At Your Service: Trade Liberalization Could Bring Huge Benefits to Southeast Asia

Easing the movement of skilled and semi-skilled labor across borders could have enormous benefits for Southeast Asia.
Easing the movement of skilled and semi-skilled labor across borders could have enormous benefits for Southeast Asia.

By Kakali Mukhopadhyay

Making it easier for workers to move between countries is key to liberalizing the trade in services and unleashing the benefits it will produce across national and regional economies.

Global integration of markets is becoming the new norm for economic development. While the trade conflict between the United States and the People’s Republic of China continues, and the Association of Southeast Asian Nations considers the sweeping Regional Comprehensive Economic Partnership, discussions on trade liberalization have taken researchers, policymakers and traders by storm.

Trade liberalization has expanded market opportunities, produced economies of scale and eased the availability and affordability of inputs and outputs across nations through comparative advantages. This has likely boosted major macroeconomic indicators such as employment, productivity, output, efficiency, competitiveness and skills enhancement.

A 2002 study found that trade liberalization increased access to markets for the manufactured exports of developing economies. It found that the impact of trade liberation in the area of services was affected by company and worker mobility, the heterogeneity of services, and capturing capital flows, especially in the form of foreign direct investment.

There is a strong argument to be made for the liberalization of services in ASEAN. As of 2016, ASEAN members generated 37% to 74% of gross domestic product (GDP) from services, far exceeding what was produced from agriculture and industry. ASEAN services exports grew from $113.6 billion in 2005 to $291.9 billion in 2013—a 12.5% average annual growth. Over the same period, services imports increased from $140.7 billion to $298.6 billion, forming 9.9% annual growth. 

Service trade liberalization provides a multidimensional opportunity for growth in terms of trade and employment. It could increase output by $29.6 billion, exports by $14 billion and imports by $36.8 billion. The gains are not restricted to trade-related estimates but also, brings possible welfare gains, particularly when seen in agreements of ASEAN with Japan and Republic of Korea.

  Liberalizing the trade in services could give Southeast Asia at $30 billion boost

The ASEAN-India services and investment agreement provides opportunities for ASEAN nations to access India’s markets in energy, transport and logistics, while India can access ASEAN markets in consultancies, software, maintenance and installation, education, health and social work. The agreement illustrates how liberalization in trade can bring about positive spillovers in employment, particularly in trade and transport industries across all the countries.

The employment growth could vary across sectors depending upon the skill sets and structure of the occupations in respective economies, with the larger share of growth in jobs experienced in informal sectors. This could have asymmetric effects on factors of production within and across service industries. These varied growth spots largely depend on factors like the composition of industries, economies of scale and supply chain linkages.

Economies like Singapore, which host high-value jobs, might generate the highest skilled employment demand. Thailand and the Philippines could experience the highest demand rise for semi-skilled laborers, including those engaged in agricultural activities. These economies will have structured gains based on the general orientation of these economies which could provide cost advantage in their trade relations. 

A commitment by the government and other stakeholders is needed to achieve the best results. This includes investments in human capital development and enhancement of productivity across economic sectors with a targeted approach. Skill training initiatives and the involvement of educational institutions could help in inculcating what the economy of trade demands.

The economies of scale, added cost advantages and market share benefits could be attained through the building of systems, investments in infrastructure, particularly transportation and communications, and standardization of resource availability. The collaboration and coordination in relevant policies increases the chances that all ASEAN members can benefit from service trade liberalization.

This blog post is based on research from the publication, Skilled Labor Mobility and Migration: Challenges and Opportunities for the ASEAN Economic Community.