Roadmap to an ASEAN Economic Community

9. Services Trade Liberalization in ASEAN

172 Christopher Findlay 9 Services Trade Liberalization in ASEAN Christopher Findlay 1. Introduction The common assessment of progress on the service sector liberalization in ASEAN, based on the ASEAN Framework Agreement on Services (AFAS), is that little progress has been made. Recent research indicates that serious impediments to trade and investment in services remain, and that these impediments are costly. New momentum for services reform in ASEAN would be timely and valuable. The Doha Round of the World Trade Organization (WTO) negotiations is in progress but even before the Ministerial Meeting at which the Round was established, the services negotiations had begun. One of the questions examined in this chapter1 is how to manage the overlap between the forums of activity at the regional level (both in ASEAN and in the Asia-Pacific Economic Co-operation [APEC]) and at the global level. The discussion of these questions of service sector reform is relevant to the work in progress on the architecture of a new ASEAN Economic Community (AEC). Proposals for the AEC agenda include the establishment of clear deadlines for work on services, a commitment to implementing domestic reforms in services, the removal of work permits for skilled and creative workers moving between member economies, and the establishment 09 Roadmap2AEC Ch 9 7/9/05, 3:44 PM 172 Services Trade Liberalization in ASEAN 173 of a visa-free region for ASEAN tourists. Suggestions of this type are also reviewed in the chapter. The next section provides some background on the services trade in ASEAN economies. Materials on issues in the design of reform agendas in the service sector are then presented. These include the progress made to date in regional agreements applied to the service sector. The following sections then review some specific suggestions in relation to the AFAS and the concluding section identifies two broad paths for consideration in further work. 2. Background on the Service Sector and Trade in Services There is a wide variation in the significance of the service sector in the ASEAN economies. Figure 9.1 shows the service sector shares of employment in ASEAN countries. The sector’s significance in Singapore is similar to that of developed economies. Malaysia, the Philippines, Indonesia, and Thailand show shares ranging from 30 to 50 per cent while the sector’s share of employment in Vietnam and Cambodia is much lower. In most cases, employment shares in services are rising. The ASEAN economies as a group are relatively large services exporters. The group ranks fifth in the world after the United States, the United Kingdom, France, and Germany (Table 9.1). The highest ranked individual economy is Singapore (17th ), followed by Malaysia (27th ), Thailand (28th ), Indonesia (39th ), the Philippines (49th ), Vietnam (52nd ), Myanmar (92nd ), Cambodia (114th ), and Lao PDR (120th ). The share of services in total exports of goods and services for the ASEAN countries is less than the world average (Figure 9.2). The services share in world exports is about 19 per cent while for the ASEAN-Nine it is less than 15 per cent. Even the services share in Singapore’s exports is less than that of the world average. The significance of services in ASEAN imports is about the same as that in the world on average (Figure 9.3). In terms of the relative importance of services in exports and imports, one outlier is Indonesia. Its services share of total exports is very low while that of imports is relatively high. An economy in the opposite situation is Lao PDR, whose services share of imports is relatively low. Figure 9.4 shows the net export ratios (the ratio of the difference between the value of exports and imports relative to their sum) for those ASEAN members with relatively large trade flows in services. Most are negative (Singapore is the exception) but close to zero (including Singapore), indicating a relatively high level of two-way trade in services. As just noted, Indonesia is an outlier with a relatively large negative net export ratio. 09 Roadmap2AEC Ch 9 7/9/05, 3:44 PM 173 174 Christopher Findlay Table 9.1 Rankings of Service Exports, Top 24 and ASEAN, 2001 (US$ million) 2001 Rankings 2000 2001 World 1,465,100 1,458,200 Western Europe 674,800 678,700 European Union (15) 605,900 611,500 Asia 304,200 302,600 North America 309,700 299,000 ASEAN (9) 66,895 65...