24 January 2014

Singapore's Coming Challenge: ASEAN Economic Community Blueprint's Free Flow of Skilled Labour

The ASEAN Economic Community ("AEC") Blueprint[1] signed by the heads of government of the ASEAN countries in 2007 envisaged a single market and production base in ASEAN comprising five core elements — free flow of goods, services, investment, capital and skilled labour.

The goal is to transform ASEAN into a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy.

The AEC Blueprint builds on the ASEAN Free Trade Agreement ("AFTA") of 28 January 1992 among the then six nations of ASEAN. AFTA's objective was economic growth by accelerating intra-ASEAN trade and investment using the Common Effective Preferential Tariff ("CEPT") Scheme.

Most people understand a free trade agreement ("FTA") to be an agreement involving two or more countries to promote free flow of goods and services among those countries. Beyond this traditional view, many FTAs also promote free flow of investment, capital and labour.


Free Trade Agreements
Let's pause here and consider two basic principles regarding FTAs.

Firstly, every member country of an FTA must derive some benefit from an FTA. Otherwise, there is no point in being a signatory to the FTA.

Secondly, every member country of an FTA must give up something from an FTA. Though most FTAs create some win-win situations, it is unlikely for every situation to be a win-win situation for every country. There will be some win-lose situations.

These win-lose situations create hardship for the communities or sectors in a country that are forced to lose their erstwhile privileges in order that other communities or sectors in that country may benefit from the FTA. This is why negotiating an FTA, especially a multilateral FTA, is so challenging or even impossible.

Governments sometimes seek to exclude certain politically sensitive sectors from an FTA. Thus, the AFTA excludes unprocessed agricultural produce.

Singapore
What about Singapore?

Singapore already allows most goods to be imported into the country duty free, so its trading partners in ASEAN gain little by exporting to Singapore pursuant to an FTA.

Goods sourced from non-ASEAN countries and re-exported by Singapore to other ASEAN countries may not benefit from the AEC Blueprint because such goods may not satisfy country of origin criteria.

Singapore thrives on exporting its services, and will benefit as the flow of services, investment and capital to other ASEAN countries is rendered less restrictive by the AEC Blueprint.

That leaves the movement of skilled labour.

Free Flow of Skilled Labour — AEC Blueprint
Most ASEAN countries recognise that allowing unskilled or semi-skilled labour into their countries is detrimental to their people, inasmuch as a high percentage of their people may be unskilled or semi-skilled.

Thus, the AEC Blueprint's free flow of labour is restricted to skilled labour — the "managed mobility or facilitated entry for the movement of natural persons engaged in the trade in goods, services, and investments, according to the prevailing regulations of the receiving country"[1], which is different from the right of natural persons to move and reside freely in CARICOM (Caribbean Community) and EU (European Union)[2], for example.

There are two categories of skilled labour — individuals with professional qualifications employed in licensed or otherwise regulated sectors and other skilled individuals.

ASEAN will use mutual recognition arrangements ("MRAs") to facilitate the flow of professionals in seven sectors — accountancy, architecture, dentistry, engineering, medicine, nursing, and quantity surveying — within the region by 2015.

Recognition of one another’s qualifications and experience does not ensure market access. Policies and regulatory frameworks that constrain and impede skilled labour mobility e.g., requirements and procedures for employment visas and employment passes; constitutional provisions reserving jobs for nationals; policies that close or impose numerical caps on foreign professionals and skills in sectors and occupations; economic and labour market tests that constrain employment of foreigners and requiring to have them replaced by locals within a stipulated period; licensing regulations of professional associations; and language proficiency requirements[3].

The question is the extent to which Singapore would cooperate with its ASEAN neighbours, or be bound by its obligations under the AEC Blueprint, to reduce or minimise such impediments by simplifying visa and employment pass applications, for example. Also (though not within Singapore's domestic control) will our ASEAN neighbours tolerate a brain drain of professionals and other skilled persons from their countries to Singapore?

Free Flow of Skilled Labour — Other FTAs
The AEC Blueprint is not the first or only FTA to which Singapore is a party that promotes free movement of natural persons[3].

Our FTAs allow free movement of business people for short-term visits.

Our FTAs allow intra-company transfers of personnel. Singapore is especially disadvantaged because, using the example of the FTA with the US, Singapore has far fewer companies in the US than there are US companies in Singapore, so the intra-company transfers are heavily into Singapore rather than outward. Furthermore, Singapore is a much smaller place than the US when accommodating the inflow of natural persons.

In addition to allowing intra-company transferees, our FTA with India allows free movement of professionals in 127 occupations.

The AEC Blueprint allows free flow of professionals and other skilled labour.

Free Flow of Skilled Labour — Implications
It is therefore small wonder that the Government is planning for a population of 6.9 million[4], except that we didn't know then that the FTAs are fuelling some of the population growth.

There are more FTAs in the pipeline, such as those with the EU and the Trans-Pacific Partnership. Are there more nasty surprises in store?

And, the AEC Blueprint with its free flow of skilled labour will take effect in 2015.

It may be in the interest of Singapore business to promote free outflow of goods, services, investment and capital. It is arguable whether it is in the interest of the citizens of Singapore if the trade-off is free inflow of skilled labour, competing for jobs with our professionals, managers, executives and technicians and over-crowding and straining the already congested infrastructure.

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Notes

1. ASEAN HEADS OF GOVERNMENT Declaration on the ASEAN Economic Blueprint 20 Nov 2007.

2. ECONOMIC RESEARCH INSTITUTE FOR ASEAN AND EAST ASIA Mid-Term Review of the Implementation of AEC Blueprint: Executive Summary Oct 2012.

3. CHIA SIOW YUE Free Flow of Skilled Labor in the AEC, in Urata S and M Okabe (ed) Toward a Competitive ASEAN Single Market: Sectoral Analysis. ERIA Research Project Report 2010-03.

4. NATIONAL POPULATION AND TALENT DIVISION, PRIME MINISTER'S OFFICE (SINGAPORE) A Sustainable Population for a Dynamic Singapore Population White Paper Jan 2013.

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