The AEC’s agreement on free flow of skilled labour needs careful attention

A momentous thing just happened – but perhaps few have paid any attention to it.

After almost 10 years of negotiation, the ASEAN Economic Community (AEC) was finally brought into existence on Thursday.

The agreement to establishment the trade pact was signed by member countries in 2007 at the 13th ASEAN Summit in Singapore.

ASEAN is the Association of Southeast Asian Nations, made up of 10 countries – Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Laos, Cambodia and Myanmar.

According to the blueprint which was released to the media then, the AEC would facilitate economic integration by 2015.

“The end-goal of the AEC 2015 is the realisation of a single market and production base, in which there is a free flow of goods, services, investments and skilled labour, and a freer flow of capital, with equitable economic development and reduced poverty and socio-economic disparities,” the press release said.

These aims are translated into four areas:

  • a single market and production base;
  • (ii) a highly competitive economic region;
  • (iii) a region of equitable economic development;
  • (iv) a region fully integrated into the global economy.

The formation of the AEC was welcome by Singapore’s Minister of Foreign Affairs, Vivian Balakrishnan.

“The establishment of the ASEAN Economic Community (AEC) will contribute significantly to the region’s growth and create developmental opportunities for all,” the minister said on his Facebook page on Wednesday. “It will give our people, especially the young, many more opportunities to succeed. Our local businesses, especially the SMEs, also stand to gain. By expanding their operations beyond national boundaries to the wider region, they will be able to serve ASEAN’s growing middle class.”

Indeed, some economists share Dr Vivian’s views, particularly that Singapore’s small and medium-sized enterprises (SMEs) would benefit.

“The implementation of the AEC is the ASEAN’s most ambitious undertaking, and will boost the region’s GDP by 5 percent by 2030, with Singapore benefitting the most as a percentage of GDP growth,” CNBC reported HSBC’s Global Research report in November.

“The integration of services trade will benefit Singapore the most with its high value-add finance and insurance industry,” the HSBC report added.

Singapore, along with more mature economies like Malaysia, could also “leverage” on the AEC “by deploying capital within the region,” said analysts.

However, there are concerns and cautions about the AEC.

For a start, not all 10 countries will be involved in it from the get-go. Myanmar, Laos and Cambodia will join in only two years later.

Observers also say that because of ASEAN’s much weaker institutional framework, commitments to the agreement would be hard to enforce or be met.

The ASEAN Secretariat, for example, which acts as the main authority of the bloc and implements projects, has limited powers and only a tiny budget of $17 million as of 2014, according to HSBC.

There are also concerns, especially for countries such as Singapore, about the free flow of skilled workers, given that Singaporeans have been uneasy about the influx of foreigners in recent years.

“The free trade in goods is largely a fait accompli, and the free flow of skilled labor is complicated due to political concerns, which leads us to believe that the liberalization of services and investment are the most important parts of the AEC and can bring about the most tangible economic benefits,” said Joseph Incalcaterra, Asia-Pacific economist at HSBC Global Research.

“Generally the AEC is a good idea especially removal of barriers to trade and capital,” economist and Adjunct Professor, LKY School of Public Policy, Yeoh Lam Keong, told The Online Citizen.

He agreed that the AEC would give local businesses and SMEs a much bigger potential market – “something that has limited us for decades.”

“It also provides such businesses with greater access to regional capital for joint ventures,” Mr Yeoh said.

However, he cautioned that “we do need to be more careful in terms of free flow of labour – even skilled labour.”

For example, he said a massive supply of skilled engineers from a poor country can potentially lower real wages of engineers so much that there is no incentive to get an engineering education domestically.

“This hollows out domestic skilled investment long term and keeps us over dependent on foreign PRs,” he said. “It also prevents firms from specializing in higher value engineering and going for cheap engineering activities with lower long term human capital content.”

This, he said, would apply to other skilled occupations as well.

“So, good judgements and care are needed here. This is important not just for the career prospects of our young PMETs but especially for our more experienced professionals who often have less qualifications but more experience and are vulnerable to replacement by cheap young foreign professional labour.”

On other positive aspects of the pact, Mr Yeoh said it enhances ASEAN’s “political clout” when dealing with superpowers like the US, China or India.

“We can thus play the role of honest neutral broker to help maintain neutrality and peace regionally and in the Asia Pacific much more effectively.”