A Voice in the Wilderness: Why the AEC in 2015 Will Lead to Few Changes in Thailand

Economist Saowaruj Rattanakhamfu isn’t employed by the government or a corporate interest, so as an independent she’s one of relatively few people able to make a dispassionate argument about what the Asean Economic Community (AEC) initiative slated for 2015 will mean for the kingdom. She works as a research fellow for Thailand Development Research Institute (TDRI), one of only a handful of think-tanks in the country, and unlike much of what is published in the media, Dr Saowaruj believes not much will change by 2015.

Rather than dire warnings of how companies have to prepare for increased competition and liberalisation, her research and knowledge of the AEC regulations has led her to believe that much of this warning is overblown hype.

“I want Thailand to open up several of its sectors. I want it to improve on worker productivity and education and technology. But right now, in preparation for the AEC, not much is being done and that won’t change anytime soon,” said Dr Saowaruj.

To understand why, first you have to understand the regulations.

“The biggest myth about the AEC is that there will be free flow of labour,” she said. “But to this point it is only highly skilled labour that can move, and it isn’t that freely. Warnings of a flood of unskilled labour to Singapore are unfounded.”

Article 140 of the Thai Constitution requires that any international agreement is passed by Parliament. So far only the slightest of concessions has been made, Mutual Recognition Agreements (MRAs) for seven professions: engineering, nursing, physician, dental, architecture, surveying and accounting. The agreements between the 10 Asean member countries mean licensed and recognised professionals in these fields can move to other Asean countries to practice, but they are still subject to pass that country’s licensing test.

In addition, you can’t be an independent practitioner. Any foreign professional intending to work in Thailand must collaborate with a local business, yet another reason why the AEC is unlikely to foster a “free flow” of labour.

“I know of only one Asean non-Thai nurse who has passed the local certification test, and she was part-American but lived in Thailand for a decade,” said Dr Saowaruj. “Keep in mind that the local exams are all in Thai language. And MRAs are still subject to all domestic laws and regulations, such as alien employment rules requiring work permits and the 39 protected professions in which foreigners are not allowed to work. Even the visas we allow for business visitors are different than what Thailand agreed to in GATT.

“So in practice you can see MRAs don’t work very well. I don’t see this changing by 2015. The framework for MRAs was set in 2003 but we only have them for seven professions at this point. Even we have a shortage in some professions such as nursing, but I don’t think this is likely to change anytime soon.”

She was also pessimistic about whether Asean members had the political will to liberalise the service sector.

“Only Singapore is trying to promote the free flow of skilled labour. Thailand doesn’t want to change anything anytime soon, and most Asean member want to keep the status quo. Don’t forget MRAs are still voluntary.

“I think many Thais are afraid they will lose their jobs to foreigners if the service sector opens up. Of course the answer is to get better training and pick up more skills so they can acquire better jobs, but both the government and professional councils prefer to ignore this point. The government needs to announce a national policy regarding opening up the services sector to investment and labour, but implementation has been very slow. There simply is no economic reason to continue protectionism in this sector.

“Most professional councils don’t see any benefit in actively using MRAs. They believe protectionist policies better serve their members. But the Nursing Council is starting to realise maybe it could open up the sector to all Asean members voluntarily, and this may have a knock-on effect for other services.”

Dr Saowaruj doesn’t want to cast a negative light on the AEC. After all, she supports much of what it is trying to accomplish.

“Asean has had great success in eliminating most tariffs for inter-regional trade,” she said. “And I think the AEC provides good motivation for the government to do something about the service sector.

“I’m an economist—of course I support a competitive, free and fair market. But we have a long way to go in many sectors. Just look at telecommunications; it is not competitive and is run by only three companies. It would be better to open the market up to foreigners and allow more money and technology to flow in. In fact, any industry that is high-capital and high-tech should be opened up.

“And as an academic, I also want the education sector to liberalise. I would like to see knowledge transfer between universities so intelligent Thai students can stay in the country to study if they want.”

Like a lot of economists, she sees the way forward for the Thai economy comprising improving skills and providing better products and services.

“The most important factor in this whole discussion is dual impact—making sure the government does something to prepare its domestic firms in the service sectors it eventually plans to open up,” said Dr Saowaruj. “For example, the government should offer training to increase productivity if they’re going to increase the minimum wage. A higher wage should come with higher productivity. But much like with the planned AEC, the government has not offered any preparation.

“Thailand needs to adopt a bottom-up approach to these Asean agreements because then the professional councils will actually support what is proposed. With a top-down policy negotiating can take forever.

“Some educated Thais do want to practice abroad, but usually not in Asean. They would prefer to go to the US, Canada or Europe. If the councils develop agreements with other countries outside Asean voluntarily, this would enable freer movement.”