Friday, September 4, 2015

ASEAN Economic Community's Skilled-Labor Migration: A Gap between Aspiration and Reality

By Victor Bernard

As ASEAN countries have moved up the technology ladder and the demand for skills has grown, a labor gap has emerged that mirrors the gap between more- and less-developed nations. Higher-income countries such as Thailand, with falling birthrates and greying populations, are suffering from growing labor shortages in sectors such as healthcare and IT, while lower-income countries face burgeoning youth populations and high levels of graduate unemployment.

The AEC should also promote sectoral approaches to develop professional accreditation frameworks such as those undertaken by the ASEAN Constructors Federation and the Asian Welding Federation. Photo/Karl Grobl

As the inauguration of the ASEAN Economic Community (AEC) approaches, supporters contend that the freer movement of skilled labor will help bridge this development gap, bringing skilled workers to high-income countries, while providing employment and skills development for workers from low-income countries. In practice, however, progress towards freer mobility has been slow and uneven, due to rigid national immigration policies, inequalities in professional education and licensing regimes, public ambivalence toward the AEC, and the vast income gap that many countries fear will contribute to brain drain.

In 2007, ASEAN leaders agreed to fast-track the creation of the AEC, setting a goal of December 2015. The AEC is intended to transform the region into a single market and production base by establishing the freer flow of goods, services, investment, capital, and, crucially, skilled labor.

The free flow of skilled labor has been a central topic of discussion among member states, and several agreements have already been adopted, including: (1) mutual recognition arrangements (MRAs), which recognize education, experience, licenses, or certifications obtained in other ASEAN countries for engineering, nursing, architecture, surveying, medicine, dentistry, tourism, and accounting; (2) streamlined visa and employment regulations for professionals and skilled laborers engaged in cross-border trade and investment; and (3) enhanced cooperation among ASEAN universities to increase the mobility of students and staff.

But while the ambition to have a freer flow of skilled labor is laudable, current policies, even if fully implemented, will be inadequate to achieve it, and further reforms will be required.


Freer movement of people across ASEAN will require policy reforms and harmonized procedures at both the national and regional levels. For example, ASEAN still lacks a uniform visa system for foreign businesses and skilled workers. Work permits and employment visas remain subject to domestic rules and regulations. Some countries, including Thailand and the Philippines, have constitutional and legal restrictions on the employment of foreigners. Some even have sectoral and occupational restrictions, such as ethnic and local language requirements, labor market tests, restricted periods of employment, and the requirement that employers arrange skills-transfer programs to eventually replace foreigners with locals.

Given the many prevailing legal constraints, domestic practices of member states may not change in time to accommodate AEC’s ideal of freer movement of skilled labor.

There are also big differences between the ASEAN-wide MRAs and the professional education and licensing regimes of member states. Each professional practice is composed of several stakeholders that share responsibility for various aspects of the recognition process, especially where regulatory decisions are delegated to subnational actors. Even at the national level, several government departments may have a stake in negotiations, including those responsible for education, employment, trade, and international relations. Industrial and professional corporations that often exercise political power within their industries add another layer of vested interests.

Before the MRAs can be realized, concrete measures such as detailed, occupation-by-occupation analyses and negotiations, informed by research and statistics, will be required. The AEC should also promote sectoral approaches to develop professional accreditation frameworks such as those undertaken by the ASEAN Constructors Federation and the Asian Welding Federation.

The widespread lack of awareness of the MRAs, and of the AEC itself, is an additional impediment, resulting in weak political and public support to drive the process forward. A 2012 survey of Thai professionals, for instance, found that only 30 percent of engineers and 20 percent of nurses knew about the AEC and understood its implications. To sell the public on the AEC, vigorous efforts should be made, in both receiving and sending countries, to raise public awareness of the benefits of skilled-labor migration.

The Brain Drain Effect

In addition to the myriad policy and procedural obstacles, there is the issue of brain drain. Brain drain is the emigration of highly skilled laborers to a more developed country to find better opportunities, higher salaries, and a better standard of living. Free labor migration can result in competition for skilled human resources that less-developed countries view as unfair, and the fear that brain drain will deplete their already limited stock of highly skilled workers may explain some of the resistance to the AEC-mandated reforms. The Philippines exemplifies this scenario: its bilateral arrangements affecting the migration of healthcare professionals have depleted the number of nurses in its healthcare sector.

But ASEAN economies also stand to gain from this effect. Not all emigration is permanent. There are cases of “reverse brain drain,” where skilled expatriates return to their country of origin, bringing knowledge that can generate investment flows and develop new skills and technology. This has tended to occur in economies like Taiwan, with industries offering benefits on a par with developed countries, or where investment and entrepreneurial opportunities are plentiful, as in China. Therefore, ASEAN should also ensure that mechanisms are in place to support skilled migrants returning to their countries of origin.

ASEAN has established frameworks and incentives for the freer movement of skilled labor, but it would be unrealistic to anticipate the realization of this goal before the AEC is formalized in December 2015. There is a gap between aspiration and reality, as ASEAN, in practice, still lacks uniform and flexible intraregional visa procedures or policies that can bridge the gaps in education and certification standards between member states. Meanwhile, many enterprises and professionals are oblivious to the benefits of more streamlined migration, rendering political will and public support too weak to drive the MRA process forward.

As long as these obstacles persist, the full potential of skilled labor to sustain and propel the prosperity of the region will not be realized.

Victor Bernard works for The Asia Foundation in Thailand. This article originally appeared in In Asia, and is reproduced by permission.

Wednesday, September 2, 2015

Ahead of the AEC, Indonesia should consider adapting border economic zone policies of ASEAN neighbours

By Muhammad Faiz Aziz

As South-East Asian countries gear up for their ASEAN Economic Community, coming into effect by the end of this year, Indonesia should look into setting up special economic zones together with bordering countries.

These special zones are in line with the ASEAN Economic Community’s blueprint to support local businesses and allow people and goods to move freely between states. Having countries jointly set up economic hubs in border areas can minimise territorial disputes, reduce cross-border crimes and improve the lives of people living in remote outposts.

Special zones in border areas

Economists call these areas Special Border Economic Zones (SBEZs). It’s a variation of Special Economic Zones (SEZs), a dedicated area where businesses receive tax breaks and other regulatory incentives to produce and distribute goods.

A Special Border Economic Zone is an area set up by bordering countries to support businesses and promote trade and tourism at the border.

Malaysia and Thailand have a couple of these hubs and plan to have at least eight between them. The Greater Mekong Subregion, which covers Vietnam, Thailand, Laos, Cambodia and Myanmar plus China, will have 60 SBEZs by the end of 2015. Some 54 of these are between the borders of Laos and Cambodia.

But Indonesia, which shares land borders with Malaysia, Papua New Guinea and Timor Leste, has yet to join the crowd.

Most Indonesians living in border areas are poor. Far from the centre of government and business, the roads and schools in these remote areas are in bad condition. Human traffickers and drug smugglers often use unsupervised borders to move their victims and illegal cargo.

Border economic zones may be a solution to these problems. SBEZ is not a one-size-fits-all solution to stop these crimes. But it is a way to minimise them.

These shared economic zones in border areas increase community and government presence, which may reduce the areas' vulnerability to illegal activities. By creating jobs, border economic zones may also reduce welfare problems in these areas.

Success stories

Indonesia can look at different models between Thailand and Malaysia, the countries in the Greater Mekong Subregion, and the Oresund region between Sweden and Denmark, as case studies.

The Narathiwat-Rantau Panjang zone between Thailand and Malaysia is an incubator for small and medium businesses. It produces traditional snacks and has a shared market that can attract tourists.

The two countries also share Rubber City, an industrial zone that produces rubber and products from the material, between Thailand’s Ban Prakob and Malaysia’s Durian Burung. It has an inland port and Thailand and Malaysia are planning to build a border town with schools, hotels, a convention centre, health facilities and public transportation.

Meanwhile, through a Cross-Border Transport Facilitation Agreement, countries in the Greater Mekong Subregion agreed to build economic zones around the borders. Countries set up joint facilities to inspect people and goods going through the borders. Similar to SBEZs between Malaysia and Thailand, these border economic zones provide jobs and promote trade and tourism.

Countries in the Greater Mekong Subregion have set up border economic zones to ease movement of people. Chor Sokunthea/Reuters

The Oresund region between Denmark and Sweden is far more advanced. It’s an area of more than 2 million hectares – more than twice the size of Melbourne – where Swedes and Danes share a space to work, trade and live.

Developing SBEZs in Indonesia

To develop SBEZs, Indonesia should arrange the relevant regulations and policies with neighbouring countries. An intergovernmental body to oversee these areas will be needed too.

Indonesia may consider doing a more comprehensive study to determine potential areas that could benefit from SBEZs and start talks with neighbouring countries on this basis.

Indonesia faces many problems in its border areas, from human trafficking and smuggling to activities of separatist groups. It should not deal with these issues only through a defence and security approach.

If Indonesia would like to improve control of its borders and retain its sovereignty, it should also improve the wellbeing of people living there.

The Conversation
Muhammad Faiz Aziz is Researcher at Indonesian Center for Law and Policy Studies (PSHK)This article was originally published on The Conversation as "Ahead of ASEAN Economic Community, Indonesia should consider economic zones at her borders

Wednesday, August 26, 2015

After the 47th Economic Ministers' Meeting: Scoring success in ASEAN

By Dr Deborah Elms

ASEAN officials are wrapping up another long and comprehensive set of meetings in Malaysia.  The more countries become involved in interlocking and overlapping groupings, the more complicated the meeting schedules attached to ASEAN have become.

Dr Elms participating in East Asia Business Council's 1st East Asia Investment Forum, Kuala Lumpur, 24 August 2015

The primary purpose of the ASEAN meetings, of course, is to help guide ASEAN member states. Here in Kuala Lumpur, economic ministers met to discuss progress towards meeting the ASEAN Economic Community (AEC) and other elements of the ASEAN integration agenda.

Officials also met with a variety of counterparts from other countries that are dialogue partners with ASEAN.  Some of the counterparts that are also Trans-Pacific Partnership (TPP) members, including Australia, Canada, Japan, New Zealand, and the United States, held informal bilaterals between themselves and the ASEAN TPP members (Brunei, Malaysia, Singapore and Vietnam) to try to break through remaining issues in the TPP negotiations.

Minsters from the 16 member countries of the Regional Comprehensive Economic Partnership (RCEP) also met to discuss progress after 9 rounds of talks.

Finally, various industry groups and associations, like the EU-ASEAN Business Council and the East Asia Business Council, snagged a few minutes of the time and attention of trade ministers during assorted sideline events.

Many of the ASEAN discussions underway are likely to include at least one comment such as, “ASEAN is on track to achieve that AEC at the end of the year, with 80% (or 90%) of the objectives already finished.”  Or, “As the ASEAN Blueprint (or scorecard) shows, we have already accomplished 80 (or 90) percent of our objectives.”

What makes these statements puzzling is that ASEAN dropped the scorecard some time ago.  The last time ASEAN published the results, the scorecard only covered the period through 2011.  There is really no way to know how close or how far ASEAN might currently be from meeting the targets attached to the AEC.

Yet the idea of a scorecard seems rather firmly anchored.  Where did the original impetus for the scorecard come from?

ASEAN faces at least two distinct challenges in implementing commitments.  First, ASEAN’s methods of negotiation are unusual.  The grouping uses something called the “ASEAN – X” (ASEAN minus X) approach.  Under this approach, somewhere between all 10 members and no members actually implement any given commitment.

This soft, persuasive approach means that members have sufficient flexibility and policy space to move ahead with commitments when they believe the time is right for their specific developmental status and domestic conditions.  The expectation is that all 10 members will eventually arrive at the same set of outcomes, since members that disagreed with the original objective could have rejected the approach or the commitment outright from the beginning.

The ASEAN-X system, however, means that enforcement of commitments may always be a problem. 

Second, the member states do not like confrontation.  The region has been peaceful for all these decades in part, most argue, from the “ASEAN Way” of handling disagreements.  Such an approach requires discretion and careful dialogue over long periods of time to help build up trust and communication.

The lack of confrontation means that the usual path of dispute settlement, taken by states in economic partnerships and free trade agreements, is not an option for ASEAN.  Member states are unlikely to agree to allow one another to actually be taken to arbitration by another member over failure to implement ASEAN commitments.  (Note, however, that ASEAN members have, on rare occasions, moved trade disputes over to the World Trade Organization system if the violation of ASEAN commitments can also be viewed as a WTO violation.)

So, imagine that you are tasked with getting 10 member states to get to the same outcomes if the pathway is flexible and you cannot count on any sort of dispute settlement system to be actually used by members to ensure enforcement of commitments.  What system would you recommend?

One solution is to use some sort of “naming and shaming” approach to call out laggards.  However, if such a system were seen as too harsh and critical, it would never get past the member states.

Hence, ASEAN defaulted to the creation of a blueprint.  The original blueprint was a fixed number of commitments that ASEAN members had agreed to implement on the path to the AEC.  These commitments were broken down into four broad areas.

Of most interest to the business community were promises made in the first pillar, “Single Market and Production Base.”  This included commitments towards free flows of goods, services, investment, skilled labor and freer movement of capital.  The blueprint for achieving these objectives was broken down into phases, starting in 2007-2009 and concluding in 2015 with the launch of the AEC.

The commitments would be tracked by the use of an ASEAN Scorecard that could measure progress towards achieving each of the items in the blueprint.  Critically, to get approval of the members, the report card had several interesting features.  The report is an aggregated account of progress—no single member is ever praised or punished specifically for implementing or failing to implement any given commitment.

The scorecard is a binary system.  Members are given “credit” for progress made towards the objective or are not.  There is no attempt to measure actual implementation.  The member states themselves must provide the information to the Secretariat for tabulation.

At the Secretariat, officials add up (behind the scenes) the check marks for progress and report out either “fully implemented” or “not fully implemented.”  As an example, the first scorecard for free flow of goods showed 9 items fully implemented and 0 items not implemented between 2007-2009.  The record reported in Phase 2, 2010-2011, was more mixed with 23 items implemented and 24 items not fully implemented.  It is not clear what items are even being measured.

This highlights more challenges with the blueprint/scorecard system.  Over time, members added additional items.  This made the scorecard more of a moving target.  A member state might have thought it would receive credit for 80% of commitments in phase 2, only to discover that with new, unmet commitments added to the scorecard, it (and ASEAN) might receive a score closer to 70% or worse.

The easiest commitments are always likely to go first.  The tougher parts of integration dealing with the more sensitive items are most likely to appear in the blueprint at the end of the process.  Hence, under whatever system members might have devised to address implementation challenges for the AEC, progress towards the end was likely to slow down.

In the years since the last publication of scorecard results, officials and other stakeholders have had discussions about revising the system.  But given the extreme unwillingness of participants to have anything that might appear to be bad news or backsliding on commitments, members appear to have decided to abandon the entire scorecard exercise.

The lack of an actual scorecard now makes repeated references in 2015 to the scorecard and blueprints so strange to hear this week in Malaysia.

Dr Deborah Elms is Executive Director of the Asian Trade Centre, Singapore. She is also a senior fellow in the Singapore Ministry of Trade and Industry’s Trade Academy. Previously, she was head of the Temasek Foundation Centre for Trade & Negotiations and senior fellow of international political economy at the S. Rajaratnam School of International Studies at Nanyang Technological University, Singapore. She publishes the Talking Trade Blog.

Tuesday, August 25, 2015

Highlights of the ASEAN Economic Ministers' Meeting & related meetings

By Edmund Sim

The 47th Meeting of the ASEAN Economic Ministers was held on 22 August 2015 in Kuala Lumpur, Malaysia. The ministers also held joint meetings with the 29th ASEAN Free Trade Area (AFTA) Council and the 18th ASEAN Investment Area (AIA) Council. Highlights of these and related meetings include:

Regional Comprehensive Economic Partnership (RCEP)

Malaysia's Minister of international trade and industry, Mustapa Mohamed, said that the RCEP parties had agreed to a tariff reduction modality for the agreement.  According to Dato Sri Mustapa, 65% of tariff lines would be zero-rated immediately upon the RCEP agreement taking effect, with 80% of tariff lines at zero rates within 10 years. Although ASEAN and its FTA partners already had tariff reduction commitments, this was not the case for all RCEP partners, such as China, Japan and India.  Dato Sri Mustapa said that details would be worked out at the next negotiating session in Korea in October, but that technical issues could lead to RCEP’s conclusion only in 2016.

ASEAN + Free Trade Agreements (FTA)

Dato Sri Mustapa also said that ASEAN’s FTAs with South Korea and Japan would be expanded to include services and investments, and the FTA with China would be upgraded.   This represents improved coverage for those FTAs, especially when compared with the ASEAN FTA with India, which does not cover investment (the ASEAN-FTA with Australia-New Zealand covers goods, services and investment). It also represents progress in RCEP, as that blanket agreement also includes services and investment.

ASEAN Trade in Goods Agreement (ATIGA)

Indonesia said that it had the continued support of  the other ASEAN members to exclude alcoholic beverages from the 0% duty rate under the ATIGA.  Indonesia said that the exclusion was consistent with  Article 8 of ATIGA provides a general exception from trade liberalization commitments for measures “necessary to protect public morals.”

ASEAN Economic Community (AEC)

The AEM noted that 91.5% of "prioritized" AEC goals had been met.  This refers to the items which should be completed by end of 2015, not the total AEC Blueprint items (of which the completion rate has not been updated). A new AEC Scorecard report should be released at the November ASEAN summit, along with the ASEAN Trade Repository.  A new AEC Blueprint 2025 will be issued at the November summit as well.

Edmund Sim is an American international trade lawyer and partner in the trade boutique firm Appleton Luff. He also teaches the first course on the law and policy of the ASEAN Economic Community at National University of Singapore law school and has served as an adviser to the ASEAN Secretariat and various ASEAN government ministries. He publishes the ASEAN Economic Community Blog.