ASEAN Economic Community Scorecard: Performance and Perception

4. An Assessment of Services Sector Liberalization in ASEAN

4 An Assessment of services sector LiberALizAtion in AseAn1 Deunden Nikomborirak and Supunnavadee Jitdumrong i. introduction ASEAN has made a remarkable achievement in liberalizing trade in goods through the ASEAN Free Trade Agreement (AFTA), where tariffs on virtually all imports have been reduced to zero within ASEAN 6 since 2010, bar a few sensitive items for six original members. The progress made in liberalizing trade in services, how­ ever, has not been as impressive. Liberalization efforts in services in the past have been focused on two areas: the promotion of trade services by using the GATS approach of request and offer of liberalization by services sector and the promotion of flows of 48 Deunden Nikomborirak and Supunnavadee Jitdumrong skilled labour through the establishment of Mutual Recognition Arrangements (MRAs) of professional services. After several rounds of negotiations and eight commitment packages since the ASEAN Framework Agreement on Trade in Services (AFAS) was established in 1995, the region has failed to liberalize services trade between member economies. Commitments made thus far are marginal to those already made in the WTO. As for MRAs, although several have been signed since 2005, their actual impact on promoting greater flows of professional services within the region is at best negligible. At its 9th Summit in October 2003, ASEAN announced its intention to create an ASEAN Community based upon three pillars: ASEAN Political­Security Community, ASEAN Economic Community, and an ASEAN Socio­Cultural Community. The ASEAN Economic Community (AEC) envisions regional economic integration by 2015. In 2007, at the 13th ASEAN Summit, the ASEAN Economic Community Blueprint (AEC Blueprint), a coherent master plan guiding the establishment of the ASEAN Economic Community 2015, was adopted. The AEC Blueprint will establish ASEAN not only as a single market, but also a single production base which requires free flow factors of production, namely capital and skilled labour. This chapter seeks to assess the progress ASEAN has made thus far in liberalizing services trade within the region according to the milestones and targets stipulated in the AEC Blueprint. The first section provides an overview of the relative importance of the service sector to ASEAN economies. The second section describes service trade negotiation modality and liberalization commitments made thus far under the AFAS as well as those prescribed in the AEC Blueprint. Section three examines the extent to which member countries have met the liberalization milestones prescribed in the AEC blueprint. The fourth and final section will provide recommenda­ tions on how ASEAN may move forward to prompt member countries to open up their service sectors in order to be able to achieve the regional economic integration goal of the ASEAN Community. An Assessment of Services Sector Liberalization in ASEAN 49 ii. importance of services sector in AseAn economies Share of Services Sector in Total GDP The size of the services trade share of a country’s Gross Domestic Product (GDP) varies according to the stage of economic development and the structure of the particular economy. However, in general, contribution of the services trade to GDP tends to be higher in developed economies than in developing countries due to changes in both the production and consumption pattern. Wages in developed countries tend to be high such that industries need to shift from labour­ intensive production of manufacturing goods to skill­intensive provision of services. At the same time, higher income leads to greater expenditure on personal services such as health, education, and tourism. This general observation seems to hold in the case of ASEAN as well. As can be seen in Figure 4.1, Singapore, a member country with, by far, the highest GDP per capita, also shows the highest ratio figure 4.1 share of services sector in total gDP (%), 2001–10 Source: Author’s estimate. 50 Deunden Nikomborirak and Supunnavadee Jitdumrong of services value added to GDP, which is in the seventies. The figure for the Philippines, the second ranked, is in the distant mid fifties. The remaining member countries show ratios in the thirties and forties, bar Brunei. As an oil rich country, services trade remains rather insignificant for the economy despite the high per capita GDP. ASEAN countries as a whole showed an increasing trend of the percentage of services value added to GDP over the past decade, especially for Singapore and the Philippines. For manufacturing­based member countries such as Indonesia, Thailand, and Malaysia, the services sector GDP is either stagnant or in decline...