Free Flow of Trade in Services

Free flow of trade in services is one of the important elements in realizing

ASEAN Economic Community, where there will be substantially no restriction
to ASEAN services suppliers in providing services and in establishing
companies across national borders within the region, subject to domestic
regulations. Liberalization of services has been carried out through rounds of
negotiation mainly under the Coordinating Committee on Services.
Negotiation of some specific services sectors such as financial services and
air transport are carried out by their respective Ministerial bodies. In
liberalizing services, there should be no back-loading of commitments, and
pre-agreed flexibility shall be accorded to all ASEAN Member Countries. In
facilitating the free flow of services by 2015, ASEAN is also working towards
recognition of professional qualifications with a view to facilitate their
movement within the region.
The main action is to remove substantially all restrictions on trade in services
for the priority service sectors (air transport, e-ASEAN, healthcare and
tourism) by 2010, logistics services by 2013, and all other service sectors by
2015. Another objective stated in the blue print action plan is to complete
mutual recognition arrangements (MRAs) currently under negotiation i.e.
architectural services, accountancy services, survey qualifications, medical
and dental practice dated practitioners as well as for other professional
services. In the area of financial services, the targets are less aggressive
stating that Liberalization measures of financial service sector should allow
members to ensure orderly financial sector development and maintenance of
social and socio economic stability and that the process of liberalization
should take place with due respect for national policy objectives and the
level of economic and financial sector development of the individual
members.
Is the Philippines Ready for AEC?
According to the Bureau of International Trade Relations- Department of
Trade and Industry (2010), the Philippines has implemented the following
measures relating to the AEC 2015 blueprint: schedule maximum of 3 types
of non-equity market access (MA) limitations for 12 sub-sectors under the
other sectors area; schedule none for modes 1 and 2 MA and national
treatment (NT), with exceptions due to bonafide regulatory reasons;
complete compilation of inventory of barriers to services; completed
negotiations and signed MRA on accountancy services, medical practitioners
and dental practitioners.
The Philippine Daily Inquirers editorial on August 27, 2014, raised a related
question: How ready are Philippine companies for the AEC? Two sectors that
are expected to face difficulties are agriculture and financial services. On

agriculture, the local sugar industry is highly vulnerable to competition once

tariff is slashed to only 5% in 2015 (from 18% in 2013).
Standard & Poor, an investment firm, believes that Philippine banks are also
not yet ready. Although profitable and stable, they have a much smaller
business scale compared with their regional counterparts. The asset and
capital size of the countrys banking system pale in comparison to those in
the region: The total assets of all Philippine banks are equivalent to only one
big bank in Malaysia. The combined assets of the 3 biggest banks in the
Philippines would approximate one bank in Thailand. The total capitalization
of the entire Philippine banking system would be the size of just one
Singaporean bank.
According to the editorial, one reason for the Philippine banks incapacity to
compete with other regional banks is because of the 40% constitutional
limitation on investment. Compare this with the 99% open investment in
Indonesia, the lack of hard limit to foreign ownership in Malaysia and
Singapore, and a flexibility clause that allows foreign ownership beyond 50%
in Thailand. (Melencio, 2014)
If we are to look at the results of recent global competitiveness ranking of
the Philippines, the country is on its way to being regionally competitive. In
the 2014-2015 results, the Philippines jumped 13 notches and landed in the
52th place out of 144 countries surveyed. However, compared to other
ASEAN countries, we are still far behind. Singapore ranked an impressive
second place in the same global competiveness report. Malaysia is on the
20th place, Thailand is 31st and Indonesia is 34th. Trailing after the
Philippines, Vietnam took the 68th place and Cambodia is at the 95th place,
Lao PDR is at 93rd place, and Myanmar is at 134th. Brunei Darussalam was not
included in the survey.
The Philippines has stated in its horizontal commitments that market
access is to be limited in all activities expressly reserved by law to
citizens of the Philippines (i.e. foreign equity is limited to a minority
or zero share.)
Furthermore, it has also limited the entry and temporary stay of
natural persons supplying services by stating: Non-resident aliens
may be admitted to the Philippines for the supply of a service after a
determination of the non-availability of a person in the Philippines
who is competent, able, and willing, at the time of application, to
perform the services for which the alien is desired.

ASEAN professionals, meanwhile, are allowed to set up fi rms or

partnerships in the Philippines for the practice of architecture, civil
engineering, and auditing, among others. However, the AFAS annex
further states that they must not only acquire Philippine licenses
and public practice experience, their own country must also admit
Filipinos to practice the same profession without restriction or allow
Filipinos to practice it after passing the exam on equal terms with
foreign
citizens,
including
unconditional
recognition
of
degrees/diplomas. These sub-sectors are also covered by the
blanket condition of local labor non-availability.
These statements clearly show that the Philippines is not yet really ready for
services integration. Moreover, the protection of Filipino workers, local firms
and our own economy in general must come first. If we are to adopt such
changes, we must solve our own problems first like problems of corruption,
poverty, unemployment, and education. We cannot enter the war without
weapons, we will die right away. The Philippines need to achieve significant
progress before adopting this kind of economic integration so that we will be
able to carry on with the changes that will definitely affect our livelihood and
our country.
The Impact on the Philippine Economy
With the committed adoption of the free flow of services and skilled labor,
our ASEAN counterparts will be allowed to practice their professions in the
Philippines. While there may be some apprehension in having foreign
accountants and doctors freely practicing in the Philippines, this will also
greatly enhance the regional presence of Filipino professionals and skilled
laborers.
A single market for goods and services will ultimately give the Philippine
consumer a greater selection of service providers and make prices more
competitive. It will also facilitate the development of production networks in
the region and enhance ASEANs capacity to serve as a global production
center or as a part of the global supply chain. Another important potential
benefit will be that Philippine service providers should have much greater
access to operate in the other rapidly developing countries within ASEAN as
well.
The entrance of Foreign Service providers will give additional jobs for
Filipinos who are unemployed because of the lack of job opportunities in the
Philippines. It will also increase competition and push the local firms to
operate more efficiently and effectively to be able to take hold of their
market shares which in turn will improve productivity and the economy in
general.

However, there are also down sides to this integration. With the increasing
competition, local firms might obtain losses and subsequently close, which
will directly affect local workers who might lose their jobs. The competitive
entry of foreign workers will also threaten the Filipinos because firms might
choose the former over the latter in recruiting employees.
To maximize the opportunities that the ASEAN integration may bring, the
Philippines must develop systems and infrastructure to make the country
more competitive in the region and more attractive to foreign investors than
its ASEAN neighbors.