be defined should include exemption from tariff duties, validity of insurance policies, rapid customs clearance, etc.

c) Problems of information transparency

Service providers from FTAA-member countries should have transparent access to local engineering regulations in each member country, and on the specific treatment provided to the foreign operator, including conditions of market access, legal, institutional, tax and labor market issues. Each member country should provide a complete listing of the legal and regulatory provisions governing this type of services.

d) Tax problems

For countries where no specific legislation exists to avoid double taxation, the payment of taxes in the country receiving the services undermines equity in competition and national treatment. It can also be seen that value added tax (VAT), in practice serves as an implicit residence requirement given that usually only local firms have access to the respective deductions, so the concept of national treatment is ruled out.
Clauses should be introduced to avoid double taxation, using as a basis the bilateral agreements currently operating between several countries of the region. In the particular case of VAT, a mechanism needs to be devised for the return, or eventual exemption from VAT payment, for non-local firms from an FTAA-member country.

e) Duplication of pension and health costs

To avoid this problem, international coverage should be allowed for pension funds, through a correspondent system between the respective institutions, on health, pension saving and workplace accidents. Alternatively, the payment of origin country pension contributions should be allowed where the wages of transferred professional people are paid.

f) Market access requirements

Restrictions on the type of business structures allowed should be lifted; i.e. requirements to open branches and form consortia in the country where the service is provided should be eliminated, as well as the requirement to physically and legally establish a firm in that country, and that consortia should be led by local partners.
Apart from this, requirements on the exclusive employment of national staff and professionals, or quotas thereof within staffing totals, should be eliminated, as should the use of quotas limiting transfers within firms.
Governments should agree to eliminate preference clauses in public bidding processes, both national and international, that exclude firms from FTAA-member countries. Where such preferences exist, they should automatically be extended to all member-country firms.

g) Rules of origin

Rules of origin should be established for service provision, in order to prevent service providers from non-member countries benefiting from FTAA liberalization agreements. Otherwise, the prospects for Chilean engineering, and maybe even its very existence, would be put at risk in the medium run.

h) Intellectual property

Special regulations should be established to protect the intellectual property contained in civil works, technologies, designs and processes. In addition, the treatment of the intellectual property in relation to principles, regulations, record systems, judicial procedures, responsibility and sanctions, should adhere to and be consistent with international standards on this question.

i) Responsibility for work completed

A maximum period of validity should be established with regard to responsibility for completed civil work once a project is concluded, in the event that the engineering company concerned does not have a physical presence in the country where the service was provided.
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