The ASEAN Integration and its Impact on Philippine Labor
Presented by Sonny Melencio during the assembly of UPAC (Union Presidents Against Contractualization), Century Park Hotel, Manila on September 10, 2014
1. There are many regional agreements in Asia-Pacific that impact on regional economic integration and trade policies. One of these agreements centered on the integration of ASEAN economies in Southeast Asia composed of the ten countries of Singapore, Malaysia, Thailand, Indonesia, Philippines, Brunei, Cambodia, Laos, Myanmar (Burma), and Vietnam.
2. The project for Asean Integration has been around since 2000, when the Asean Heads of State Summit in Singapore launched the program called the Initiative for Asean Integration (IAI) with the objectives of “narrowing the development gap” between the original members of Asean and its newer members. The original members, sometimes called the Asean 6, are composed of Singapore, Malaysia, Thailand, Indonesia, Philippines and Brunei. The newer members, the Asean 4, are composed of the CLMV countries – Cambodia, Laos, Myanmar, and Vietnam.
3. The Asean Integration specifically aims to integrate the “transitional economies” of the CLMV countries which are just recently being assimilated into the global capitalist economy led by the early members of Asean in the region.
4. The Asean Integration aims to develop an Asean Economic Community, patterned after the European Economic Community, which later evolved into the European Union. The aim is to establish a single market and probably a single trading currency in the region by 2020.
Problems of integration
1. However, the intra-Asean trade is currently at very low level. It constitutes only about 25% of total trade in goods of the Asean countries, and it is not expected to change dramatically in the near future. For many years, the Asean countries have been trading more with non-Asean countries compared to trading among themselves by a ratio of three to one. Comparatively, the European Union has an intra-trade level of 67.3% while the North American Free Trade Association (NAFTA) has a record of 48.7% intra-trading.
2. There are other stumbling blocks to the integration. There are the three major factors of (a) investment capital; (b) technology; and (c) industrial complementation. The first one, investment capital, is miniscule among Asean countries. Investments can come from the big economic/trading players in the region (China, EU, Japan, US, and South Korea). Technology is also not very high among Asean countries, and technology transfer will require massive investment by the developed capitalist economy to Asean. The third factor, industrial complementation, is something that has yet to be developed even among Asean countries themselves. In fact, the Asean economies have been competing with each other.
3. In this sense, the Asean Integration is definitely far off from the dream of an Asean Community and Asean Union whose objective is to develop an independent regional economy that can compete in the international market and survive international competition. The Asean integration has since then lowered its objective to establishing an integrated regional production base that will cater for the international market.
Integrating the transitional economies
1. Right now, the Asean Integration is aimed at integrating the ‘transitional economies’ of the CLMV or the new Asean members to be able to form an integrated production base in the region. There is really no need to integrate the economies of the Asean 6, as they have long been under the global capitalist system and their economies have long been restructured to meet the needs of the global market under a neo-liberal scheme.
2. What needs to be integrated are the former socialist or socialist-oriented economies of the CLMV countries. Among the CLMV, Vietnam was the first country to join the Asean in 1995. Laos and Myanmar joined two years later in 1997. Cambodia joined in 1998 following the stabilization of its government.
3. The CLMV countries are just emerging from previous socialist-oriented economies into capitalist mode. There are different levels in which they are restructuring their economies to fit within the global economic market. Privatization of land and other economic assets, opening to foreign investments, dismantling of state-owned and state-run enterprises, and reducing social welfare projects and government subsidies are happening at different levels to accommodate the capitalist model.
4. It is no wonder that the Asean Integration is not only among Asean countries, but involves – formally – the so-called Asean Dialogue Partners (or donor countries) including China, India, Japan, Korea, Australia and New Zealand. These countries (especially the first four) represent the most advanced capitalist and market economies in the region.
Initiative for Asean Integration (IAI)
1. In 2000, the Asean Heads of State Summit in Singapore launched the Initiative for Asean Integration (IAI) with the objectives of Narrowing the Development Gap (NDG) and accelerating economic integration of the newer members of Asean. The intent is to integrate these “transitional or emerging economies” to the capitalist economies of neighboring countries in Southeast Asia. Their integration into the global capitalist system will be based on a capitalist restructuring scheme that has been implemented in these countries since the 1990s.
2. The integration was driven mainly by the IAI Work Plans (IAI-WP). There have been two work plans since 2002.
- The IAI Work Plan 1 (covering 2002-2008), which was endorsed by the Leaders at the 8th Asean Summit in 2002, addressed the “soft infrastructure” needs of the integration, including priorities setting, human resource development, and systems in policies for trading, customs, trade standards, and investments.
- The second IAI Work Plan (2009-2015), which was endorsed in 2009 at the 14th Asean Summit, focused on “hard infrastructure” building. This includes the development of physical transport and communication networks, and completion of the physical road, rail, air and sea linkages within ASEAN. Examples of these are the Singapore-Kunming Rail Link which will connect Singapore, China, Thailand and the CMLV countries; and the air transport liberalization links under the BIMP-EAGA project (Brunei, Indonesia, Malaysia, Philippines East Asean Growth Area).
Two parallel structures
1. To accelerate the integration, two parallel structures were set up.
2. The first layer was the Asean Summit or the annual meeting of the top officials of the Asean countries. The Summit provides overall guidance and advice on the implementation of the integration plan. The Asean Coordination Council, the IAI Task Force, and the Asean Secretariat are bodies set up by the Summit to act as recommendatory and implementing bodies of the integration as a whole.
3. The second layer was the IAI Development Cooperation Forum (IDCF) which was established in 2002 to engage ASEAN's Dialogue Partners and other donors in a collective dialogue on the work plans. The IDCF is set up to ensure that the big capitalist economies in the region (and in the world) will be able to intervene in the ASEAN integration scheme.
4. The IDCF was held in 2002 with 270 representatives from Asean member countries and its dialogue partners, together with 27 international and regional organizations, as well as 17 international and regional corporations and foundations. The Dialogue Partners included China, India, Japan, Republic of Korea, New Zealand, and the UNDP. There were also pledges of support from Germany, the ADB, Japan Bank for International Cooperation (JBIC), Asean Centre for Energy (ACE), the Asean Foundation, Hanns Seidel Foundation (HSF), the Colombo Plan, Oxfam, Petronas of Malaysia, IBM and RITES Consultancy of India. The United States’ interest is represented in the international corporations and foundations which are also part of the Donors.
Focus of integration
1. The integration is focused on seven components that ensures ‘free trade’ and the promotion of a single market and production base. It consists of the following: free flow of goods, services, investment, capital, and skilled labor; development of priority integration sectors; and competitiveness of food, agriculture, and forestry sectors.
2. There are 11 priority integration sectors which consist of the following:
- Agro-based products
- Wood-based products
- Rubber-based products
- Textiles & Apparels
- Air Travel
- ASEAN (ICT)
- Health Care
ILO and ADB study
1. According to a recent study (2014) made by the International Labor Organization and the Asian Development Bank (“ASEAN Community 2015: Managing integration for better jobs and shared prosperity”), if all goes well, the Asean Economic Community could generate 14 million jobs by 2025 and improve the livelihood of 600 million people across all 10 Asean member states. While the study pitches a positive note, the 14 million projected jobs within 10 years from the AEC launching in 2015 is a measly figure. Unemployment will still hover at 100-million figure.
2. Currently, Asean’s total gross domestic product (GDP) stood at US$2.4 trillion, representing about 3.3 percent of the world’s economy, with a labor force of some 300 million people. Some of the background data concerning the Asean labor force:
- The average unemployment rate in the region runs at 4.2%. (Philippines has the highest unemployment rate of 7%.
- There’s a 13% average youth unemployment rate (the highest are in Indonesia at 21.6% and in the Philippines at 16.6%).
- 179 million people (59.6%) are in vulnerable employment (defined as the sum of own-account workers and family workers who have no formal work arrangements and do not enjoy regular labor benefits).
- 117 million people (39%) are wage and salary workers.
- 92 million people (30.6%) live in poverty.
1. The ILO & ADB study said that the AEC could raise the GDP of the region as a whole to 7.1 per cent by 2025. However, the clincher is that while it will create jobs, it will also destroy others. There will be 14 million net jobs in ten years, but even this will be hampered by job losses that will accompany the integration.
2. The overall net job gain put at 14 million by 2025 following the implementation of the AEC will come from trade, transportation, and construction. Currently, 40 per cent of workers in the region are categorized as low-income workers, mostly employed in the agriculture sector. The projected jobs by 2015 are also low-income in nature.
3. The study also noted that the job gains will be uneven, and will vary by country, sectors, and gender. These will not be distributed evenly between countries, economic sectors or between women and men. The study found that there will be fewer new jobs for women in the new Asean Economic Community, with many of those jobs possibly being in sectors that are vulnerable and informal leading to greater inequalities.
1. Can the Asean Economic Community provide increased employment and higher income for the workers in the region?
2. Based on the study:
- The Philippines projected growth is on low-skill employment.
- There will be fewer new jobs for women, possibly in sectors that are vulnerable and informal leading to greater inequalities.
- There will be increasing migration between Asean countries driven by demographic and wage disparities. Medium and low skilled workers more likely to migrate due to high demand of construction, agriculture and domestic workers.
3. On the 11 priority integration sectors (see Focus of integration, #2):
- The top Asean companies on agro-based products, fisheries, and rubber products, will continue to dominate said industries in the region. The big firms are from Singapore, Indonesia, Malaysia, Thailand, and Vietnam. Currently, vegetable oils and rubber products constitute half of the total exports of Asean countries, followed by fish & preparations, then rice and coffee. Philippines does not export rubber, rice and coffee.
- Textile & apparel and the food industry will more likely shift to CLV countries (Cambodia, Laos, Vietnam).
- The automotive industry leaders in the region are Malaysia and Thailand. Malaysia has a highly protective car industry (the state-owned car Proton) and vehicle parts industries competing with Thailand’s TR (Thairung). However, outside of these two Asean countries, the car industry will continue to be dominated by Japan and South Korea.
Philippines: net loser
1. The Philippines will not be a net gainer, to say the least, in the AEC. There will also be a decline in the chemicals, mining, electrical equipments, and machinery industries in the country.
2. While the Philippines will find it hard to compete in the agro-based business, and the other priority integration industries, the country will be in the receiving end in the sugar industry. It is expected that there will be massive job losses in the sugar industry next year.
3. According to the Sugar Regulatory Administration (SRA), the implementation of the Common Effective Preferential Tariff scheme under AFTA in 2015 will imperil the livelihood of about 60,000 sugar farmers & 600,000 sugar workers in the country. The decrease on imported sugar tariff to 5% (from 18%) will result in an influx of imported sugar and consequently lower the mill site price of locally produced sugar. Affected are the 10 major sugar producing regions in the country: Negros Occidental, Bukidnon, Batangas, Negros Oriental, Iloilo, Tarlac, Capiz, North Cotabato, Davao del Sur, and Cebu.
4. Finally, in the one-million dollar question on who is best prepared for the Asean Economic Community and who will be hardest hit once the agreement take place?
5. According to the study, while it’s a very difficult question to answer, the report shows that Cambodia, Laos, Myanmar and Vietnam (CLMV), who are often perceived as lagging behind are actually very well prepared, with Arjun Goswami from the Asian Development Bank saying “the CLMV are hungry, they are ready for this”.
6. The CLMV will benefit in the integration because of their extensive agricultural and aquatic farms and resources (which are the top sectors in the integration), and their relatively cheap, and educated/skilled labor.
Are we ready for AEC?
1. The Philippine Daily Inquirer’s editorial on August 27, 2014, raised a related question: How ready are Philippine companies for the AEC? Two sectors that are expected to face difficulties are agriculture and financial services. On agriculture, the local sugar industry is highly vulnerable to competition once tariff is slashed to only 5% in 2015 (from 18% in 2013).
2. Standard & Poor, an investment firm, believes that Philippine banks are also not yet ready. Although profitable and stable, they have a much smaller business scale compared with their regional counterparts. The asset and capital size of the country’s banking system pale in comparison to those in the region:
n The total assets of all Philippine banks are equivalent to only one big bank in Malaysia.
n The combined assets of the 3 biggest banks in the Philippines would approximate one bank in Thailand.
n The total capitalization of the entire Philippine banking system would be the size of just one Singaporean bank.
3. According to the editorial, one reason for the Philippine banks’ incapacity to compete with other regional banks is because of the 40% constitutional limitation on investment. Compare this with the 99% open investment in Indonesia, the lack of hard limit to foreign ownership in Malaysia and Singapore, and a flexibility clause that allows foreign ownership beyond 50% in Thailand.
4. But the problem with the Philippine banks is not its foreign share (Philippine banking have already been liberalized). Besides, almost all top Filipino multibillionaires operate banks:
- Henry Sy of BdO -- Abotiz of Union Bank
- Lucio Tan of Allied Bank/PNB -- Yuchengco of RCBC
- George Ty of Metrobank; -- Eric Recto of PBC
- Roberto Ongpin of PBC; -- Frederick Dy of Security Bank
- Zobel de Ayala of BPI; -- Others
5. The problem is that the elite who are also owners of the big banks do not put their money and capital in the Philippines; a large chunk is invested abroad. They make use of ordinary people's savings to finance their projects here or join up with big foreign corporations to control Philippine industries (ex. MVP Group’s tie up with Salim Group of Indonesia).
Take stock of our situation first
1. We will not be a gainer in the AEC. As in any trading endeavour, the gainers will always be those who have the most capital, technical know-how, and those who have the infrastructures to dominate the field – the big players or the big corporations. All the hullabaloos about it being advantageous to the small players are mere propaganda designed to make this type of trading agreements acceptable to all.
2. Before we enter into the competitive field of AEC, we have to take stock of our situation first. We have to solve our own problems first and look at solutions available to us in order that we become a stronger economic force.
3. That means we have to solve the problems of:
- Unemployment. The Philippines has the highest unemployment rate in Asean, including youth unemployment which is the 2nd highest in Asean.
- Poverty. 26.5% of Filipinos lived on less than $1 a day (2009), a poverty rate that was roughly the same level as Haiti’s.
- Lack of education due to poverty. Philippines has the highest proportion of children out of school (11.4%).
- Hunger & malnourishment. 32% of children under age 5 are malnourished (UNICEF).
4. These are already serious problems for the country and yet…
- The Philippines spent the least on education (2010) at 2.65% of GDP. Indonesia spent 2.77%. Thailand, 5.79%. Malaysia, 5.94%.
- Philippine investments in infrastructure (including PPPs) constitute only 2% of GDP compared to about 5% in neighboring countries. The government has lined up only 56 PPP in infrastructure but the government can increase its OWN spending in this sector. (ADB President Takehiko Nakao)
- Little investment in quality education and in public health.
- Philippines, together with Laos and Myanmar, has the lowest commitment on social protection among Asean countries at less than 2% of their GDP. Highest is Thailand (7.2% of its GDP).
5. The country is in crisis and yet…
- The collective wealth of the 40 richest Filipino families grew from $13 billion in 2010 to $47.4 billion in 2011 (an increase of 37.9%). The increased wealth of these families was equivalent in value to 76.5% of the country’s overall GDP at the time (Forbes Asia, 2012). In Thailand, the 40 richest families increased by only 25% of the national income growth that year. Malaysia, by 3.7% and Japan, by 2.8%.
- Banking, telecommunications, and property development are almost entirely monopolized by a few elite political families. Two families had a combined wealth of $13.6 billion or 6% of the GDP. One percent of the population own or control 70% of the national wealth (Preda Philippines). The income disparity in the Philippines was the highest in Asia.
Main stumbling block
1. It is clear that the main stumbling block for making the Philippine economy viable in the region is the Philippine elite’s domination and monopoly of trade, industries and resources in the Philippines. This is the cause of huge income disparity among the population in the country.
2. The strengthening of the small & medium enterprises (SMEs) might be an alternative to the elite’s domination and monopoly of economic resources in the Philippines.
3. In the Philippines, the SMEs account for roughly 99% of Filipino firms. But they account for only 35% of national output – a sharp contrast with Japan & Korea where the same ratio of SMEs accounts for roughly half of total output. This translates into far fewer high-paying jobs on the local level for Filipino employees and exacerbates the huge income disparity across the country. (PDIS, Phil. Institute for Devt Studies).
4. The SMEs have been allowed to participate in the Asean integration, and are projected to be beneficiaries of it, but according to Trade Secretary Gregory Domingo, the current rules and regulations governing free trade agreements and other bilateral agreements are largely meant for the big companies. Even the request for SMEs in the industries of garments, handicraft and furniture to be allowed to skip certain application processes for easier access has not been granted.
Corruption and other ills
1. Elite domination of the economy and politics in the country begets corruption. In 2012, the Transparency International ranked Philippines number 105 out of 176 as one of the countries with high level of corruption, tied with Mali and Algeria among others.
2. Also because of monopolies, corruption, substandard infrastructure, and high electricity/power costs, investments are down in the Philippines. The Philippines’ investment-to-GDP ratio stands at 19.7% compared to 33% in Indonesia, 27% in Thailand, and 24% in Malaysia.
3. Meanwhile, OFW remittance amounts to $8 billion yearly. In 2013, FDI was $3.9 billion only (considering that it was the highest FDI reported in the country during the administration of President Noynoy Aquino.
We need an ALBA-type of economic integration
1. Given the character of our crisis, we will not be able to survive under the AEC. In fact, we do not need an AEC. It is an economic agreement that is only advantageous to big corporations, the Filipino elite and the trapos.
2. We need a different type of integrated economy that will support our needs as a people and as a nation. An integration founded not on profit and competition for the big players but for the common good of the people everywhere.
3. There is such an integration happening in other region, specifically in Latin America. This is the agreement that constitutes the ALBA, the Bolivarian Alliance for the Peoples of America led by Venezuela, Bolivia, Ecuador, Cuba.
4. ALBA was established as an alternative to the Free Trade Area of the America (FTAA) which is an agreement that is beneficial only to the big corporations in the United States. ALBA initiated and promoted the People’s Trade Agreements with the Caribbean nations of Antigua and Barbuda, Dominica, St. Vincent and the Grenadines, and St. Lucia under the ALBA-TCP.
5. ALBA and its trade agreements promoted genuine economic cooperation and development, not free trade and competition, as the centerpiece of economic relations among countries. ALBA promotes an alternative socialist system of integration as opposed to an integrated capitalist trading system.
What are we going to do?
1. Prepare for more job losses and its negative impact in the Philippine economy, especially among the working class.
2. Prepare for heavy competition on services industry, including ICT.
3. Prepare for declining wages.
4. Prepare for increasing export of labor coupled with competitive entry of foreign workers
Best immediate response
1. The best immediate response is not only through an NGO type of response around institutional “engagement”, trilateral dialogues, safety nets.
2. The best immediate response is the defense and protection of our rights through struggle and mobilization. It means real, genuine campaigns. It means solidarity, not competition, with the working classes especially in the ASEAN region.
3. Ultimately we have to fight for political power to establish a system that can withstand big corporate control and domination. The ultimate solution lies in bringing down the corrupt capitalist regime and establishing the government of the masses. #