Bernardo M. Villegas
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ASEAN Framework Agreement on Services

          Services can be as powerful an instrument to attain inclusive economic growth as manufacturing.  Take, for example, the booming export-oriented business process and knowledge process outsourcing industry in the Philippines.  It generates some 700,000 well paying jobs today and can employ as many as 1.5 million in 2016.  In addition, its multiplier effects on real estate, retailing, food businesses and other consumer-oriented  good and services are so visible, not only in Metro Manila, but also in other cities like Cebu, Davao, Bacolod, Cagayan de Oro, Dumaguete, Iloilo, Baguio, etc.   The same can be said of another prominent component of the service sector:  tourism.  It is estimated that every foreign visitor can generate as much as two jobs annually.  Ten million foreign tourists are targeted by 2016. Can we prepare some 20 million qualified tourist workers and related skilled workers between now and 2016?  We are not even including in our calculations the more than 50 million domestic travelers also expected in 2016 who will stimulate further generation of jobs.  Those who worry that the Philippines is becoming too service-oriented may be overestimating the value of manufacturing to generating jobs.

          All over the ASEAN, the services sector is a major contributor to an expanding Gross Domestic Product (GDP).  It accounts for anywhere from 40 to 60 percent of GDP.    The exports of commercial services by the ASEAN have been expanding steadily, from US$79 in 2003 to US$219 billion in 2010.  ASEAN's import of services has always been on a strong growth path:  from US$104 in 2003 to US$229 in 2010.  In recognition of the growing importance of intra-ASEAN integration in the services sector, the ASEAN Economic Ministers signed the ASEAN Framework Agreement on Services (AFAS) way back in 1995 in Bangkok, Thailand.  The objectives of AFAS are:

          --enhance cooperation in services among ASEAN Member States to improve the efficiency and competitiveness of ASEAN services industries, diversify production capacity and supply, and distribution of services;

          --eliminate substantial barriers to trade in services;

          --liberalize trade in services by expanding the depth and scope of liberalization beyond those undertaken under the General Agreement on Trade in Services of the WTO;

          Since the signing of AFAS, ASEAN has concluded five rounds of negotiations resulting in seven packages of commitments under AFAS.  These include a wide range of services sectors under the purview of the ASEAN Economic Ministers, such as business and professional services, construction, distribution, education, environmental services, health care, maritime transport, telecommunications and tourism.  These packages are implemented via Protocols signed by the AEM and provide details of liberalization of the services sub-sectors where commitments are made.  In addition to these AFAS packages, there have also been four additional packages of financial services commitments signed by ASEAN Finance Ministers and three additional packages for air transport services signed by ASEAN Transport Ministers.

          Under the 8th Package, the most ambitious set of commitments was targeted for completion by 2011.  Subject to a limited pre-agreed flexibility, the commitments were in line with the targets set under the AEC Blueprint, which include:  (a) scheduling no restrictions for cross border supply and consumption abroad; b) allowing for foreign equity participation of 51% or more; and (c) progressively removing other restrictions.  Mutual Recognition Arrangements (MRAs) have been concluded for engineering services, nursing services and agricultural services.  In addition, there is an MRA on Tourism Professional that was adopted at the 12th Meeting of ASEAN Tourism Ministers in 2009.  There have also been MRA agreements on medical practitioners, dental practitioners, accountants and architects.

          The Philippine services sector has a distinct competitive advantage within the ASEAN because of the above-average quality of Filipino manpower.  As presented by Mr. Jesus Zulueta, CEO of ZMG Ward Howell, a leading executive search firm in Southeast Asia,  to more than 300 American business people in a recent investment roadshow in three U.S. cities, the advantages of Filipino talents are based on a high level of tertiary education (more than 500,000 university graduates every year and a stock of 3.2 licensed professionals); adaptable and multicultural workers; fluent in English and familiar with the culture of the biggest market in the world, the U.S.; low cost of labor (average monthly compensation of about US $279); and labor peace (only 2 strikes in 2011 vs. 222 in China and 978 in Vietnam).  Compared to Singapore, Malaysia and Thailand, the Philippines still has a young and growing population.  Its median age is 23.1 while Vietnam has 28.1, Indonesia 28.5, Singapore has 31.5, China has 35.9 and Japan 45.4.  There is no question that the Philippines can supply high quality professional manpower in such fields as accounting, health services, education, architecture and business process outsourcing to such labor-short ASEAN countries as Singapore, Malaysia and even Thailand that is already showing signs of rapid aging. 

          It is highly unlikely that the ASEAN countries, especially Indonesia, Vietnam, Myanmar, Cambodia and Laos, will allow free movement of unskilled labor, even under the ASEAN Economic Community, considering the high rates of underemployment prevailing in these countries. Filipino service workers, however, have better prospects in the skilled labor market.  Given the experiences of Indonesia and Vietnam, that have been open for some time now to Filipino professionals (especially in the management sector), it can be expected that as the AEC leads to more Mutual Recognition Agreements in the coming years, Filipino  knowledge workers  will be at the forefront of the  free movement of professionals in management, accounting, health services, architecture, lawyers, engineers and agricultural experts, especially into Singapore, Malaysia and Thailand that are already suffering from manpower shortages. The area in which the Philippines is peerless is that of maritime workers.  Filipino seafarers account for as much as 30 per cent of the international manpower supply.  These bright prospects for Philippine service workers should put pressure on the institutions of higher learning of the Philippines to increase the supply of highly qualified professionals in the coming years.   For comments, my email address is bernardo.villegas@uap.asia.