Demystifying ASEAN integration and the Philippine labor market

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DEVPULSE VOL. 13 NO. 1 2ND SEMESTER 2014 Demystifying ASEAN integration and the Philippine labor market

NOTES FROM THE EDITORS ‘Skills challenge’ seen with free flow of
Demystifying ASEAN integration ASEAN professionals
and the Philippine labor market B eginning 2016, professionals from
ASEAN countries will have greater
AEC Blueprint on labor mobility
mobility to work within the ASEAN • Issue employment passes for professionals engaged in
Economic Community (AEC). While cross-border trade and investment-related activities
experts do not foresee massive • Enhance cooperation among ASEAN University Network (AUN)
displacement of Filipino workers, they members to increase mobility for students and staff
warn of a “skills challenge” that needs to
• Develop core competencies and qualifications for occupational
be addressed through a strengthened
and trainers skills in the services sectors
educational system and professional
regulation. • Strengthen research capabilities in promoting skills, job
placements and developing labor market information networks
The Philippines as labor recipient
Tutay did not totally discount the possible displacement of local
The entry of foreign professionals workers, but she said there may only be a few affected workers because
actually presents advantages for the Filipinos are highly competitive.
Philippine labor market, according to
Director Dominique Tutay of DOLE’s “Services of foreign professionals are usually needed if their skills are not
Bureau of Local Employment. She said locally available. If some companies hire them even if there are Filipino
foreigners bring new technologies and talents, this might engender ill feelings and negative reaction from local
management systems that would raise practitioners,” said Tutay.
professional standards, especially in the
The Philippines as labor sender
“T here is nothing mystical about the ASEAN Economic
Community (AEC), because the way to succeed there,
internationally, is to do the things that we need to do
are implemented locally, high unemployment and
underemployment will persist.
education and information technology
(IT) sectors.
Experts from the Philippine Institute for Development Studies (PIDS),
anyway as a nation.” This DevPulse issue tackles policy imperatives to “When entry of foreign nationals is however, noted that the Philippines is not a labor recipient but a sender
improve the country’s labor situation in order to restricted, acquisition of knowledge of mostly unskilled workers.
This was the synthesis of Emmanuel Esguerra, NEDA take better advantage of the opportunities in AEC, as also becomes limited. To eliminate
Deputy Director-General for Policy and Planning, in a recommended by experts who include an economics intellectual inbreeding, we need to “Migration to other countries is not dominated by professionals and our
forum that gathered labor and regional integration experts professor and former Cabinet official, researchers from attract foreign professors who can teach MRAs cover only seven professions,” said PIDS Research Fellow Aniceto
to discuss the Philippine jobs challenge in line with the the government’s think tank, and a labor department post-graduate studies. We also noticed Orbeta.
integration of the 10-member Association of Southeast official. that applications for alien employment
Asian Nations (ASEAN). permits are mostly in IT, since companies PIDS President Gilberto Llanto said that countries with aging
The first article discusses policies addressing the “skills claim there is an absence of Filipino populations, like Thailand, will welcome workers from sending countries,
By 2016, ASEAN—which covers only three percent of the challenge” Filipinos will face due to free movement specialists,” she said. like the Philippines, and this will benefit the latter through remittances.
Earth’s land area and eight percent of world population— of ASEAN workers. The second story highlights the
will consolidate into an economic, political-security need to create an environment of openness and Entry of foreign professionals is currently “But in the future, this can be reversed. With sustained economic growth
and sociocultural community. Currently, it is already a fair competition to allow freer flow of investments. prohibited by Philippine laws without and strengthened manufacturing and services, Filipino workers may
formidable economic bloc. Next to China and Japan, its Minimizing foreign equity restrictions continues as a a special permit to practice profession choose to stay in the country,” said Llanto.
combined gross domestic product (GDP) last year was the theme in the third and final article, along with paradigm or unless allowed by reciprocity
third largest in Asia, growing by more than 300 percent shifts for farmers and entrepreneurs, in seizing the clause. The ASEAN Mutual Recognition ‘Skills challenge’ and social protection
from 2001 to 2013. With freer trade and almost 90 percent advantages of free trade. Arrangements (MRAs), however, allow
compliance with integration commitments, the AEC is not freer movement of professionals With the expected technological and production shifts in regional
just approaching: it is already here. As Esguerra noted, most, if not all, recommendations in by standardizing regulations and integration, PIDS Research Fellow Ramonette Serafica said Filipino
this issue’s articles are already outlined in the Philippine procedures for employment. workers will face a “skills challenge.”
The AEC has consequences on the Philippine labor market. Development Plan (PDP) for 2011-2016. This only
Ideally, having a single regional market and production reaffirms the Plan’s importance as the overarching So far, the ASEAN countries have Continued on next page
base will spur domestic jobs generation. This, however, guide for every policymaker in attaining inclusive signed MRAs for seven professions (see
is not automatic. Unless structural and policy changes growth for all Filipinos.  infographics in the next page).

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DEVPULSE VOL. 13 NO. 1 2ND SEMESTER 2014 Demystifying ASEAN integration and the Philippine labor market

Skills challenge... (continued from page 3)

“Across all industries, shortage of applicants with the right competencies is
the biggest recruitment challenge by our domestic employers. The policy
response should always be to ensure that local workers have the right
skills set,” said Serafica.

Tutay agreed, saying that education and training institutions need to

revise their curricula to adjust to the labor market demand not only within
the country but of the ASEAN.

The labor official cited the following initiatives that will prepare the labor
market:

• Skilled Occupational Shortage List (SOSL), a “positive list” of

occupations with short supply of local workers and where entry of
foreign experts are crucial, as identified by industry and labor groups,
and the government;

• Philippine Qualifications Framework (PQF), a national policy that

harmonizes the needed qualifications and procedures in employing
foreign professionals, in line with the ASEAN Qualifications Reference
Framework (AQRF);

• Philippine Services Coalition (PSC), a multisectoral working group

revived to develop and implement a strategy for promoting
Philippine services in the global markets; and

• Pending legislation that liberalizes the entry of foreign professionals.

Even with strengthened educational system and professional regulations,

there are still workers who are not equipped for the competitive labor
market. “They are easily laid off, bypassed, or trapped in low-paying jobs.
In this respect, social protection schemes will be necessary to temper
market aberrations,” Llanto said.

Tutay said safety net programs are already in place for Filipinos affected
by the integration. However, Orbeta said that the transferability of social
protection from one country to another still has to be discussed in ASEAN.

“Besides transfer of financing, the bigger issue is what is creditable,” said

Orbeta, referring to social insurance contributions that can be credited to
the worker across the region.

While it is not in the AEC Blueprint, establishing a network of social

protection agencies for those affected by regional integration is an
action item in the ASEAN Socio-cultural Community (ASSC) Blueprint. A
committee currently drafts the instrument that recognizes the obligation
of both sending and receiving countries in protecting migrant workers’
rights.

Serafica emphasized that not all benefits are automatic with the
integration of labor market in ASEAN. “We should continue to invest in
training and education to address the country’s present and future skills
challenge,” she said.

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DEVPULSE VOL. 13 NO. 1 2ND SEMESTER 2014 Demystifying ASEAN integration and the Philippine labor market

‘We could have attracted investments Equity limits, agri policies among the
if only Philippines is more open’ remaining issues on free ASEAN trade
F ilipinos are strongly positioned to benefit from job
opportunities of the ASEAN Economic Community
(AEC). But the Philippines has to do more in terms
attracted similar investments if only the Philippines is
more open,” said Habito. T he ASEAN Economic Community
(AEC) envisions the region to
become a significant player in global
infographics). By the end of 2015, there will be no restrictions for
Modes 1 and 2 as stated in the AEC Blueprint. For Mode 3, a maximum
of 70 percent foreign (ASEAN) equity participation is allowed in
of opening up to foreign investors and enabling an From 2001-2010, FDI to the Philippines averaged only trade by having a single production establishing commercial presence within the region.
environment for fair competition. at US$1.5 billion annually. While it doubled to US$3.9 and market base within the ASEAN.
billion in 2013, it continues to lag and the gap between This means that firms and individuals (More details on Mode 4 are discussed in the page 3 article “’Skills
Former Socioeconomic Planning Secretary Cielito the Philippines and those of other ASEAN countries in can freely transact business across challenge’ seen with free flow of ASEAN professionals.”)
Habito, who is Chief of Party of the USAID Trade- terms of FDI has widened (see graph). countries within the region without
Related Assistance for Development, said that one of being subjected to too many country Free flow of services is expected to increase investments and create
the possible reasons why the share of jobless workers The ASEAN Comprehensive Investment Agreement rules, procedures, and duties. more jobs, said Ramonette Serafica, Research Fellow of the Philippine
in the Philippines is higher compared with other ASEAN (ACIA) was signed to liberalize intra-regional Institute for Development Studies (PIDS). But for ASEAN suppliers to
countries is because our neighbors are more open to investments. However, the Philippines listed 19 Regional economic integration offers invest in the Philippines, Serafica said we need to improve infrastructure
foreign direct investments (FDI). reservations or domestic measures that do not conform opportunities for the Philippine labor and eliminate further restrictions to strengthen our competitiveness.
with some of ACIA’s provisions. All 19 reservations cited market, if the country eliminates
Habito noted that the Philippines is the only ASEAN the 1987 Constitution as among the legal bases. restrictions that currently impede the Continued on next page
country where the constitution enshrines foreign flow of services and goods.
investment restrictions in certain areas, including public Habito said that lifting or minimizing restrictions on
utilities, educational institutions, mass media and foreign investments and capital will likely improve Trade in services AEC Blueprint on trade in services and goods
advertising. the quality of our services and workers. “It will also
increase competition, Trade in services is categorized • Remove substantially all restrictions to ASEAN services suppliers,
“For example, Johns Hopkins University is already into four modes: (1) cross-border subject to domestic regulations
established in Singapore and Malaysia. We could have Continued on page 8 supply, (2) consumption abroad • Liberalize restrictions in financial services
(3) commercial presence; and (4) • Eliminate tariffs, quotas, and other restrictions in trade of ASEAN goods
Foreign direct investments (FDI) in selected ASEAN countries, temporary movement of people (see
2004-2013 AEC Blueprint on
investments and capital
• Extend fair treatment to
ASEAN investors and minimize,
if possible eliminate, limited
exceptions
• Reduce, if possible eliminate,
investment restrictions in
electronics; wood, rubber
and agro-based products;
automotives; textiles and
apparels; and fisheries
• Reduce, if possible eliminate,
other investment impediments,
including performance
requirements
• Remove or relax restrictions on
capital flows to facilitate current
account transactions and
support FDI and development of
capital markets
Source: United Nations Conference on Trade and Development

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DEVPULSE VOL. 13 NO. 1 2ND SEMESTER 2014

‘We could have attracted... (continued from page 6) Equity limits... (continued from page 7)

resulting in improved industry performance and “For example, the transportation and communication
productivity, with lower cost and higher efficiency.” sectors, which are covered by the 60-40 (Filipino-foreign)
equity rule, have low employment and negative labor
Another imperative is to pass a unified competition/ productivity growths. If foreign investments are able to
anti-trust law. Gilberto Llanto, President of the Philippine flow into these sectors, more workers could be employed
Institute for Development Studies (PIDS), said that this will across a range of skill levels,” she said.
address issues of monopoly, cartel, abuse of power and
consolidation. As to commercial presence in the region, Filipino firms are
already “ASEAN-engaged” and not lagging behind, said
“There are existing sector-specific laws in the Philippines former Socioeconomic Planning Secretary Cielito Habito.
that bear the aspects of competition law, but these are He added that local small and medium enterprises (SMEs)
not consolidated into a single and coherent policy or need to cluster together to be successful.
framework,” said Llanto.
“SMEs are encouraged to team up to accommodate
With about seven percent of the Filipino workforce volume of orders in the ASEAN,” said Habito, adding that
unemployed, Habito said that any further opening on the Department of Trade and Industry has pushed for
investment and capital flows can only benefit the labor shared service facilities that allow small producers to use
market. them together.

“We could probably bring our unemployment rate down Trade in goods
to the normal level in ASEAN, which is only between two
and three percent,” said Habito.  Almost all products are already freely traded in ASEAN,
with tariffs as low as 0-5 percent as of 2010. In 2013, 16
percent of Philippine exports were sent to ASEAN, while
22 percent of imported goods came from ASEAN.

An official publication of the Sensitive agricultural products, including rice, are the
National Economic and Development Authority remaining goods that need to be liberalized. Habito said
The NEDA Publications Board the Philippines needs to be more open and start looking
at approaches toward attaining food security at the
Chair: Emmanuel F. Esguerra
regional level.
Vice Chair: Kenneth V. Tanate
Members:
Rosemarie G. Edillon “We can have the greater Mekong Delta as the rice
Ruben S. Reinoso granary of AEC, as long as there is clear commitment that
Reynaldo R. Cancio rice will be readily available to any other ASEAN country,”
Nerrisa T. Esguerra he said.
Roderick M. Planta
Remedios S. Endencia PIDS President Gilberto Llanto noted that there are
Jocelyn P. Reyes sporadic successes of small rice farmers transitioning
Severino C. Santos
to high value crops and being linked to the food chain
Editors industry.
Nerrisa T. Esguerra
Omar O. Dumdum Llanto said one other approach is for farmers to target
minimarts or grocery stores that are now sprouting in
Writers growth centers. A group of farmers can collaborate so
Rolan B. Aldovino that they can regularly supply goods to be sold in these
Paul Andrew F. Lucena minimarts.
Graphics, layout, and photos
“Understanding the way the industry is organized should
Jyasmin M. Calub help farmers organize themselves. These are the things
Raissa P. Angeles that need to be addressed in our labor market,” he said. 
Ted Edward F. Ferreras