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The ASEAN Economic Community: Challenges and Opportunities for Philippine Maritime Manpower

Philippine Institute for Development StudiesSurian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

Ramonette B. Serafica, Research Fellow

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Outline1. Status of the Philippines in achieving its commitments

towards an AEC.

2. Opportunities and challenges of ASEAN integration initiatives to Philippine shipping services

3. Recommended initiatives to stakeholders to foster competitiveness of Philippine shipping services within the ASEAN region.

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ASEAN Economic Community

ASEAN’s vision of

‘…a stable, prosperous and highly competitive ASEAN economic region in which there is a free flow of goods, services, investment and a freer flow of capital, equitable economic development and reduced poverty and socio-economic disparities” - AEC Blueprint 2007

2015 – target date of establishing the AEC

ASEAN Economic Community

Strategic Schedule of the AEC Blueprint (2008-2015)

AEC Pillar 1 Single Market & Production Base

• Free flow of goods• Free flow of services• Free flow of

investment• Freer flow of capital• Free flow of skilled

labor• Priority Integration

Sectors• Food, agriculture and

forestry

AEC Pillar 2 Competitive Economic

Region• Competition policy• Consumer

protection• Intellectual

property rights• Infrastructure

development• Taxation• E-Commerce

AEC Pillar 3 Equitable Economic

Development• SME development• Initiative for ASEAN

Integration

AEC Pillar 4 Integration into

the Global Economy• Coherent approach

towards external economic relations

• Enhanced participation in global supply networks

Human Resources Development Research and Development

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How are services traded?Supplier Presence Other Criteria Mode

Service supplier not present within the territory of the Member

Service delivered within the territory of the Member, from the territory of another Member

(1) CROSS BORDER ‑SUPPLY

Service delivered outside the territory of the Member, in the territory of another Member, to a service consumer of the Member

(2) CONSUMPTION ABROAD

Service supplier present within the territory of the Member

Service delivered within the territory of the Member, through the commercial presence of the supplier

(3) COMMERCIAL PRESENCE

Service delivered within the territory of the Member, with supplier present as a natural person

(4) PRESENCE OF NATURAL PERSON

The supply of a service through any of four modes of supply:

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Example: Transport Sector (1)

Mode Trade in shipping services Trade in related services

Mode 1 Cross border supply

An Indonesian ship is transporting cargoes on behalf of an Indonesianexporter to a Malaysian importer in Malaysia

Back office support

Mode 2Consumption abroad

Singaporean registered shipping company may use an Indonesian stevedoring company to handle its cargoes at Indonesian ports.

Training schools; Maintenance and repair

Source: Tongzon and Lee (2015) with additions

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Example: Transport Sector (2)

Mode Trade in shipping services Trade in related services

Mode 3Commercial Presence

Singaporean shippingcompany establishes a branch in other countries

Foreign-sponsored training centers; Philippine port operator with a subsidiary in another country

Mode 4Presence of natural persons

Filipino seafarer working on a Singapore ship

Movement of transport specialists (e.g., to provide training or consultancy)

Source: Tongzon and Lee (2015) with additions

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Two key agreements

Trade in Services – ASEAN Framework Agreement on Services (AFAS)◦ Substantial removal of restrictions/discriminations◦ Achieve progressively higher levels of liberalization◦ AEC Blueprint targets

Movement of Natural Persons – ASEAN Agreement on the Movement of Natural Persons (AAMNP)

◦ Managed flow of natural persons ◦ Greater transparency, streamline procedures◦ Encourage MRAs◦ Further Liberalization

Source: Reyes (2014)

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AFAS Objectives

• to enhance cooperation in services amongst Member States in order to improve the efficiency and competitiveness, diversify production capacity and supply and distribution of services of their service suppliers within and outside ASEAN;

• to eliminate substantially restrictions to trade in services amongst Member States; and

• to liberalise trade in services by expanding the depth and scope of liberalisation beyond those undertaken by Member States under the GATS with the aim to realising a free trade area in services.

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AFAS Targets 9th Package 10th Package

Completion Target AEM 2013 AEM 2015Scheduled Subsectors 104 128

Mode 1 (including horizontal) None (for all 104 subsectors) None (for all 128 subsectors)Mode 2 (including horizontal) None (for all 104 subsectors) None (for all 128 subsectors)

Foreign Equity Limitation(including Horizontal)

29 PIS: 70% 29 PIS: 70%9 Log: 70% 9 Log: 70%

66 Other: 51% 90 Other: 70%

Mode 3 Market Access Limitations (including

horizontal)

29 PIS: No limitations 29 PIS: No limitations9 Log: No limitations 9 Log: No limitations26 Other: max 2 limit 90 Other: No limitations26 Other: max 1 limit

Mode 3 National Treatment Limitations (including

horizontal)Max 3 lim/subsector Max 1 lim/subsector

15% flexibility 15%*(104*3)= 47 modes

Max 55% (26 subsectors) in 1 Mode

15%*(128*3)= 58 modes

Max 50% (29 subsectors) in 1 mode

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ASEAN Agreement on MNP Objectives

(a) provide within the scope of this Agreement the rights and obligations additional to those set out in the ASEAN Framework Agreement on Services and its Implementing Protocols in relation to the movement of natural persons between Member States;

(b) facilitate the movement of natural persons engaged in the conduct of trade: in goods, trade in services and investment between Member States;

(c) establish streamlined and transparent procedures for applications for immigration formalities for the temporary entry or temporary stay of natural persons to whom this Agreement applies; and

(d) protect the integrity of Member States’ borders and protect the domestic labour force and permanent employment in the territories of Member States.

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ASEAN Agreement on MNP Scope

Agreement applies to measures affecting the temporary entry or temporary stay of natural persons of a Member State into the territory of another Member State. Such natural persons may include:

(a) business visitors;

(b) intra-corporate transferees;

(c) contractual service suppliers;

(d) other categories as may be specified in the Schedules of Commitment for the temporary entry and temporary stay of natural persons of the Member State.

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Concept of ASEAN Single Shipping Market (ASSM)

1. Foster free and fair competition in international shipping market.

2. Adhere to the principle of free competition on a commercial basis for cargo movements between ASEAN member countries.

3. Remove or eliminate substantially all existing discriminatory measures to market access among ASEAN member countries.

4. Exclusion of shipping activities reserved by each of the Contracting Parties for their national flag vessels and/or shipping companies operating in their respective domestic waters (cabotage).

5. Prohibit new or more discriminatory measures and market access limitations.

6. Liberalize trade in maritime transport services by expanding the depth and scope of liberalization beyond those undertaken by member countries under the GATS with the aim to realize a free trade area in services.

Source: ASEAN Secretariat as cited in Tongzon and Lee (2015)

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Impediments to a single shipping market

1. Differences in national shipping capacity, 2. Different restrictive national shipping

policies and regulations, and 3. Differences in quality of port and shipping-

related infrastructure and institutions.

=> significant differences in international competitiveness

Source: Tongzon and Lee (2015)

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National shipping capacity (1)

National shipping capacity in the region is not evenly distributed. Limited capacities except for Singapore, Malaysia, and Indonesia.

Most of the 10 ASEAN member countries highly dependent on foreign shipping.

Top 25 in terms of flag registry (2010) – Singapore, Malaysia, and Indonesia

Top 20 in terms of controlled fleets (2010) – Singapore and Malaysia

Singapore – ◦ Most shipping-dependent country in ASEAN, economy heavily dependent on

international trade• The region’s maritime services hub, accounts for 7% of GDP, key component

of strategy as logistics hub

Source: Tongzon and Lee (2015)

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National shipping capacity (2)

Philippines –

National shipping industry is highly concentrated with only five Filipino shipping companies with only five Filipino shipping companies mostly providing coastal liner services (accounting for 90% of domestic shipping) and international tramp services.

Philippine-registered shipping fleet has continuously declined due to a number of factors.

However, the Philippines is the largest supplier of highly qualified, competent and certificated seafarers in the world (more than 300,000 deployed seafarers; 20% of supply; roughly US$ 2 billion in remittances).

Source: Tongzon and Lee (2015)

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Restrictive national shipping policies and regulations (1)

Region’s international shipping under Modes 1 and 2 is generally liberalized.

ASEAN countries, except Singapore, are still adopting restrictive national shipping policies and regulations under Modes 3 and 4.

These restrictive policies and regulations are in the form of market access restrictions, limitations specific to the maritime sector and cross-sector foreign investment-related barriers.

Source: Tongzon and Lee (2015)

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Restrictive national shipping policies and regulations (2)

Indonesia - restrictions are in the form of a requirement for foreign shipping lines to appoint an Indonesian company as a shipping agent and a foreign equity participation limit of up to 49% of the total equity in the auxiliary shipping services sector, with the exception of stevedoring and international shipping where up to 60% of the equity can be held by ASEAN-based companies. 0 % in the case of customs brokerage.

Malaysia - liberalized all maritime services sectors (i.e., 100% foreign equity participation) except for maritime cargo handling, towing and pushing, port and waterway operation services, pilotage and berthing services, and navigation aid services. Foreign equity participation for port ownership allowed up to 49%.

Source: Tongzon and Lee (2015)

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Restrictive national shipping policies and regulations (3)

Vietnam - foreign equity share for Mode 3 allowed up to 100% in 2014 following Vietnam’s WTO commitment. In terms of Mode 4, Vietnam’s national shipping industry is still highly protected. Until now, VINAMARINE has only signed a Memorandum of Understanding for the recognition of certificates with Singapore, Indonesia, Brunei, and Myanmar but not with the other member states.

Philippines –

Foreign equity in port operation is restricted to 40%, which is lower than other ASEAN states.

Foreign ships calling at Philippine ports are required to obtain tourist visas for their foreign crew before disembarking their vessels. Negative List B bans foreign seafarers from working domestically (except under certain circumstances).

Philippine registered ships in domestic and international trades are required to have a Filipino complement on board.Source: Tongzon and Lee (2015)

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Differences in quality of port and shipping-related infrastructureand institutions (1)

Indonesia – terminal and storage congestions, low productivity in cargo handling operation and insufficient drafts to accommodate larger mother vessels with more than 6,000 twenty-foot equivalent unit (TEU) shipping capacity

Malaysia – insufficient leadership in the field of logistics education; no single platform or mechanism to share relevant shipping and port data (for example, origin and destination data), absence of data base and lack of usable and useful information

Thailand - lack of terminal capacity in the ports of Bangkok and Laem Chabang; congestion in international container depots; underdeveloped railway system puts more pressure on road transport; unnecessary long procedures for business license application

Source: Tongzon and Lee (2015)

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Differences in quality of port and shipping-related infrastructureand institutions (2)

Philippines - Insufficient berth depth and poor port access due to traffic congestions

Inadequate port infrastructure in other parts of the country and inefficient domestic transshipment system.

Lack of efficient shipbuilding industry forces domestic ship owners to buy second hand vessels.

Source: Tongzon and Lee (2015)

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Differences could further lead to different economic outcomes•Singapore, Thailand, Malaysia, and Indonesia oHave competitive advantage in the international shipping

business as they are relatively endowed with shipping capacity and resources

oExpected to benefit from a wider regional shipping market under the ASSM with Singapore benefitting most in the container shipping business.

•The Philippines, Vietnam, and other newly emerging economies of ASEANoBenefit less or at worst, lose from a liberalized regional

shipping market

Source: Tongzon and Lee (2015)

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Exports

Year Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam2010 264 2665 56 4880 148 1347 38705 5916 23062011 302 3456 51 5062 216 1424 42616 5830 22272012 334 3822 54 4425 194 1594 44591 5924 20702013 358 3611 70 4558 233 1637 44787 6146 22302014 417 3791 0 4663 0 1744 44842 5724 2320

Singa

pore

Thail

and

Malaysi

a

Indonesia

Viet Nam

Philippines

Cambodia

05000

100001500020000250003000035000400004500050000

44842

5724 4663 3791 2320 1744 417

Exports of Transport Services (2014)

Mill

ion

USD

Exports of Transport Services (Million USD)

Source: stat.wto.org

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Benefits Economic benefits will be in the form of ability to export shipping services to the region under Mode 1 and under Mode 3 in terms of enhancing regional commercial presence through greater investments in more liberalized regional market.

Positive spill-over effects:

Increased demand for maritime manpower

As the shipping industries of the more developed members of ASEAN expand their commercial presence in the region, they would be in need of more seamen aboard their ships, more workers to man their shipping-related overseas offices.

Philippines and Myanmar, should benefit in terms of increased demand for seafarers, with substantial indirect employment effects on other shipping related industries.

Source: Tongzon and Lee (2015)

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The Philippine Opportunity

Filipinos have become the seafarer of choice filling management positions onboard ships and in ancillary services ashore.Opportunity to develop

◦ Maritime Cluster with a full suite of services to the world

◦ Philippine National Flag RegistrySource: Magsaysay-Ho (2014) National Workshop on Services Manila, Philippines

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The Philippine Maritime Cluster proposal• Ship management services

• Education and Training

• Surveys and Audits - surveyors and auditors for certifying bodies like Class societies, Insurance underwriters, P&I clubs, Insurance adjusters

• Business Process Outsourcing- business outsourcing services for shipping companies, insurance companies and others

Source: Magsaysay-Ho (2014) National Workshop on Services Manila, Philippines

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Roadmap• Industry Roadmaps – Electronics, IT-BPM, PRC, etc.

• Vision and measureable goal

• Whole of logistics chain – dialogue with other stakeholders (domestic and foreign)

• Global value chains – identify tasks where we have competitive advantage; identify opportunities and strategies to move up value chain

• Identify and prioritize • What, why – technology, expertise• Who, where – firms, countries/markets

• Sustain competitiveness• Skills - Education, training• Standards & qualifications• Regulatory environment• Investment • Technology

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Philippine Institute for Development Studies

Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

Service through policy research

WEBSITE: www.pids.gov.ph

FACEBOOK: facebook.com/PIDS.PH

TWITTER: twitter.com/PIDS_PH

EMAIL: rserafica@mail.pids.gov.ph

Thank you

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Sub-sectors (corresponding CPC) A. Maritime Transport Services

Passenger transportation (7211); Freight transportation (7212); Rental of vessels with crew (7213); Maintenance and repair of vessels (8868**); Pushing and towing services (7214); Supporting services for maritime transport(745**)

B. Internal Waterways Transport

Passenger transportation (7221); Freight transportation (7222); Rental of vessels with crew (7223); Maintenance and repair of vessels (8868**); Pushing and towing services (7224); Supporting services for internal waterway transport (745**)

H. Services auxiliary to all modes of transport

Cargo-handling services (741); Storage and warehouse services (742); Freight transport agency services (748); Other (749)The (**) indicates that the service specified constitutes only a part of the total range of activities covered by the CPC concordance (e.g. Maintenance and repair

of vessels only a component of CPC item 8868).

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PIS and LOG sectors Priority Integration Sectors (PIS) – in 2003, 11 sectors were identified for priority integration. Out of these 11 sectors, four are related to services, namely: tourism, e-ASEAN, air travel, and healthcare.

Logistics (LOG) – in 2005, 12th PIS was added. Covers: Maritime cargo handling (CPC 741); Storage & warehousing (CPC 742); Freight transport agency services (CPC 748); Other auxiliary services (CPC 749) ; Courier services (CPC 7512**); Packaging services (CPC 876); International freight transportation excluding cabotage (CPC 7212); International rail freight transport services (CPC 7112); International road freight transport services (CPC 7213)