WORLD TRADE
ORGANIZATIONS/CSS/W/113
5 October 2001
(01-4819)
Council for Trade in Services
Special SessionOriginal:  English
COMMUNICATION FROM BRAZIL
Construction and Related services
The following communication has been received from the delegation of Brazil with the
request that it be circulated to the Members of the Council for Trade in Services.
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1. Brazil submits this proposal for consideration by Members.1  Its purpose is to promote the
liberalisation of this important sector and to contribute to increasing the participation of developing
countries in trade in services. Article IV of the General Agreement on Trade in Services (“Increasing
Participation of Developing Countries”) states in paragraph 1:
“The increasing participation of developing country Members in world trade shall be
facilitated through negotiated specific commitments, by different Members pursuant
to Parts III and IV of this Agreement, relating to:
(c) the liberalisation of market access in sectors and modes of supply of export
interest to them.”
2. Also, the Guidelines and Procedures for the Negotiations on Trade in Services (S/L/93),
adopted on 28 March 2001, state, among other elements, that:
− the current negotiations “...shall be conducted ... as a means of promoting ... the
development of developing countries” (paragraph 1);
− the current negotiations “... shall aim to increase the participation of developing
countries in trade in services” (paragraph 2);
− “... due consideration should be given to the needs of small and medium-sized
services suppliers, particularly those of developing countries” (paragraph 3); and
− “... special attention shall be given to sectors and modes of supply of export interest
to developing countries” (paragraph 5).
                                                     
1 This proposal is not a legal text. It is submitted solely for the purpose of negotiation and does not
prejudge the position of Brazil regarding the issues raised in it. Brazil reserves its right to modify or complementthe contents of this proposal at a later stage.S/CSS/W/113
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I. INTRODUCTION
3. The construction industry constitutes one of the largest and most important sectors in any
economy, having significantly benefited from the recent advances in technological innovation. It
accounts for an important share of GDP and employment and plays a fundamental role in the
development of infrastructure for all other sectors.
II. SCOPE
4. In the Services Sectoral Classification List (MTN.GNS/W/120), construction and related
engineering services comprise the following activities:2
• General construction work for buildings (CPC 512);
• General construction work for civil engineering (CPC 513);
• Installation and assembly work (CPC 514, 516);
• Building completion and finishing work (CPC 517)
• Other (CPC 511, 515, 518).
5. It cannot be denied that there is an evident interrelation between the supply of construction
services and the supply of architectural (CPC 8 671), engineering, (CPC 8672), integrated engineering
(CPC 8673) and urban planning and landscape arch itectural services (CPC 8674), even though these
latter are placed separately in the W/120, under the grouping of professional services. In fact,construction firms often provide all of these services in an integrated manner as they are used
throughout the development of an investment project, including the stages of pre-investment (e.g.
feasibility studies), project execution (e.g. architectural and structural design), and project
implementation (e.g. the physical construction per se ).
6. Hence, given this interrelationship, trade in construction and related services hinges not only
on mode 3 but is also highly dependent on supply under modes 1 and 4.
7. Some developing countries have attained competitive advantage in this sector and have
started to export construction and related services. However, effective market access is often denied to
them not only because numerous barriers persist in the construction sector itself and in the related
services mentioned above but also because of the total absence of commitments in some of thoseprofessional services. Furthermore, subsidy practices that cause deviation of trade flows have resulted
in the loss of competitiveness by developing country exporters.
III. ANALYSIS OF EXISTING COMMITMENTS
8. Among the 142 Members of the WTO, 62 have scheduled specific commitments in at least
one of the subsectors of construction services. For the related professional services the figures are 51for architectural services, 58 for engineering services, 33 for integrated engineering services, and 32
for urban planning and landscape architectural professional services. The majority of commitments in
construction services are focused mainly on mode 3 (albeit with important limitations in many cases).
                                                     
2 These activities can be carried out either by general contractors who do the complete construction
work for the owner of the project or on own account; or by subcontracting parts of the work to specializedcontractors.S/CSS/W/113
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Mode 1, generally discarded as technically unfeasible for “physical construction”, has few
commitments for the related professional services. Mode 4 has the lowest number of commitments,
even when the horizontal ones are factored in.
IV. BARRIERS TO TRADE IN CONSTRUCTION AND RELATED SERVICES
9. The general foreign investment regime or the regime governing this sector crucially affects
conditions of market access in many countries.
10. In mode 3, the main obstacles encountered include: restrictions on the level of percentage of
foreign equity ownership; limitations on the type of  legal entity required, (including joint ventures);
limitations on ownership of land; economic needs tests; exclusive rights for construction, management
and maintenance;  discriminatory bidding;  licensing and qualifications requirements and procedures
and technical standards.
11. In mode 4, beside licensing and qualification requirements and procedures, barriers are also
related to non-recognition of professional qualifications, residency and citizenship requirements. Most
of these barriers also affect supply under modes 1 (particularly in the case of related professional
services). In the case of recognition, there is widespread perception that the provisions of Article VII
have not resulted in benefits for developing countries.
12. Subsidies also play a crucial role in restricting access to foreign markets by developing
country firms. They also affect the conditions of competition of developing country firms to compete
on projects within their own market. Direct government subsidy and other policies, which may
indirectly subsidize industries include,  inter alia , direct financial aid, subsidies to R&D costs,
subsidies to bid preparation costs, export credits for feasibility studies, export credits in the form of
financing, insurance and guarantees, government guarantees for private bank loans, tax exemptionsand public risk sharing (including the guarantee of a percentage of contractor profits), and subsidies
related to tied aid. It must be stressed that developing countries do not have the means to match this
arsenal of incentives.
V. PROPOSAL
13. Brazil proposes:
(i) that WTO Members make specific commitments in the construction and related
services sectors described in paragraphs 4 and 5 above;
(ii) that WTO Members eliminate the restrictions to market access and national treatment
in those sectors and sub-sectors. Brazil recognizes that some developing countries
might need to impose limitations concerning requirements of joint ventures and local
subcontracting in order to contribute to the development of local firms, particularly
small and medium sized enterprises. Moreover, Article XIX:2 of the GATS states that“(…) there shall be appropriate flexibility for individual developing country Members
for liberalizing fewer types of transactions and, when making access to their market
available to foreign service suppliers, attaching to such access conditions aimed at
achieving the objectives referred to in Article IV”.
(iii) that the issue of trade distortive subsidies be addressed in the negotiations in the
context of the development of horizontal disciplines on subsidies under Article XV of
the GATS so as to ensure a level-playing field between developed and developing
countries. It should be reminded that Article XV recognizes the need of flexibility for
developing country Members in this area.S/CSS/W/113
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(iv) that the issue of recognition be addressed in the negotiations so as to make the
provisions of Article VII effective in terms of market access for developing country
firms and professionals;
(v) that the issue of licensing and qualification requirements and procedures as well as
technical standards be addressed in the negotiations in the context of the developmentof horizontal disciplines on domestic regulation under Article VI:4 of the GATS.
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