The AEC’s limited playing field

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The AEC’s limited playing field

In the last issue we gave an overview of the upcoming ASEAN Economic Community (AEC) which comes into being at the start of 2015. In this issue we will go into a little more detail regarding its implementation and scope.

Perhaps the first point to note is that although all 10 members of ASEAN will be part of the AEC, the four most recent members of that originally political body will be permitted to take longer in implementing the various protocols of the AEC. Those four countries are Cambodia, Laos, Vietnam and Myanmar.
Within three years of the ASEAN Charter – which was signed in 2007 and was the first step in the process of creating the AEC- six of the 10 member nations had reduced tariffs to zero on almost all goods traded between them. Those six were Indonesia, the Philippines, Brunei, Singapore, Malaysia, and Thailand. In a practical sense that 1 January 2010 zero tariff introduction has helped sales of Malaysia’s Proton car in Thailand.
Even so, there are so-called non-tariff barriers (NTB’s) which have remained in place to protect certain allegedly sensitive industries in countries such as Malaysia and Indonesia.
Thailand’s Alien Employment Act prohibits foreigners in certain professions (for example, civil engineering) while other restrictions limit liberalisation. At this stage the ASEAN Framework Agreement The AEC’s limited playing field on Services (AFAS) looks as though it will allow both Thailand and Indonesia to prevent a wholesale shakeup of participants in the services sector.
In other words, when the AEC commences in 2015 it may not be possible for local employers to simply replace their Thai workforce with, say, Filipinos. It may be possible to employ managers or middle level employees from countries such as the Philippines and Malaysia, but it is unlikely that native shopfloor employees can be so easily removed and replaced by imported workers. Much of the reason for the reluctance of Thailand, as well as Indonesia and the Philippines, to completely liberalise their service sectors is based on simple economics. The service industry accounts for about 49 percent of the workforce in Thailand and just over 50 percent in Indonesia and the Philippines.
Unlike the manufacturing sector of the ASEAN economies, there is no definitive industrial policy within the services sector. This means the various ASEAN member governments need to spend time and effort coordinating internal agencies and then, eventually and hopefully, coming up with a joint policy within the services sector that will be workable and agreeable throughout the AEC.
That is not going to be an easy task and it is almost certain that a durable services sector industry policy will not be implemented for some years after 2015.