Expanding Trade in Business Services in ASEAN

1. Expanding Trade in Business Services in ASEAN Hussain Rammal School of Commerce The University of Adelaide

2. Research Backgrounds • In spite of the rapid growth of business services sectors in ASEAN, there exist formidable barriers to prevent the free trade of services and thereby hinder their growth. • This study investigates trade-inhibiting policies and domestic regulations in five business sectors: Accounting, Architectural, Legal, Computing & Related Services, and Management Consulting. • This presentation consists of country-specific reports dedicated to results from each of the 10 ASEAN member countries investigated.

3. Methodology • Index Approach • Restrictiveness Index in Business Services (RIBS) is constructed to represent the degree of trade restrictiveness of one sector in an economy • Research Method (4 Steps) • Identifying trade restrictions: include both GATS-defined and de facto trade barriers. • Scoring procedure: primarily based on responses gathered from survey questionnaires and interviews with selected groups. • Weighting: weights were assigned to each form of trade barrier depending on the severity of its impact on trade. • Index calculation: by aggregating the weighted scores of all trade barriers in one business services sector.

4. Brunei Darussalam (1) • Liberalisation commitments in four sectors • Experienced major increase in its commitments from 4 sectors under AFAS 4 to 46 sectors under AFAS • Moderate to Low Trade Barriers in all 5 sectors • 30% limit on foreign investment in local professional firms • Provides the most open legal market.

5. Cambodia (2) • Liberalisation commitments in all five sectors • Examples of trade barriers: • Foreign legal practitioners are prohibited from practicing • Foreign equity ownership in management consulting firms must not exceed 49% • Local employees must be hired in management consulting firms • Provides the most open architectural market

6. Indonesia (3) • Liberalisation commitments in four sectors (with the exception of Management Consulting) • Committed to 12 business sections in GATS schedule, despite lack of written sectoral commitments under AFAS 4

7. Indonesia (Cont’d) Trade Barriers by Sector • Accounting: • Foreigners are bound by law to own only a minority share. • Architectural: • Local employees must constitute more than 50% of staff • Legal: • Two years of experience required for accreditation purposes • Foreign practitioners are allowed to work in the capacity of employees of local firms, but not allowed to appear in Court • CRS: • IT practitioners are required to be members of the professional body

8. Lao PDR (4) • Liberalisation commitments in three sectors(excluding Management Consulting) • Increased its commitment from nil under AFAS 4 to 9 sectors under AFAS 5 • Trade Barriers in Legal Services: • Foreign legal practitioners prohibited from practicing • Trade Barriers in Architectural Services: • foreign practitioners are not constrained from practicing but are required to enter into joint venture with local firm

9. Malaysia (5) • Liberalisation commitments in all five sectors • trade reforms in accountancy sector have been more advanced than in the other professional services. • Provides the most open accounting market • Trade barriers are regarded by the Government as a way to reduce public risk

10. Malaysia (Cont’d) Trade Barriers by Sector: • Accounting: • Qualifications of the foreign suppliers are assessed to determine whether they are equivalent to the eligibility requirements imposed on local professionals • Legal: • Foreign professionals are strictly prohibited from practicing in the domestic market • MC: • Foreign firms are required to form joint ventures with locals with maximum foreign equity of 70%.

11. Myanmar (6) • Liberalisation commitments in three sectors [exc. CRS] • Imposes the most restrictive trade barriers in the markets of Accounting and Legal services • Accounting: • Absolute prohibition on foreign ownership in local firms • Foreign professionals are prohibited from practicing • Temporary entry of professionals is disallowed, so is multi-disciplinary or multi-professional partnerships.

12. Myanmar (Cont’d) • Legal: • Foreign lawyers are prohibited from practicing, since the license to practice can be awarded only to Myanmar nationals • Architectural: • Foreign firms are required to form a joint venture or partnership with a local firm • CRS: • Only ASEAN economy that regulates professional fees for IT services and requires foreign firms to partner with locals • MC: • Only ASEAN country that requires management consultants to take professional examination which is administered quarterly

13. Philippines (7) • Liberalisation commitments in three sectors (excluding Management Consulting) • Instituted reciprocity arrangements allow foreign accounting, legal, and architectural professionals to practice domestically, provided they have ‘equivalent’ licensing requirements allow Filipino professionals to practice in their domestic markets • Otherwise there is absolute prohibition on foreign equity in local firms, as well as practicing of foreign professionals • Temporary entry of foreign professionals is subject to economic needs test (ENT)

14. Singapore (8) • Liberalisation commitments in four sectors • Effectively committed to 8 sectors under AFAS 4 and 9 sectors under AFAS 5 • Provides the most open market of Computing and Related Services

15. Singapore (Cont’d) Trade Barriers by Sector • Accounting: • Passing the final accountancy examination of the CPA Australia or American Institute of Certified Public Accountants (AICPA) is recognised equivalent to passing local final examination in accountancy in Singapore • Legal: • Nationality requirements has been loosened in 2000 by permitting joint law ventures (JLVs) and formal law alliances (FLAs) between local and foreign firms. • Architectural: • Foreign firms must maintain a certain ratio between local and foreign employees: they must hire 2 local employees for every foreigner employed

16. Thailand (9) • Liberalisation commitments in four sectors • Foreign firms required to enter into joint ventures with local firms. • Requires foreign firms to hire locals: • For every foreigner hired, 4 locals must be employed (Mgt Cons. sector) • 50% of directors must be Thai citizens (Architectural sector)) • Imposes the most restrictive barriers in architectural market: • Reserves all professional practices to their nationals.

17. Vietnam (10) • Liberalisation commitments in all five sectors Trade Barriers by Sector: • Accounting: • Foreign suppliers must pass local examination to practice. • Legal • Foreigners are allowed to practice international law but cannot appear in courts. • Case-to-case assessment of the foreign lawyer’s certificate is required to determine whether they are qualified to practice.

18. Vietnam (Cont’d) Trade Barriers by Sector (Cont’d): • Architectural: • A maximum and minimum amount of professional fees is set by the regulatory body or the standard-setting professional association • Joint venture with local firm is mandated with maximum foreign ownership of 49% • MC: • Maximum foreign ownership in local firms is 30% (up to January 2008) • At least 20% of employees in foreign firms must be local • The period of visa for foreign executives, senior managers and specialists is 3 years

19. Recommendations • Improve AFAS commitments: • E.g. relax prohibitions on foreigners from forming partnership with local professionals • E.g. Minimise restrictions on forms of establishment, as well as nationality and residency requirements • Monitoring: • Constantly measure changes in commitments & actual market reforms using indices such as RIBS • Movement of professionals: • Separate policies on temporary service providers from the normal immigration procedures • Negotiate for trade-friendly policies on permanent movement of professionals • Negotiation: • Shift from ‘positive list’ to ‘negative list’ approach of negotiating trade liberalisation commitments

20. Recommendations (Cont’d) • Transparency: • Improve predictability in the administration of domestic regulations. • Use international standards to achieve harmonisation. • Mutual Recognition Agreements • Push for reciprocity arrangements in all regulated professional sectors. • Increase AFAS Awareness • Encourage professional bodies to undertake more active roles in the negotiation of trade liberalisation commitments.