building inclusive economies, · 4 barriers in the liberalization of labor 160 appendix 1 list of...

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BUILDING INCLUSIVE ECONOMIES,BUILDING A BETTER WORLDA Look at the APEC 2015 Priority Areas

Volume I

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

Philippine APEC Study Center Network

BUILDING INCLUSIVE ECONOMIES,BUILDING A BETTER WORLDA Look at the APEC 2015 Priority Areas

Volume I

vi

Copyright 2015

Philippine Institute for Development Studies (PIDS)Philippine APEC Study Center Network (PASCN)

Printed in the Philippines. All rights reserved.

The views expressed in this volume are those of the authors and do not necessarily reflect the views of any individual or organization. Please do not quote without permission from the authors or PIDS and PASCN.

Please address all inquiries to:

Philippine APEC Study Center NetworkPhilippine Institute for Development Studies18th Floor, Three Cyberpod Centris – North TowerEDSA corner Quezon Avenue, Quezon City, PhilippinesTel.: (+63 2) 372-1291; (+63 2) 372-1292E-mail: [email protected]; [email protected]: http://www.pids.gov.ph

ISBN 978-971-564-063-3RP 11-15-600

Editing: Sheila V. Siar and Mark Vincent P. AranasEditorial support and production coordination: Jane C. AlcantaraPage layout and cover design: Jose Ignacio O. TenorioPrinting: Tri-Kolor Graphics and Printing Corp.

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Table of Contents

List of Tables, Figures, Boxes, and Appendixes ixForeword xvPreface xviiAcknowledgment xixList of Acronyms xxi

Chapter 1

A Look at the Priority Areas for the Philippines’ 1 APEC 2015 Hosting: A Synthesis

Erlinda M. Medalla

Introduction 1 APEC 2015 theme and priorities: Toward “Building Inclusive 3

Economies, Building a Better World” Enhancing REI 5Fostering SMEs’ participation in the global market 10Building sustainable and resilient communities 15Concluding remarks 19References 20

Chapter 2

PathwaystoaFreeTradeAreaoftheAsiaPacific 21 Erlinda M. Medalla and Angelica B. Maddawin

Abstract 21Introduction 21Evolution of FTAAP discussions in APEC 22TPP, RCEP, and FTAAP 28Recommendations 30References 31

Chapter 3

Boosting Services Growth through Global Value Chains 33 RamonetteB.Serafica

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Abstract 33Introduction: What are global value chains? 33Factors that affect GVC formation 34GVC participation of APEC economies 36Services and GVCs 38Interest of the Philippines in services and implication 41

for APEC 2015Appendix 44References 49

Chapter 4

The IT-BPM Challenge: Leveraging Capabilities, 51 Creating Opportunities Fatima Lourdes E. del Prado

Abstract 51Introduction 52Overview of key issues and importance of ICT-enabled 53

services and BPMThe BPM sector in the Philippines 59APEC and IT-BPM services 73Conclusion 78Appendix 79References 81

Chapter 5

People-to-People Tourism in APEC: Facilitating 85 Cross-Border Entry and Exit, with Special Focus on ASEAN Oscar F. Picazo, Soraya Patria G. Ututalum,

and Nina Ashley O. Dela Cruz

Abstract 85PTP tourism in the context of intra-ASEAN 86

and APEC tourism Rationale for increasing PTP tourism 88Obstacles in PTP tourism 98

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International practices in promoting PTP tourism 109 through entry and exit facilitationRecommendations to facilitate PTP tourism in the ASEAN 128 and APECAppendix 132References 138

Chapter 6

Key Issues and Challenges in Professional 143 Service Mobility Stephanie Rose E. Flores, Kathrina G. Gonzales,

and Aniceto C. Orbeta Jr.

Abstract 143Introduction 144Key issues and importance of labor mobility in APEC 150Previous APEC discussions on labor mobility review 161Recent developments 167Emerging opportunities and initiatives for cooperation 171Summary and recommendations 179Appendix 182References 188

Chapter 7

Philippine Priorities in Expanding APEC-wide 193 Connectivity through Infrastructure Development Adoracion M. Navarro

Abstract 193Introduction 193Analytical framework 194State of infrastructure development and physical 195 connectivity within APECRecent initiatives of APEC structures on infrastructure 205Recommendations on host economy priorities 213Financing infrastructure development 215Other recommendations 217References 218

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Chapter 8

Supply Chain Connectivity: Enhancing Participation 221 in the Global Supply Chain Epictetus E. Patalinghug

Abstract 221Introduction 221Review of literature 222Barriers to enhancing participation in the global 224

supply chainLessons learned (from APEC’s Supply Chain Connectivity 227

Framework and APEC’s Supply Chain Initiative)Measuring supply chain performance 228The role of transport in the development of integrated 234 supply chainThe global value chain: Challenges for the Philippines 237Public-private supply chain partnerships 245Conclusions and recommendations 246References 248

Chapter 9

Establishing the Linkages of Human Resource 253 Development with Inclusive Growth Tereso S. Tullao Jr., Christopher James R. Cabuay,

andDanielS.Hofileña

Abstract 253Introduction 253Role of education, training, and human resource 257

development in the process of economic growthHuman resource development and inclusive growth 260State of human capital formation in APEC 262Issues in education and training, and development strategies 278 in the PhilippinesHuman resource development and inclusive growth: Lessons 301

from APEC economiesPolicy recommendations: Cooperative measures in human 318 resource development for APEC economies

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Appendix 322References 323

About the Authors 331

List of Tables, Figures, Boxes, and Appendixes

Chapter 3

Table1 Perspectives on GVCs 342 Most important GVC in APEC economy, 2009 383 GVC participation index of various industries in the 39 Philippines, 2009, as a share of gross exports (in percent)

Figure1 Firm's strategies of outsourcing and offshoring 352 GVC participation index of APEC economies, 2009, as 37 a share of gross exports (in percent)3 Share of services in exports (in percent) 40

Box1 The role of services in GVCs and their implication for policy 42

Appendix1 Key locational determinants for GVC tasks and activities, 44

selected examples2 GVC participation index of APEC economies, 2009 46

Chapter 4

Table1 ICT-enabled activities in India 542 ICT-enabled services in the Philippines 553 UNCTAD classification of outsourcing services 564 BOP components of services 575 BOP services transactions by the GATS modes of supply 576 Philippine IT-BPM industry, 2004–2009 60

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7a Total revenue by IT-BPM category 637b Export sales by IT-BPM category 637c Total number of workers, by IT-BPM category 638 Foreign capitalization in BPM firms 659 Foreign-to-total equity capital ratio (in percent) 6510 Foreign equity capital by IT-BPM category and by country 66 of investor, 200511 Foreign equity capital by IT-BPM category and by country 66 of investor, 201312 APEC services-related projects 7613 Examples of services-related APEC projects 77

Figure1 Offshore services global value chain 582 Changing composition of services trade 593 Philippine IT-BPM industry size, 2006–2011, in USD billion 614 IT-BPO revenues and employment's contribution to 62 the economy (in percent)5 Offshore services upgrading: Philippines 686 Success of the Philippine BPM 697 IT-BPM industry revenue target for 2016 718 The Next Wave cities 73

Appendix1 The Philippines: GVC upgrading and workforce 79 development initiatives2 Philippine government initiatives to support the local 80

IT-BPM sector

Chapter 5

Table 1 Number of natural disasters and victims per year by region 932 Classifications of people who are likely to benefit from 98 PTP promotion3 Visa types and functions 1014 Summary of ASEAN member-states' visa requirements 104 for (general) nonresident visas

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5 Summary of ASEAN member-states’ visa requirements 105 for student visas6 Summary of ASEAN member-states’ visa requirements 106 for business visas7 Summary of recent international practices in facilitating 110 PTP tourism, 20108 Examples of PTP facilitation arrangements, from the 129 simplest to the most comprehensive

AppendixAppendix 1. List of Embassies Contacted 132Table A. Tourist arrivals in ASEAN member-states, 133 2009 and 2010Table B. International tourist arrivals and receipts in ASEAN 134

member-statesTable C. Tourist arrivals in ASEAN by purpose, 2009–2012 135Table D. Tourist arrivals in ASEAN by selected country/region 137

Figure A. Growth of tourist arrivals in ASEAN, 1991–2010 133Figure B. Total ASEAN tourist arrivals and intra-ASEAN 134

tourist arrivals, 2000–2010Figure C. International tourist arrivals in ASEAN, 1991–2015 136

Chapter 6

Figure 1 Trade in services as a percentage of GDP, 1977–2007 1502 Gross domestic product by industrial origin 1523 Map of receiving countries and sending countries in APEC 1564 Barriers in the liberalization of labor 160

Appendix1 List of professions per GATS and Professional 182

Regulation Commission2 Facilitating temporary labor mobility within the APEC 183

region: Opportunities and challenges3 Salient features of the ASEAN Economic Community blueprint 184

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4 Established MRAs in ASEAN 1855 Inputs provided by TESDA regarding details of MRAs 186

Chapter 7

Table1 Quality of overall infrastructure within APEC, 2014 1972 Quality of transport infrastructure within APEC, 2014 1983 Liner shipping connectivity index (LSCI), 2013 2004 Electricity rates for general use in selected cities, 2012 2065 Infrastructure loan amount by development partner, 216

2010–2012 (USD million)

Figure 1 Infrastructure scores in enabling trade index, 2014 1962 Availability and quality of transport infrastructure 199

and services, 20143 Networked readiness index, 2014 2014 Availability and use of ICT, 2014 2025 Internet subscriptions per 100 inhabitants (in 2011, 203

unless stated otherwise)6 Mobile cellular subscriptions per 100 inhabitants, 2012 2047 APEC final energy intensity per economy 2048 APEC TPTWG structure 2079 APEC TEL structure 20910 Fixed broadband density in Asia Pacific, 2010 21011 APEC EWG structure 212

Chapter 8

Table 1 LPI indicators of APEC economies 2302 ETI indicators of APEC economies 2303 Variables comprising domestic and international 231

logistics indices4 DLI and ILI scores for APEC economies, 2010 2325 International supply chain connectivity index of APEC 232

economies, 2012

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6 Progress of implementation of the eight choke points 2337 Ranking of selected ASEAN member-states in terms of 235

quality of infrastructure8 Road quality and density indicators 2369 List of choke points and selected policy recommendations 240

as identified by APEC10 List of actions undertaken by the Philippines to solve 241

SCFAP choke points11 Trading across borders indicators 24212 Total exports and imports of the Philippines, ASEAN, 244

and the world (in USD billion)13 Total Philippine exports and imports to selected 244

countries/regions (in USD thousand)

Chapter 9

Table 1 Gross graduation ratio of APEC economies, tertiary 263

(ISCED 5A) first degree program2 Global SJR ranks and documents and country rank of APEC 265

economies for the period 1996–20123 Public expenditure on education as percent of GDP 2664 Gross enrollment ratio, all levels combined 268

(except preprimary)5 Gross enrollment ratio, deviation from yearly average 2696 Total enrollment in primary education (public institutions, 270

all programs)7 Growth in enrollment in primary education (public 271

institutions, all programs) (in percent)8 Enrollment in total tertiary education (public and private 272

institutions, full and part time)9 Enrollment in tertiary education (public and private, full 273

and part time), growth rate (in percent)10 Growth rate in the number of students in tertiary education 274

(per 100,000 inhabitants)11 Outbound mobility ratios 27712 School life expectancy (years), primary to tertiary 27913 Teacher-pupil ratio for basic and secondary education 281

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14 Number of elementary and secondary textbooks 28115 Cohort survival rate in public and private elementary 282

and secondary schools16 National Achievement Test mean percentage scores for 283

Grade 6 and 4th year high school students for SY 2009–10 and SY 2010–11

17 Number of examinees and overall passing rate per discipline 284 for all schools

18 Number of examinees and overall passing rate per discipline 285 for SUCs

19 Number of persons assessed and certification rate of TVET 287 graduates in priority industries

20 Number of higher education enrollees by discipline 28921 Number of higher education graduates by discipline 29122 Labor force, land-based OFWs from 2001 to 2010 29323 Enrollment in government and private schools in preschool, 294

elementary, and secondary levels24 Net participation rate in public and private elementary 295

and secondary schools25 Beneficiaries and funding of CHED financial assistance 295

programs26 Budgetary appropriation for the Philippine education system 298

by level of education and agency (in thousands)27 Goods and service exports of ASEAN+4 countries as 311

percentage of GDP28 Total unemployment in the APEC as percentage of labor force 31529 Unemployent by educational attainment, selected APEC 316

economies30 Emigration rate of tertiary educated graduates 317

Figure1 Gross graduation ratios of APEC economies 2642 Public expenditure on education as percent of GDP 2673a, 3b, 3c Growth rates of school-age population 276

(official entrance age)

AppendixAppendix A. CHED financial assistance programs 322

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Foreword

In a span of just one generation, the world we live in has changed dramatically. Global trade is no longer what it has been—with the unprecedented growth in services and intermediate inputs, driven by new technologies, new business models, and the emergence of global supply and value chains. In the process, economies have become more intricately interconnected, which affected trade, investments, and doing business not just across the border but, increasingly and more importantly, behind the border as well.

These changes have generated untold opportunities for economies across the globe. However, at the same time, they pose new threats and challenges that no single economy could effectively manage. Unfortunately, the multilateral trading system, the World Trade Organization (WTO), has failed to keep up with these changes in terms of providing a more appropriate multilateral framework for participating countries. This is largely due to the more complex nature of the changes in the global trading system and the huge number of member-countries involved, making negotiations and concessions extremely difficult to reach. One outcome of the WTO impasse has been the proliferation of preferential trading arrangements as second-best alternatives.

Providing some cohesion and balance in the opposing tendencies of multilateralism and bilateralism is possibly among the most important contribution of the Asia-Pacific Economic Cooperation (APEC) to the global trading order. APEC has provided the primary forum in the region for cooperation to deal with the emerging global challenges while upholding principles of open regionalism and support for WTO and multilateralism.

Each year, the host economy sets the agenda and priority areas for discussions and cooperative actions. The hosting of APEC 2015 comes at a very opportune time for the Philippines. The country is among the best-performing economies in a world that is facing its most serious threats—rising inequality and climate change. The Philippines is well and able to contribute to regional cooperation while strengthening its own reform objectives within the wider regional context.

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The Philippine Institute for Development Studies, through the Philippine APEC Study Center Network, and the Department of Foreign Affairs collaborated to produce the needed research support and policy studies for exploring the priority areas during the country’s hosting. The policy studies cover the four priority areas of:

• Enhancing regional economic integration• Fostering small and medium enterprises’ participation in the

regional and global economy• Investing in human capital development• Building sustainable and resilient communities

For the Philippine hosting, APEC aspires to lead the region in “Building Inclusive Economies, Building a Better World”. The policy studies in this volume seek to contribute to this theme by exploring the issues and prospects of these four priority areas. In addition, these studies are also intended to contribute to and advocate good domestic reforms in the longer term. Apart from the policy studies themselves, this endeavor has provided fruitful opportunities and a venue for mutual learning among the academe, the government, and the private sector. Undoubtedly, the experience and the lessons learned would have a lasting impact. This book of two volumes would hopefully serve as an important resource for policy beyond 2015.

Gilberto M. LlantoPresidentPhilippine Institute for Development Studies

September 2015

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Preface

When the Philippines embarked on its preparations to host the Asia-Pacific Economic Cooperation (APEC) 2015, the Department of Foreign Affairs, as co-chair of the APEC 2015 National Organizing Council and as APEC National Secretariat, has assumed a central role in engaging the whole of government in the planning and preparation stages. This engagement included formulating the Philippines’ APEC 2015 priorities that presented an opportunity to frame APEC discussions through the lens of inclusive growth, while advancing national interests aligned with Philippine development goals.

In the process of formulating the priorities, the department engaged and consulted with various stakeholders, including government agencies, private sector, and the academe, as well as APEC counterparts, to ensure a holistic and comprehensive perspective and approach to issues and areas of interest.

Recognizing the importance of evidence-based policymaking, the department commissioned the Philippine Institute for Development Studies (PIDS), through the Philippine APEC Study Center Network, to undertake research studies that could help substantiate the proposed priorities and come up with policy recommendations with an end in view of a post-2015 agenda. The results of these studies present a compelling case that while there have been economic gains in the past few years, the Philippines, now more than ever, needs to expand its perspective beyond the domestic spectrum and raise its level of competitiveness in the context of a highly globalized economic environment.

With the theme, “Building Inclusive Economies, Building a Better World”, the Philippines identified four priorities that are equally important to both the Philippines and the Asia-Pacific region: enhancing the regional economic integration agenda, fostering micro, small, and medium enterprises’ participation in regional and global markets, investing in human capital development, and building sustainable and resilient communities. These priorities and their related work programs will not only inform and shape discussions in APEC in 2015 and beyond but will also hopefully inform domestic policy decisionmaking processes in the years to come. The PIDS’ studies will provide guideposts for the road ahead.

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We hope that through the Philippines’ hosting of APEC 2015, the necessary policy and structural reforms will ensue building better lives for the more than 100 million Filipinos, and signal to the Asia-Pacific region and to the world that the Philippines is indeed open for business.

Laura Q. del RosarioUndersecretaryDepartment of Foreign Affairs

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Acknowledgment

This two-volume publication is the result of commitment and collaboration among various individuals and institutions that contributed to and participated in all stages of the Research Project APEC 2015, from desk review to the conduct of focus group discussions and consultations with concerned government agencies, to the presentation of findings in workshops/fora to gather information, facilitate the exchange of insights, engender support, and formulate policy initiatives and recommendations.

Undersecretary Laura Q. del Rosario of the Department of Foreign Affairs (DFA)-Office of the Undersecretary for International Economic Relations (OUIER) deserves foremost appreciation. As chair of the Committee on APEC Host Economy Priorities (CHEP) and APEC 2015 Senior Officials’ Meeting, she played a key role in engaging the Philippine Institute for Development Studies (PIDS) to provide technical expertise in the conduct of the project.

As co-chairs of the CHEP, Deputy Director-General Emmanuel F. Esguerra of the National Economic and Development Authority and Assistant Director Angelo Salvador M. Benedictos of the Department of Trade and Industry-Bureau of International Relations (DTI-BITR) are similarly recognized for their comments, suggestions, and support during the presentation of the initial findings on December 16, 2013.

The members of the Technical Board on APEC Matters, especially the Department of Education, the Commission on Higher Education, the Technical Education and Skills Development Authority, and the Department of Science and Technology, are also acknowledged for their valuable inputs in the improvement of the policy papers.

The project would not have been completed without the research team’s efforts and dedication. It is composed of senior research fellows and associates of the PIDS and consultants/experts from the Philippine APEC Study Center Network (PASCN) member-institutions: Erlinda M. Medalla (project team leader), Marife M. Ballesteros, Roehlano M. Briones, Christopher James R. Cabuay, Janet S. Cuenca, Nina Ashley O. Dela Cruz, Fatima Lourdes E. del Prado, Sonny N. Domingo, Stephanie Rose E. Flores, Ivory Myka R. Galang, Kathrina G. Gonzales, Daniel S. Hofilena, Danilo C. Israel, Lucita S. Lazo, Angelica B. Maddawin, Melalyn C. Mantaring, Adoracion M. Navarro, Aniceto C. Orbeta Jr., Epictetus E. Patalinghug, Oscar F. Picazo, Ramonette B. Serafica,

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Tereso S. Tullao Jr., Soraya Patria G. Ututalum, and Catherine Vidar. The contribution of Celia M. Reyes, the research assistance of Larraine Z. Bolanos, Keith C. Detros, and Evelyn F. Ulpindo, as well as the administrative support of Susan I. Pizarro are also highly appreciated. In addition, the authors benefited from the consultations and discussions with Marie Sherylyn D. Aquia (DTI-BITR) and Jason Patalinghug.

Gratitude is also extended to the following: the PIDS Management for its unconditional support to the project; former PIDS President Josef T. Yap, former Vice-President and Senior Research Fellow Rafaelita M. Aldaba, and Veredigna M. Ledda for their inputs in the project proposal development, finalization of the memorandum of agreement (MOA), and their contributions during the presentation of the initial findings to the CHEP; the Research Information Staff, specifically Sheila V. Siar and Mark Vincent P. Aranas for editing this volume, Jane C. Alcantara for editorial support and coordination, and Jose Ignacio O. Tenorio for layouting the pages and designing the cover; and PASCN staff Melalyn C. Mantaring and Angelica B. Maddawin for providing production coordination support.

Special thanks to Undersecretary Rafael E. Seguis for representing the DFA during the signing of the MOA and to the following DFA-OUIER/APEC National Secretariat team: Mikhal de Dios and Arnel Marcos Sanchez for their inputs in the project proposal development, finalization of the terms of reference and the MOA, and Jan Kenneth Bolante, Elizabeth Ramos, Janice Raposas, and Jollan Margaret Llaneza for their efficient coordination and facilitation of communications throughout the course of the project.

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List of Acronyms

AADMER – ASEAN Agreement on Disaster Management and Emergency Response

ABAC – APEC Business Advisory CouncilACDM – ASEAN Committee on Disaster ManagementACF – ASEAN Constructors FederationAFAS – ASEAN Framework Agreement on ServicesAHA Centre – ASEAN Coordinating Centre

for Humanitarian Assistance on Disaster Management

AIDS – acquired immune deficiency syndromeAIIB – Asian Infrastructure Investment BankALM – APEC Leaders’ MeetingANSSR – APEC New Strategy for Structural ReformAPEC – Asia-Pacific Economic CooperationAPEC TWG – APEC Tourism Working GroupAPEN – Asia Professional Education NetworkAPERC – Asia Pacific Energy Research CentreAQRF – ASEAN Qualifications Referencing FrameworkARMM – Autonomous Region in Muslim MindanaoASEAN – Association of Southeast Asian NationsAUN – ASEAN University NetworkBBAP – Beyond the Border Action PlanBFP – Business Facilitation ProgramBID – Bureau of Immigration and DeportationBOC – Bureau of CustomsBOP – balance of paymentBPAP – Business Processing Association of the

PhilippinesBPM – business process managementBSP – Bangko Sentral ng PilipinasCARICOM – Caribbean CommunityCBNI – Capacity Building Needs InitiativeCHED – Commission on Higher EducationCPC – Central Product ClassificationDDA – Doha Development AgendaDepED – Department of EducationDLI – domestic logistics indexDOLE – Department of Labor and Employment

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DOMWORKS – Regional Model Competency Standards for Domestic Workers

DRRM – disaster risk reduction managementE2M – electronic to mobileEBN – EWG Business NetworkEDC – Export Development CouncilEMA – Enterprise Migration AgreementsESCI – Energy Smart Communities InitiativeESI – Energy Security InitiativeETI – enabling trade indexEU – European UnionEWG – Energy Working GroupFDI – foreign direct investmentFGD – focus group discussionFIT – feed-in tariffFTA – free trade agreementFTAAP – Free Trade Area of the Asia PacificGATS – General Agreement on Trade in ServicesGATT – General Agreement on Tariffs and TradeGDP – gross domestic productGER – gross enrollment ratioGGR – gross graduation ratioGSP – Generalized System of PreferencesGVC – global value chainHCB – human capacity buildingHEI – higher education institutionHIV – human immunodeficiency virusHRD – human resource developmentHRDWG – Human Resource Development Working GroupIAC-TrS – Inter-Agency Committee on Trade StatisticsICT – information and communications technologyIDRL – international disaster response lawsIFRC – International Federation of the Red Cross and

Red Crescent SocietiesIFRS – international financial reporting standardsILI – international logistics indexILO – International Labour OrganizationIOM – International Organization for MigrationIP – intellectual propertyISCCI – international supply chain connectivity index

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ISCED – International Standard Classification of Education

IT – information technologyITC – International Trade CentreITH – income tax holidayITU – International Telecommunication UnionJETRO – Japan External Trade OrganizationJICA – Japan International Cooperation AgencyKm – kilometerKOPEC – Korea National Committee for Pacific

Economic CooperationKSP – Knowledge Sharing PlatformLGU – local government unitLPI – logistics performance indexLSCI – liner shipping connectivity indexLSDI – Lubombo Special Development InitiativeMDG – Millennium Development GoalME – microenterpriseMFN – most favored nationMNC – multinational corporationMOU – memorandum of understandingMPS – mean percentage scoreMRA – mutual recognition agreementMRA-TP – Mutual Recognition Agreement on Tourism

ProfessionalsMRT – Ministers Responsible for TradeMSME – micro, small, and medium enterpriseMtoe – million tonnes of oil equivalentNAFTA – North American Free Trade AgreementNAT – National Achievement TestNCC – National Competitiveness CouncilNOAH – Nationwide Operational Assessment of

HazardsNRE – new and renewable energyODA – official development assistanceOECD – Organisation for Economic Co-operation and

DevelopmentOFW – overseas Filipino workerOKACOM – Okavango River Basin CommissionOMR – outbound mobility ratio

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P4 – Brunei, Chile, New Zealand, and SingaporePCA – Philippine Constructors AssociationPDP – Philippine Development PlanPECC – Pacific Economic Cooperation CouncilPESFA – Private Education Student Financial

AssistancePEZA – Philippine Economic Zone AuthorityPHEI – private higher education institutionPPA – Philippine Ports AuthorityPPEGS – Public-Private Partnership on Environmental

Goods and ServicesPPP – public-private partnershipPREE – Peer Review Mechanism on Energy EfficiencyPTA – Preferential Trade AgreementPTP – people to peopleQRF – Qualifications Referencing FrameworkR&D – research and developmentRA – Republic ActRCEP – Regional Comprehensive Economic

PartnershipREI – regional economic integrationRMCS – Regional Model Competency StandardsRTA – regional trade agreementSADC – Southern African Development CommunitySAP – Services Action PlanSAR – Special Administrative RegionSCFAP – Supply Chain Connectivity Framework Action

PlanSCM – supply chain managementSCR – SCImago Journal and Country RankSEAMEO – Southeast Asian Ministers of Education

OrganizationSEED-Net – Southeast Asia Engineering Education

Development NetworkSLE – school life expectancySME – small and medium enterpriseSMEWG – Small and Medium Enterprise Working GroupSTAR – Services Trade Access RequirementsSUCs – state universities and collegesSY – school year

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TAB – Trading Across BordersTBAM – Technical Board on APEC MattersTBNRM – Transboundary Natural Resource

ManagementTEL – Telecommunications and Information Working

GroupTESDA – Technical Education and Skills Development

AuthorityTNC – transnational corporationTPP – Trans-Pacific PartnershipTPR – teacher-pupil ratioTPTWG – Transportation Working GroupTVET – technical and vocational education and

trainingTWSP – Training for Work Scholarship ProgramUK – United KingdomUN – United NationsUNCTAD – United Nations Conference on Trade and

DevelopmentUNESCAP – United Nations Economic and Social

Commission for Asia and the PacificUNESCO – United Nations Educational, Scientific and

Cultural OrganizationUNWTO – United Nations World Tourism OrganizationUS – United StatesUSC – University of Southern CaliforniaVET – vocational education and trainingVFA – visa facilitation agreementVTET – vocational and technical education and

trainingWB – World BankWEF – World Economic ForumWTTC – World Travel and Tourism CouncilWTO – World Trade Organization

Introduction The Asia-Pacific Economic Cooperation (APEC) is a grouping of like-minded economies in the Asia-Pacific region committed to free and open trade and investment. This is encapsulated in the APEC mission statement (http://www.apec.org/About-Us/About-APEC/Mission-Statement.aspx1):

“We are united in our drive to build a dynamic and harmonious Asia-Pacific community by championing free and open trade and investment, promoting and accelerating regional economic integration, encouraging economic and technical cooperation, enhancing human security, and facilitating a favorable and sustainable business environment. Our initiatives turn policy goals into concrete results and agreements into tangible benefits.”

The early motivation for APEC arose mainly from apprehensions at the time about the imminent formation of the European Union (EU) and a perceived weakening of the multilateral trading system governed by the then General Agreement on Tariffs and Trade (GATT). APEC was thus launched in 1989 (in Canberra), initially as an informal ministerial-level dialogue group of 12 members composed of Australia, Brunei Darussalam, Canada, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and the United States. In 1993, the first APEC Leaders’ Meeting (ALM) was held in Blake Island, United States, where the APEC’s vision of “stability, security, and prosperity for our peoples” was formed. The practice of holding an annual ALM was then established.

1 Accessed on September 16, 2015.

1Erlinda M. Medalla

A Look at the Priority Areas for the Philippines’ APEC 2015 Hosting: A Synthesis

2 A Look at the Priority Areas for the Philippines’ APEC 2015 Hosting: A Synthesis

The EU did not become a “fortress” as feared, and a new mandate for the GATT ensued with the ratification of the World Trade Organization (WTO) treaty in 1995. Nonetheless, APEC has become a major international cooperation body with its unique characteristic of gathering the leaders of the most dynamic region across the globe under a voluntary and cooperative framework. APEC membership has since grown to 21 member-economies—joined by China, Hong Kong, China, and Chinese Taipei in 1991; Mexico and Papua New Guinea in 1993; Chile in 1994; and Peru, Russia, and Viet Nam in 1998. Moreover, APEC has since covered a much broader economic agenda, including focus on small and medium enterprises (SMEs), structural reforms, food security, health concerns, climate change, trade security (antiterrorism), and knowledge economy, among others.

The APEC process, despite criticisms of being primarily a talk shop, has distinct advantages over other forums, such as the WTO and formal regional trading agreements. Being voluntary and nonbinding in nature, with greater emphasis on cooperation, it avoids the difficult process of negotiations while promoting capacity building. Capacity is enhanced as a result of the learning process cultivated in various APEC activities, including studies and information exchanges. The APEC process is also characterized by the use of both bottom-up and top-down approaches. A series of workshops and meetings at different levels—from working groups to senior officials’ and ministerial meetings, with the participation of the private/business sector—leads to the ALM that provides the common framework, principles, and guidelines for member-economies. The APEC process also encourages and reinforces reforms that the domestic economies need to undertake. Advocating these reforms at the regional level is valuable, especially for reforms that are more difficult to undertake in isolation. The APEC process helps not just by exerting peer pressure to individual economies to undertake needed domestic reforms. In addition, the reforms undertaken in concert with other APEC economies would generally have a higher potential to produce larger and more sustained benefits.

Each year, the host economy sets the theme, the priority areas, and the agenda for discussion and cooperative action. The practice of a rotating Chair provides a good mechanism for cooperation to deal with a dynamic global environment while keeping member-economies steadfast in upholding the APEC principles of open regionalism and support for the WTO and the multilateral framework.

As the host economy of the 2015 APEC Summit, the Philippines takes the lead in shaping the theme and the agenda for all APEC

Medalla 3

meetings and activities to be held during the hosting year. To support this endeavor, numerous meetings, workshops, and studies were undertaken by various agencies and institutions. Broad policy areas were identified during the roundtable discussions and meetings held in preparation for the APEC hosting.

As a response to the need for policy insights in forming the substantive priorities that the Philippines will push for as APEC host economy, the Department of Foreign Affairs and the Philippine Institute for Development Studies agreed to join forces in carrying out the APEC 2015 Research Project. This collaboration produced several policy papers that examined the relevant issues in the selected priority areas of the summit and the specific initiatives that can be pursued within the APEC system. These papers take a longer-term view by giving policy recommendations and strategies that serve the purposes of APEC 2015 as well as reflect the Philippines’ development priorities, strategies, and vision beyond 2015.

APEC 2015 theme and priorities: Toward “Building Inclusive Economies, Building a Better World”The APEC 2015 priority areas are based on APEC’s pillars of trade and investment, liberalization and facilitation, and economic and technical cooperation. The task for the host economy is to set an actionable theme and the corresponding substantive agenda that would guide the discussions and cooperative work streams, and build on these basic pillars of APEC.

As host economy, the Philippines is expected to provide a conducive environment for cooperation that would yield optimum benefits for all members amid their diverse interests, and amid new challenges and new opportunities from a rapidly changing global economic climate. However, while the Philippines’ substantive agenda for APEC 2015 should take on a regional perspective and a leadership role in advancing APEC objectives, it should also be guided by its basic development goals that are outlined in its current socioeconomic blueprint, the Philippine Development Plan 2011–2016.

With technological advances and the growing importance of global production networks and global value chains (GVCs), economies across the globe have become more intricately interrelated. In particular, the role of regional cooperation and integration has become even more crucial for sustainable growth in the new millennium.

However, there is a need to move beyond promoting an open trade and investment regime as a goal. Gains from open trade and investment


inarguably remain fundamental. However, the way benefits are distributed, and how different economies and various economic agents are able to participate, have increasingly become a major concern. In the end, distribution matters—within a country, between countries, between sectors, between households and businesses, and across businesses. Both economic and social objectives need to be met, hence, the need to facilitate the synergy between growth and equity.

There has been a long-standing debate on growth and equity: for example, about either possible trade-offs or the complementarity between them. Empirical evidence has not been clear that growth would (or would not) spill over and create equity. Openness and increased economic integration would tend to favor those with skills, access to education, finance, and innovation. Nonetheless, studies have also shown that growth and equity need not be mutually exclusive.2 Equipping the poor—especially by improving their education, health, and nutrition—would lead to higher growth. Indeed, long-term growth could not be sustained without inclusivity. There should be a conscious effort by governments to implement measures that would reinforce the synergy between growth and equity. Inclusive growth has always been an implicit underlying goal for all APEC economies, and policies to promote inclusion and equity (e.g., on human capital, SMEs) have been consistently embedded in the APEC agenda.

For APEC 2015, the Philippines adopts the theme, “Building Inclusive Economies, Building a Better World”, putting the overarching goal of inclusive growth in the center. Achieving the APEC vision of “stability, security, and prosperity for all” would require broader and deeper cooperation and course of action. In support of this theme, the Philippines has chosen four priority areas for the APEC 2015 agenda:

• Enhancing regional economic integration (REI)• Fostering SMEs’ participation in the regional and global

economy• Investing in human capital development• Building sustainable and resilient communities

Enhancing REI is a basic foundation of APEC and, thus, has always been a major priority area for its member-economies. The key challenge is how to make growth and REI as inclusive as possible. Fostering SMEs’ participation in the regional and global economy and investing

2 See for example, the World Bank study by Ravallion et al. (1999) and ILO (2011).

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in human capital development are among the most direct means to achieve inclusive growth. These should be complemented by efforts to build sustainable and resilient communities to ensure that growth will be both inclusive and sustainable.

In the following sections, each APEC priority area is discussed along with the highlights and policy recommendations of the papers written under the APEC 2015 Research Project.

Enhancing REIFrom the Bogor goals of free and open trade and investment, covering mainly trade and investment liberalization, REI as a core priority area encompasses the major factors that affect the flow of goods and services and the factors of production. For example, the proliferation of free trade agreements (FTAs), the rise of global production networks and global value and supply chains, the rapid technological changes and innovations, and the attendant emerging issues from all of these factors would have profound impacts on the nature, quality, and depth of economic integration. These have thus become priority areas of concern for APEC. In this regard, the following key areas should be part of APEC discussions and work stream:

• WTO and pathways to the Free Trade Area of Asia Pacific (FTAAP)

• The role of services• Expanding APEC-wide connectivity through infrastructure

development• Enhancing supply chain connectivity

The first area is directly related to the Bogor goals. The second area acknowledges the increasing importance of services in REI, and the last two aim to enhance connectivity in APEC.

WTO and pathways to the FTAAP3

APEC has maintained its support to the WTO and kept multilateralism as a basic principle. However, its guiding principle of open regionalism, with member-economies opening up in agreement with one another but without excluding the rest of the world, has been threatened by the proliferation of FTAs. Much of the discussion in the past decade has dealt primarily with how to keep the increase of FTAs manageable within the

3 This section is drawn from Erlinda Medalla and Angelica Maddawin, “Pathways to a Free Trade AreaoftheAsiaPacific”(thisvolume).


WTO framework and how these FTAs could become building blocks, rather than stumbling blocks, to convergence and REI. Among these FTAs, two “mega blocs” (termed as such given their depth and scope) are simultaneously pursued in APEC—the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP).

These mega blocs could lead to the formation of an FTAAP and bolster support for the WTO. Countries forming smaller alliances, and then consolidating and adopting an open-accession principle for other economies to join, attest to the viability of regionalism as a stepping stone to multilateralism. APEC’s task is to serve as incubator, and this includes enhancing economic and technical cooperation and capacity-building efforts to better equip less-developed countries to engage in the FTAAP to deepen liberalization and cooperation. If the RCEP and the TPP will be realized, interbloc engagement, similar to what is happening within the Association of Southeast Asian Nations and its dialogue partners, could become feasible and may eventually pave the way for the FTAAP.

The role of services4

Services are integral in GVCs.5 Services facilitate “trade in tasks” by providing the “glue” at each point. GVCs exist not only in the goods sectors but also in the services sector. GVCs contribute to development through direct gross domestic product (GDP) and employment gains and the opportunities that these create for technology dissemination, skill building, and industrial upgrading. However, these benefits do not automatically happen. It is important to know what determines the position and participation of economies in GVCs in the services sector and the kinds of policies that have an impact on the gains from GVCs. Thus, Serafica notes that more analytical work is needed on services GVCs in APEC and recommends focusing on services GVCs in the APEC 2015 agenda. Advancing regional understanding and cooperation in services GVCs will help the Philippines maximize its participation in GVCs, especially in the services sector where it has a comparative advantage.

A sector that cuts across many and diverse issues, services are more complex than goods. Serafica proposes an APEC initiative for a “services cooperation framework” to have a more coherent approach for the region.

4 This section is drawn from Ramonette Serafica, “Boosting Services Growth throughGlobalValueChains”(thisvolume).

5 Avaluechainisthefullrangeofactivitiesthatfirmsandworkersperformtobringaproductfrom its conception to end use and beyond. The activities that comprise a value chain can be containedwithinasinglefirmordistributedamongdifferentfirms.GVCsreflectthefactthatactivitiesthatconstituteavaluechainhavegenerallybeencarriedoutininterfirmnetworkson a global scale.

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The framework could aim to formulate effective approaches to address critical issues and develop practical strategies, for example, in capacity building, regulatory cooperation, and engaging external organizations, among other recommendations.

The content, coverage, and focus of the framework would be developed as discussions within the working groups progress. A closer look at selected services sectors could provide insights and suggestions toward this end. It is for this reason that the APEC 2015 Research Project includes policy studies on information technology-business process management (IT-BPM), tourism, and professional services mobility.

The IT-BPM challenge: Leveraging capabilities, creating opportunities6

The Philippine experience, as discussed by Del Prado, has shown IT-BPM services as an area of trade in services where developing countries can pursue to achieve sustained growth without heavily relying on traditional primary industries and natural resources.

Hence, in line with the Philippines’ interests and consistent with the call for an overarching services initiative, Del Prado recommends the following for consideration in the APEC 2015 agenda:

• promote offshore services/IT-BPM as part of the country’s goals

and commitment; • use trade diplomacy to further promote Philippine IT-BPM

services and remove barriers to trade; • intensify efforts to improve collection of IT-BPM data and

statistics;• seek out opportunities to collaborate with other governments,

multilateral institutions, and industry stakeholders in building up international and regional cooperation toward better data and statistics collection to mitigate false perceptions arising from offshoring; and

• strengthen and institutionalize government-industry-academe linkage and collaboration to improve higher education programs, address skills shortages, and move to high-value, knowledge-based segments of the IT-BPM services sector.

Nothing can connect economies more significantly than their peoples. In this regard, there are two major aspects involving movement of people

6 This section is drawn from the policy paper of the same title written by Fatima del Prado (this volume).


that the APEC 2015 Research Project examined as possible work agenda for APEC. These are (1) tourism and people-to-people connectivity and (2) mobility of professional workers.

People-to-people (PTP) tourism in APEC7

Tourism in APEC is rapidly growing, a trend that is likely to continue, especially with travel easing and visa facilitation being implemented in the region. A primary example in visa facilitation is the APEC Business Travel Card established in 1997 as an initiative of the APEC Mobility Group.

In particular, PTP tourists are expected to grow especially because of greater economic integration of APEC economies. PTP tourism can be defined as the cross-border movement of people from one country to another on a repeated basis for purposes that include (1) educational, training, or related capacity building; (2) research and development (R&D) cooperation; (3) police, constabulary, military, security, or anticrime assignments; (4) responding to health epidemic outbreaks; (5) medical tourism; (6) responding to disaster or calamity; (7) management of environmental parks and natural resource assets; (8) local border traffic; and (9) other travel purposes that APEC economies will deem important. In addition, frequency of travel is a hallmark of PTP tourism. PTP tourism, thus, merits a special attention in advancing connectivity and REI.

In the immediate and short term, Picazo et al. suggest that APEC should continue to improve overall visa processing and facilitation. There is productive collaboration among APEC economies. The APEC Tourism Working Group is committed to improve visa facilitation challenges by networking among different governmental branches within each country and across the APEC region to facilitate visas. The authors further recommend that in the medium term, APEC should work for greater coherence of visa requirements and regulation in the region.

Mobility of professional workers8

Labor mobility has been a sensitive issue in APEC. The discussions have been minimal and have mostly focused on the enhancement of employment (labor) rather than the facilitation of labor. According to Flores et al., human capacity building and promotion of education through university networks are being implemented to directly address

7 This section is lifted from the policy paper of the same title by Oscar Picazo, Soraya Ututalum, and Nina Ashley Dela Cruz (this volume).

8 This section is drawn from Stephanie Rose Flores, Kathrina Gonzales, and Aniceto Orbeta Jr., “KeyIssuesandChallengesinProfessionalServiceMobility”(thisvolume).

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human capital concerns, but these only indirectly address labor mobility concerns. Major projects established, such as the APEC Business Travel Card (1997) and the mutual recognition agreements for professionals (1997), have prioritized the business, academe, and professional community, but disregarded lower-skilled workers, thus, restricting labor mobility. It was only beginning in 2009 when lower-skilled workers were given attention. Among the actions undertaken so far included the comparability and benchmarking of competencies and the qualifications referencing framework for construction and welding.

In terms of the mobility of professional workers, the literature on the links between labor mobility and human development, labor mobility and inclusive growth, and labor mobility and trade have all shown that liberalization of professional workers contributes to economic growth and development. Flores et al. recommend that a comprehensive discussion related to professional service mobility be one of the priorities in the APEC 2015 Summit, in particular covering topics such as the APEC-wide Qualifications Referencing Framework, guiding principles in country-to-country labor policies, human capital management, and systematic collection of reliable labor statistics.

Expanding APEC-wide connectivity through infrastructure development9

Trade and investment liberalization and facilitation would need to be supported by adequate infrastructure to advance REI. How much and to what extent gains can be derived from integration would largely depend on the quality of infrastructure and connectivity in the region. The problems within and across economies in infrastructure are well known, and an APEC focus on this is crucial. Infrastructure development is one major area that clearly addresses both growth and inclusion.

Well-developed infrastructure systems and services strengthen the connectivity of APEC economies. Efforts by APEC to enhance connectivity through infrastructure should be considered regional public goods because these create positive spillover effects for each member-economy or net benefits that are greater than what could be achieved if these would be produced by individual members on their own. To contribute to APEC efforts and help meet the infrastructure development needs of the Philippines, Navarro recommends that the government elevate cross-cutting topics and sector-specific concerns as priorities for discussion during its hosting of APEC 2015. These could include, in particular,

9 This section is drawn from Adoracion Navarro, “Expanding APEC-wide Connectivity through InfrastructureDevelopment”(thisvolume).


building disaster-resilient infrastructure and financing infrastructure development through traditional public investment models and public-private partnerships (PPPs). The Philippines can drive PPP-related discussions by expressing the need for more sharing of knowledge and best practices on viability studies, risk sharing, and contracting (from design to management and monitoring), which are crucial factors in ensuring that PPP projects are bankable.

Enhancing supply chain connectivity10

Finally, it is important to continue and expand APEC achievements in facilitating the supply chain and addressing its choke points. If possible, targets could be raised for the remaining areas for improvement in the supply chain connectivity. In particular, Patalinghug recommends the following policy directions to further enhance the supply chain connectivity in the APEC region:

• encourage regional cooperation in establishing and nurturing the policy environment for new regional infrastructure projects;

• promote initiatives in support of the APEC Principles of Trans-Border Logistics Services Optimization, such as the simplification and harmonization of trade and transportation procedures and practices;

• build the capacity of local logistics providers and SMEs by facilitating their access to multinational logistics corporations;

• address the impediments related to customs issues of the APEC Cross-Border Customs Transit Arrangements, such as varying customs documentation standards and inadequate information technology infrastructure;

• encourage member-economies to have more engagements with relevant stakeholders to identify specific problems faced by each member; and

• develop policy or best practice guidelines for each choke point to serve as reference or guide for member-economies.

Fostering SMEs’ participation in the global market11

SMEs account for more than two-thirds of employment in APEC economies. They are a major source of employment of poor and low-income workers,

10 This section is drawn from Epictetus Patalinghug, “Supply Chain Connectivity: Enhancing ParticipationintheGlobalSupplyChain”(thisvolume).

11 This section draws heavily from Erlinda Medalla and Melalyn Mantaring, “Mainstreaming SMEs:PromotingInclusiveGrowthinAPEC”(volume2,forthcoming).

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and of poorer regions within economies. SMEs, thus, play a huge role in poverty reduction and could also be a critical driver for economic growth. They help create a stable economy given their flexibility and capacity to absorb skilled and unskilled labor. SMEs are also essential for creating competitive and efficient markets. Hence, a vibrant SME sector is also a potential, dynamic source of growth and innovation.

Economies, in their pursuit of SME development as a major domestic policy objective, should not ignore the global and regional environment. Their objective should be to provide SMEs with the opportunities and the means to grow and to encourage SMEs with potential to eventually become major players. As such, SME development policy should not be confined to serve the domestic environment.

An REI that promotes economic growth while ensuring that all sectors benefit will not succeed without an effective strategy for SME development. This is recognized in the APEC structure and evidenced by the amount of work done in its various committees. This is reiterated and reinforced when the Committee on APEC 2015 Host Economy Priorities identified SMEs as one of the major priorities in the substantive agenda during the country’s APEC hosting in 2015.

Fostering SME participation in the international market has, thus, been a major APEC objective. Toward this end, various APEC activities on SMEs have covered a wide range of practical measures. Among them are initiatives related to start-ups, such as the APEC Start-up Accelerator Program and the Mentorship Program. Another is the APEC Framework for SME Financing (initiated by the APEC Business Advisory Council [ABAC] Canada) that include, among others: (1) promoting and implementing reforms to ensure a clear legal infrastructure for lending, (2) supporting fully transparent credit information systems to incentivize lenders to significantly expand more affordable credit to SMEs in the region, and (3) supporting a dialogue on these standards as part of the proposed Asia-Pacific Financial Forum to align international financial reporting standards (IFRS) principles with the interests of SMEs. The use of information technology has also been identified as an area for cooperation. ABAC China is sharing its best practice in using e-commerce as a catalyst for growth with its “All-in-One e-Commerce Platform—the new eco-System for SMEs in China”.

Enterprises, regardless of size, face constraints, but there are constraints both internal and external that are inherent to SMEs. Internal constraints include lack of access to technology, skills, and finance. Moreover, external factors, such as poor physical infrastructure and a complex legal and regulatory framework, limit the ability of


SMEs to thrive. These barriers limit their capability to participate more actively in the international market.

The APEC priorities to address SME barriers and constraints were grouped into four areas, namely, (1) building management capacity; (2) entrepreneurship and innovation; (3) finance; and (4) business environment, market access, and internationalization. The SME Working Group (SMEWG) Strategic Plan for 2013–2016 was endorsed to provide a road map to address critical issues and concerns pertaining to the growth of SMEs and microenterprises (MEs) in the APEC region.

The SMEWG agreed to work together and provide four key indicators for the SME Monitoring Index to assess outcomes of the 2013–2016 Strategic Plan. The four indicators are: (1) SMEs’ share to GDP, (2) SMEs’ share in the total business population, (3) SMEs’ contribution to employment, and (4) SMEs’ contribution to exports.

The APEC work on SMEs should be sustained and enhanced with new initiatives. Possible areas for cooperation could focus further on the business environment and the regulatory framework that may be burdensome for SMEs and MEs. A promising practical initiative from the Philippines is promoting trade facilitation for SMEs by raising the threshold value of imports that would be exempted from customs duties, taxes, and other documentary fees. Similarly, APEC economies with FTAs should be encouraged to raise the threshold where the certificate of origin is waived. Another possible area for cooperation and further work is the creation of an APEC Trade Repository. This could be an expansion of the ASEAN Trade Repository initiative to cover all APEC economies.

Other possible areas include concrete measures to align IFRS with the interests of SMEs. This could involve developing a more suitable, standard accounting system and books that are less complex for SMEs to comply with, but are credible enough to reflect the credit status and standing of micro, small, and medium enterprises (MSMEs)—an information which is needed in international and local transactions. Related to this, advancing SMEs’ financial literacy is another possible area. This could entail education and technical programs across economies. Efforts along these lines would encourage SMEs to become better versed and more capable in dealing with the intricate business environment and regulatory framework. These would help mainstream SMEs in the supply chain within and outside the local economy.

Finally, a possible additional stimulus for SMEs could be the facilitation by APEC of franchising activities. Franchising could address most of the constraints faced by SMEs, particularly the lack of skills and access to technology and know-how and, in the case of joint ventures,

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financial constraints. Classic examples of franchising are in fast food chains, hotel chains, car hire companies, and retailing. In recent years, franchising activities have expanded to many business fields, big and small, in the goods and services sectors.

SME development, as a major domestic policy objective, will not only engender inclusive growth. It can also serve as a driver of growth for both the domestic and the regional economy.

Increasing opportunities for women in the APEC region12

Women have a special role in SME development and inclusive growth in the APEC region. Increasing women’s economic opportunities is necessary for the following reasons: (1) women comprise half of the human resources of many economies, and there is sufficient evidence showing that economies do better when women’s potentials are harnessed; (2) it is a moral imperative and a matter of fairness and equity; and (3) women have the right to development.

With far more limited access to finance than their male counterparts, women in economic enterprises are mostly found in SMEs and MEs. Many of them function as self-employed entrepreneurs or workers in the informal economy, especially in the developing countries. They face serious barriers and constraints, including low access to finance and market information, lack of productive resources including entitlement to land and property rights, lack of capacity to sustain and scale up enterprises, lack of social preparation and technical skills for enterprise building, low level of readiness to participate in the global market, lack of representation in decisionmaking structures, and vulnerability and lack of access to health and sociolegal protection.

APEC economies can expand women’s economic opportunities through practical measures, such as empowering women by globalizing their outlook, organizing women entrepreneurs in the formal and informal sectors, providing them with technical and vocational education, developing their leadership skills, giving more attention to microentrepreneurs in the informal economy to scale up their enterprises, enhancing the competitiveness of women enterprises through innovation and capacity development in entrepreneurship, developing enterprise resilience, and reducing the vulnerability of SMEs to economic shocks and natural disasters.

The women labor force represents productive human capital. Various studies show that enterprises headed by women have higher loan

12 This part is lifted from Lucita Lazo, “Increasing Economic Opportunities for Women in the APECregion”(volume2,forthcoming).


repayment rates than those headed by men. Success stories in women-related activities in APEC projects abound. These should provide the impetus for APEC economies to exert more effort to increase women’s economic opportunities.

Investing in human capital development13

Success in SMEs, promoting participation, increasing productivity, and encouraging growth and inclusion within the context of REI will not be achieved without capable human resources.

Education, training, and human resource development (HRD), on the whole, are investments in human capital. Like any other form of investments (and capital), they raise the output and productivity of workers. Hence, the link to growth is clear, and empirical studies (Barro 1991; Mankiw et al. 1992; Hanushek 1995) bear this out. Education quantity (i.e., enrollment rates) and quality (i.e., availability and quality of physical capital, teacher training) are positively correlated with higher growth rates. Empirical studies also show the positive impact of education and training on individual earnings.

APEC advances in REI and SME development, thus, need to be supported with HRD to facilitate inclusive growth. In addition, there is also a positive link between HRD and innovation because of the positive impact of human capital endowment on the country’s ability to “adopt, adapt, and imitate” new technology.

For any government, investment in human capital is possibly the most important development policy tool for achieving inclusive growth. In general, the provision of education, training, and HRD to a country’s population is a domestic issue. However, with regional integration, demand and supply for both products and factors of production, including labor, are affected not just by the domestic market but also by the larger regional market. Thus, advancing REI and inclusive growth would require regional cooperation in HRD, as it has now become an important regional concern.

Human capacity building (HCB)14 has been tackled as a priority area in APEC. In 2001, the first High Level Meeting on Human Capacity Building was held in Beijing under the theme, “New Economy, New Strategy: Cooperation and Innovation to Build Human Capacity for Common Prosperity”. Initiatives that followed have attempted

13 This section draws from Tereso Tullao Jr., Christopher James Cabuay, andDaniel Hofilena,“Establishing the Linkages of Human Resources Development with Inclusive Growth” (this volume).

14 There is probably a slight, nuanced difference between HCB and HRD—the former being more associated with stock. In this study, however, HCB and HRB are used interchangeably.

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to address the following objectives of the HCB Working Group: (1) bridging the digital divide and expanding Internet access, (2) setting up a life-long education and building a learning society, (3) strengthening the managerial and employee training and enhancing enterprises’ competence in the context of economic globalization, and (4) integrating the resources and promoting the overall HCB.

There were also initiatives to address the HRD needs of SMEs and MEs (2005), as well as HCB for Natural Hazard Mitigation in Cities and Coastal Regions (2008), and in science and math (2009). In 2010, a Framework and Strategic Approach in APEC Capacity Building and HRD was presented in Singapore.

Building sustainable and resilient communities Economies across the globe are becoming more vulnerable to climate change and increasing natural hazards. Addressing this threat would require looking at food security issues, disaster risk reduction management, and improving the resilience of economies. A more open and integrated regional economy entails adjustment costs and uneven opportunities. Thus, it is also important to look at social protection and safety nets for those negatively affected.

Food security15

The recent food price hikes have led governments around the world to refocus their priorities on agriculture, particularly in addressing food security issues. The plateauing capacity to grow food in the next decades, as foreseen by some scientists, as well as the continued threats of climate change, contributes to the anxiety of many countries to have a more abundant food supply.

Initiatives toward the attainment of global food security have been done not just unilaterally but also regionally and globally. Among the platforms that have made great efforts in this aspect is APEC. Food security would remain a priority in the APEC agenda.

Briones et al. suggest that one possible topic in the food security agenda is biotechnology as a means to achieve greater food production and productivity. However, there are many impediments that need to be addressed. First, promoting biotechnology would entail huge public investments, which has been the problem of the agriculture R&D sector. In addition, standards and regulations in relation to product safety and quality of the country are adequate, but the implementation

15 This section lifts from Roehlano Briones, Ivory Galang, and Danilo Israel, “Inputs for the PhilippineHostingofAPEC2015:FoodSecurity”(volume2,forthcoming).


of these is problematic because of the overlapping functions of some government agencies.

Another possible topic would be the promotion of sustainable food supply chains—an area which is well-supported by key government agencies. Sustainable food supply chains can serve as a major instrument to promote inclusive growth. A key aspect that must be considered is sustainability. A sustainable food supply chain must have a steady resource base, must be financially viable, and must be resilient to shocks or threats (e.g., climate change, growing population). The elements of this agenda cut across the components of the APEC’s Road Map for Food Security by 2020.

A major application of a sustainable food supply chain is in the fishery sector. This coincides with the blue economy agenda. The Philippines can aggressively champion the blue economy approach as an innovative way of managing the national and APEC-wide fisheries resources and coastal and oceanic waters. Blue economy stands for a way of designing business by using the resources available in cascading systems, where the waste of one product becomes the input to create a new cash flow. It aims to create jobs, build up social capital, and raise incomes while saving the environment. It also aims to promote the sustainable use of marine resources, spanning fisheries, energy, and international trade, among other aspects.

Climate change and disaster risk reduction managementThe APEC region has suffered from many natural hazards, with more than 50 percent of the world’s intense disasters visiting the region between 1975 and 2012 (EM-DAT n.d.). The Philippines has not yet fully recovered from the devastation caused by Typhoon Haiyan that ravaged many parts of the Eastern Visayas, particularly the province of Leyte in 2013. The number of recorded disasters has also risen, with fewer than 100 in 1975 to more than 400 in 2005.16 This implies not only the rising damage costs from natural hazards but also the increasing probability of catastrophic events that could occur in the vulnerable areas of the region.

Needforaregionalfinancialframework for disaster management17

Individual governments usually bear a large part of the cost of disasters, especially in emerging economies where the private sector and the

16 IndependentEvaluationGroup(WorldBank).2006.Factsandfiguresonnaturaldisasters.17 This section lifts from Catherine Vidar and Erlinda Medalla, “Deepening Regional Cooperation forDisasterRecoveryandReconstruction:AProposalforProactiveApproachtoRiskFinancing”(volume 2, forthcoming).

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capital markets are not fully developed. Available resources within governments are mostly insufficient to address the cost of response, rehabilitation, and reconstruction. This could result in adverse impacts on the overall fiscal and macroeconomic conditions. Moreover, the burden on the society, particularly on the poor, is prolonged by the inability to deliver the needed services due to the financial constraints resulting from a disaster.

As such, there is a need to improve the current system of financing the cost of disasters in a manner that would enhance the roles of the domestic private sector and the international financial market. With globalization and increased interconnectedness, disasters tend to carry risks that cross borders. This calls for a greater and more concerted global/regional effort. Vidal and Medalla propose to expand the prevailing regional cooperation within APEC toward improving access to finance for disaster recovery and reconstruction, and taking a more proactive approach to risk financing. The benefits of pursuing a regional financial framework and instrument for disaster are significant given the increasing interdependence of APEC economies.

The international capital market can reduce the immediate financial impact at the national level by providing compensation for the loss of capital and income and by spreading the burden in a spatial and temporal manner. The use of market mechanisms clearly needs to be enhanced and promoted. Within APEC, this effort is evident in the overall attempt to improve the economic environment, especially the financial intermediaries and the capital market. More recently, in the 6th Emergency Preparedness Working Group Meeting in China in February 2014, a project on Disaster Risk Financing and Insurance has been proposed. The project aims to establish cross-continental linkages among APEC economies to facilitate exchange of experiences in disaster risk financing and to foster an early thinking of an APEC regional risk transfer market and mechanism. More efforts can then be targeted toward setting the appropriate institutional mechanisms and policies and widening the range of market-based instruments available at the international and regional level.

Natural hazards also open up opportunities to rebuild safer and more resilient communities to “build back better”. Arranging funds in an ex ante manner would help facilitate this process by adding up to the available funds that each economy has for reconstruction and rehabilitation.


Need to build MSMEs’ resilience to natural disasters18

With the APEC goal of promoting regional growth and inclusion, it is particularly important to focus on the means to address the vulnerability to natural disasters of MSMEs. The impacts of natural disasters can be devastating to business operation and viability. MSMEs suffer most because they have limited resources and are less equipped to manage disasters. Recent studies show that MSMEs in the Philippines, while relatively flexible, have limited access to a broader set of coping strategies and are generally not prepared for nature-related disasters. Most MSMEs in developing countries are also characterized by informality and noncompliance with industry norms and regulations, limiting their capacity to adopt risk management tools and expand customer and supply base. The situation is further aggravated by the fact that governments are more focused on relief, search, and rescue operation, rather than on adaptation and risk reduction.

The present national disaster risk reduction management (DRRM) policy framework in the Philippines is designed to adhere to the principles of proactivity and active response. Increased awareness and understanding of DRRM among the various stakeholders is key to increasing resilience and decreasing vulnerabilities to disaster events. However, Ballesteros and Domingo find a disconnection or a lack of sectoral focus on the policy framework that drives DRRM among the different stakeholders in the country, particularly between households and businesses.

Moving forward requires the combined efforts of the private sector, including MSMEs, and the government to effectively translate national policies into local and sectoral action plans, apply local learning and best practices, and enhance regional cooperation within the APEC region. Ballesteros and Domingo stress the need for collective commitment to strengthen MSME resilience to shocks and for more focus on normalizing economic activities in pre- and postdisaster planning and operation. Disaster resilience among MSMEs can be enhanced through three fronts: (1) organizational capacity buildup, (2) policy and institutional support tackling socioeconomic drivers of risks in the predisaster stage, and (3) prompt and sustained economic restoration and support efforts in the aftermath of disaster.

In the regional front, APEC economies can strengthen each other through knowledge sharing, integrated early warning systems, and

18 This section is drawn from Marife Ballesteros and Sonny Domingo, “Building Philippine MSMEs’ResiliencetoNaturalDisasters”(volume2,forthcoming).

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disaster emergency logistic support. Regional cooperation is further reinforced through APEC’s initiatives pushing for continued policy dialogues and collaborative work on the following concerns: (1) vulnerability assessment of supply chain critical points, (2) best practices on critical infrastructure protection, (3) business continuity management in PPP, and (4) identifying best practices on flexible regulations.

Effective and sustainable social protection and social safety net program19

Finally, an important ingredient to achieve inclusive growth is social protection. Reforms and policies would always have mixed, non-uniform impacts. Although the net benefits are substantial, some sectors could either be neglected or negatively affected, and some sectors are also more vulnerable than others. Cuenca looks at ensuring effective and sustainable social protection and social safety net programs to address the social dimension of economic liberalization, which is a major element in APEC and REI.

Cuenca notes that the Philippines has an operational framework on social protection, which is an indication of the government’s commitment to ensure that social protection programs are well designed (i.e., programs drawn-up address the identified risks and vulnerabilities) and well implemented (i.e., key participatory strategies are being used). This also reflects the commitment of government to ensure efficient and effective use of limited resources by harmonizing all social protection programs.

Concluding remarksThese studies not only provide inputs for the Philippines’ APEC hosting in 2015 but also contribute to advocating domestic reforms in the longer term. They look at the current initiatives in APEC on the priority areas and the Philippines’ capabilities and weaknesses, especially in relation to its neighbors in the region. This benchmarking exercise is useful in providing a better direction for local reforms and in identifying the areas where governance efforts need to level up. National interests can be reinforced and enhanced, and larger and more sustained benefits can be achieved, when local reforms are undertaken in tandem with regional efforts.

19 This section lifts from Janet Cuenca, “Social Protection in the Philippines: In Pursuit of Inclusive Growth”(volume2,forthcoming).


ReferencesBarro, R. 1991. Economic growth in a cross-section of countries. Quarterly

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Ravallion, M., L. Squire, and M. Bruno. 1999. Equity and growth in developing countries: Old and new perspectives on the policy issues. World Bank Policy Research Working Papers. Washington, D.C.: World Bank.

AbstractSince 2004, the Asia-Pacific Economic Cooperation (APEC) has been advancing discussions on the Free Trade Area of the Asia Pacific (FTAAP). It started when the APEC Business Advisory Council (ABAC) suggested a possible integration of the Asia-Pacific region. Recent developments on the FTAAP include China’s support during its APEC hosting and the formulation of the APEC’s Contribution to the Realization of the FTAAP road map. This paper revisits the factors that could shape FTAAP developments and provides recommendations on the position the Philippines should take. In particular, it looks at the emerging mega blocs in the APEC region—the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP)—and other possible scenarios. Moreover, the paper highlights two important roles of APEC: (1) as a venue for discussions to steer the region toward integration that is supportive of the World Trade Organization’s and APEC’s goals and (2) as a mechanism to enhance economic and technical cooperation and raise capability-building efforts to prepare less-developed countries for deeper and wider areas of liberalization.

IntroductionThe World Trade Organization (WTO) Doha Development Round closely avoided a collapse with the conclusion of the 9th Ministerial Conference in Bali. This does not mean, however, that the task of the APEC in supporting the WTO is over. For one, the Bali Package, which focuses on streamlining trade, is smaller in coverage than the Doha Development Agenda (DDA). Moreover, regional and global interrelationships will

2Erlinda M. Medalla and Angelica B. Maddawin

Pathways to a Free Trade Area of the Asia Pacific

22 PathwaystoaFreeTradeAreaoftheAsiaPacific

continue to become increasingly complex, and the need remains for cooperation and coordination that cannot be handled within the WTO framework. This poses a challenge to APEC to be more effective in achieving its vision for the region.

Given the emerging trend of mega blocs within APEC, this paper reviews the directions that could best uphold the goals of the WTO while achieving the goal of regional economic integration (REI). This raises the following questions that the paper aims to answer: (1) Is the FTAAP a feasible and acceptable solution? (2) Could the TPP and the RCEP processes converge to form the pathway to an FTAAP? and (3) What stance should the Philippines take in APEC discussions?

Evolution of FTAAP discussions in APECSupporting the WTO, along with the Bogor goals, is at the core of APEC. Because of the increasing number of free trade agreements (FTAs) and the long-drawn process of the WTO DDA, the formation of an FTAAP was proposed in APEC discussions during the Chile APEC hosting in 2004. The ABAC endorsed this proposal based on its study on the feasibility and potential scope and features of an FTAAP supporting the “Santiago Initiative for Expanded Trade in APEC”. Bergsten (2007), as cited in Morrison and Pedrosa (2007), refers to it as the best possible “Plan B” available as an FTAAP will provide the biggest single liberalization in history and could restart WTO’s multilateral negotiations. Supporters at the time envision an FTAAP that will unify the integration efforts in the region and prevent competitive liberalization in the Americas and Asia. It was also seen as a means for the United States (US) and China to address trade tensions and strengthen the mandate and effectiveness of APEC.

However, at that time, most APEC economies were hesitant about an FTAAP, mainly because of issues on readiness and capability (including the capability to negotiate). Therefore, APEC leaders agreed to use existing measures and conduct further studies as building blocks before embarking on an FTAAP. For instance, China would rather pursue REI, with the view of achieving an FTAAP in the long run. REI has then become a core priority issue in APEC.

The interest in pursuing an FTAAP has somehow waned in the following years and the focus was more on REI efforts. However, with more FTAs being formed, and with the conclusion of the WTO DDA remaining elusive, more serious discussion of pathways to an FTAAP started to gain ground in the past years. To illustrate, the following discussion is a summary of the FTAAP’s inclusion in the Ministerial and Leaders’ Meetings in APEC from 2004 to 2013.

Medalla and Maddawin 23

Timeline of FTAAP discussions in the APEC Ministerial and Leaders’ Meeting (2004–2013)1

2004In 2004, ABAC—a nongovernmental entity created by APEC leaders to respond to business-related issues in the APEC region—presented a study on the feasibility and potential scope and features of an FTAAP to support the Santiago Initiative for Expanded Trade in APEC. The Santiago Initiative was the major result of the 12th APEC Economic Leaders’ Meeting in Santiago, Chile. It aimed to complement the achievement of free and open trade in the region with its two components: (1) trade and investment liberalization and (2) trade facilitation. However, not all APEC leaders were amenable to the formation of an FTAAP.

2005There were no discussions on the FTAAP in the 2005 APEC Leaders’ Meeting.

2006Discussions on the FTAAP was brought up in the 18th APEC Ministerial Meeting in 2006 in Hanoi, Viet Nam. In that year, it was supported by the Pacific Economic Cooperation Council—a unique tripartite partnership of senior individuals from business and industry, government, academic, and other intellectual circles. The ministers came up with the Hanoi Action Plan, which stated that an FTAAP may not be viable in the near term. Nevertheless, it should be actively considered in the realization of REI, the Bogor goals, and other ongoing multilateral efforts.

2007FTAAP prospects were further scrutinized at the 13th APEC Ministers Responsible for Trade (MRT) Meeting in 2007 in Australia. The ministers initiated to draft a report on REI, with various ways to achieve free trade in the region, including the possibility of an FTAAP as a long-term prospect. This report was finalized in time for the 19th APEC Ministerial Meeting in the same year.

The report suggested practical actions that APEC economies can take to promote and reinforce in the integration. It included a Framework for Strengthening Regional Economic Integration, which consisted of four key elements. The first element laid the foundation

1 This subsection draws heavily from various APEC Leaders' Declarations and APEC Ministerial Statements issued from 2004 to 2013 (APEC n.d.).


for an FTAAP. By further liberalizing the trade in goods and services and investment flows, APEC can support the agreement in the longer term. The agreed actions in examining the options and prospects of FTAAP included:

1. compiling an inventory of issues relevant to FTAAP that should be addressed as part of a possible preparatory process and by examining their possible implications;

2. conducting an analytical study of existing bilateral and plurilateral FTAs in the region to understand their similarities and differences, as well as to enable economies to identify possible ways in which the FTAAP concept could be furthered;

3. reviewing the existing analytical work relevant to a possible FTAAP and assessing the need for any additional analytical work; and

4. examining the feasibility of docking or merging existing FTAs.

The report also suggested an additional Senior Officials’ Meeting on Trade Policy Dialogues to discuss various aspects of a possible FTAAP.

2008In the 2008 APEC MRT Meeting in Arequipa, Peru, the ministers reiterated the importance of further analyzing the prospects and implications of an FTAAP. They supported the Study on Identifying Convergences and Divergences in APEC’s RTAs/FTAs, which was deemed a helpful tool to better understand the similarities and differences of the provisions within the existing regional trade agreements (RTAs)/FTAs in the region. The ministers agreed that an FTAAP should help address the complexity created by the current array of FTAs and RTAs in the region. To do so, the agreement should not only be consistent with the WTO but should also promote greater REI compared to the multilateral system. With an FTAAP, APEC's existing processes will be affected, thus, the need for additional capacity building.

During the 16th APEC Leaders’ Meeting in 2008, further analytical work on the possible economic impact of an FTAAP was discussed, as well as possible capacity-building requirements for future negotiations.

2009In the 2009 APEC MRT Meeting in Singapore, the ministers pronounced the expansion of the Study on Identifying Convergences and Divergences in APEC’s RTAs/FTAs to include 12 additional agreements and to


provide analysis on electronic commerce provisions. Progress on the 2007 Report on Promoting Regional Economic Integration was also reported. In particular, the ministers referred to the development of a preliminary inventory of the issues that should be addressed as part of the preparatory process for a possible FTAAP. The ministers asserted a continued effort in analyzing the economic impact of an FTAAP that the APEC leaders entrusted them to accomplish.

An Analytical Study on the Likely Impact of FTAAP, which illustrated the possible economic benefits and challenges of establishing an FTAAP, was also proposed during the 21st APEC Ministerial Meeting. This same study was reported in the 17th APEC Economic Leaders’ Meeting. According to the study, an FTAAP has significant economic benefits; hence, the leaders expressed an interest to explore a range of possible pathways to an FTAAP.

2010In the 2010 APEC MRT Meeting in Japan, senior officials reported the range of possible pathways in achieving an FTAAP, as reflected in their exploratory studies. The outcomes of their studies strengthened initial efforts undertaken in the key areas of REI (i.e., investment, standards and technical regulations, trade facilitation, rules of origin, intellectual property rights, environmental goods and services, and ease of doing business).

Concrete steps toward FTAAP realization were also highlighted in the 18th APEC Economic Leaders’ Meeting. As the incubator of FTAAP, APEC will play a critical role in defining, shaping, and addressing the “next-generation” trade and investment issues of FTAAP. APEC’s contribution to the pursuit of FTAAP focused on sectoral initiatives, such as investment, services, e-commerce, rules of origin, standards and conformance, trade facilitation, and environmental goods and services.

The following were the identified considerations that should be taken into account in pursuing an FTAAP:

• the changing contours of the global economic and trade architecture, particularly the proliferation of FTAs and RTAs in the Asia-Pacific region;

• the progress toward achieving the Bogor goals of free and open regional trade and investment within APEC economies by 2020;

• the nonbinding nature and voluntarism of APEC; • the importance of advancing conventional “at-the-border” trade

and investment issues and addressing nontariff or “behind-the-border” barriers and other next-generation trade and


investment issues to further deepen economic integration in the region; and

• the long-standing support of APEC for the multilateral trading system.

2011To define, shape, and address the next-generation trade and investment issues through an FTAAP, the ministers identified the following issues and proposed ways to address them during the 2011 APEC MRT Meeting: (1) facilitating global supply chains; (2) enhancing small- and medium-sized enterprises’ participation in global production chains; and (3) promoting effective, nondiscriminatory, and market-driven innovation policy.

2012The 2012 APEC MRT Meeting in Russia raised the discussion of a possible capacity-building requirement for future negotiations. An action plan framework on Capacity-Building Needs Initiative (CBNI) was then implemented under the leadership of South Korea and in cooperation with Chile, Peru, and the Philippines. They proposed and conducted a survey to identify the capacity-building needs of APEC economies. South Korea then proposed a multiyear work plan in support for the REI CBNI. One of its objectives was to identify and explore possible ways to overcome FTAAP-related challenges.

In the same year, APEC leaders included “transparency” as a new next-generation trade and investment issue. They endorsed the APEC Model Chapter on Transparency for RTAs/FTAs to be used as a guide by APEC economies. This contributed to the successful implementation of APEC’s REI agenda, especially as a means to address transparency issues and provide concrete steps to establish an FTAAP.

2013To promote transparency, the ministers agreed to report and share information on the developments of RTAs/FTAs, including the TPP and RCEP, within the region during the 2013 APEC MRT Meeting in Indonesia. In the Leaders’ Meeting, they further agreed to hold a policy dialogue on regional RTAs/FTAs to engage in substantive negotiations within the APEC region.

2014To advance FTAAP in a comprehensive and systematic manner, a new Committee on Trade and Investment-Friends of the Chair Group on


Strengthening REI and Advancing FTAAP was established in 2014. The group not only coordinates and advances APEC initiatives but also intensifies efforts in: (1) enhancing transparency among RTAs/FTAs, (2) strengthening capacity-building activities, (3) formulating a road map for APEC’s Contribution to the Realization of an FTAAP, and (4) enhancing the analytical work of an FTAAP.

In summary, FTAAP was perceived with caution, hesitance, and ambivalence since it was proposed in 2004. However, the FTAAP proposal started to gain ground during the Australian APEC hosting in 2007. The APEC Leaders’ Meeting in the same year guaranteed careful evaluation and consideration of the prospects and options of establishing an FTAAP. During the Peru APEC hosting in 2008, strengthening REI became the priority agenda, and part of its work plan involved further analysis of the FTAAP.

The APEC hosting in the succeeding years continued to pave the way toward FTAAP realization, building on previous initiatives and deliberations of practical and concrete actions. Various components relevant to the FTAAP, including identifying and addressing next- generation issues, were included in the priority areas for discussion. During the US APEC hosting in 2011, further steps to open up the markets, including behind-the-border impediments and regulatory coherence, were discussed. In 2012, Russia sustained the momentum by focusing on CBNI, which was aimed at identifying and overcoming FTAAP-related challenges. In 2013, there was a more categorical support for the formation of the FTAAP, as indicated in the 21st APEC Economic Leaders' Declaration (APEC 2013, p. 2):

“We reaffirm our commitment to achieve a Free Trade Area of the Asia-Pacific (FTAAP), including by continuing APEC’s work to provide leadership and intellectual input into the process of regional economic integration. APEC has an important role to play in coordinating information sharing, transparency, and capacity building, and will hold a policy dialogue on regional RTAs/FTAs. We agreed to enhance communication among regional RTAs/FTAs, as well as to increase the capacity of APEC economies to engage in substantive negotiations.”

At the same time, categorical support for the Multilateral Trading System and Attaining the Bogor Goals remained, as reflected in the following statement of the Bali Declaration (APEC 2013, p. 2):


“Realizing that the Doha Development Agenda negotiations are at a critical juncture, with significance for the broader multilateral system, we have issued a separate statement supporting the multilateral trading system and the 9th Ministerial Conference of the World Trade Organization.”

This suggests that achieving an FTAAP was deeply embedded in the APEC REI agenda. During the China APEC hosting in 2014, FTAAP discussions took an even firmer root in the APEC agenda, as reflected in the 2014 APEC theme “Shaping the Future through Asia-Pacific Partnership”. China’s choice of the theme and its corresponding priority agenda signaled the country’s more active support for forging an FTAAP. This also indicated a shift from its initial “noncommittal” policy stance.

TPP, RCEP, and FTAAPThe TPP started out as a partnership agreement. It was signed and put in place in 2006 by Brunei, Chile, New Zealand, and Singapore (the so-called P4). Its impact was hardly felt until the US declared its intention to join the P4 in early 2008. In less than a year later, the US announced that it would enter into negotiations to join the TPP. With the US as its primary driver, more countries became interested to take part into the partnership. To date, the TPP is now a negotiating body of 12 countries, as Australia, Viet Nam, Peru, Malaysia, Canada, Mexico, and Japan joined the P4 and the US.

The first round of negotiations, which included the US, began in 2010. Since then, there have been 19 rounds of TPP negotiations. The TPP is considered a 21st century, high-quality regional agreement due to its more encompassing coverage. It aims to forge an agreement with broader and deeper liberalization of the services sector and investments. The US is also negotiating for stronger and more coherent regulatory environment that covers intellectual property rights, stricter labor and environmental standards, regulatory discipline of state-owned enterprises, and transparency, among others.

Meanwhile, the RCEP—which involves the Association of Southeast Asian Nations (ASEAN) and its plus 1 FTA partners, namely, China, Korea, Japan, Australia, New Zealand, and India—aimed to leverage the strength of the region. However, it resulted in a “noodle-bowl” set of FTAs for the ASEAN that retains significant impediments to the flow of goods and services, factors of production, and regional production networks.

In November 2011, the East Asian leaders endorsed the framework for RCEP negotiation during the 19th ASEAN Summit. According to this


framework, the RCEP will cover goods, services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, and other issues. The RCEP works on an “open-accession” principle that allows any ASEAN FTA partner to participate, either from the outset or at a later date. It also entails appropriate forms of flexibility that acknowledge the different levels of development of the participating countries (Medalla and Mantaring 2012).

Both the TPP and the RCEP cover more than trade in goods—a characteristic of the “old-generation” FTAs. However, the extent and depth of their coverage in other areas of liberalization and cooperation differ. The TPP seeks higher standards of commitments equally from all negotiating parties, while the RCEP opts for a more flexible approach.

The RCEP partnership is based on geographical proximity—a natural alliance among economies. With its open-accession principle, the RCEP’s geographic coverage could grow, thus, extending its proximity. The TPP, meanwhile, cuts across Asia Pacific and serves as a bridge between the two sides of the Pacific. The question remains whether or not these emerging blocs would pave the way for an FTAAP.

Although the TPP negotiation was conceived earlier, the RCEP may conclude earlier because of its more flexible approach that renders a lower level of ambition.2 Nonetheless, there have been delays in the negotiations for both cases due to a number of issues that need to be tackled and agreed on. With China’s support, however, an FTAAP becomes a more feasible option, in addition to the TPP and the RCEP.

The Philippine perspectiveWith China moving the FTAAP forward, the Philippines now has a chance to form a partnership with the US other than striving to join the TPP. Joining these blocs—TPP, RCEP, and FTAAP—indicates possible gain on the gross domestic product (GDP) of the Philippines. Because higher GDP gains could be achieved by joining larger economic grouping (Rodriguez 2008; Ando 2009), the Philippines would gain most by joining the FTAAP.3 However, the Philippines has to review the more feasible partnership between the TPP and the FTAAP. Because the FTAAP is a larger group, its feasibility for the Philippines is in question.

To defend its market share in the US and improve its market access are practical reasons for the Philippines to join the TPP. The country already

2 At least in the interim, until the less-developed economies are given enough time to bridge the gap in capability.

3 The Philippines already has existing FTAs with Japan, China, Korea, Australia, and New Zealand. ItwillstillbenefitfromtheconsolidationofitsvariousASEAN+1FTAsintotheRCEP,anditscurrentRCEPnegotiationwouldnotloseitsimportanceandsignificance.


has an FTA with more than half of the other APEC economies. Among the non-FTA partners, the US is the only major trading partner of the Philippines. The rest (the four Latin American countries, Canada, Russia) are minor trading partners. Hence, in terms of increased competition, an FTAAP will require less adjustment compared to the TPP.

The TPP, however, is most likely more ambitious than an FTAAP. Because of capability and constitutional constraints, it will be more difficult for the Philippines to commit to the reforms covered by the TPP. The FTAAP, meanwhile, offers more gradualism, which implies more feasibility.

RecommendationsSince 2007, when APEC showed interest toward an FTAAP to support the REI agenda, FTAAP discussions have steadily progressed. Analytical works, such as the multiyear study on convergences and divergences in APEC FTAs/RTAs and the study on the likely impact of an FTAAP, were conducted. In 2010, APEC came up with more concrete ways to pursue an FTAAP. Since then, it has been regarded as a major instrument of the REI, which is the traditional priority initiative of APEC.

To ensure transparency, information sharing, cooperation, and capacity-building activities, relevant committees and working groups in APEC reviewed the best practices of APEC RTAs/FTAs. They came up with an APEC Model Chapter in 2012. One of its objectives is to enhance the communication among the RTAs/FTAs. An APEC Committee on Trade and Investment Friends of the Chair group was then established. It was formed to strengthen the communication and interaction between various regional architectures and to provide transparency mechanism for RTAs. The group also facilitates needed institutional arrangement among the vast number of APEC economies. These efforts aim to help APEC economies arrive at a consensus of diverse interests.

In addition, ensuring that the TPP and the RCEP lead to the formation of an FTAAP would best serve both APEC’s goal of an FTAAP and WTO’s goal. APEC’s task involves identifying pathways where countries could form smaller alliances and adopt open accession to let other economies join. However, forging FTAs becomes more difficult with more countries involved. APEC should encourage the formation of mega blocs but should ensure that these mega blocs will eventually converge and complement each other.

With China’s support, the feasibility of moving the FTAAP forward—possibly opening the door to the negotiation process—is enhanced. This


increases the chance of partnership with TPP member-countries even without joining the TPP.

There are two possible scenarios that could happen. The first possible scenario is that the FTAAP would be concluded ahead of the TPP and the RCEP. If the tendency is for the FTAAP to be in between the TPP and the RCEP in terms of the extent and depth of liberalization, it could spur the completion of RCEP negotiations. Otherwise, concluding an inferior (RCEP) agreement into an FTAAP would not yield additional benefits to the RCEP parties. Efforts to move the FTAAP forward, hence, could go hand in hand with leveling up the RCEP. However, if the tendency is for the FTAAP to have a lower ambition than the RCEP, the RCEP could proceed as before. In either case, the incentives remain for the TPP negotiations to continue and to conclude into a higher-quality FTA.

The second scenario is for the TPP and the RCEP to conclude before the FTAAP. In this case, APEC needs to make sure that they become building blocks for the FTAAP and multilateralism. This would only be possible if APEC continues to serve as channel for communication and transparency.

In either scenario, APEC needs to enhance economic and technical cooperation and raise capability-building efforts to better equip less-developed countries to later engage in the FTAAP, which would require deeper and wider areas of liberalization and cooperation.

Should the TPP and the RCEP be put in place, interbloc engagement—similar to what is happening with the ASEAN and its dialogue partners—could become feasible and will eventually pave the way for an FTAAP. In the meantime, as negotiations proceed for these mega blocs, the proposed provisions should be made transparent and consistent with the APEC goals and the WTO guidelines. Moreover, there should be a venue for discussion within APEC about the implications of these provisions to the different member-economies.

At the very least, prioritization and pronouncement of its support for the WTO and the FTAAP should remain in the APEC agenda.

ReferencesAndo, M. 2009. Impacts of FTAs in East Asia: CGE simulation analysis.

Discussion Paper Series 09-E-037. Tokyo, Japan: Research Institute of Economy, Trade and Industry.

Asia-Pacific Economic Cooperation (APEC). 2013. Bali Declaration: Resilient Asia Pacific, engine of global growth. The 21st APEC Economic Leaders’ Declaration, Bali, Indonesia. http://mddb.apec .org/ (accessed in May 2014).


———. n.d. APEC Meeting Documents Database. Jakarta, Indonesia: APEC. http://mddb.apec .org/ (accessed on May 2014).

Bergsten, C. Fred. 2007. A Free Trade Area of the Asia Pacific in the wake of the faltering Doha Round: Trade policy alternatives for APEC, p. 15–36. In An APEC trade agenda: The political economy of a Free Trade Area of the Asia Pacific, edited by C.E. Morrison and E. Pedrosa. Singapore: Institute of Southeast Asian Studies.

Medalla, E. and M. Mantaring. 2012. The Philippines and East Asia: Building on partnerships to take part in the region’s dynamism. PIDS Policy Notes No. 2012-21. Makati City, Philippines: Philippine Institute for Development Studies.

Morrison C. and E. Pedrosa. 2007. An APEC trade agenda? The political economy of a Free Trade Area of the Asia Pacific. Singapore: Institute of Southeast Asian Studies.

Rodriguez, U. 2008. Impacts of the Free Trade Area of the Pacific (FTAAP) on the production, consumption, and trade of the Philippines. PIDS Discussion Paper Series No. 2008-20. Makati City, Philippines: Philippine Institute for Development Studies.

AbstractGlobal value chains (GVCs) increasingly dominate world trade. By focusing on GVCs, the Philippines as the Asia-Pacific Economic Cooperation (APEC) host economy in 2015 can contribute to regional integration and advance its economic interest in services. This paper reviews the factors that affect GVC formation and presents measures of GVC participation at the aggregate level. It also discusses the role of services in GVCs and proposes that further analytical work particularly on services value chains be undertaken.

Introduction: What are global value chains?Value chain involves the full range of activities that firms and workers perform to bring a product from conception to its end use and beyond (Gereffi and Fernandez-Stark 2011). The activities that comprise a value chain can be contained within a single firm or distributed among different firms. GVCs, hence, refer to value chains that have generally been carried out in interfirm networks on a global scale. Table 1 presents two perspectives on global value chains.

According to the United Nations Conference on Trade and Development (2013), GVCs coordinated by a transnational corporation (TNC) account for about 80 percent of global trade in terms of gross exports. Trade linked to the international production networks of TNCs includes: (1) intrafirm trade; (2) non-equity modes, such as contract manufacturing, licensing, and franchising; and (3) arm’s-length transactions with at least one TNC. Backer and Miroudot (2013) estimate that, on average, more than 50 percent of export value is made up of products traded in the context of GVCs. Additionally, more than 50 percent of world-manufactured imports are intermediate goods (i.e.,

3Ramonette B. Serafica

Boosting Services Growth through Global Value Chains

34 Boosting Services Growth through Global Value Chains

primary goods, parts and components, and semifinished products), while more than 70 percent of world services imports are intermediate services.

Factors that affect GVC formationAs discussed in Organisation for Economic Co-operation and Development (2013), the idea of a (global) value chain is also closely related to that of a supply chain, which refers to the total flow of physical goods from suppliers to ultimate users, and the broad integration of business processes along the supply chain, such as (inbound and outbound) logistics, inventory management, and procurement. The focus of supply chain management is on the cost and efficiency of supply and the flow of materials from various suppliers to the final customer. A value chain has a broader objective as it tries to capture the determinants of the organization of (global) industries by incorporating elements from the literature on industrial organization, international business, and trade and competitiveness. Moreover, a value chain incorporates the idea of value being created (or added) throughout the chain and, thus, establishes a close link with economic performance.

Figure 1 illustrates possible business strategies that firms may undertake. To remain competitive, firms increasingly restructure their operations by: (1) outsourcing or purchasing intermediate goods and

Table 1. Perspectives on GVCs

International Business“Firm Perspective”

Economics“Country Perspective”

Definingconcepts GVCsaredefinedbyfragmentedsupply chains, with internationally dispersed tasks and activities coordinatedbyaleadfirm(atransnational corporation).

GVCs explain how exports may incorporate imported inputs (i.e., how exports include foreign and domestically produced value added).

Scope GVCs are present predominantly in industries characterized by such supply chains (e.g., electronics, automotive, and textiles). Their scope, however, is widening to agriculture and food, and offshore services, among others.

GVCs and value-added trade, by design and by the necessities of statistical calculation, encompass all trade (i.e., all exports and imports are part of a value chain).

Role of investment and trade

Investment and trade are complementary but alternative modes of international operation forfirms(i.e.,afirmcanaccessforeign markets or resources by establishinganaffiliateorthroughtrade).

Investment is needed to build export capacity (i.e., it creates the factors of production required to generate value-added exports). Both investment and value added in exports contribute to the gross domestic product.

Source: Table IV.1, United Nations Conference on Trade and Development (2013, p. 125)

Serafica 35

services from outside specialist providers and (2) offshoring or purchasing intermediate goods and services from foreign providers. Offshoring includes both international outsourcing (where activities are contracted out to independent suppliers abroad) and international insourcing (the transfer of particular tasks within the firm to a foreign affiliate). The cross-border aspect of offshoring (i.e., the sourcing of goods and services from abroad) determines the increasingly global character of value chains.

The decision to outsource a specific activity involves deciding whether to undertake the activity within the firm (“make”) or to obtain it from an independent supplier (“buy”). The decision to offshore, meanwhile, depends on the search for the optimal location for the activity.

As the “make or buy” decision becomes increasingly global in scale, companies must optimize geographical and organizational dispersion. With greater geographical and organizational distance, coordination and management costs also increase. Moreover, firms may be reluctant to outsource more complex or high-value activities that are strategic to a firm’s core business. To avoid losing control of strategically important activities, firms prefer to offshore such activities to fully owned affiliates. In contrast, high-volume production that requires low skills or standard technologies is often relocated to external providers with cheaper or more efficient production capabilities (OECD 2013). Appendix A lists some of the factors that affect location decisions.

Figure 1. Firm's strategies of outsourcing and offshoring

Source: Organisation for Economic Co-operation and Development (OECD) 2013, p. 18


With the emergence and growth of GVCs, the “classical” locational determinants for investment have changed depending on the requirements of the specific GVC activity (UNCTAD 2013). Governments, thus, need to selectively target GVCs and GVC segments in line with their endowments and development objectives. The presence of research clusters is important in the research and development (R&D) stage, while the availability of good-quality transport becomes critical in the distribution and logistics stage. However, many locational determinants are still relevant regardless of the specific value segment (e.g., a stable economic, political, and social environment, and robust commercial law and contract regimes). Similarly, business facilitation measures aimed at reducing “hassle” costs or supporting foreign affiliates or local firms are also important. At a general level, trade and investment policies are relevant to all value chain segments, although specific measures may be more important over other segment/s.

GVCs exist not only in the goods sectors but also in the services sector. In new business models, services firms, like goods firms, are seeking to go up the value chain and to outsource noncore services functions (PECC and ADBI 2011). Services are being disaggregated and traded as separate “tasks”, thus, creating value chains on their own. In a services value chain, any activity or cluster of activities can either become a core competence or can be outsourced from the parent firm. Many of these activities (e.g., business back-office and data processing services) can also be offshored. This leads to new competitive opportunities for specialization and for the participation of emerging suppliers in these tasks.

Similar to goods, the objective of services firms is to engage in increasingly higher value-adding tasks such as design, R&D, logistics and marketing, or brand development. Services experts believe that services value chains are being created in a variety of service sectors, including banking, tourism, education, and health services, as well as information technology and business processing services (Stephenson 2012).

GVC participation of APEC economies1

Participation in GVCs based on the share of exports involved in a vertically fragmented production processThe extent of involvement of APEC economies in vertically fragmented production is reflected in its GVC participation index. It is the sum of

1 This section presents indicators of GVCs from the OECD Value Chains Indicators Database, May 2013, discussed in Backer and Miroudot (2013). Papua New Guinea and Peru are not included in the database.

Serafica 37

its backward participation or upstream links (the extent to which its exports use imported intermediate inputs) and its forward participation or downstream links (the extent to which it supplies intermediate goods and services used in other countries’ exports).

Figure 2 presents the GVC participation (from highest to lowest) of APEC economies in 2009. The index is expressed as a percentage of total gross exports. It indicates the share of foreign inputs (backward participation) and domestically produced inputs used in third countries’ exports (forward participation)2. According to the index, Chinese Taipei has the highest total GVC participation, while Singapore and Russia have the highest backward and forward participation, respectively. Economies that export a large share of natural resources typically have high forward participation shares.

The participation indices (backward and forward) of APEC economies in each of the sectoral GVCs are reported in Appendix B. The sectoral GVC participation indices add up to the economy’s GVC participation index3. As shown in Table 2, electrical and optical equipment is the most dominant

2 This indicator is not based on value-added trade. There is an overlap and potentially some double counting as domestically produced inputs can incorporate some of the foreign inputs, and some foreign inputs can incorporate domestic value added exported in an earlier stage of the value chain (Backer and Miroudot 2013).

3 The indicator on the industry level is expressed relative to total economy exports (instead of industry exports) in order to take into account the importance of the industry in the total export composition of an economy.

Figure 2. GVC participation index of APEC economies, 2009, as a share of gross exports (in percent)

01020304050607080

Backward Forward

Source: OECD Global Value Chains Indicators Database, May 2013


GVC in APEC given the number of economies where this industry’s participation index represents the highest percentage of exports.

GVC participation of Philippine industriesElectrical and optical equipment is the most important GVC for the Philippines based on the industry’s share in the country’s exports. The GVC participation of the Philippines in other sectors is not significant, and the source varies. For example, the downstream link is greater than the upstream link in agriculture, mining, and chemicals. However, the reverse is true in textiles and transport equipment. In services and services-related GVCs, domestically produced inputs used in other countries’ exports outweigh imported intermediate inputs used for exports (Table 3).

Services and GVCsServices figure in almost every activity in an economy, making them key determinants of competitiveness and productivity of capital and labor

Table 2. Most important GVC in APEC economy, 2009

Australia Mining and quarrying

Brunei Darussalam Mining and quarrying

Canada Mining and quarrying

Chile Mining and quarrying

People’s Republic of China Electrical and optical equipment

Hong Kong, China Wholesale and retail trade, hotels and restaurants

Indonesia Mining and quarrying

Japan Electrical and optical equipment

Republic of Korea Electrical and optical equipment

Malaysia Electrical and optical equipment

Mexico Electrical and optical equipment

New Zealand Food products and beverages

Philippines Electrical and optical equipment

Russia Mining and quarrying

Singapore Electrical and optical equipment

Chinese Taipei Electrical and optical equipment

Thailand Electrical and optical equipment

United States Chemicals and nonmetallic mineral products

Viet Nam Textiles, leather, and footwear

Source: OECD Global Value Chains Indicators Database, May 2013

Serafica 39

(Low 2013). A number of other services are also involved in the production and sale of products, whether the final product is a good or a service. Services, therefore, act as the glue that holds supply chains together and ensures that they function in a fluid manner. Modern communication and transport technologies have enhanced the tradability of services and incorporated them in the supply chain production as traded inputs. In business and economic literature, the bundling of services into composite products is referred to as “modularization” and trade in tasks, respectively.

Product-level analysis shows that a significant portion of the value of a good is attributable to services (Low 2013). For example, a jacket made in China can be sold in the United States for as much as USD 429. Only 9 percent of this retail price, however, is associated with making the jacket (i.e., manufacturing costs including labor and materials); the rest are due to “invisible” assets. Upstream sources of value

Table 3. GVC participation index of various industries in the Philippines, 2009, as a share of gross exports (in percent)

Sector Backward Forward Total

Agriculture 0.081 0.308 0.388

Mining and quarrying 0.120 0.402 0.521

Food products and beverages 0.059 0.173 0.232

Textiles, leather, and footwear 1.222 0.164 1.387

Wood, paper, paper products, printing and publishing

0.070 0.124 0.194

Chemicals and nonmetallic mineral products 0.308 0.643 0.951

Basic metals and fabricated metal products 0.189 0.315 0.504

Machinery and equipment n.e.c 0.378 0.095 0.473

Electrical and optical equipment 32.389 14.329 46.718

Transport equipment 0.839 0.285 1.124

Manufacturing n.e.c; recycling 0.055 0.077 0.132

Electricity, gas, and water supply 0.000 0.651 0.651

Construction 0.000 0.107 0.107

Wholesale and retail trade, hotels and restaurants 1.139 5.206 6.345

Transport and storage, post and telecommunications

1.156 1.683 2.839

Financial intermediation 0.144 0.975 1.119

Business services 0.220 2.672 2.892

Other services 0.000 0.072 0.072

Total 38.370 28.279 66.649

Source: OECD Global Value Chains Indicators, May 2013


include design, intellectual property, and branding; while downstream elements include advertising, marketing, and retailing. In the case of a Nokia N95 phone, the parts (i.e., processors, memories, integrated circuits, display, and camera) account for 33 percent of the product, while the assembly accounts for 2 percent. The remaining two-thirds of the product goes to Nokia’s internal support services (31%), licenses (4%), distribution (4%), retailing (11%), and operating profit (16%).

To reflect the increasing use of services in manufacturing, both in terms of production and sales, the Swedish National Board of Trade has coined the term “servicification”. For example, Sandvik Tooling, a high-technology engineering group, needs 40 different services to deliver products to its customers worldwide. The company also supplies around 15 services themselves (Swedish National Board of Trade 2013a). This illustrates the servicification phenomenon, where goods-producing companies increasingly buy, produce, sell, and export services. The Swedish video game Minecraft is another example. The game is produced by Mojang in Stockholm and is sold digitally all over the world. Parts of the game production, distribution, and support services are managed outside of Sweden (Swedish National Board of Trade 2013b).

The share of services in total exports significantly increases when their contribution to production and sales is explicitly recognized. Figure 3 shows the share of services in total exports for APEC economies (except

Figure 3. Share of services in exports (in percent)

0102030405060708090

100

In gross terms In value added terms

Source: OECD Trade in Value Added Database, May 2013

Serafica 41

Papua New Guinea and Peru) using two measures: (1) gross export and (2) services value added in gross exports.

Trade in value-added terms highlights the importance of services in the export competitiveness of all industries. Given that services provided in-house (i.e., R&D, finance, legal) are excluded in the estimation of trade in value-added terms that capture embodied services (i.e., the intermediate services that are used in the production of goods and services), the significance of services would be higher. It is not surprising then that some of the critical factors relevant to location decisions of TNCs are services related. Box 1 highlights the role of services in GVCs and their implication for trade and investment policy to improve inefficiencies in services markets.

In terms of services value chains, Drake-Brockman and Stephenson (2012) highlight key implications for development policy. First, value chain is not only about large global enterprises. Small and medium enterprises in the services sector are increasingly engaging in GVCs. Moreover, services activities are usually less capital intensive than manufacturing ones and require less physical infrastructure—an advantage for countries with limited physical and financial capital. Second, the division of world trade into components or tasks offers developing countries new opportunities to integrate into world markets. It is not necessary to compete along the entire line of services activities along a value chain; instead, it may be easier and less costly to capture one or more of the tasks. In the case of offshoring services, developing countries with strong educational infrastructures have competitive advantages compared to developed countries in terms of low-cost and educated labor force.

Interest of the Philippines in services and implication for APEC 2015The growing prominence of GVCs has added a new urgency to develop competitive services so that the country can increase its participation in various GVCs and enjoy bigger gains by way of higher value added, more jobs, and greater productivity-improving spillover effects. Whether in goods value chains, where services play an integral role or in services value chains, participation and upgrading rely on competitive services.

The contributions of GVCs to development, however, are not automatic (UNCTAD 2013). The gross domestic product contribution of GVCs can be limited if countries capture only a small share of the value added created in the chain and/or remain locked into relatively low value-added activities. In addition, it can have negative environmental impacts and social effects on working conditions, occupational safety


Box 1. The role of services in GVCs and their implication for policy

Services that complement production span a wide spectrum: most prominent are transport and warehousing, but banking and insurance, business services, professional services, and communication services are supplied at every stage of production. Services involved at both ends of the value chain include R&D and design in the conception stage, distribution networks, advertising and marketing services, or repair and maintenance facilities at the end of the chain.

While some of the costs associated with services inputs (in particular transport costs) depend on the quality of infrastructure, facilitating trade in the value chain alsorequiresefficientservicesmarkets.Pro-competitivedomesticregulationsandtheliberalizationofservicesensuretheefficientfunctioningofthelogisticschain.

AnimplicationisthatgainsfromtradeinGVCsaremagnifiedifthedevelopment of global production networks goes hand-in-hand with a liberalizationofservicestrade.Withincreasedopenness,moreefficientinfrastructureservicesimprovethereliabilityofimportandexportflowsand,thus, promote participation in GVCs.

In the transport sector, for example, there are gains to be realized from a reduction of border frictions and regulatory costs. According to Deardorff (2001), these gains are achieved by harmonizing regulations that apply to domestic and foreign providers, adopting similar procedures and equipment in different countries,andremovinginefficientdelays(e.g.,unloadingandreloadingtrucksat the border). The smooth provision of transport services then lowers the cost of internationally sourced inputs for a wide range of industries.

Similarbenefitsforexportcompetitivenessarisefromtheincreasedopennessof business services to trade and foreign direct investment. The gains in this area primarily accrue to technology-intensive industries such as machinery, motor vehicles, chemicals, and electric equipment (Francois and Woerz 2008).

More open and competitive telecommunication sectors would also increase theproductivityandcompetitivenessofmanufacturingfirmsbyimprovingInternet penetration rates and encouraging investments in better information technology infrastructure. At the same time, they would favor the development ofservicesvaluechainsinsectorssuchascomputerservices,finance,ortourism.

AnotherkeylinkinGVCsisprovidedbydistributionservices.“Buyer-driven”GVCs,forwhichglobalretailersorganizethesupplychain(Gereffi1994),areparticularly relevant for small-scale agricultural producers, whose participation inGVCsisaffectedbyfindinginternationalpartners,obtaininginformationabout foreign markets, and complying with standards and procedures to import and export. Global retailers are often the most accessible means of entering global markets for these producers as they typically provide assistance to theirsuppliers.Theefficiencyandcompetitivenessoftheretailandwholesalesector, however, can be hampered by regulatory barriers to entry and foreign investment (Reisman and Vu 2012). These behind-the-border barriers reduce the gains from trade and fragmentation for agricultural and manufacturing suppliers further up the value chain.

Source: Drawn from OECD (2013, p. 99–100)

Serafica 43

and health, and job security. The potential “footlooseness” of GVC activities and increased vulnerability to external shocks pose further risks. Based on their specific situation and factor endowments, countries need to carefully weigh the benefits and costs of GVC participation and proactive policies to promote GVCs or GVC-led development strategies. Gaining access to GVCs and realizing upgrading opportunities require a structured approach that includes: (1) embedding GVCs in industrial development policies (i.e., targeting GVC tasks and activities), (2) enabling GVC growth by creating an enabling trade and investment environment and by putting in place infrastructural prerequisites, and (3) building productive capacities in local firms and skills in local workforce. Moreover, to lessen the risks involved in GVC participation, there must be a strong environmental, social, and governance framework, with strengthened regulation and enforcement, as well as capacity-building support to local firms for compliance.

The APEC Strategic Blueprint for Promoting Global Value Chain Development Cooperation was endorsed last year that recognized, among others, the critical role of trade in services within GVCs. APEC 2015 is an opportunity for the Philippines to develop its GVC strategies, particularly in relation to services value chains. Experts believe that global services value chains are not as well understood as goods value chains. Thus, workshops and analytical work could be undertaken to deepen the understanding of services value chains in APEC. Given the Philippines’ comparative advantage in “other business services” and in “computer and information services”, advancing regional cooperation in services value chains could further strengthen our export position in these activities.

Analytical work could involve case studies of existing services value chains in the region. According to Gereffi and Fernandes-Stark (2011, p. 5–12), there are four basic dimensions of GVC analysis: (1) an input-output structure that identifies the main activities/segments in a GVC and the structure of companies under each segment of the value chain; (2) the geographic scope that identifies the lead firms in each segment of the value chain within particular countries; (3) a governance structure that “determines how financial, material, and human resources are allocated and are flowing within a chain”; and (4) an institutional framework that identifies how local, national, and international conditions and policies shape globalization in each stage of the value chain. An additional element of GVC analysis is “upgrading”, which focuses on the strategies used by countries, regions, and other economic stakeholders to maintain or improve their positions in the global economy. Economic upgrading refers to the movement of firms,


Appendix 1. Key locational determinants for GVC tasks and activities, selected examples

GVC Segmentor Stage Economic Determinants Policy Determinants

and Business Facilitation

All stages

• Economic, political, social stability• Suitability of characteristics of

available labor force (cost, skill level,languageproficiency,education, and science and technology competences)• Distance and access to market

or next stage in value chain • Availability and quality

of transport and logistics infrastructure (for goods exports)• Presence and capabilities of locallybasedfirms

• Trade restrictions and promotions• Investment policy• Stable commercial law and contract

enforcement regimes• General business facilitation (e.g.,

cost of doing business, hassle costs)• Business facilitation to support foreignaffiliates(e.g.,investmentpromotion, aftercare, provision of social amenities)• Business facilitation to support localfirms(e.g.,localenterprisedevelopment, schemes to upgrade quality, productivity, capabilities oflocalfirms,start-upincentives,support for standards of working conditions and corporate social responsibilityinlocalfirms)

Knowledge creation stage

Innovation andR&D

• National innovation system• Suitability and characteristics

of available labor force (cost, education, and science and technology competences)• Presence of research clusters

• Government R&D policy• Intellectual property (IP) regime• Policies toward sale of IP by local firms(“pure”in-licensing of technology)• Laws governing contract research

and licensing contracts• Investment incentives• Science and technology parks

Design andbranding

•Location-specificconsumerpreferences (for local/regional market-oriented goods and services)• Suitability and characteristics

of available labor force (cost, education, marketing competences) • Design, creativity clusters

• IP regime• Policies toward sale of IP by local firms(purein-licensingofbrands,trademarks, etc.)• Investment incentives• Design centers and institutional

support

countries, or regions to higher-value activities in GVCs that will increase their benefits (e.g., security, profits, value added, capabilities) from participating in global production.

The results from these activities would complement measures of GVC participation at the aggregate level and provide insights and lessons for individual economies in creating or joining GVCs in services. Guiding principles on trade and investment policies conducive to the growth of services value chains could also be developed and adopted in APEC.

Appendix

Serafica 45

Appendix 1. (continued)

GVC Segmentor Stage Economic Determinants Policy Determinants

and Business Facilitation

Main operational stages

Raw materialsand agriculturalinputs

• Availability of natural resources, including relevant raw materials, agricultural (land, water)• Availability and quality of utility

services (electricity, water)• Low-cost labor• Presence and capabilities of locally

based producers of raw material inputs

• Environmental policy• Trade restrictions and promotions,

Generalized System of Preferences (GSP), and other Preferential Trade Agreements (PTAs)• Policies pertaining to foreign

ownership, lease, and exploitation/operations of natural resources, including land• Land tenure system, approaches

to traditional rights to land, other resources• Privatization policies• Laws governing contract farming• Customs and border procedures

Manufacturedgoods, includingparts andsubassemblies

• Basic infrastructure and utility availability and costs (energy, water, telecommunications)• Industrial clusters• Suitability and characteristics of

available labor force (cost, skill level)

• Trade restrictions and promotions, GSP, and other PTAs• Customs and border procedures and

trade facilitation • Policy supporting skills development• Laws governing contract manufacturing• Customs and border procedures• Industrial parks and export processing

zones• Investment promotion, including one-

stop shops, image-building exercises, and facilitation services• Schemes to develop and upgrade capabilitiesoflocalfirms

Distribution and support services

Distribution andlogistics

• Availability and quality of transport and logistics infrastructure• Availability, quality, and cost of inputs

(transport, communications, energy)• Networks of locally based distribution

and logistics companies in relevant industries (e.g., wholesaling, storage, distribution, etc.)

• Policies pertaining to foreign ownership, lease, and operations in “strategic”industries• Infrastructure development policies• Customs and border procedures• Regional infrastructure connectivity

and corridors

Services (e.g., headquarters, information technology, human resources, legal,auditing)

• Availability and quality of telecom infrastructure and services• Low-cost labor• Suitability and characteristics of

available labor force (cost, language proficiency,education)

• Services trade restrictions and promotions• Policy supporting skills development

through education and science and technology competences• Tax policy•Confidentialityanddataprotection

laws• Laws governing services outsourcing

contracts• Schemes to develop and upgrade capabilitiesoflocalfirms•"Liveability”oflocation(especiallyfor

expatriate senior staff)

Source: Table IV.5, UNCTAD (2013, p. 145)


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Serafica 47

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Appendix 2. (continued)

Industry THA US VN

Agriculture 1.203 0.881 6.821

Mining and quarrying 0.541 0.958 10.546

Food products and beverages 2.248 0.640 5.507

Textiles, leather, and footwear 3.418 0.312 14.176

Wood, paper, paper products, printing and publishing

0.970 1.246 1.555

Chemicals and nonmetallic mineral products

6.652 7.353 1.390

Basic metals and fabricated metal products

2.482 2.277 0.891

Machinery and equipment n.e.c 0.991 1.804 0.689

Electrical and optical equipment 22.426 4.731 1.926

Transport equipment 1.851 2.748 0.539

Manufacturing n.e.c; recycling 2.143 0.549 0.939

Electricity, gas, and water supply 0.472 0.287 0.155

Construction 0.013 0.152 0.000

Wholesale and retail trade, hotels and restaurants

3.064 3.002 3.696

Transport and storage, post and telecommunications

3.655 2.752 1.429

Financial intermediation 0.203 2.324 0.323

Business services 0.443 7.222 0.660

Other services 0.044 0.593 0.106

Total participation index 52.818 39.832 51.348

Notes: AUS - Australia, BD - Brunei Darussalam, CDA - Canada, CHL - Chile, PRC - People’s Republic of China, CHK - Hong Kong, China, INA - Indonesia, JPN - Japan, KOR - Republic of Korea, MAS - Malaysia, MEX - Mexico, NZ - New Zealand, RP - Philippines, RUS - Russia, SIN - Singapore, CT - Chinese Taipei, THA - Thailand, US - United States, VN - Viet Nam

Source: OECD Global Value Chains Indicators, May 2013

Serafica 49

ReferencesBacker, K.D. and S. Miroudot. 2013. Mapping global value chains. OECD

Trade Policy Papers No. 159. Paris, France: OECD Publishing.Deardorff, A. 2001. International provision of trade services, trade, and

fragmentation. Review of International Economics 9(2):233–248.Drake-Brockman, J. and S. Stephenson. 2012. Implications for 21st

century trade and development of the emergence of services value chains. http://www.ictsd.org/downloads/2012/11/implications-for -21st-century-trade-and-development-of-the-emergence-of-services -value-chains.pdf (accessed in December 2013).

Francois, J. and J. Woerz. 2008. Producer service, manufacturing linkages, and trade. Journal of Industry, Competition, and Trade 8(3):199–229.

Gereffi, G. 1994. The organization of buyer-driven global commodity chains: How US retailers shape overseas production networks, p. 95–122. In Commodity chains and global capitalism, edited by G. Gereffi and M. Korzeniewicz. Westport, CT: Greenwood Publishing Group.

Gereffi, G. and K. Fernandez-Stark. 2011. Global value chain analysis: A primer. Durham, NC: Center on Globalization, Governance, and Competitiveness, Duke University.

Low, P. 2013. The role of services in global value chains, p. 62–81. In Global value chains in a changing world, edited by D. Elms and P. Low. Geneva, Switzerland: World Trade Organization.

Organisation for Economic Co-operation and Development (OECD). 2013. Interconnected economies: Benefiting from global value chains. Paris, France: OECD Publishing.

Pacific Economic Cooperation Council (PECC) and Asian Development Bank Institute (ADBI). 2011. Services trade: Approaches for the 21st century. Singapore: PECC and Tokyo, Japan: ADBI.

Reisman, M. and D. Vu. 2012. Nontariff measures in the global retailing industry. Office of Industries Working Paper No. ID-30. Washington, D.C.: United States International Trade Commission.

Stephenson, S. 2012. Services and global value chains, p. 18–23. In The shifting geography of global value chains: Implications for developing countries and trade policy. Geneva, Switzerland: World Economic Forum.

Swedish National Board of Trade. 2013a. Global value chains and services: An introduction. Sweden: National Board of Trade.

———. 2013b. Minecraft brick by brick: A case study of a global services value chain. Sweden: National Board of Trade.


United Nations Conference on Trade and Development (UNCTAD). 2013. World Investment Report 2013 Global Value Chains: Investment and trade for development. Geneva, Switzerland: United Nations Publications.

AbstractOver the years, information and communication technology-enabled services have grown significantly across many parts of the globe, including the Asia-Pacific region. While there may not be a standard approach to develop the information technology and business process management (IT-BPM) sector, the success of some developing countries countries can provide useful insights and practical lessons for countries contemplating to set up their IT-BPM industries. The paper pulls together various findings of available studies to describe the evolution of IT-BPM services exports in the Philippines and examine the factors that facilitated its transition from providing low-end contact center services to back-office operations and to an even higher value-added services. The paper also reviews some of the initiatives of the Asia-Pacific Economic Cooperation (APEC) relevant to the growth and expansion of IT-BPM services in the region. The Philippine experience has shown that IT-BPM services is one area of trade in services where developing countries can pursue sustainable development without heavily relying on traditional primary industries and natural resources. Although the presence of an educated workforce and good telecommunications infrastructure does not always guarantee success in this area, the investments in human capital and critical telecommunications infrastructure—considered by many as a backbone for other important industries—are more than enough reward to board the IT-BPM bandwagon. There is still enough space and opportunity for other developing countries to “build appropriate domestic capacity” to effectively participate in this sector.

4Fatima Lourdes E. del Prado

The IT-BPM Challenge: Leveraging Capabilities, Creating Opportunities

52 The IT-BPM Challenge: Leveraging Capabilities, Creating Opportunities

IntroductionCross-border information and communication technology (ICT)-enabled services, including business process management (BPM), rose as significant concerns not only to the Philippines but also to most APEC member-economies. Over the years, ICT-enabled services have grown significantly across many parts of the globe, including the Asia-Pacific region. The vital role they play in the growth and evolution of APEC economies, as well as in enhancing economic integration, warrants attention in a regional forum such as the APEC. ICT-enabled services (also called ICT-enabled, IT-based services, or IT-BPM), which include BPM, are among the fastest-growing segments of tradable services worldwide. Traditionally treated as nontradable that often requires face-to-face transaction between the provider and consumer, most services can now be provided remotely via the Internet and other electronic means. Modern electronic infrastructure has rendered distance and delivery costs practically irrelevant for cross-border services trade (Goswami et al. 2012). Although it is still dominated by industrial countries, some of the most dynamic exporters of services, particularly ICT-enabled services, are developing countries from the Asia-Pacific region, with India and the Philippines as emerging regional leaders.1 Mattoo and Wunsch-Vincent (2004) attributed this phenomenon to three factors.

The first involves advances in ICT, which make cross-border trade of services possible. Second, the substantial investments in education in a number of developing economies, amid the absence of commensurate employment opportunities, create an abundance of skilled labor at relatively low cost. Lastly, the changing nature of business practices and production innovations leads multinational corporations (MNCs) to outsource and offshore most of their noncore business services to third-party service providers in low-wage countries. A significant portion of these noncore business activities are the information technology (IT)-BPM services offshored to countries in Asia Pacific (Mattoo and Wunsch-Vincent 2004).

However, despite the growing tradability of services, the share of services exports to aggregate output of most APEC economies has been less than impressive (i.e., averaging only 15% of total exports). Trade barriers and the high transaction costs involved in services trade have

1 Under the agenda of the APEC 2015 Summit, ICT-enabled services and BPM fall under the firstpriorityof“EnhancingtheRegionalEconomicAgenda”.Ithasasubpriorityagendacalled“PromotingConnectivity”whereissuesonICTandBPMservicesarediscussedtogetherwithissues on labor mobility, global value chains, ecotourism, people-to-people tourism, and supply chain connectivity.

del Prado 53

consigned the sector to a relatively smaller share of globally traded output. While some of these transaction costs are inherent (i.e., geographical distance, cultural differences), others are artificial and can be compressed through policy reforms that could lower the cost of international trade in services (Shepherd and van der Marel 2012). Domestic regulations and protectionist views, whether unintended or deliberate, have been known to limit trade and constrain the availability of productive services (Ramcharran 1999 as cited in Cortez et al. 2008). These, then, cause uneven growth and performance of services trade across countries. They may also account for the wide variation among countries in terms of developing their IT-BPM service industries (Mitra 2013).

While there may not be a single standard approach to develop the IT-BPM sector, the successful experiences of other developing countries can provide useful insights and practical lessons for countries planning to engage in the IT-BPM service industry (Mitra 2013). By putting together findings from various studies, this paper describes the evolution of IT-BPM services exports in the country and examines the factors that facilitated its transition from providing low-end contact center services to back-office operations, and to higher value-added services. The paper also reviews some of the APEC initiatives relevant to the growth and expansion of IT-BPM services in the region. Although the focus is on IT-BPM services, the paper also discusses the status of the IT sector, including the Internet, telecommunications, broadcast, and other media, as well as the ICT in the country.

Overview of key issues and importance of ICT-enabled services and BPM

Definition,scope,andcoverageThe ICT-enabled services and the BPM sector cover a wide range of activities that cut across many different sectors. As technology advances and develops, the scale and scope of ICT-enabled services also evolve. This, however, further complicates the task of establishing a globally accepted standard definition.

Currently, global definitions of ICT-enabled services oscillate between broad and narrower frameworks (UNCTAD 2006). From a broader perspective, the ICT and ICT-enabled services would typically cover services on IT application, engineering, and a wide range of services delivered over electronic networks. For instance, Mattoo and Wunsch-Vincent (2004) compiled the set of ICT activities from Indian service providers and delineated the commonly outsourced IT and


BPM activities in India (Table 1). A similar attempt was done for the Philippines using data from the Business Processing Association of the Philippines (BPAP) in 2007 (Table 2).

Tables 1 and 2 reflect the conceptual issues and relative novelty of the field, which make it difficult to come up with accurate estimates and reliable statistics that are comparable across countries. Table 1 shows that there is a thin line between IT or ICT services and ICT-enabled services. IT is the backbone and enabling technology that handles all information and activities performed in ICT-enabled or BPM services (Pazhayathodi 2012). The distinction between the two is often blurred, and their growth cannot be separated from each other (Mitra 2013). The table also indicates that there are a variety of business support functions with combined and overlapping activities. For instance, customer care functions cover call center services and technical support. Mattoo and Wunsch-Vincent (2004) maintained that many of these BPM services do not fit the General Agreement on Trade in Services (GATS) classification of cross-border services trade. Moreover, several support activities do not have their corresponding entry in the W/120—the comprehensive list of services sectors and subsectors under the GATS.

Table 1. ICT-enabled activities in India

1. Information Technology Services (Computer and Related Services)

Software Development and Implementation Services, Data Processing and Database Services, IT Support Services, Application Development and Maintenance, Business Intelligence and Data Warehousing, Content Management, E-procurement and B2B Marketplaces, Enterprise Security, Package Implementation, System Integration, SCM, Enterprise Application Integration, Total Infrastructure Outsourcing, Web Services (Internet Content Preparation, etc.), Web-hosting and Application Service Providers (ASPs)

2. Business Process Outsourcing

Customer interaction services

•Sales support, membership management, claims, reservations for airlines and hotels, subscription renewal, customer services helpline, handling credit and billing problems, etc.•Telemarketing and marketing research services

Back-officeoperations •Data entry and handling, data processing and database services,medicaltranscription,paymentservices,financialprocessing(financialinformationanddataprocessing/handling), human resource processing services, payroll services, warehousing, logistics, inventory, supply chain services, ticketing, insurance claims adjudication, mortgage processing

More independent professional or business services

•Humanresourceservices(hiring,benefitplanningandpayroll,etc.),financeandaccountingservices(includingauditing,bookkeeping, taxation services, etc.), marketing services, product design and development

Source: Mattoo and Wunsch-Vincent (2004)

del Prado 55

BPM is not formally classified as a sector under the GATS (W/120). According to International Trade Centre (2010), this is because its “activities can be performed on behalf of many other different services and industries and, in some cases, would fall under commitments in the sector concerned.” The GATS and the United Nations (UN) classifications, however, were first elaborated in 1991, and many of the tasks and services common today were still nonexistent at that time (ITC 2010).

The GATS uses the UN Central Product Classification (CPC) to identify service products and the different ways through which these can be traded. According to ITC (2010), “other business services” is the most amenable GATS classification. This is a broad sector that covers numerous business activities, such as advertising, convention management, and packaging and photographic services. Mattoo and Wunsch-Vincent (2004, p. 777–778), however, argued that the lack of detail in this category “sits awkwardly with the fact that this category is

Table 2. ICT-enabled services in the Philippines

IT/ICT Services IT/ICT-enabled Services

Application Services Engineering Services Business Process Services

Application development and maintenance•Application development•Application development

integration and testing•Application maintenance

System integration•Analysis•Design•Development•Integration and testing•Package implementation

IT infrastructure services•Help desks•Desktop support•Data center services•Mainframe support•Network operations

Consulting•IT consulting•Network consulting

Manufacturing engineering•Upstream product

engineering - Concept design - Simulation - Design engineering

•Downstream product engineering - Computer-aided design, manufacture and engineering - Embedded software - Localization

•Plant and process engineering

Software product development•Product development•System testing•Porting/variants•Localization•Maintenance and support•Gaming

Horizontal processes•Customer interaction and

support (including call centers)•Human resource

management•Finance and administration•Supply chain (procurement

logistics management)

Vertical processes•Banking•Insurance•Travel•Manufacturing•Telecommunications•Pharmaceuticals•Other

Knowledge process outsourcing•Businessandfinancial

research•Animation•Data analytics•Legal process and patent

research•Other high-end processes

Source: Sudan et al. (2010)


the fastest-growing segment in evolving classification systems like the CPC and in measured trade flows”. Table 3 presents the services product classification under the UNCTAD. Tables 4 and 5 describe ICT-enabled services as they appear and are treated in the balance-of-payment (BOP) transactions and in the GATS modes of supply. Traditionally, governments do not collect data on ICT-enabled services, and most of the data available come from industry associations like the National Association of Software and Services Companies and Tholons, and international agencies like the UN, World Trade Organization (WTO), and Organisation for Economic Co-operation and Development.

Industry value chainAlthough the CPC has been upgraded twice, there is still no assurance that all current and future or potential tradable services are and would be covered and classified accordingly (Mattoo and Wunsch-Vincent 2004). This is because as technology develops, newer and more sophisticated services are being exported, and the composition of services keeps on changing, making efforts at categorization challenging. Despite these complexities, Gereffi and Fernandez-Stark (2010a, 2010b) developed a comprehensive yet flexible classification using the GVC framework. Under the global value chain (GVC) framework, firms are classified according to the value and stages of production of a good or service. For goods manufacturing, value added is simply the difference between costs of inputs and outputs at each stage of the chain. This is not easily done in the case of the offshore services industry because of the lack of reliable firm-level data and trade statistics (Sturgeon and Gereffi 2009 as cited in Gereffi and Fernandez-Stark 2010b). The problem is partially addressed

Table 3. UNCTAD classification of outsourcing services

Call/Contact Center Services Back-office Services IT Services

Help deskTechnical support/adviceAfter-salesEmployees inquiriesClaims inquiriesCustomer support/adviceMarket researchAnswering servicesProspectingInformation servicesCustomer relationshipManagement

Claims processingAccounts processingTransaction processingQuery managementCustomer administrationProcessingHR/payroll processingData processingIT outsourcingLogistics processingQuality assuranceSupplier invoices

Software developmentApplication testingContent developmentEngineering and designProduct optimization

Source: Pazhayathodi (2012)

del Prado 57

Table 4. BOP components of services

BOP Standard ClassificationComponents of Services ICT-enabled Services

Transportation

Travel

Other servicesa:

Communication services

Include postal, courier, and telecommunications services

Construction services

Insurance services Include life insurance, pension funding, freight insurance, other direct insurance, reinsurance, and auxiliary services

Financial services Includefinancialintermediationandauxiliaryservices

Computer and information services

Include computer, news agency, and other information provision services

Royalties and license fees

Includes franchises and similar rights, plus other royalties and license fees

Other business services

Include merchantingb, trade-related, operational leasing, legal, accounting, management consulting and public relations, advertising, market research and public opinion polling, research and development, architectural, engineering, agricultural, mining, and other on-site processing and services between related enterprisesc

Personal, cultural, and recreational services

Includes audiovisual and related services plus education and health services provided online or onsite

Government services

Notes: a This is not a standard component, but it is provided by the International Monetary Fund as total services minus transportation and travel.

b E.g., commodity arbitrage and wholesale trading c E.g., payments between subsidiaries and the parent companies to cover overhead expensesSource: United Nations Conference on Trade and Development (2006)

Table 5. BOP services transactions by the GATS modes of supply

Mode Proxy

Cross-border supply BOP: service exports (excludes travel)

Consumption abroad BOP: travel (possibly excludes health, education, etc.)

Commercial presence ForeignAffiliatesTradeinServices(FATS):turnover

Movement of natural persons BOP: compensation of employees (understatement)

Source: Cali and te Velde (2008)


by the GVC framework by relating the value of different services chain to the education level and work experience of the employee. The human capital requirement and/or the quality of available workforce becomes the indicator and determinant of value and competitiveness in each activity and stage of production (Figure 1).

The figure divides the industry into services that can be provided across all sectors (horizontal services) and those that are industry specific (vertical services). Firms under the horizontal services tend to be process experts and cover general support activities, which include tasks ranging from repetitive transactional processes to transformational operations that depend on analytical skills (Fernandez-Stark et al. 2011). Those in the vertical chains, meanwhile, require knowledge and expertise specific to the industry that may have little or limited application in other industries. Horizontal services are further divided into IT, knowledge, and business processes. IT outsourcing covers a full range of low-, mid-, and high-value activities, while knowledge processes outsourcing represents high value-added content. BPMs cover activities within the

Figure 1. Offshore services global value chain

¹ Vertical Activities – Industry specific: Each industry has its own value chain. Within each of these chains, there are associated services that can be offshored. This diagram captures the industries with the highest demand for offshore services.

² This graphical depiction of vertical activities does not imply value levels. Each industry may include ITO, BPO, and advanced activities.

Source: Gereffi and Fernandez-Stark (2010a, 2010b)

del Prado 59

low and middle segments of the offshore services chain. By indicating the human capital required at each level of the chain in the categorization, developing countries are able to determine how and where to participate in the value chain, given the current educational level of their workforce. They can opt to develop strategies and implement policies to build their human capital for those services segments that they plan to provide for and concentrate on (Gereffi and Fernandez-Stark 2010a, 2010b).

The BPM sector in the Philippines2

The global offshore IT-enabled services industry has grown significantly over the years. It is the fastest-growing segment of the “other commercial services” that have overtaken the traditional “travel” and “transport” components of services trade. As shown in Figure 2, the biggest contributors to this growth are knowledge-intensive business services, particularly computer and IT services, research and development, and other business activities (PECC and ADBI 2011). Within the APEC region, the most established outsourcing destinations for these services are India, the Philippines, and China (Tholons 2014).

2 Draws heavily from Mitra (2011).

Figure 2. Changing composition of services trade

Source: Pacific Economic Cooperation Council and Asian Development Bank Institute (2011)


Scope and economic importance The Philippines is one of the few widely recognized mature locations for offshore services. According to Mitra (2011), the country’s IT/ICT and ICT-enabled services sector can be divided into five broad subsectors: (1) telecommunications, (2) broadcasting and media, (3) electronics manufacturing (i.e., ICT hardware), (4) IT software and outsourcing services, and (5) IT-enabled BPM services that include voice (i.e., contact centers) and nonvoice and knowledge processes outsourcing services (i.e., transcription, animation, game development, and software development).

Historically, the telecommunications industry dominates the industry revenue share, and has widespread use and impact on the national economy. The industry’s deregulation in 1993 is particularly significant because of its profound impact on the growth and development of IT-BPM in the country. Compared to the BPM industry, the telecommunications industry and broadcast media are already well-entrenched in the Philippine economic and social milieu. Even the electronics export industry was already well-established and thriving long before the IT-BPM sector took off. Although there have been traces and fragments of outsourcing service activities in the country since the 1950s, it was only in recent years that the Philippine IT-BPM services began to accelerate. According to Gereffi and Fernandez-Stark (2010b), IT-BPM services flourished between 2004 and 2007 in which the industry recorded a growth rate of 50 percent (Table 6). Table 6 shows the double-digit growth that tapered off from 47–50 percent in the preceding years to 18–24 percent during the crisis years of 2008 and 2009. These figures

Table 6. Philippine IT-BPM industry, 2004–2009

2004 2005 2006 2007 2008 2009

Annual GDP growth (%) 6.1 5.1 5.4 7.1 3.8 0.9

Revenues in the offshore services industry: Philippines (USD billions)

1.5 2.2 3.3 4.9 6.1 7.2

Growth rate of the offshore servicesindustry (%)

47 50 48 24 18

Offshore services employment

101,000 163,000 236,000 300,000 372,000 442,000

Growth rate of the offshore servicesemployment (%)

61 45 27 24 19

Source: Gereffi and Fernandez-Stark (2010b)

del Prado 61

highlight the industry’s resilience and ability to maintain its position in the global market amid pressures and adverse external shocks.

Data published in the 2012–2016 Industry Road Map (DOST-ICTO 2012) confirm the above figures and extend the revenue streams to 2011, which is shown to exhibit continuous positive upward trend (Figure 3). Figure 3 reflects the increasing number of jobs generated by the industry and its growing presence in the international market, capturing 5–9.5 percent of the global outsourcing industry.

The same industry report claimed that the IT-BPM industry in the Philippines has thrived considerably over the years, registering an average growth rate of 30 percent in the last decade, which is faster than the growth rate of the global offshore services market (IT-BPAP 2012). Much of the growth has been attributed to the steady expansion of the contact centers, which comprised 64 percent of the industry’s workforce and over 67 percent of total revenues. In 2011, it posted a 21-percent growth in earnings, and was estimated to increase employment by 493,000 in 2012 from 416,000 the previous year. In 2010, the Philippines surpassed India as the world’s leader in the voice BPM services, and ranked number two in the nonvoice category.

Figure 3. Philippine IT-BPM industry size, 2006–2011, in USD billion

Source: Information Technology-Business Process Association of the Philippines (2012)


Available data from government agencies also support these claims. Tables 7a–c show contact centers dominating the entire industry in terms of total revenue, export sales, and employment. There is also a notable increase in the nonvoice, high-value, and knowledge-intensive services like software development and animation. The same is true for “other BPMs”, which include services such as backroom operations, data processing, online distribution of electronic content, outsourcing of financial and accounting, as well as architectural and engineering services, and other related activities. This indicates that the industry is diversifying its portfolio by expanding to higher value-added, knowledge-intensive services.

The Bangko Sentral ng Pilipinas (2012) estimates that the revenues generated by the local IT-BPM industry for 2011 accounted for 5.4 percent of the country’s gross domestic product (GDP). The Bangko Sentral ng Pilipinas (BSP) reckons that the sustained growth in employment and salaries obtained from the sector, over the years, has also increased household spending and investments since 2004.

Notably, the government has doubled its effort to estimate and measure the IT-BPM services sector in recent years. The BSP spearheaded the survey of IT-BPM services (called IT and IT-enabled services until 2008), which started as an initiative of the Inter-Agency Committee on Trade

Figure 4. IT-BPO revenues and employment's contribution to the economy (in percent)

1/ BOP statistics based on the 5th Edition Balance of Payments Manual. The BOP statistics based on the 6th Edition Balance of Payments Manual is only available for reference years 2011–2012.

Source: Bangko Sentral ng Pilipinas (BSP) 2012

del Prado 63Ta

ble

7a.

Tota

l rev

enue

by

IT-B

PM c

ateg

ory

Leve

ls (i

n U

SD m

illio

n)

2004

2005

2006

2007

2008

2009

2010

2011

Cont

act c

ente

r 58

7 98

6 1,

455

2,05

1 2,

839

4,20

7 5,

260

6,81

7

Tran

scrip

tion

4 8

20

33

34

57

84

122

Anim

atio

n to

tal r

even

ue12

17

26

29

36

52

63

72

Soft

war

e de

velo

pmen

t tot

al re

venu

e

279

399

707

1,09

8 1,

413

1,67

2 2,

198

2,46

9

Oth

er B

PMs

441

585

697

1,15

7 2,

004

2,27

0 2,

452

2,59

4

Tota

l ind

ustr

y 1,

324

1,99

6 2,

906

4,36

8 6,

325

8,25

8 10

,058

12

,074

Sour

ce:

Surv

ey o

f IT-

BPO

Ser

vice

s, Ec

onom

ic a

nd F

inan

cial

Sta

tistic

s, BS

P

Tabl

e 7b

. Ex

port

sal

es b

y IT

-BPM

cat

egor

y

Leve

ls (i

n U

SD m

illio

n)

2004

2005

2006

2007

2008

2009

2010

2011

Cont

act c

ente

r56

1 94

9 1,

330

1,73

2 2,

489

3,93

8 5,

126

6,16

6

Tran

scrip

tion

4 8

19

25

24

54

75

122

Anim

atio

n to

tal r

even

ue

8 11

23

27

35

46

54

60

Soft

war

e de

velo

pmen

t tot

al re

venu

e

98

160

455

852

1,14

8 1,

553

1,92

8 2,

381

Oth

er B

PMs

217

259

462

855

1,59

2 2,

126

2,28

8 2,

432

Tota

l ind

ustr

y 88

8 1,

388

2,28

8 3,

490

5,28

8 7,

717

9,47

0 11

,160

Sour

ce:

Surv

ey o

f IT-

BPO

Ser

vice

s, Ec

onom

ic a

nd F

inan

cial

Sta

tistic

s, BS

P

Tabl

e 7c

. To

tal n

umbe

r of

wor

kers

, by

IT-B

PM c

ateg

ory

Leve

ls (i

n U

SD m

illio

n)

2004

2005

2006

2007

2008

2009

2010

2011

Cont

act c

ente

r65

,006

96

,246

15

3,68

3 16

9,74

8 21

2,37

2 25

5,76

5 32

9,59

7 43

3,18

3

Tran

scrip

tion

901

1,78

5 4,

956

6,62

1 4,

321

7,06

0 9,

131

11,0

84

Anim

atio

n to

tal r

even

ue

1,48

8 1,

864

4,48

2 4,

323

5,65

6 3,

732

3,90

8 3,

973

Soft

war

e de

velo

pmen

t tot

al re

venu

e

11,9

75

17,8

29

42,6

57

44,8

70

49,8

93

46,9

87

49,5

16

55,4

64

Oth

er B

PMs

15,1

18

20,2

78

42,2

67

45,9

94

82,8

93

131,

267

143,

975

175,

761

Tota

l ind

ustr

y 94

,488

13

8,00

2 24

8,04

5 27

1,55

6 35

5,13

5 44

4,81

1 53

6,12

8 67

9,46

4

Sour

ce:

Surv

ey o

f IT-

BPO

Ser

vice

s, Ec

onom

ic a

nd F

inan

cial

Sta

tistic

s, BS

P


Statistics (IAC-TrS),3 to provide reliable statistics on the contribution of the BPM industry to the national economy. The survey respondents are Department of Trade and Industry- and Philippine Economic Zone Authority (PEZA)-accredited companies involved in call center, BPM, and animation business operations (BSP 2012). Similarly, the 2006, 2008, 2010, and 2012 rounds of the Annual Survey of the Philippine Business and Industry, administered by the Philippine Statistics Authority, incorporated data on the IT-BPM sector.

Apart from employment, export sales, and gross income, the BSP also collects data on foreign equity. Tables 8 and 9 reveal that foreigners have invested heavily in most IT-BPM subsectors, particularly contact centers, transcription, and software development. Data show that equity capital investments for the animation industry increased tenfold. This, however, pales in comparison to the software development segment, in which foreign capital investments grew to USD 900 million in 2011 from USD 12 million in 2005 (a 7,400% increase in a span of 5 years). Tables 10 and 11, likewise, specify the nationality of these major foreign investors. While they were slightly eclipsed by Europeans in 2011, North Americans were consistently the biggest investors in the Philippine IT-BPM sector, confirming reports that the industry is MNC-led. Although the United States (US) has traditionally been the major export market of Philippine firms, demand from the European Union and Japan has been increasing. Most of these are for animation and software development services, which are a welcome addition to the US' requests for call center services (Mitra 2011, 2013; Yi 2012).

Industrial upgrading and movement along the value chain4

In less than 10 years, the IT-BPM industry in the Philippines has transformed itself into a mature production stage for offshored products and services. From 100,000 workers in 2000 to 443,000 in 2009, and revenues of USD 1.5 billion in 2004 to USD 11 billion in 2009, the industry grew by leaps and bounds, registering nearly 340 percent and over 400 percent employment and revenue growth, respectively.

Yi (2012) traced the Philippines’ long history of BPM. It dated as far back as the 19th century and the 1950s when Hong Kong and Shanghai Banking Corporation and International Business Machines (commonly known by its acronym, IBM) decided to offshore some of their noncore service activities to the country. Data entry services for accounting were

3 IAC-TrS is comprised of the Department of Trade and Industry, National Statistical Coordination Board,NationalStatisticsOffice,NationalEconomicandDevelopmentAuthority,andBSP.

4 Draws heavily from Fernandez-Stark et al. (2011).

del Prado 65

Tabl

e 8.

For

eign

cap

ital

izat

ion

in B

PM fi

rms

Tota

l Equ

ity

Capi

tal

Leve

ls (i

n U

SD m

illio

n)

2005

2006

2007

2008

2009

2010

2011

Cont

act c

ente

r 24

3 28

1 59

6 1,

356

1,38

7 2,

428

3,06

3

Tran

scrip

tion

1 2

8 13

16

33

48

Anim

atio

n to

tal r

even

ue11

18

24

23

63

10

3 10

4

Soft

war

e de

velo

pmen

t tot

al re

venu

e

12

46

189

378

636

895

1,27

0

Oth

er B

PMs

224

274

117

188

486

938

1,26

2

Tota

l ind

ustr

y 49

2 62

2 93

4 1,

957

2,58

7 4,

395

5,74

6

Sour

ce:

Surv

ey o

f IT-

BPO

Ser

vice

s, Ec

onom

ic a

nd F

inan

cial

Sta

tistic

s, BS

P

Tabl

e 9.

For

eign

-to-

tota

l equ

ity

capi

tal r

atio

(in

perc

ent)

Fore

ign-

to-T

otal

Equ

ity

Capi

tal R

atio

(%)

2005

2006

2007

2008

2009

2010

2011

Cont

act c

ente

r 87

.6

92.0

98

.1

96.5

95

.9

99.7

98

.2

Tran

scrip

tion

52.5

71

.0

100.

0 10

0.0

84.1

92

.0

97.2

Anim

atio

n to

tal r

even

ue38

.4

95.8

97

.2

100.

0 63

.3

70.9

72

.5

Soft

war

e de

velo

pmen

t tot

al re

venu

e

37.0

73

.9

50.9

84

.6

99.4

94

.8

95.4

Oth

er B

PMs

47.5

23

.2

93.1

85

.6

74.2

97

.7

80.4

Tota

l ind

ustr

y 66

.9

60.4

87

.9

93.3

91

.8

97.6

93

.2

Sour

ce:

Surv

ey o

f IT-

BPO

Ser

vice

s, Ec

onom

ic a

nd F

inan

cial

Sta

tistic

s, BS

P


Tabl

e 10

. Fo

reig

n eq

uity

cap

ital

by

IT-B

PM c

ateg

ory

and

by c

ount

ry o

f inv

esto

r, 20

05

IT-B

PM C

ateg

ory

USA

Eu

rope

Japa

nO

ther

Asi

a1 A

ustr

alia

C

anad

a T

otal

FD

I

Con

tact

cen

ter

139

72

- 2

-

-

213

Tra

nscr

iptio

n -

-

-

-

-

-

1

Ani

mat

ion

3 -

1

1 -

-

4

Sof

twar

e de

velo

pmen

t (3

)1

4 3

-

-

5

Oth

er B

PMs

82

-

- 24

-

-

10

6

Tot

al in

dust

ry

221

73

5 30

0.

0 0.

0 32

9

Per

cent

sha

re

67.3

22

.1

1.4

9.1

0.0

0.0

100.

0

FDI –

fore

ign

dire

ct in

vest

men

t1

In p

artic

ular

: In

dia,

Mal

aysi

a, a

nd S

inga

pore

Sour

ce:

Surv

ey o

f IT-

BPO

Ser

vice

s, Ec

onom

ic a

nd F

inan

cial

Sta

tistic

s, BS

P

Tabl

e 11

. Fo

reig

n eq

uity

cap

ital

by

IT-B

PM c

ateg

ory

and

by c

ount

ry o

f inv

esto

r, 20

13

IT-B

PM C

ateg

ory

USA

Eu

rope

1A

sia2

Aus

tral

ia

Jap

an

Indi

a C

hina

T

otal

FD

I

Con

tact

cen

ter

1,57

01,

520

71

72

4 83

(0

) 3,

321

Tra

nscr

iptio

n 68

3

-

24

(6)

-

-

89

Ani

mat

ion

(2)

-

(13)

-91

-

-

76

Sof

twar

e de

velo

pmen

t 24

8 1,

458

21(1

)20

5 1

6

1,93

8

Oth

er B

PMs

290

393

212

74

413

118

0

1,49

9

Tot

al in

dust

ry

2,17

4 3,

375

291

169

707

202

6 6,

924

Per

cent

sha

re

31.4

48.7

4.2

2.4

10.2

2.

90.

1 10

0.0

1 In

par

ticul

ar:

Uni

ted

King

dom

, the

Net

herla

nds,

Ger

man

y, a

nd F

ranc

e2

In p

artic

ular

: Si

ngap

ore,

Hon

g Ko

ng, a

nd K

orea

Sour

ce:

Surv

ey o

f IT-

BPO

Ser

vice

s, Ec

onom

ic a

nd F

inan

cial

Sta

tistic

s, BS

P

del Prado 67

the area of concentration in those days. It was only in recent years, however, when the industry started to take off.

Building on this initial status, the Philippines entered the value chain through the establishment of call centers. Among the pioneers, or those who were the first to set up operations, in the Philippines were Accenture in 1992, Sykes in 1997, and Teleperformance that started as a group of 50 agents back in 1998. By 2009, the Philippines, according to Fernandez-Stark et al. (2011), had accumulated the same number of call center agents as India. Sykes, which had only 16 employees in 1997, had expanded with over 2,000 workers. Teleperformance, through its brand Telephilippines, grew to 12,600 workstations, over 19,000 employees, and 11 operation sites nationwide. This period in the late 1990s characterized the initial phase of the Philippines’ industry upgrading (Fernandez-Stark et al. 2011).

By mid-2000s, what started out as call centers began to acquire more skills and accept transcriptions and back-office services for finance and accounting. This allowed the industry to establish its prominence in the BPM global market. Soon after, Manila became one of the choice locations for BPM services and was awarded the “Offshoring Destination of the Year” in 2010 by the National Outsourcing Association—the United Kingdom’s sole outsourcing trade association (Nejar et al. 2012). At this point, the Philippines reached the second phase of industry upgrading (Fernandez-Stark et al. 2011).

By the end of the 2000s, there was an apparent shift and expansion toward the higher value-added segment of the industry, which drew from the country’s enormous supply of college graduates and trained professionals especially in the medical field. This stage described the inclusion of medical transcription services and similar initiatives, which indicated the country’s readiness to provide industry-specific offshore services and transition into vertical industry specializations. Hence, the rebranding of business process outsourcing into BPM reflected the transformation and the increasing capability of the industry to handle more complex offshore services.

The country’s progression from low to high value-added offshore services is well documented. Fernandez-Stark et al. (2011) described this work development in terms of stages using the GVC framework. Figure 5 illustrates the different stages and the evolution of the Philippine IT-BPM industry from being a provider of basic call centers and low-end back-office services during the late 1990s to a higher value-added service provider by the end of the 2000s.


Success factorsThe growth and success of the Philippine IT-BPM industry can be attributed to the positive interplay of several factors, which include abundance of low-cost English-speaking labor force, competitive and reliable telecommunications infrastructure, low-cost real estate, government incentives, and proactive industry associations. Yi (2011) broadly categorized these factors into favorable factor and industry conditions, government support, and favorable demand conditions (Figure 6).

Presumably the third largest English-speaking country in the world, the Philippines’ edge and strongest competitive advantage is the availability of a large and steady supply of workers deeply proficient in the English language and with strong cultural affinity to the West. Filipinos, according to Mitra (2011), speak better English and have a more neutral accent than Indians and most Asian countries. These, coupled with an overall service culture, heralded the country’s foray into BPM services, particularly in contact centers and customer care services (Mitra 2011; Yi 2012). Moreover, the similarity of the country’s legal and accounting systems with that of the US made the Philippines well-equipped to meet the demands of US firms, contributing significantly

Figure 5. Offshore services upgrading: Philippines

Source: Fernandez-Stark et al. (2011)

del Prado 69

to the country’s success and shift to legal transcription outsourcing and financial and accounting outsourcing (Yi 2012). The operating costs of call centers in the Philippines in 2006 were roughly the same as in China and India, and about 75 percent lower than that of the US (AmCham Philippines 2010).

The country produces about half a million English-speaking college graduates every year. Over half of them are in the medical field, particularly nursing. More than 20 percent are in engineering and IT, and about 20 percent are in the business, accounting, and related fields (Mitra 2011; Yi 2011; Herguner 2013). Hence, there is an assured steady supply of talent suitable to be tapped for the industry (Mitra 2011; Yi 2012). While not all graduates automatically possess the right skills set required by the industry, both the government and private sector have taken the necessary steps to equip the “near hires” with the necessary skills and make them “suitable” to industry needs. These efforts seemed to have been aptly rewarded as the suitability of labor in the Philippines was found to be higher than India's. A survey of human resources executives of MNCs in 2005 found that the Philippines bested India and China in terms of costs and availability of suitable labor (Beshouri

Figure 6. Success of the Philippine BPM

Unfavorable conditions: Tight labor

market, corruption

Favorable industry conditions:

proactive private sector; BPAP

BPO Operations/ Exports

Infrastructure: Low-cost, reliable

telecommunications

Infrastructure: Abundant low-cost

real estates

Labor: Low-cost, English-speaking young talent pool

Tax holidays, duty-free import of equipment

(e.g., computers)

100% foreign ownership allowed

PEZA providing one- stop service for

business registration

Favorable demand conditions: Wind of global outsourcing, global risk diversification, and global reputation as a contact center destination

Favorable factor conditions Favorable government supports

Source: Yi (2011)


and Farrell 2005). Despite the huge differences in demographics, the Philippines produces one suitable graduate (i.e., finance graduate) for every two available in India.

The Philippines also has significant telecommunication advantages over India. It has a solid and reliable telecommunication infrastructure (BPOP n.d.), including multiple cable lines “that extended undersea across the Pacific Ocean to the United States”, which ensure the country’s reliable connectivity (Cortez et al. 2008, p. 3). Fiber optics, which make a standard E1 or high band width telephone line two or three times cheaper in the Philippines than in India, were also installed (Herguner 2013). All of these came following the deregulation of the telecommunications industry in 1993 that provided for greater competition and improved the quality and efficiency of telecommunication infrastructure in the country (Yi 2011). These infrastructural advantages and the availability of several international carriers for telecommunication services have made the rate structures less costly and more competitive.

The industry association also acknowledged government support and incentives, such as benefits and income tax holidays (ITH) administered by the PEZA, as contributing factors to the success of the IT-BPM industry (Yi 2012). The Philippine government also provided substantial training funds initially to prepare and equip underutilized labor and later to accommodate unemployed engineers and returning overseas Filipino workers for work in the IT-BPM sector at the height of the 2008–2009 financial crisis (Fernandez-Stark et al. 2011). This strategy complemented private sector efforts that provided medical professionals with training and certifications to make them eligible to accept medical transcription services. Appendix 1 presents some of the most important public, private, and multisectoral initiatives undertaken to facilitate the development of the IT-BPM industry.

Highly organized professional niches and industry associations have also played significant roles for the IT-BPM industry. These entities have been active and instrumental in establishing networks and global linkages and in maintaining a professional and business environment within the sector. The BPAP, the umbrella organization of BPM companies, has taken an active role in marketing the Philippines as a BPM destination while promoting and advocating the interests and development of the industry (Yi 2012).

Growth prospectsDespite the 2008–2009 financial crisis, the global IT-BPM market is estimated to double its growth from USD 122 billion in 2010 to

del Prado 71

USD 240–250 billion by 2016 (IT-BPAP 2012). To date, the Philippines only covers 10 percent of the global market, indicating a wide untapped market. Moreover, the fact that the Philippines was able to capture a sizeable portion of the market, despite stiff competition from countries with strong ICT sectors, says a lot about the country’s potential and competitive edge in this area.

Under the 2012–2016 IT-BPM Road Map (DOST-ICTO 2012), the local IT-BPM sector should push for an estimated annual growth rate of 14.5–19 percent to attain the 2016 industry growth target of USD 20–25 billion in total revenues; 1.3 million and 3.2 million direct and indirect jobs, respectively; and 8-percent contribution to the GDP (Figure 7). Aside from maintaining its status as the top voice BPM destination with a 29 percent global market share, the voice subsegment is expected to grow between 17 and 19 percent, earn USD 14.7 million in revenues, and penetrate markets outside the US. The industry is eyeing the United Kingdom, which has an estimated market size of USD 22 million, and the Asia Pacific, which has an estimated market size ranging from USD 4 billion to USD 8 billion.

Although considered a mature destination for software and IT outsourcing, the Philippines’ market share in the international market is small at 1 percent. To contribute to the 2016 target, the industry is

Figure 7. IT-BPM industry revenue target for 2016

Source: Department of Science and Technology-Information and Communications Technology Office (DOST-ICTO) 2012


aiming to double its global share to 2 percent, achieve a 25-percent growth rate, and expand its market reach within the Asia-Pacific region.

The 2012–2016 IT-BPM Road Map has likewise set an ambitious goal for Filipino animators and game developers. Banking on the significant progress in this area, the animation and game development sectors are being pushed to earn USD 500 million in annual revenues (or about four times their 2011 income) to attain the industry growth target for 2016. Currently, the Philippines is among the top three destinations for offshore animation and game development services in the world.

Industry enthusiasts insist that these ambitious goals are feasible. According to the 2012–2016 IT-BPM Road Map, the Philippines is competitively positioned in terms of talent, costs, and risks relative to established and emerging industry players. This bodes well for the sector’s broad-based growth and ongoing expansion outside established service segments. The industry has expressed its readiness to diversify service offerings and provide a larger volume of value-driven, nonvoice, and complex ITO-Knowledge Process Outsourcing services. However, to do all these, the road map stipulated a number of conditions, including government support in the area of remedial training and educational reforms, granting of investor incentives, and international and local marketing and promotions. Apart from these, Tholons (2014) also suggested systematic improvements in telecommunications infrastructure that support industry-policy frameworks. It lauded efforts to widen the geographical spread of the country’s service locations.

Prolonged concentration of industry activities in Metro Manila and Cebu, where close to 70 percent of the service providers are located, can lead to saturation problems and their attendant consequences, such as increased provider costs due to higher attrition costs (Tholons 2014).

To sustain the country’s advantage, the industry has to tap other sources of “potential-rich talents pools” and develop larger, alternative delivery hubs outside Metro Manila and Cebu. While much of the industry is likely to continue in Manila and Cebu, significant growth is expected in the next best alternative areas dubbed as the “Next Wave” cities (Figure 8). Industry representatives, according to Tholons (2014), maintain that the wealth of talent outside Manila—financial and accounting agents in Laguna, engineers in Pampanga, and the medical professionals/practitioners across the Visayas and Negros provinces—could propel the transition toward higher-value services.

The government has recognized the importance of the industry and has included IT-BPM as one of the priority sectors under the Investment Priority Programs. This entitles all IT-BPM-related establishments

del Prado 73

to government fiscal and nonfiscal incentives including ITH and PEZA benefits and incentives. Mitra (2011) prepared a comprehensive list of all government initiatives especially significant to the Philippine IT-BPM sector (Appendix 2).

The most recent government initiative hailed by industry representatives is the passage of Republic Act (RA) 10173 or the Data Privacy Act of 2012. Signed on August 12, 2012, the new law penalizes the unlawful use and disclosure of personal information collected by the government and the private sector (Fonbuena 2012). RA 10173 seeks to make the Philippines compliant and

at par with the European Parliament privacy standards as well as the APEC Information Privacy Framework. This move is expected to boost investor confidence in the Philippines as a secure and reliable offshoring destination.

However, while the sector is right to set its sights toward higher goals and across bigger and farther shores, it should be mindful of the changing political economic landscapes and protectionist waves, which can severely challenge the industry.

APEC and IT-BPM services The development and success of the Philippine IT-BPM industry not only present a compelling argument for globalization and greater liberalization of services trade but also demonstrate the scope for rapid growth in outsourcing services to developing countries (Mitra 2011). The increase in services trade, particularly offshore services, is well-acknowledged to have a profound impact on the global economy. It is one area in world services trade where developing countries can have important roles in global trade and greater opportunities for sustainable

Figure 8. The Next Wave cities

Source: DOST-ICTO (2012)


growth without the “traditional dependence on manufacturing and natural resource industries” (Gereffi and Stark 2010b, p. 2).

Aside from the Philippines, most of the countries that are benefiting from this offshoring wave are Asia-Pacific economies, notably India and China. Tholons (2014) considers the Asia-Pacific region as the best-performing service outsourcing market. Ten of the top 25 BPM destinations in 2013 identified by Tholons (2014) are emerging APEC economies. While APEC is already well-positioned to expand its presence in the global BPM market, Le and San Andres (2014) argued it may also do well for these economies to enhance services trade in other high-value sectors (i.e., construction, transportation, and tourism) that are as labor intensive and crucial to many emerging economies in the region. To reap the full rewards of services trade, APEC economies must ensure seamless physical, institutional, and people-to-people connectivity in the region to facilitate efficient movement of goods, services, and people (Le and San Andres 2014).

This advice came at a time when fresh sentiments of protectionism threaten to remove traction and dim bright prospects of offshoring activities in Asia-Pacific countries, particularly in India and the Philippines. Several states in the US, for instance, have passed legislation discouraging government from procuring services outside the US territory (Suri 2005). In some parts of Europe, protectionism came in the guise of “data security” and requirements for privacy laws.

The issue, as circulated by the media, escalated fears of massive job losses. Some major companies in industrial countries were allegedly contemplating outsourcing all of their service activities, both high and low end, to India and several other countries in the Asia-Pacific, which, after years of accepting basic low-end offshore activities, have developed comparative advantages in more integrated, complex, and higher value-added services activities (Mattoo and Wunsch-Vincent 2004; Rajan and Srivastava 2005; Suri 2005).

Far from the North-South issue that the media have purported, Suri (2005) points to some interesting evidence showing that most US services trade actually take place with other industrial countries and not with developing economies. Only 32 percent of US imports of private services in 2002 originated from developing countries, while 68 percent came from other industrial countries, such as Ireland and Canada. The report further demonstrated that offshoring is not a “zero-sum game” but actually a “win-win” situation that can be beneficial to both sending and receiving countries. In the near term, many developing countries in the region stand to benefit significantly from offshoring and increased

del Prado 75

services trade. The long-term gains accruing to developed economies, however, are often ignored, underreported, and hardly recognized.

APEC documents and recent meetingsAPEC and its member-economies have long recognized the economic importance of services, and have long endeavored for a freer and more open trade in services in Asia Pacific, as evidenced by a number of APEC declarations and commitments described as follows (Shepherd and van der Marel 2010):

• 1994 Bogor Declaration – commits all APEC economies to free trade and specifies ways to promote free flows of goods, investments, and services among member-economies.

• 1995 Osaka Action Agenda – provides the general framework and principles to implement the Bogor goals. The Osaka action plan encourages member-economies to progressively reduce market access restrictions, extend most favored nation (MFN) status and national treatment, promote fair and transparent regulation in services sectors, and recognize the role of e-commerce. APEC economies are likewise enjoined to commit to participate positively in WTO negotiations, expand GATS commitments, and take further actions toward appropriate voluntary liberalization.

• APEC Principles for Cross-Border Trade in Services – sets out core principles to guide actions that would promote free flows of services in APEC. It also incorporates the main obligations under the General Agreement on Tariffs and Trade (i.e., MFN and national treatment).

• APEC Services Action Plan (SAP) – sets out a detailed matrix of actions, including past, present, and prospective work on services. Together with the Bogor Declaration, the Osaka Action Agenda, and the Principles for Cross-Border Trade in Services, SAP represents a comprehensive framework to promote liberalization and facilitation of international trade in services among APEC member-economies.

While there may have been numerous APEC initiatives listed under the SAP, activities directly connected or specific to IT-BPM are almost nonexistent, except when discussed in relation to other industry verticals. Pasadilla and Findlay (2014) observed that a lot of APEC’s work on services is dispersed across different APEC subgroups. Most of


which, however, do not take a “big picture” approach but rather have a narrow focus, sticking to issues and concerns specific to their sectoral groups (Table 12).

It was also reported that 38 percent of APEC-funded projects are services related (Table 12), most of which (24%) were in the form of workshops and capacity-building seminars. Research studies, database, and survey and related undertakings represent 13 percent of all APEC projects. An example of this is the APEC Services Trade Access Requirements (STAR) Database, an online repository of all regulatory procedures and conditions required to supply a service in individual APEC economies (Pasadilla and Findlay 2014). Other services-related APEC projects are identified in Table 13.

An earlier report by the APEC Business Advisory Council (2011) also noted that because of definitional issues and the difficulty of monitoring BPM services, much of APEC’s contribution to IT-BPM focused on capability-building activities under the following thematic concerns: (1) human capital, education, and vocational training; (2) transparent and efficient regulations; (3) regulatory coherence; (4) ICT, telecommunications, and quality digital infrastructure; and (5) interagency coordination in governments.

The same report also acknowledged the “relative ignorance” of governments and the difficulty of articulating the importance of the services sector to the economy. In 2009, the services sector was the biggest contributor to domestic output, on average accounting for over 50 percent of the gross domestic product (GDP) of most APEC economies. This was accompanied by a similar increase in the countries’ services exports, notably the “other commercial services”, which have risen to

Table 12. APEC services-related projects

Type of Projects Number of Projects

As % ofAPEC Projects

Workshops/conference/capacity-building seminar 86 24.23

1. General: services trade 19 5.35

2. Mode-specifica 22 6.20

3. Sector-specific 45 12.68

Studies/surveys/database 49 13.80

Total 135 38.03a Mode can be either by "commercial presence" or investment; movement of naural persons or mobility

of persons, either tourism-related or people-to-people mobilitySource: Pasadilla and Findlay (2014)

del Prado 77

over 51 percent and have become the fastest-growing segment of the services trade. Included in this segment are knowledge-intensive business components, such as business and ICT services, which are estimated to have accounted for about 24 percent of total commercial services exports.

Despite this, however, the services sector is, by far, the least understood and the most restrictive and heavily protected sector. The sector is also often subjected to high levels of government intervention. According to the report, the seeming preference of governments to keep this arrangement and their “reluctance to open up domestic services sectors to higher levels of foreign competition” have stalled negotiation efforts to liberalize services trade at the regional level. The ABAC (2011, p. 55–57) report concluded with a proposal for the APEC to:

• “Proposal 1: Launch a new and dedicated initiative specifically aimed at liberalizing and facilitating regional services trade and investment. The new initiative should prioritize regulatory reform and it should cover all services markets and all modes

Table 13. Examples of services-related APEC projects

CTI: Committee on Trade and Investment and subgroups

STAR Database (under Group on Services facilitates business community’s search for information on services regulations in the region.

Cross-Border Privacy Rules (under Electronic Commerce Steering Group) aims to facilitate cross-border data information exchange.

Investment Facilitation Action Plan (under Investments Experts’ Group) seeks to improve and liberalize investment regimes.

APEC Business Travel Card facilitates travel of business people within APEC.

EC: Economic Committee Projects lead to facilitation of services trade because much of services liberalization is about regulatory reforms (e.g., studies on reform experiences of services sectors like energy and telecommunications and capacity-building work on regulatory impact assessment).

SCE: SOM Steering Committee on Economic and Technical Cooperation

Projects are sectoral specific (e.g., cross-border highereducation, and various programs and initiatives by different working groups, such as the Energy Working Group, Telecommunications and Information Working Group, and Human Resources Development Working Group).

PSU: Policy Support Unit Project on Structural Reforms in Transport, Energy, and Telecommunications Sectors

Source: Pasadilla (2014); Pasadilla and Findlay (2014)


of delivery. The initiative should include drafting of joint APEC principles for all-of-services best practice regulation, including with a view to generating global interest in development of such principles.

• Proposal 2: Commission an APEC-led tripartite (i.e., including the business community) ‘Services Expert Group' to take a ‘back-to-basics' look at how to improve the global governance of services trade and investment.

• Proposal 3: Commit to substantially improve, in collaboration with relevant international organizations, the region’s official statistics on services production, employment, productivity, trade, and investment to ensure the regional services economy becomes more ‘visible’.”

ConclusionThe Philippine experience has shown that IT-BPM services is one area of trade in services that developing countries can explore, without heavily relying on traditional primary industries and natural resources. While the presence of an educated workforce and a good telecommunications infrastructure does not always guarantee success, investments in human capital and critical telecommunications infrastructure—considered by many as the backbone for other important industries—provide enough reason to pursue and board the IT-BPM bandwagon.

However, the sector is still in its infancy. Opportunities are still available for other developing countries to “build appropriate domestic capacity” to effectively participate in this stor (Suri 2005). They should be mindful, however, of the protectionist waves coming from developed countries and treat them as real and present dangers that must not be dismissed and underestimated. A sincere and constructive campaign highlighting the “win-win” elements of offshoring (Suri 2005; Rajan and Srivastava 2005) can be practiced and performed, most appropriately, under the auspices of entities like the UN and the APEC.

In line with the Philippines’ interests, and consistent with the call for an overarching services-related initiative, the study recommends the following measures to further develop the IT-BPM sector in the country and capture a bigger share of the global market: (1) promote offshore services/IT-BPM as part of the country’s goals and commitment (in the case of ASEAN/AFAS) toward greater services trade liberalization; (2) use trade diplomacy to further promote Philippine IT-BPM services and remove barriers to trade; (3) intensify efforts to improve collection of IT-BPM related data and statistics; (4) seek out opportunities to collaborate

del Prado 79

with other governments, multilateral institutions, and industry stakeholders in building up international and regional cooperation toward better data and statistics collection to mitigate false perception arising from offshoring; and (5) strengthen and institutionalize government-industry-academe linkage and collaboration to improve higher education programs, address skills shortages, and transition to high-value, knowledge-based segments of the IT-BPM services sector.

Appendix

Appendix 1. The Philippines: GVC upgrading and workforce development initiatives

Source: Fernandez-Stark et al. (2011)


Appendix 2. Philippine government initiatives to support the local IT-BPM sector

Principal National Visions, Strategic Plans, and Programs•Medium-Term Philippine Development Plan, 2004–2010 and 2011–2016• Roadmap 2010 and Roadmap 2016 for information technology–business process

outsourcing (IT-BPO) industry development formulated by the Business Processing Association of the Philippines in consultation with a wide range corporate and government agencies• The Philippine Digital Strategy 2011–2016 launched by the Commission on Information

and Communication Technology in 2011•National Broadband Plan 2016•Philippine IT-BPO Brand Management Plan•GovernmentInformationandCommunicationTechnologyOfficeflagshippublic–private

partnership projects presented in 2012•TheSmarterPhilippinesflagshipprogramlaunchedbytheDepartmentofScienceand

Technology in 2013; key elements include Smarter Government, Smarter Economy, Smarter Mobility, Smarter Environment, Smarter Living, and Smarter Cities

Legislation• Republic Act 10173, or the Data Privacy Act of 2012 Cyber Parks and Development of “NextWave”Cities• Rapid expansion of cyber parks (techno parks, IT parks, and economic zones): typically developedinpartnershipwiththeprivateIT-BPOorrealestatefirms,offeringofficespace,reliableconnectivity,andenergysupply;withflexibletaxexemptionrulesinMetroManilaand its peri-urban areas, in Cebu, and in other parts of the country.• The Philippine Cyber Corridor Initiative and the Next Wave Cities Initiative: special efforts

to promote the development of the IT-BPO industry in areas other than Metro Manila and Cebu.•PhilippineEconomicZoneAuthorityindustrialparksandeconomiczoneswithfiscalandnonfiscalincentivesforprivateinvestors:217economiczonesinoperationand103underdevelopment with more than 60% recognized as IT parks/centers.

Fiscal Incentives•Income tax holiday initially for 4 years extendable to 8 years if further investment and otherrequirementsarefulfilled•Special 5% tax rate on gross income in lieu of all national and local taxes after the lapse of

the tax holiday (for IT park/economic zone locators)•Tax and duty exemption on imported capital equipment (for IT park/economic zone

locators); duty-free importation of capital equipment (for Board of Investment registered firmsunderExecutiveOrder528)•Exemption from wharf fees and export taxes, duties, imposts, and fees•Exemption from 12% value-added tax on allowable local purchases of goods and services,

such as telecommunications, power, and water (for IT park/special economic zone locators)• Additional deduction of 50% of total worker training costs under the special 5% gross

income regime

NonfiscalIncentives•Unrestricted use of consigned equipment•Liberal rules for employing foreign nationals and granting special investor resident visas

Source: Mitra (2013)

del Prado 81

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AbstractThis paper discusses the promotion of people-to-people (PTP) tourism in member-economies of the Asia-Pacific Economic Cooperation (APEC), focusing on the 10 countries of the Association of Southeast Asian Nations (ASEAN). PTP tourism can be defined as the cross-border movement of people from one country to another on a repeated basis (1) for education, training, or related capacity building; (2) for research and development (R&D) cooperation; (3) for police, constabulary, military, security, or anticrime assignments; (4) in response to health epidemics or outbreaks; (5) for medical tourism; (6) in response to disaster or calamity; (7) for management of environmental parks and natural resource assets; (8) for local border traffic; and (9) other valid reasons that APEC economies will deem important. The paper further situates PTP tourism in the context of intra-ASEAN and APEC tourism, and discusses the rationale for increasing PTP tourism and the current obstacles. It reviews recent international practices in promoting PTP tourism through entry and exit facilitation and by identifying general and specific programs and policies in a number of innovating countries. It ends with recommendations on how to facilitate PTP tourism in the ASEAN and APEC.

5Oscar F. Picazo, Soraya Patria G. Ututalum, and Nina Ashley O. Dela Cruz

People-to-People Tourism in APEC: Facilitating Cross-Border Entry and Exit, with Special Focus on ASEAN

86 People-to-People Tourism in APEC: Facilitating Cross-Border Entry and Exit

PTP tourism in the context of intra-ASEAN and APEC tourism

DefinitionandscopeofPTPPTP tourism involves the cross-border movement of an ASEAN citizen from one ASEAN country to another for any of the following reasons: (1) educational, training, or related capacity-building purposes; (2) governmental or nongovernmental R&D cooperation and related purposes; (3) police, constabulary, military, security, or anticrime assignments; (4) help in containing regional health epidemic outbreaks; (5) medical tourism purposes; (5) assistance in responses to a disaster or calamity and rebuilding of affected communities and institutions; (6) assistance in managing common-border natural resources, such as parks; and (7) for other valid reasons that ASEAN authorities will deem important in the future.

BenefitsoftravelfacilitationSpeed is essential in many of the earlier-mentioned reasons for cross-border movement. This is especially true in the case of disaster response, security management and apprehension of criminals, and response to epidemic outbreaks. In other cases, time is just as important because of set appointments (academic calendar for students and trainees, medical appointments of medical tourists). Also, common working schedules may be critical for two or more parties to be present (e.g., in the management of common-border natural environmental areas). Businessmen and traders need to seize commercial opportunities that can be otherwise hindered by onerous entry and exit requirements and delayed procedures.

Frequency of travel is also a hallmark of PTP tourism. The management of common-border national parks and other natural assets requires periodic monitoring and travel. Foreign students and researchers have to go home during their vacation, and travel back to their host countries after their rest. Disaster response often involves the same teams moving from one disaster or epidemic area in one country to another. The increasing regionalization of the ASEAN economy implies far greater frequency of business and commercial travel. Facilitating the travel of these types of highly mobile tourists, therefore, would make them more effective in their work.

The rationale for travel facilitation, as a whole, also includes important economic benefits. A study on the impact of visa facilitation in APEC economies shows “substantial and, in some cases, very significant

Picazo, Ututalum, and Dela Cruz 87

increases in visitation when visa-related policies and processes are improved” (WTTC 2013b, p. 7). The study estimates that improvement in visa facilitation in the APEC region could result in gains of 38 million to 57 million international tourist arrivals by 2016, which represents between 9 percent and 13 percent of baseline forecast under current visa policies (WTTC 2013b, p. 8). Under the improved visa scenario, these tourist arrivals could generate revenues between USD 62 billion and USD 89 billion during the forecast period, or an increase of 9–14 percent. The surge in tourism in APEC can create from 1.0 million to 1.4 million new jobs—or a gain of between 2 percent and 3 percent more jobs than the baseline forecast by 2016.

Indicators of tourism in ASEANTourism is among the priority sectors for integration in ASEAN. In 2010, the ASEAN overall tourism performed an outstanding growth of more than 73 million international tourist arrivals, translating into an 11-percent increase from the year 2009. A major source of the travel market is intra-ASEAN tourism, which has a share of 47 percent in 2010. Appendix Table A describes the consistent success of the ASEAN region in attracting tourists from 2009 to 2010. Appendix Figure A shows the marked growth of international tourists in the ASEAN region. However, this also brings to the fore how the ASEAN member-states address the issue of absorptive capacity as the numbers increase through time. Appendix Figure B compares the numbers of international tourists with intra-ASEAN tourists.

The World Economic Forum’s Travel and Tourism Competitiveness Index features a study that identifies and measures the positive and negative components that affect travel and tourism development, particularly in ASEAN member-states. Appendix Table B shows tourism statistics with respect to economic indicators such as gross domestic product (GDP) per capita and the population of each country within the ASEAN region. Appendix Table C, meanwhile, shows tourist arrivals in the region by purpose of travel.

Tourism, in itself, is described as a cross-cultural contact that happens between the hosts and guests. Increased intra-ASEAN tourism is believed to improve the social and cultural development among its member-states. However, this is hindered by travel barriers, such as departure and entry taxes, visa and passport fees, regulation of entry and exit permits, and control of landing rights for aircrafts.

Intra-ASEAN travel has registered positive growth since 1985. In 1980, its tourist arrival was 30 percent. By 1985, it had surged to


46 percent, which suggests that an expansion of population especially in the urban area occurred. According to Hussey (1991), the significant measure that can address tourism cooperation is the circle fares—that is, by providing low-cost travel on national airlines throughout the region. Nevertheless, there remain some limitations, such as lack of publicity and restrictions, that need to be resolved.

According to TigerMine (n.d.), a comparative analysis of growth forecasts for Southeast Asia’s travel and tourism showed that the number of tourist arrivals increased by approximately 300 percent (Appendix Figure C). The travel and tourism industry believes there will be continuous growth in tourism, but the scale and pace will vary among relevant sources. Indicators are the international tourist arrivals and tourism’s contribution to GDP.

Rationale for increasing PTP tourism

RationaleIn 2015, the ASEAN Economic Community will be established and is expected to result in flourishing trade as well as in greater governmental and nongovernmental cooperation along various areas of common interest, including education, R&D, regional security management and crime prevention, management of natural and environmental resources, management of disease outbreaks, response to disasters and calamities, and medical tourism. These are expected to increase the mobility of people and the volume of passengers across ASEAN member-states. There is, thus, a need to expedite such transfer of passengers to avoid congestion, minimize costs, and allow ASEAN citizens to do their tasks with as few obstacles as possible.

Educational cooperationGovernance in higher education in both developing and developed countries is undergoing rapid changes to make learning opportunities conveniently available to students worldwide (Yepes 2006). In the United States (US), to attract more exports of higher education services, new modes of internationalizing higher education are promoted by showcasing leading education institutions’ increasing revenues and profit and by maintaining an open economic system, such as through negotiations with other countries. In Europe, the European Union (EU) handles the intergovernmental process of higher education cooperation. Schemes include increasing students’ mobility and promoting the “Europeanization” of courses or programs being offered.


The first initiative toward educational cooperation in ASEAN was the Association of Southeast Asian Institutions of Higher Learning, which was founded in Bangkok in 1956 and now includes other Asian nations and some developed countries. The next initiative was the United Nations Educational, Scientific and Cultural Organization (UNESCO) Asia and Pacific Regional Bureau for Education’s attempt at a regional education strategy to “interpret global priorities and goals in a regional context” and “to adapt broad institutional strategies to achieve the regional goals” (Yepes 2006, p. 10). Another UNESCO initiative was the Southeast Asia Ministers of Education Organization, which promotes cooperation in education, science, and culture not only within ASEAN but also with countries outside the region. After two decades of searching for the right niche in higher education, the ASEAN University Network (AUN) was created to oversee various collaborative programs, such as studies, short-term exchanges of students and faculty, scholarships, information networking, and collaborative research.

One indicator of intra-ASEAN tourism is the students’ mobility. The ASEAN has made some key initiatives through the AUN, ASEAN Credit Transfer System, ASEAN Plus Three Working Group on Mobility of Higher Education and Ensuring Quality Assurance of Higher Education, and the EU Support to Higher Education in ASEAN Region Program. Nevertheless, the gaps among the member-states are still wide due to challenges such as access to, or continuation of, education, quality of education (i.e., teacher education and pedagogy) and finance, governance, and management.

Educational cooperation is an area expected to expand after ASEAN 2015. The benefits of intra-ASEAN education include cultural enrichment, increased multilingual skills and proficiency, and achievement of higher-status qualifications and competitive job positions. To achieve these, Thailand’s Education Minister Phongthep Thepkanjana has been quoted by the media (Khaopa 2013) as wanting to introduce student visas that allow foreign students to remain in Thailand until they graduate, rather than be renewable every year as is the current practice in most ASEAN member-states.

At present, visa requirements and visa systems among ASEAN member-states do not accommodate students and teachers, unlike in the US and the United Kingdom (UK), where they offer student visas that allow students to stay in host countries for as long as they continue their studies. Thailand’s Thepkanjana has tried to get other ASEAN member-states to adjust their visa requirements and systems to ease students and teachers’ mobility in the region.


R&D cooperationEconomic growth in the ASEAN needs to be underpinned with technological diffusion, but to increase technological capacity, more R&D activities need to be initiated. This can be achieved with more intensive alliances that integrate technological complementarities and through greater mobility of scientists and researchers. The factors that affect the growth of science and technology cooperation are related to the diffusion of scientific capacity, the interconnectedness of scientists, and the intellectual and social organizations of science and scientists.

To deal with some of these interconnected issues, the EU-ASEAN Dialogue considered crafting policies for international science and technology cooperation among Southeast Asian countries. Findings from this dialogue include the following:

• Scientists in less-developed ASEAN member-states usually rely on previous contacts with former colleagues abroad because of lack of awareness and available information on international funding opportunities and access to scientific networks;

• An identified important trust-building measure in establishing and maintaining networks is one’s list of personal contacts;

• An asymmetry of interests in science and technology cooperation exists when ASEAN scientists aim to work in long-term projects with structural follow-up, while non-ASEAN scientists tend to see the region as a venue for opportunities for short-term projects and case studies.

Security management and crime preventionGordon (2009) argues that regionalism can either increase or lessen a region’s flow of crime. While the reduction of tariff across a region can reduce smuggling, regionalism can also worsen the crime incidence because the sheer opening up of trade, travel, and exchange can introduce criminals, terrorists, firearms, illicit products, migrants, and human trafficking into the area. The cooperative mechanisms among ASEAN member-states in security management are still relatively weak, especially on the prevention of crime and terrorism. Gordon (2009, p. 13) cites that “an original resolution to set up a shared criminal intelligence database in 1992 was not implemented until the electronic ASEAN Data System (e-ADS) came into existence in 2007, and that even in the case of e-ADS, Myanmar and Lao PDR have not yet been included.”

In security management and crime prevention, issues that are being addressed involve: (1) the relationship between migration and safety


(including victimization, marginalization, and discrimination), where many initiatives, such as increasing awareness among the vulnerable populations, reducing racism, and helping integrate migrants into the area, are being pursued; (2) countering organized crime and transnational trafficking, where strengthening the mobilization and resilience of the region is needed; (3) recruitment of young people by criminal networks; and (4) criminalization of addicted people,which can be countered by initiatives that manage the consequences of alcohol consumption in public places and reduce drug-related risks.

Efforts in the ASEAN in this area include the formation of the ASEAN Plus Three Ministerial Meeting on Transnational Crime, which is a venue to discuss how to strengthen cooperation on international crime countermeasures involving terrorism, human trafficking, and cybercrime. Another is the ASEAN Chiefs of Police Conferences, which aim to encourage interaction among police authorities within the region.

Response to epidemics and public health problemsThe issue of cross-border transmission of infection—both animal and human—is increasingly being acknowledged by national policymakers and development partners alike. Human migration and the increasing trade in goods and services (including cargo movement from seaports to countries inland) contribute to this increased risk of infection. Such disease transmission across borders is merely a negative externality that must be dealt with on the supranational level.

Examples of recent regional epidemics in the ASEAN are the severe acute respiratory syndrome and avian flu. Human immunodeficiency virus (HIV) or acquired immune deficiency syndrome (AIDS) is also known to follow cross-country traffic corridors (highways), as well as maritime waterways and fishing lanes (e.g., fishermen in southern Philippines getting into contact with Malaysians and Indonesians). Several contiguous states have taken up the issue of cross-border disease transmission and have designed flexible means of managing and patrolling borders to better prevent infection.

A study on pandemic preparedness within the ASEAN region showed that Singapore is the only country that had done considerable work on primary essential services. The ASEAN Technical Working Group on Pandemic Preparedness and Response has been formed to promote multisector cooperation in terms of public health response at the regional level. Moreover, an indicator system that identifies the required policies, mechanisms, and structures has been designed. The system has four groupings: (1) national government planning and coordination,


(2) subnational government involvement, (3) whole society planning, and (4) sectoral planning. These groupings are equivalent to the levels of progression of a country toward a full state of pandemic preparedness for response. Another notable regional initiative is the ASEAN Agreement on Disaster Management and Emergency Response (AADMER), which aims to effectively reduce human and property loss in major disasters. To continue doing work in this area on a more rapid and extensive basis would require travel facilitation for those concerned.

Response to major disasters and calamitiesThe ASEAN lies within the Pacific Ring of Fire—an area of high volcanic activity leading to frequent earthquakes. It is also along the tropical typhoon belt; thus, it is frequented by storms and their subsequent hydrologic aftermath (flooding, soil erosion). In addition to these natural disasters, forest fires have occurred, sometimes with cross-country impact. The following list highlights the main disasters and calamities that had occurred in ASEAN member-states in recent years:

• Super typhoon Haiyan (local name: Yolanda) that hit central Philippines with devastating consequences in November 2013;

• The tsunami that struck Thailand in 2004 following the earthquake in Aceh, Indonesia;

• The prolonged flooding in Thailand in 2012;• The earthquakes that struck Sumatra intermittently but with

increasing frequency in the 2000s;• Forest fires in Riau and other places in Sumatra, which have

become an annual environmental trauma not only for Indonesia but also for Singapore and Malaysia; and

• The major earthquake in Bohol Island in central Philippines in 2013.

Table 1 shows the disaster occurrences per region, where Asia has the highest occurrence as well as greatest impact or damage.

Affected countries often resort to soliciting relief assistance from the international community. Quick response, however, is often hampered by problems with visas and travel restrictions. Disaster personnel are often granted entry on tourist or other temporary visas, which can cause subsequent problems with renewal and efforts to obtain work permits. Customs formalities are also a frequent issue, with relief goods held up for long periods of time waiting for clearance. The recognition of domestic legal status is another common problem for international relief


providers, particularly for nongovernmental organizations and foreign Red Cross and Red Crescent societies. The processes are often too slow or difficult to negotiate in emergency settings. Unregistered organizations face various problems, including opening bank accounts, hiring staff, obtaining visas for workers, and tax exemption.

The above problems are why there are international disaster response laws (IDRL)—a collection of international instruments that addresses various aspects of postdisaster humanitarian relief. The IDRL of the International Federation of the Red Cross and Red Crescent Societies (IFRC) examines the legal issues within disaster response. However, the IDRL is not a comprehensive or unified framework. There are no core treaties. Rather, it consists of a fragmented and piecemeal collection of various international, regional, and bilateral treaties; nonbinding resolutions; declarations; codes; guidelines; protocols; and procedures.

In 2003, an ASEAN Committee on Disaster Management (ACDM) was launched. The ACDM assumes overall responsibility for coordinating

Table 1. Number of natural disasters and victims per year by region

Number of Natural Disasters Per Year

Africa Americas Asia Europe Oceania Global

Climatological 9 12 11 17 1 50

Geophysical 3 7 21 2 2 35

Hydrological 44 39 82 24 6 195

Meteorological 9 34 40 14 7 104

Total 65 92 153 58 16 384

Number of Victims Per Year (in millions)


Climatological 12.29 1.22 63.45 0.27 0.00 77.23

Geophysical 0.08 1.02 7.77 0.01 0.04 8.92

Hydrological 2.18 3.31 100.82 0.35 0.04 106.70

Meteorological 0.35 2.72 35.88 0.11 0.04 39.10

Total 14.91 8.27 207.92 0.74 0.12 231.95

Damages (in USD billions)


Climatological 0.04 1.90 3.45 3.23 0.48 9.10

Geophysical 0.69 4.75 17.38 0.57 0.69 24.08

Hydrological 0.28 3.15 11.15 5.57 1.24 21.39

Meteorological 0.08 40.47 9.62 4.03 0.56 54.77

Total 1.10 50.27 41.61 13.40 2.97 109.35

Source: CRED et al. (2012)


regional activities. In addition, the coordinating unit responsible for achieving this goal is the AADMER. Meanwhile, the AADMER’s operational coordination body is the ASEAN Coordinating Centre for Humanitarian Assistance on Disaster Management (AHA Centre). The AHA Centre is still a work in progress in terms of programs; hence, it is limited to logistics and rapid assessment in preparedness and response, technical support for early warning, risk assessment and monitoring, and capacity building. When the need for assistance from other member-states arises, the AHA Centre can facilitate in requesting the assisting entity (Sawada and Zen 2014).

A special ASEAN-Japan Ministerial Meeting in April 2011 was organized to focus on such cooperation through sharing of lessons learned, conducting training and capacity building of programs for disaster preparedness, relief, reconstruction efforts, and emergency response.

In 2013, APEC commissioned a study to look at emergency response travel facilitation. The report focused on various aspects of emergency response travel facilitation, including personnel, goods and equipment, transport, legal issues, finance and taxation, and safety and security. Among the ASEAN member-states, Cambodia and the Philippines are the most at risk and highly vulnerable to damages due to natural disasters. Their downside is the lack of disaster databases, hindering evidence-based policymaking and rapid situational response.

Medical tourismMedical tourism in Asia Pacific is growing at 20–30 percent and is led by Thailand, Singapore, India, South Korea, Malaysia, and the Philippines. Indicators of quality in medical tourism are modern infrastructure, world-class processes, contemporary technology, international accreditation, well-qualified and English-speaking doctors, and published outcomes. Medical tourism involves a three-phase value chain framework. First, consumers get information through various channels (provider, personal contacts, Internet, insurance, and travel agents) and decide on their destinations. Second, consumers travel to the destination country with all miscellaneous services involved, such as airport transfer and accommodation, until the medical procedure is done. Third, consumers receive postoperative and follow-up care (Deloitte & Co. n.d.).

Based on data in 2010, four ASEAN member-states are in the top 11 slots for medical tourism: Thailand at number 1 (1.2 million medical tourists a year), Singapore at number 2 (600,000 a year), Malaysia at number 3 (350,000 a year), and the Philippines at number 11 (80,000 a


year) (Youngman 2012). Forecasts of global demand show that medical tourism will continue to grow over the next few years due to the following:

1. Economically, the high medical costs in Organisation for Economic Co-operation and Development (OECD) countries are not going down anytime soon. If anything, the anticipated more stringent regulatory requirements of health reforms (say, ObamaCare) can possibly lead to escalating costs.

2. Demographically, OECD countries’ populations are aging, and this will require more intensive use of medical care.

3. Epidemiologically, the disease burden of the world has dramatically shifted to noncommunicable diseases and chronic diseases, necessitating greater hospitalization.

4. Technologically, some procedures that in the past could only be done in OECD countries are now available in emerging economies at comparable quality but lower cost (even if one adds in the cost of travel).

5. Communication media, especially the Internet, has empowered citizens all over the world to look for providers at lower costs and to travel to destinations, if need be.

6. Transport costs have made it affordable for many people to travel for holidays/homecoming, for health care and wellness, or for combined purposes.

While non-ASEAN medical tourists coming into the region have been

given much prominence, intra-ASEAN medical tourists have received lesser attention. The number of intra-ASEAN medical tourists is currently not known, although the movement is recognizably from those countries with less-advanced health care to those with more advanced medical care (e.g., Indonesians going to Singapore, Cambodians and Laotians going to Thailand, or Filipinos going to Thailand or Singapore).

A key issue in medical tourism—and, therefore, of PTP tourism—is postoperative care (i.e., the lack of a rational system for the financing and provision of postoperative procedures among medical tourists). Postoperative procedures include all therapies, drugs, physician and nursing services, and other inputs that a medical tourist needs when he gets back to his home country after undertaking the medical procedure in another country. This is emerging as an important area of concern. The lack of a system for postoperative procedure causes possible problem of continuity of care because the patient no longer has access to the services of the doctor who performed the procedure after the former goes


back to his home country. The patient, at this stage, may not have fully recuperated and may need additional medications, consultations, or laboratory tests. Worse, he may have a relapse. On the one hand, if the patient paid for the procedure on a fee-for-service basis, he may have to pay fee-for-service again if he relapses or is readmitted in a hospital—an extremely expensive proposition. On the other hand, if he paid through insurance for the medical travel, such insurance may not cover costs of hospital readmission in his home country.

More seriously, if the patient goes back to his original doctor in his home country, the doctor may not have enough confidence in the diagnosis performed in the foreign country where the patient had the procedure. In certain cases, he may compel the patient to undergo similar laboratory tests and other examinations in the home country to confirm the validity of the diagnosis. While postoperative procedures may not be a major concern for simple ones, it does become more important if such procedure gets more complicated.

The lack of a system for financing and providing postoperative procedures, therefore, can be a major cause of hesitation for medical tourists seeking care outside their home countries. It is not known at present how many would-be medical tourists are dissuaded from going to ASEAN member-states because of this problem. Nor is it known how many of the medical tourists who have gone to the ASEAN region for a procedure have actually experienced problems on financing of, and access to, postoperative procedures.

Management of regional environmental parks and natural assetsOne global report (CDI 2014, p. 54) has noted that “….The natural resource management sector is subject to rapid change as a result of population growth and changed consumption patterns, extraction technologies, globalization of natural resource markets, democratization of environmental governance, new international conventions and protocols with a bearing on resource management and conservation, as well as man-made biophysical processes such as marine and land degradation, biodiversity loss, and climate change. Very often, these changes lead to an increased competition for resources between stakeholder groups, from local to national, regional, and even global levels.”

Within the ASEAN region, conservation and preservation efforts are focused on ASEAN heritage parks that are areas of particular biodiversity importance or exceptional uniqueness. Work in these areas is coordinated by the ASEAN Centre for Biodiversity. The list of


heritage parks includes Khakaborazi National Park (Myanmar), Apo Natural Park (Philippines), Bukit Timah Nature Reserve (Singapore), Gunung Leuser National Park (Indonesia), Kon Ka Kinh National Park (Viet Nam), Kaeng Krachan National Park (Thailand), Kinabalu National Park (Malaysia), Nam Ha Protected Area (Lao PDR), Preah Monivong National Park (Cambodia), and Tasek Merimbun Heritage Park (Brunei Darussalam).

Cross-learning in the management of these and related areas is expected to occur more frequently, necessitating the facilitation of PTP travel, particularly to environmental areas that straddle borders.

Business, trade, and investmentThe World Bank’s monitoring report on ASEAN integration highlights key findings that are expected to result in higher traffic in business, trade, and investment in the region over the coming years:

1. Elimination of tariff protection has been accomplished completely in Singapore and Brunei Darussalam.

2. Low and decreasing national tariffs in ASEAN member-states have contributed to low intra-ASEAN preference margins, which explains the low utilization rates of ASEAN Trade in Goods Agreement choices.

3. Trade costs, particularly in intraregional trade, are falling. 4. Growth of services trade has outpaced goods trade globally and

within the ASEAN. 5. Some ASEAN member-states have been significant exporters

in sectors, such as information and communication technology, that involve business process outsourcing, higher education, and medical tourism. Improvement in regional transport, such as the vaunted ASEAN regional roll-on, roll-off system of shipping, is also expected to boost investments. Facilitating the travel of businessmen, traders, and investors in the region, therefore, should be a major aim of ASEAN member-states.

LocalbordertrafficThe issue of local border traffic has not been given much prominence. However, this is an important concern because of the many land and water corridors in the ASEAN region, including the Brunei Darussalam-Eastern Malaysia-Kalimantan/Indonesia, Cambodia-Lao PDR-Thailand, Indonesia-Singapore, Malaysia-Singapore, Malaysia-Thailand, Myanmar-Thailand, and Southern Philippines-Eastern Malaysia corridors.


LikelybeneficiariesofPTPpromotionTable 2 identifies major groups of ASEAN residents who are likely to benefit from improved PTP tourism.

Thus, it is now up to ASEAN member-states to agree on (1) how to standardize the above categories of personnel across the region and (2) how to formulate mutual recognition procedures in these categories of personnel.

Obstacles in PTP tourismVisa facilitation is the easing and simplification of visa regulations and policies of receiving countries to increase tourist inflow and gain competitive advantage over other tourist destinations. The United Nations World Tourism Organization (UNWTO) considers it a precursor to strong regional integration and economic growth.

Travel and tourism is the largest and fastest economic-growing sector in the world (UNWTO 2013). According to the conference on The Comparative Impact of Travel & Tourism: Benchmarking Against Other Economic Sectors 2013, it surpassed three times over the automotive, chemical, and mining industries in improving GDP and generating employment worldwide (UNWTO 2013).

Table 2. Classifications of people who are likely to benefit from PTP promotion

PTP Grouping Beneficiaries

Educational cooperation Students (bachelor’s degree, graduate degree, technical education), teachers, instructors, professors

R&D cooperation Scientists, engineers, technologists, researchers, research fellows,officialsofresearchinstitutions

Security management and crime prevention

Securityofficers,soldiers(enlistedpersonnel),constabularyofficers,policemen,investigators

Response to epidemics and public health problems

Doctors and other medical and allied professionals, epidemiologists, public health professionals, public health officials

Response to major disasters and calamities

Doctors and other medical and allied health professionals, social workers, disaster-response specialists, search-and-rescueteams,geologists,engineers,logisticsofficers,drivers,other responders, media personnel

Intra-ASEAN medical tourism Patients, patients’ family members, and caregivers

Management of cross-border environmental parks

Ecologists, park rangers, natural resource management specialists, foresters, marine biologists

Business, trade, and investment

Businessmen, traders, investors

Localbordertraffic Residentslivingwithinadefinedradiustotheinternationalborder and who frequently move in and out

Source: Authors


The APEC, where its 21 member-economies provide 57 percent of the world’s economic output, generated more than 40 percent of the total international tourist arrivals worldwide and more than 40 percent of the global visitor exports in 2010. Travel and tourism’s direct contribution to APEC’s GDP exceeded USD 990 billion in 2011 and provided 45 million jobs in the region (Salter 2012).

As tourist inflow in the APEC region is expected to increase by 5 percent annually until 2030 (UNWTO 2013), the regional organization underscored the need to develop effective and efficient visa systems to guarantee continued economic gains and local employment.1

Visa applications are necessary governmental formalities related to tourism. They are generally perceived as an imposition characterized by bureaucratic long lines, hassle-filled list of multiple requirements, and protracted procedures—all of which encumber potential tourists from visiting destinations. Hence, with increased tourism and accessibility to travel, the bar on visa processing must be raised to one that is characterized by quality, reliability, and functionality (UNWTO 2013).

According to the UNWTO, much development has been made in visa facilitation, which has contributed to the remarkable growth of the tourism sector. Noteworthy are the “multilateral agreements that mutually exempt all or certain categories of travelers from the visa requirement” (UNWTO 2013, p. 34). Examples of this are the APEC Business Travel Card and the ASEAN visa-free agreements in the areas of business, leisure travel, and education. However, despite the progress made on increased and convenient mobility, present visa policies are still often “inadequate, inefficient, and non-aligned, and are thus acknowledged to be an obstacle to tourism growth” (UNWTO 2013, p. 15). Salter (2012) also lists common obstacles, such as visa processing delays, multiple document requirements, and high taxes imposed on tourists (e.g., EU and UK citizens visiting Australia). Manual visa processing, requirement of personal appearances in embassies, and the lack of a “one-stop shop” on visa information for APEC and ASEAN member-states are also considered challenges that hinder hassle-free visa facilitation services (UNWTO 2013; WTTC 2013b).

Furthermore, UNWTO warns that unless there is a convergence of systems for visa processing or visa policy in APEC, the “differential between efficient border systems and the least efficient systems will grow” (Salter 2012, p. 25). This will result in visitors being less receptive

1 While there is no direct empirical study linking better visa facilitation to increased tourist arrivals in APEC, UNWTO’s analytical case study on the G20’s limited visa regulation serves as basis.


to “restrictive or difficult visa processes or delays, as they become used to low-transaction, cost-efficient systems and processes in other countries. In a highly competitive global tourism market this will negatively impact on those economies with poor practice” (Salter 2012, p. 26).

Visa functions and typesVisas are issued for people to travel outside their countries of origin for the purpose of pleasure, skills or capability enhancement, and any other exercise deemed necessary by the traveler. Developed for security, economic, and regulatory purposes, a visa serves to: (1) control immigration and limit the entry, duration of stay, or activities of travelers; (2) generate revenue and apply measures of reciprocity; and (3) safeguard a destination’s carrying capacity by controlling tourism demand (UNWTO 2013; WTTC 2013b).

Visas come in several forms, and not all APEC economies offer the same types of visas. Table 3 shows the standard types and functions of visas.

APEC visa facilitation The APEC had the highest tourism activity in 2013 due in part to the easing of travel policies and regulations among its member-economies. Along with clearer visa regulations, this easing of regulations contributed to increased tourism demand, tourist spending, and job creation (UNWTO 2013). Salter (2012) cites the Philippine Pocket Open Skies Policies, Indonesia Visa-on-Board, and Australia/New Zealand Smart Gate as prime examples of APEC economies’ receptiveness toward the lucrative travel and tourism industry.

Moreover, while APEC visa policies require an average of 63 percent of the world population to obtain a visa, UNWTO estimates that out of the 355 million tourists who travelled to APEC destinations in 2013, only about 20 percent needed to obtain a visa (UNWTO 2013; WTTC 2013b).

Tourism redresses weak economies and high unemployment. Based on the UNWTO 2013 Report, APEC is expected to gain 38 million to 57 million additional tourists by 2016. The additional international tourism receipts generated by these additional arrivals could reach between USD 62 billion and USD 89 billion (UNWTO 2013). Moreover, the total number of jobs created as a consequence of this increase is estimated to range from 1.8 million to 2.6 million (UNWTO 2013; WTTC 2013b). Hence, it is in the best interest of APEC economies to optimize visa facilitation for maximum travel mobility.


The APEC Tourism Working Group (APEC TWG) is committed to hurdle the challenges in visa facilitation by networking among different governmental branches within each country and across the APEC. It

Table 3. Visa types and functions

Tourist visa Issued to persons wishing to travel to a country for sightseeing or vacation. Tourist visas usually only authorize short stays (typically, up to a month, three months, or six months). Some countries' visas (e.g., US, UK) maylastaslongasfiveor10years(forperiodicvisits),buttheissuancefee may be proportional to the length of visa. To successfully be issued avisa,onemustdemonstratetotheconsulthathe/sheisdefinitelygoing to return home after the stay in their country. Employment is not allowed unless it is issued together, or in conjunction, with a working holiday visa.

Private visit visas Issued to travelers visiting friends or relatives legally residing in a host country. Some countries require a formal invitation issued through a governmentaloffice.Forothers,aninformalletterofinvitationissufficient.

Transit visas Issuedtopeoplepassingthroughthecountrywithoutasignificantstay,normally for anywhere from 24 hours to 10 days. A special case is Airside Transit Visas, which are sometimes required for mere change of planes in an airport without clearing immigration.

Business visas Issuedifoneneedstoconductfinancialtransactionsinthecountry,sign contracts, attend training or meetings, and a plethora of activities in connection to one's work or profession in his/her country of origin. Employment in the host country is forbidden.

Student visas Issued to those who wish to undertake a course of study in another country.Proofofadmission,enrollment,andproficiencyinthelocallanguage are necessary. In some countries this can come with limited, part-time employment rights.

Work visas Permit one to hold a paid job in the destination country for a period of time. These are notoriously hard to acquire unless special arrangements exist between the home country and the destination country. This is because the primary requirement to be considered for a work visa is thatnobodyintheemployer'slocaljobmarketisqualifiedandwillingtodothejobtheemployerneedstofill.Itmightslightlybeeasierforatraveler to get a working visa if he/she possesses an advanced degree (i.e., MA, MS, PhD) from a reputable school or an undergraduate degree but has an extensive and substantial related experience. If the work visa does not automatically allow one to permanently immigrate (i.e., contract worker), the visa will usually be restricted as well to a particular employer and job type.

Working holiday visas

Work visas that allow short-term jobs to be undertaken to subsidize a vacation. Often, this is available only to nationals of selected countries as part of special agreements.

Religious pilgrimage visas

Visas given for the Hajj, which entitles the bearer to visit a religious shrine or site. These are common in most Muslim countries.

Retirement visas Allowonetoresideinacountryindefinitely,aslongastheyabidebythelaw and do not seek paid employment.

Immigrant visas Permit one to resettle in a country permanently.

Source: Lifted from http://www.ehow.com/facts_5163881_purpose-passport-visa-travel .html#ixzz2yA6QNNUT and http://wikitravel.org/en/Visa.


also is working toward: (1) developing a comprehensive study on the member-economies’ visa issues so that an aligned set of visa policies and regulations can be enforced and (2) fast-tracking the development of new visa technologies (e.g., e-Visa Program and Smartgate) (Salter 2012).

Today, the collaboration among APEC representatives has brought some progress in visa facilitation. A tangible example is the APEC Business Travel Card,2 which was established in 1997 as an initiative of the APEC Mobility Group. The ethos was to provide fast and efficient travel for business people within the region to facilitate free and open trade and investment. The APEC Business Travel Card allows business travelers three years of precleared, short-term, multiple entries to any APEC economy. They are also provided expedited immigration processing on arrival via fast-track entry and exit in special APEC lanes at major airports in participating economies.

These benefits phased out the need for business people to apply for visas and entry permits. It also cut the costs of both business owners and governments. According to the APEC Policy Support Unit Study on the Impact of Business Mobility in Reducing Trade Transaction Costs in APEC, reduced transaction costs resulted in USD 3.7 million worth of savings from March to July 2010 through March–July 2011. In terms of time, 62,413 hours were saved at the immigration areas, which is equivalent to USD 1.9 million (APEC 2013).

According to the APEC TWG, there remain several “areas of opportunity” in visa facilitation for individual and business travel. For individual travel, there is an absence of a visa blanket policy among its member-economies. Thus, there is a marked diversity in policies among first-world members and developing members. For instance, New Zealand offers the most visa-free status to visitors (although it is still hampered by visa delays in processing), whereas Australia, for example, requires a higher proportion of foreigners to apply for a visa and provide visa documentation but has an effective visa service (Salter 2012). Both countries also extend the most in travel taxes (for EU and UK citizens). On the other hand, Singapore, Thailand, Malaysia, and other ASEAN member-states still operate on a paper-based visa system, thus, causing bottlenecks in visa facilitation (Salter 2012).

For business visas, the APEC Business Travel Card has improved business mobility among APEC economies. According to Salter (2012), the challenges rest more on national business regulations and limits to open economies that constrain capital and profit movement.

2 Heavily lifted from APEC (2014).


Comparison of existing visa requirements across ASEAN member-statesThe ASEAN has a population of 600 million, a cumulative USD 2 trillion GDP, and excellent growth prospects. It is also considered a lucrative venue for tourism. In 2013, it bore the greatest growth in tourist arrivals in a single subregion. Based on current visa policies, UNWTO research indicates that out of the 89 million tourists expected to travel to ASEAN destinations in 2013, only 9.7 percent would need to obtain a traditional visa (UNWTO 2014).

The 50 case studies in ASEAN show that there were increases in tourist visits when visa policies were eased. Despite the presence of challenges, there was “successful collaboration among different governmental branches within each country and across the ASEAN region to facilitate visas, including progressive approaches to implement new visa policies” (UNWTO 2014, p. 34).

The success of the ASEAN Economic Community 2015 does not rest primarily on economic integration but also on effective community building. With 10 member-states of myriad cultures and history, the thrust for “unity in diversity” through PTP connectivity is key. These can be facilitated through extensive education, cultural exchanges, and a more seamless business transaction among ASEAN member-states.

The following section will cover nonresident, student, and business visa requirements of ASEAN member-states. It highlights the authors’ assessment of the variance in visa procedures and requirements.

Nonresident visas are issued to persons with a permanent residence outside their country of destination but who wish to be in a visiting country on a temporary basis (i.e., tourism, medical treatment). Table 4 presents the visa requirements for nonresidents, while Tables 5 and 6 define the requirements for student and business visas.

ASEAN visa facilitationThe USD 294.4 billion revenue earned and 2.8 million employment created due to ASEAN tourist arrivals in 2013 have made visa facilitation a chief concern in the ASEAN tourism’s meeting in 2014 (WTTC 2014b).

As of January 2014, Myanmar has finalized bilateral agreements for visa-free travel with other ASEAN member–states. This is a significant progress because Myanmar has the second lowest number of tourists in the ASEAN, according to the 2011 Regional Statistics (Esmaquel 2013). In 2011, an estimated 816,400 tourists visited the country as opposed to the 3.92 million that visited the Philippines in the same year (Esmaquel 2013).


However, there remain many areas for improvement as indicated by Indonesian Ministry of Tourism and Creative Economy, Mari Elka Pangestu. “Visa facilitation in ASEAN is not bad compared to the rest of the world, but there is still a lot of homework to be done, especially for a common visa for non-ASEAN nationals” (Hudoyo 2014, p. 17). She added that “transportation, infrastructure, and connectivity will also determine seamless travel.”

One of the many objectives of the 2015 ASEAN Economic Community is to develop ASEAN citizens’ acceptance of a shared regional identity. To ensure this, ASEAN member-states have invested heavily on education, training, science and technology development, job generation, and social protection (Amador and Teodoro 2014). These have also heightened people-to-people contact by making travel easier through visa-free arrangements, educational exchanges, and incorporation of ASEAN studies in education curricula, among others (Amador and Teodoro 2014).

Table 4. Summary of ASEAN member-states' visa requirements for (general) nonresident visas

Country

Number of Travel Days

without Visa

Documents for ASEAN

Citizens

Days of Processing

for Extension

Days of Validity/

Extension

Cost (for extension)

Brunei Darussalam

14 Passport 2–3 days 3 months, single entry

USD 16

Cambodia 21 Passport Cambodian Officeof

Immigration’s discretion

3 months–1 year

No data available

Indonesia 30 Passport 1 day 2–3 months, single entry

USD 25–USD 30

Lao PDR 30 Passport 1–8 days Discretion of the Laotian Immigration

Office

USD 2 per day of extension

Malaysia 30 Passport 1–3 days 3 months USD 30

Myanmar 28 Passport 1 day 2 weeks–1 month

USD 36– USD 72

Philippines 30 Passport 1-3 days 6 months USD 65

Singapore 30 Passport 2–5 days 1 day–4 weeks

USD 30

Thailand 30 Passport 1–3 days 30 days USD 58

Viet Nam 21 Passport 5 days 30 days USD 35–USD 40

Source: Visa information for 10 ASEAN member-states were sourced from multiple resources: Embassy interviews and websites and various international sites that provide visa facilitation support.


Table 5. Summary of ASEAN member-states’ visa requirements for student visas

CountryNumber of Travel Days with Visa

Documents for ASEAN Citizens

Days of Processing

Days of Validity/

ExtensionCost

Brunei Darussalam

Academic year

(6 months–1 year)

University/College’s letter of offer, memo from the

Immigration Department, and completed

application form

1–7 days Annual renewal USD 39

Cambodia 1 year (application

must be done in

Cambodia)

University Acceptance Letter, letter of intent, copies of bank record

Discretion of the

Cambodian Immigration

Office

1 year, single entry

No data available

Indonesia 3 months, single entry

University Acceptance Letter, completed

application form, letter of intent, copies of bank

account and e-ticket

3 days Renewable every three

months for two years

USD 25–USD 30

Lao PDR No data available

No data available

No data available

No data available

No data available

Malaysia 1 year (Formal visa

issuance at the

Malaysian Immigration checkpoint)

Approved letters from the Malaysian Ministries of Higher Education and Home Affairs, letter of approval for a student

pass

7–14 days Annual renewal USD 18–USD 20

Myanmar No data available

No data available

No data available

No data available

No data available

Philippines Varies Commission on Higher Education endorses

student application to Bureau of Immigration

and Deportation (BID), if approved, BID forwards

it to the Department of Foreign Affairs who informs embassy in the country where applicant

resides to notify said student

Varies Varies USD 250

Singapore Duration of course

Dependent on educational level and

institution applied

5–10 working

days

Not applicable USD 90

Thailand 90 days, single entry

Approved letter from Thai University

1–5 days 1 year, multiple entry

USD 58

Viet Nam 3–6 months Letterofconfirmationfrom the Viet Nam Foreign Ministry, application form

1–6 days Discretion of the Vietnamese

Immigration Office

USD 25–USD 85



Table 6. Summary of ASEAN member-states’ visa requirements for business visas

CountryNumber of Travel Days with Visa

Documents for ASEAN Citizens

Days of Processing

Days of Validity/

ExtensionCost

Brunei Darussalam

1 month– 1 year

Passport, sponsor letter, completed application form

1–3 days Discretion of the Bruneian Immigration Officeand

support from sponsor (Form 8)

USD 15–USD 20

Cambodia 1 month (application

at the Cambodian Immigration Department)

Passport and completed

application form

1 day 1 month–1 year USD 30–USD 280

Indonesia 90 days Passport, sponsor letter, completed application form

3 days 60-day extension

USD 25–USD 30

Lao PDR 3 months– 1 year


1–5 days 3 months–1 year USD 60

Malaysia No more than 12 months


7–14 days Discretion of the Malaysian Immigration

Office

USD 27

Myanmar 3 months (single entry),

6 months– 1 year

(multiple entry)


1 day Discretion of the Myanmar Immigration

Office

USD 65

Philippines 3 months– 1 year

Passport Varies 3 months USD 30

Singapore 3 months– 1 year


5–10 working

days

Discretion of the Singaporean

Immigration Office

USD 133–USD 268

Thailand 3 months– 1 year

Passport, sponsor, or company letter,

approved letter from the Ministry of Labor, USD 617 financialstanding

2–7 days Discretion of the Thai Immigration

Office

USD 61–USD 154

Viet Nam 90 days– 1 year

Passport, sponsor, or company

letter or letter of invitation

1–7 days Discretion of the Vietnamese

Immigration Office

USD 20



As to its aim for visa-free arrangements, ASEAN has yet to implement a common visa similar to the comprehensive application of the EU’s Schengen visa. Citizens of EU countries do not require a visa or work permit to cross EU borders, but citizens in ASEAN member-states still need both documents (i.e., visa extension and work permits). Nonetheless, progress in visa facilitation and policies are evident. One of the ASEAN agreements aims to allow a company from an ASEAN member-state to own 100 percent of a company in another ASEAN member-state. For instance, a Vietnamese company can become the 100 percent owner of a Thai company.

Nonetheless, there is no uniformity in visa-free standards and regulations. Visa travel days to ASEAN member-states also differ. For instance, a Filipino travelling to Viet Nam is allotted 21 days, while Thais, Laotians, Malaysians, Indonesians, and Singaporeans are provided 30 days. Moreover, ASEAN member-states have no standard reference and definition for the different types of visas. What is termed by one as “short-stay visa” may cover a tourist or business purpose (i.e., business meetings, conferences).

Thus, there is still a need to further iron out the ASEAN member-states' regulations and processes for a visa-free regime. According to Hikmahanta Juwana, a legal expert at the University of Indonesia, ASEAN also has to make sure that each member-state has commonality on the nationalities that are granted visa-free arrangements on arrival.“Singapore grants visas to Israeli citizens. Does that mean Indonesia also has to give it to Israel citizens after the application of the ASEAN single visa?” He added that considerations must also be placed on loss of revenue due to the visa-free arrangements (Khalik and Adamrah 2011).

Indonesian Foreign Minister Marty Natalegawa acknowledged that the process toward a common visa similar to the Schengen visa will require more time and harmonization (Khalik and Adamrah 2011). He added that security, as well as financial matters, must be considered. Nonetheless, the ASEAN Tourism Board members remain optimistic that the ASEAN member-states' institutions, including foreign ministries, immigration offices, and others, will be able to successfully manage and streamline visa regulations and policies for enhanced travel mobility (Khalik and Adamrah 2011).

Existing institutional obstaclesTo make visa facilitation and processes in both the APEC and ASEAN more effective, efficient, and speedy, the UNWTO and the World Travel and Tourism Council (WTTC) recommended that: (1) the delivery of


information and facilitation of visa processes be improved, (2) there ought to be differentiated treatment for key market segments, (3) e-visa programs be implemented, and (4) regional agreements be established (UNWTO 2014; WTTC 2014b).

Accessible information on visa requirements, procedures, and conditionals guarantees increases tourist arrivals. Often, potential tourists steer away from countries that require multiple documents and immigration offices with pervading bureaucratic rules and procedures. Countries that (1) provide immediate visa information in reliable avenues (i.e., embassy websites) and in several languages, (2) request for only pertinent documents, and (3) have embassies and consulates that offer friendly help are those that can exponentially heighten tourists’ interest.

A tourist is defined as a “temporarily leisured person who voluntarily visits a place away from home for the purpose of experiencing a change” (Stronza 2001, p. 15). These tourists are generally able and willing to extend expenditures for authentic travel experiences. Thus, extension of benefits across key market segments will increase travel arrivals. The UNWTO and WTTC recommend, for one, that tourist visas for cruise ship passengers or those travelling in private chartered planes be waived (UNWTO 2014; WTTC 2014b).

The implementation of an electronic visa system across APEC and ASEAN member-states will not only hasten the service but will also streamline visa processing, which some countries (i.e., Myanmar, Lao PDR) still perform manually. Due to the high inflow of tourists in the ASEAN every year, the implementation of an electronic visa system across all its member-states will reduce the bottlenecks posed by manual processes (i.e., stamped or sticker visas) and services (i.e., personal interviews, long lines at embassies), as well as cut down costs, particularly for member-states with limited networks of embassies and consulates across the globe.

Similar to the UNWTO and WTTC Report, Salter (2012) also recommends improvements in visa facilitation to APEC—particularly that the APEC TWG serve as the nexus of tourism research. In line with Stronza’s argument that tourism must be extensively researched for maximum generation of sustainable income, the APEC TWG must collate information on the costs and benefits of: (1) traditional visa process versus electronic means, (2) visa-on-arrival process versus visa-free scenario, (3) multiple-entry visas versus long-stay visas, and (4) common approval visa process versus mutual recognition of visas by APEC economies. With such information, Salter believes that APEC economies would fast-track their move toward visa convergence and implementation of electronic visa technologies.


The Schengen visa is the epitome of a common visa policy. Used by the 25 EU countries, it allows EU tourists to travel across the region for leisure, tourism, and business under one visa, cutting the hassle of applying for work permits or tourist visas. For the APEC and ASEAN, this is the end goal on visa-free arrangements. In their case, more often, bilateral agreements over visa policies and regulations prevail over multilateral negotiations. This is not a disadvantaged process, but one-on-one country member sessions require more time and diplomatic effort rather than multilateral ones.

International practices in promoting PTP tourism through entry and exit facilitationThis section identifies recent international good practices in promoting PTP tourism. Due to budgetary and time limitations, the review is based solely on an Internet search and is, therefore, not as extensive and detailed as could be. The review findings can provide examples and directions that the ASEAN member-states can take as they pursue greater regional integration. Table 7 provides a summary of these international practices.

General visa waiver and facilitation programs

1. Visa waiver programs – Over the past few years, a number of countries have undertaken visa waiver programs to facilitate travel into their territories. Notable among these have been the following (WTTC 2013b):

a. South Korea’s visa waiver program for Chinese visitors. This program was started in 2006 in response to the country’s declining tourist market share among this group of visitors from 2001 to 2005. It focused on Jeju Island—Korea’s important tourist destination. Multiple-entry visas were also issued to selected Chinese demographic groups.

b. China’s visa waiver program for visitors (for up to 14 days) from the Russian Federation. Visitors from Brunei Darussalam, Singapore, and Japan were also exempted from the visa requirements for stays of up to 14 days.

c. US visa waiver program. This program was expanded in 2008 to include Eastern European countries and South Korea. It now covers 37 countries. The latest addition is Taiwan. As announced in October 2012, Taiwanese travellers are now allowed to visit the US visa free for 90 days.


d. Canadian visa waiver for Czech visitors. This program was announced in 2007.

2. Visa facilitation arrangements among ASEAN member-states – This agreement was signed in 2007, but the actual implementation does not yet cover all ASEAN member-states (e.g., Myanmar still requires a visa from ASEAN citizens).

Table 7. Summary of recent international practices in facilitating PTP tourism, 2010

Type of PTP Tourism Recent International Practices

General - Visa waiver programs

Bilateral agreements

General - Visa facilitation agreements

EU visa facilitation agreements with nine Eastern European countriesEU-Morocco Mobility Partnership AgreementASEAN Visa Facilitation Program among ASEAN citizensAPEC Business Travel CardAustralia Electronic Travel Authority Program

Educational cooperation

US Student and Exchange Visitor visas (F, J, M, G)EU-Mediterranean Student Mobility Initiative

R&D cooperation EUScientificVisaPackageUS Business Facilitation Program

Security and crime prevention

US-Canada Border Action PlanUS-Mexico Drug Control

Regional public health Lubombo Special Development Initiative (Malaria Control), Southern AfricaAfrica-wide oncho controlHIV/AIDS control along transport corridors in Sub-Saharan AfricaHIV/AIDS Control Among Refugees and Other Mobile Groups in Sub-Saharan AfricaNorway-Russia health cooperation in border areas

Disaster response International Disaster Response LawRed Cross Disaster Response GuidelinesUS-Canada Cooperation in Disaster ResponseDutch emergencies and crisisPhilippine Typhoon Yolanda Task Force

Medical tourism No unique visa type found

Environmental parks and natural assets

US-Canada CooperationNorway-Russia CooperationOkavango River Basin CooperationSouthern African Development Community Transborder Natural Resource Management

Trading and investment

Australia Enterprise Migration AgreementUS Mexico Business Facilitation ProgramUS Russia Bilateral Visa AgreementNetherlands Orange Carpet Visa

Localbordertraffic Norway-RussiaLocalBorderTrafficAgreementZambezi Cross-Border Movement of People

General Schengen Agreement (now covering 26 European countries)

Source: Authors


The program aims to enhance international tourism. In a pilot agreement between Thailand and Cambodia, for instance, only one visa will be required for both countries (WTTC 2013b).

A “smart visa” is also being considered in the region. Major countries have signed a letter of intent to develop such a system, modeled after the European Shengen visa. One goal is to enhance economic integration and connectivity, and to share the costs of a digital visa system (WTTC 2013b). Another goal is to shift to a digital, paperless permission for entering ASEAN member-states that a traveler can obtain from a travel agent or airline while making a reservation.

3. EU visa facilitation and readmission agreements –

“Provides more relaxed travel conditions in exchange for the signing of an European Community readmission agreement between the European Union and its neighbors. The facilitated travel opportunities will benefit the citizens of target countries. However, the positive achievements are undermined by the Schengen enlargement…” (Trauner and Kruse 2014, p. 22).

There are nine visa facilitation agreements (VFAs) currently in force between the EU and certain third countries. These agreements improve procedures, such as reduction of visa fees, issuance of multiple-entry visas for specific categories of applicants, and shortened processing times for nationals of these specific third countries, that must satisfy the entry conditions. The nine VFAs, signed between 2008 and 2011, are for those involving Albania, Bosnia and Herzegovina, former Yoguslav Republic of Macedonia, Georgia, Moldova, Montenegro, Serbia, Russia, and Ukraine.

4. EU-Morocco Mobility Partnership Agreement – Morocco is the seventh (a total of 322,094 visas) in the world in terms of EU Schengen visas issued in 2012. To ease this traffic, the visa facilitation negotiations between EU and Morocco were initiated in the framework of the Mobility Partnership Agreement in June 2013 (EC 2013). The agreement established a set of political objectives and a series of initiatives designed to ensure that the movement of persons is managed as effectively as


possible. It covers all issues related to migration: maximization of migration’s impact on development, regular migration and integration, irregular migration and border management, human trafficking, and asylum seeking.

The travel facilitation under this partnership agreement is general for all applicants but is expected to benefit certain groups, particularly students, researchers, and business professionals. The list of suggested visa facilitation services includes: (1) the simplification of documentary evidence required to support the visa application for certain categories of applicants, (2) the possibility of issuance of multiple-entry visas with a long period of validity, (3) waiver of/reduction in handling fees for specific categories of travelers, (4) setting of deadlines for the processing of visa applications, and (5) possible exemption from the visa obligation for holders of diplomatic and service passports. The comprehensive partnership with Morocco is a big step and represents a benchmark for the Southern Mediterranean region.

5. Australia’s Electronic Travel Authority Program – The Electronic Travel Authority program was started in 1996 in anticipation of the large inflow of tourists to the 2000 Sydney Summer Olympics. It is an electronically stored travel authorization and linked to the traveler’s passport. It is, in essence, an electronic visa, although the traveler receives no stamp or sticker on his/her passport. The passport is checked prior to embarkation to verify that the traveler is authorized to travel to Australia and then again by customs officers at the border (WTTC 2013b).

6. East African “single tourist destination” proposal – The fifth meeting of the East African Legislative Assembly in Kigali, Rwanda in April 2013 prioritized the “single East African Community tourist destination” concept. For the concept to be realized, partner states need to harmonize their visa-issuing regimes and fee structures, to develop a mechanism for sharing the financial cost of administering the single tourist visa and the revenues collected, and to improve the information and communication technology infrastructure to facilitate connectivity at entry and exit points. The introduction of a single tourist visa requires a multisectoral approach, as the


benefits and costs are not confined to the immigration bureaus or tourism sectors alone (Ndahayo 2013).

Educational cooperation

1. US student and exchange visitor visas – According to the US Embassy in the Philippines, the US Immigration and Nationality Act provides three nonimmigrant visa classifications for persons wishing to study in the US: (1) F visa for academic studies in an educational institution approved by the US Citizenship and Immigration Services; (2) M visa for nonacademic or vocational studies; (3) J visa for exchange visitors, including interns and trainees; and (4) G visa for participants to official US government-sponsored educational and cultural exchanges. The principal applicants are deemed F-1, M-1, J-1, and G-1 visa holders; their dependents would have to apply for F-2, M-2, J-2, and G-2 visa status. Students must demonstrate that the primary purpose for their travel to the US is for study. Applicants must prove that they will leave the US upon expiration of their authorized period of stay. Student visas cannot be used to circumvent ineligibility for other types of visas.

2. Euro-Mediterranean student mobility initiative – This initiative involves five North African countries (i.e., Algeria, Egypt, Mauritania, Morocco, and Tunisia) along with 38 European and Mediterranean states (Sawahel 2013). It aims to provide mobility grants and to facilitate entry and residency procedures among participating countries. It further intends to enhance reciprocity and diversity, boost capacity building, and drive innovation. Analysts note that the initiative should prioritize activity-bound mobility, such as seminars, summer schools, conferences, and policy symposia. It should also differentiate between short- and long-term mobility (e.g., training and teaching exchange, fieldwork, and resident research).

R&D cooperation

1. EU’s scientific visa package to third-country nationals – Adopted in 2005, EU’s scientific visa permits a third-country national (non-EU resident) to enter, stay, and work in


EU countries for the purpose of carrying out scientific research (EC 2007). More correctly, it is an entry visa and residence permit for third-country researchers. The new directive applies to all EU countries except the UK and Denmark.

The long-term admission permit is for researchers who plan to stay in Europe for more than three months, while the short-term visa is for entry for less than three months (e.g., to attend a conference in a European country). The main concept of the EU scientific visa is to create a specific residence permit for foreign researchers independently from their contractual status, be that as employee, self-employed, or recipient of a stipend (EC 2007). In the new system, a third-country national wishing to carry out a research project in Europe will have to sign a “hosting agreement” with an accredited public or private research organization. Such a hosting agreement is a contract where the status of the researcher, as well as his/her possession of the necessary scientific skills, financial means, and health insurance, are specified.

In contrast to existing national rules, the main value added of the new scientific visa can be summarized as follows (EU 2007):

a. For the first time, a common definition of “researcher” has been established in EU’s Community Law.

b. Researchers admitted as employees will no longer have to obtain work permits in the member-states, and any form of quota fixed by the member-states will not be permitted.

c. Once the hosting agreement is signed and the security aspects are checked by immigration authorities, the researchers will have a right, legally actionable before a court, to enter the member-state concerned.

d. Family reunification will be facilitated as follows: (1) when a member-state decides to grant a residence permit to the family members of a researcher, the validity period of their residence permit shall be the same as that of the residence permit issued to the researcher and (2) the issuance of the residence permit to the researcher’s family members shall not be dependent on the requirement of the researcher’s minimum period of residence in a member-state.

e. Member-states encourage researchers who are already legal residents within the country to submit applications for residence permits directly to the authorities in that


member-state without returning home first (“application in loco”), as is often currently the case.

f. The researcher could carry out part of his research activities in other member-states for a period lasting less than three months. When the researcher is staying for a period of more than three months, the new host countries could require his/her signature in another hosting agreement.

g. The new discrimination principle regarding national researchers will include, among others, working conditions to avoid social dumping (i.e., the foreign researcher should have a salary comparable to that of nationals) and social security.

2. US’ business facilitation program – See section below on businesses and universities.

Security and crime prevention

1. US-Canada’s Beyond the Border Action Plan (BBAP)3 – The BBAP contains a cooperative strategy and joint vision intended to boost security and facilitate the flow of goods and people between Canada and the US. Efforts from the two countries began in 2001 with the signing of the bilateral Smart Border Accord. Then, the BBAP was released in December 2011. The BBAP’s key features relevant to the ASEAN are:

Addressing threats early – The BBAP calls for the conduct of joint threat assessments and strengthening of information and intelligence sharing, enhancement of domain awareness, and fostering of cooperative efforts to counter violent extremism. It also calls for harmonization of traveler, cargo, and baggage screening; coordination of entry and exit systems; and protection of both nations from offshore food, animal, and plant health risks. To stop threats before they endanger either nation, the BBAP has three themes: (1) creating a common understanding of the threat, (2) harmonizing the screening of travelers, and (3) adopting a perimeter approach to cargo security.

a. Enhanced trusted traveler program, also known as NEXUS – This program, launched in 2002, expedites the

3 This section lifts heavily from Zuckerman et al. (2013).


processing of prescreened US and Canadian travelers at dedicated air, land, and maritime ports of entry between the US and Canada.

b. Exit-entry pilot program – This program, began in October 2012, shares visitor entry information between the two countries so that entry into one country serves as a record of exit from the other.

c. Mutual recognition of air cargo – Started in May 2012, this policy operates on the principle of “cleared once, accepted twice”. Cargo screened on passenger aircraft is screened only once at the point of origin, rather than being rescreened at the border or when loaded onto an aircraft in the other country.

d. Integrated Cargo Security Strategy pilot – This program implements the “perimeter security approach”. It intends to apply risk-management principles to address security and contraband concerns on foreign cargo shipments as early in the supply chain as possible.

Promoting trade facilitation – The thrusts are:

a. Streamlining customs processes – Canada is reviewing alternative approaches to import inspection, has tested procedures regarding US’ pre-inspection at land ports of entry in Canada, and began shifting to an electronic “single window”, where importers can submit all information required by government agencies.

b. Expediting low-value shipments – Canada and the US have increased the dollar limit for items receiving expedited customs clearance to USD 2,500. Canada is also planning infrastructure upgrades, including customs plaza updates, additional primary and secondary lanes, and booths at border crossings.

c. Facilitating improvements in “trusted trader” programs – This program is known in the US as Free and Secure Trade. It streamlines cargo screening for known, low-risk traders.

Integrated cross-border law enforcement – To prevent cross-border crime, the BBAP calls for cooperation on national security and transnational criminal investigations and interoperable radio capability for law enforcement.


a. Border enforcement – This is done through Integrated Border Enforcement Teams and Border Enforcement Security Task Forces.

b. Formalization and expansion of the “Shiprider” Program – This program is known officially as the Integrated Cross-border Maritime Law Enforcement Operations. Under this program, officers from the US Coast Guard and the Royal Canadian Mounted Police are assigned to each other’s watercrafts, allowing the two to jointly patrol both their nations’ waters.

c. Planning for a binational radio interoperability – The BBAP seeks to foster better communication, coordination, and timely response between law enforcement officers on both sides of the border.

Response to regional public health problems

1. Lubombo Special Development Initiative (LSDI) – This initiative is a tricountry effort intended to spur agroeconomic development in the areas bordered by southeastern Swaziland, northeastern KwaZulu-Natal, and southern Mozambique (Picazo 2013). It is the brainchild of South Africa’s Department of Environmental Affairs and Tourism, which intends to turn the area into an economic zone. A major constraint in this area, however, is the high burden of malaria. To address this problem, the Medical Research Council of South Africa and their collaborating institutions in the other two countries designed a malaria control component of LSDI. Thus, in October 1999, the relevant ministers of the three countries signed the Malaria Protocol of LSDI that defined the terms of cooperation for disease control in the area. The malaria control component of the LSDI is managed by the Regional Malaria Control Commission—a core group of public health experts and scientists. The project provides effective treatment interventions on malaria and indoor residual spraying with insecticides (Sharp et al. 2007).

As the malaria interventions progressed, the LSDI project managers realized that more intensive control interventions had to be done in southern Mozambique reaching up to Maputo Province and then to Gaza Province, both of which border South Africa. The Mozambican, South African, and Swazi governments


understood the well-documented negative effect that malaria had on the tourism and investment potential of this region and, in no time, agreed to a full-blown control program crisscrossing their borders. Prevalence studies show that malaria cases have dramatically declined at LSDI and at Maputo and Gaza provinces. For instance, the key LSDI target of reducing malaria incidence from 250/1,000 population to less than 20/1,000 population had been achieved. LSDI, therefore, demonstrates the virtue of a transnational strategy in dealing with a major public health problem.

2. Africa-wide Onchocerciasis Control – Onchocerciasis, the disease caused by filarial worms, is highly prevalent in Sub-Saharan Africa, especially along the Sahel. The principal strategy of the African Program for Onchocerciasis Control is to establish sustainable community-directed treatment with ivermectin (Mectizan) to ensure that a high proportion of the at-risk population receives the drug at least once a year (Picazo 2013). Merck & Co. provides the drug through its Mectizan Donation Program.

The World Bank has the statutory responsibility under the Oncho Fund Agreement to undertake donor coordination, mobilize donor financing, and manage the program’s trust fund. Program activities include assessment of disease distribution, surveillance, vector control, training and distribution of ivermectin, capacity building, advocacy and information campaigns, and research. The oncho control program originally focused on the 11 countries in West Africa that are affected by the disease. It has since expanded to 19 other African countries (outside the West Africa control area) with an estimated population of 109 million, of whom 50 million are at risk of contracting oncho.

3. HIV/AIDS control along transport corridors in Sub-Saharan Africa – The World Bank’s USD 16.6 million HIV/AIDS Project for the Abidjan-Lagos Transport Corridor was launched in December 2003 to provide HIV/AIDS information and services to transport workers and their clients. The project is based on a declaration of agreement among heads of state of five countries to combat HIV/AIDS using the transport corridor, namely, Cote d’Ivoire, Ghana, Togo, Benin, and Nigeria. Participating states set up a representative institutional


structure to manage the project. These countries contribute to the upkeep of the project through annual payments.

The Southern African HIV/AIDS Transport Corridor Project is another regional project under preparation. It is expected to provide support to the world’s most heavily affected region, including Malawi, Zambia, Zimbabwe, Mozambique, and South Africa. It will support the coordination, monitoring, and evaluation of HIV/AIDS interventions in the long-haul transport sector and communities located along the transport corridors. Other regional HIV/AIDS initiatives include the ongoing projects for the Horn of Africa and the African Regional Capacity Building Network for HIV/AIDS Prevention, Treatment, and Care project in East Africa.

There are other important transport corridors where transnational HIV/AIDS interventions are needed. In a few of these corridors, interventions are already underway or planned; the rest are for future development. The key African transport corridors are: the Bamako-Ouagadougou-Tema corridor, Bamako-Ougadougou-Niamey corridor, Cotonou-Niamey corridor, Dakar-Bamako corridor, Lome-Ouagadougou-Bamako-Niamey corridor, Abidjan-Ouagadougou corridor, Abidjan-Bamako corridor, Djibouti-Addis Ababa corridor, Mombasa-Kampala-Kigali-Bujumbara-Goma corridor, Dar Es Salaam-Kigali-Bujumbara-Goma corridor, Dar Es Salaam-Lusaka-Lilongwe-Blantyre corridor, Durban-Lusaka-Lubumbashi corridor, Beira-Harare-Lusaka-Lilongwe-Blantyre corridor, Maputo-Johannesburg corridor, and Nacala-Lilongwe-Blantyre corridor.

4. HIV/AIDS control among refugees and other mobile groups in Sub-Saharan Africa – The World Bank has used the same transnational approach in dealing with the regional dimension of disease transmission. In addition to the national HIV/AIDS projects, its Multisectoral AIDS Projects have also embarked on some regional initiatives in Africa. The Great Lakes Initiative on HIV/AIDS Support Project is a USD 20 million initiative approved in March 2005 to add value to national HIV/AIDS efforts and to support interventions for mobile groups, including refugees, internally displaced people, and rebel returnees. It provides seed capital for the formation of a regional institution wholly owned by its member–states Burundi, Democratic Republic of Congo, Kenya, Rwanda,


Tanzania, and Uganda. It involves the Joint United Nations Programme on HIV/AIDS, as well as the United Nations High Commission for Refugees, as an implementing partner.

5. Norway–Russia cross-border health initiatives – Norway and Russia’s cooperation in the field of health is linked to the Barents Cooperation Program on Health and Related Issues and the Northern Dimension Partnership in Public Health and Social Well-Being. Both are based on the principle of reciprocity (MFA Norway 2014). The University of Tromso, the University Hospital of North Norway, and the Northern Norway Regional Health Authority have cooperated with the Northern State Medical University in Arkhangelsk, the health authorities of Arkhangelsk, the St. Petersburg State Medical Academy, and the regional health authorities in Murmansk to develop a master’s degree program in the field of public health. Overall, the Norwegian exchange students in Russia numbered 199, while the Russian exchange students in Norway totaled 1,175.

Response to major disasters and calamities

1. Red Cross and Red Crescent Guidelines – The International Federation of Red Cross and Red Crescent Societies have formulated the guidelines for domestic facilitation and regulation of international relief and initial recovery assistance (IFRC 2009; IFRC 2011). The guidelines were drawn from many existing international instruments, including relevant United Nations General Assembly resolutions. Although the guidelines are nonbinding and do not have a direct effect on any existing rights and obligations of affected countries under their domestic laws, it is hoped that states will make use of these to strengthen their own laws, policies, and procedures. Guidelines are not intended to apply to situations of armed conflict or to disasters that occur during armed conflicts.

The guidelines (IFRC 2009, p. 25) define the terms disaster, disaster relief, initial recovery assistance, personnel, goods, services, and other technical lingo used in disaster response. It also distinguishes among assisting humanitarian organizations, eligible assisting humanitarian organizations, and assisting actors. Relevant provisions pertaining to disaster-response personnel are in Part IV, Sections 1–5:


“With regard to disaster relief and initial recovery personnel of assisting states and eligible assisting humanitarian organizations, affected states should:

a. Grant visas and any necessary work permits, ideally without cost, renewable within their territory, for the time necessary to carry out disaster relief or initial recovery activities;

b. In disaster relief operations, waive or significantly expedite the provision of such visas and formulated work permits;

c. Establish expedited procedures for temporary recognition of professional qualifications of foreign medical personnel, architects, and engineers; driving licenses and other types of license and certificate that are necessary for the performance of disaster relief or initial recovery functions and that have been certified as genuine by the concerned assisting state or eligible assisting humanitarian organization; and

d. Facilitate freedom of access to and freedom of movement in and from the disaster-affected area, bearing in mind the safety of disaster relief and initial recovery personnel.”

The guidelines also provide that “upon request, originating and transit states should likewise waive or promptly issue, ideally without cost, exit or transit visas, as appropriate, for the disaster relief and initial recovery personnel of eligible assisting humanitarian organizations. Assisting states and eligible assisting humanitarian organizations should consider to what degree disaster relief and initial recovery objectives can be met through hiring local staff.”

2. Task Force Yolanda, Philippines – In response to the devastation wreaked by Supertyphoon Yolanda (international code name: Haiyan), the Philippine Bureau of Immigration formulated the guidelines on emergency response travel facilitation (BI 2013) for disaster responders. Key provisions of the guidelines include its definition of the scope of disaster response; the composition, duties, and responsibilities of disaster-response teams; the logistics requirements; and admission and registration policies.

Medical tourismNo specific visas pertaining to medical tourists were found by this study. In the US, as in many other countries, visitor visas for


medical treatment must satisfy the same requirements imposed upon applicants for tourist visas. The US Embassy in El Salvador (2011) lists the following requirements to expedite approval of tourist visa for emergency medical travel:

• A professional diagnosis of the illness and evidence that it cannot be treated locally;

• Official letter from a US hospital and doctor, accepting patient for treatment and providing estimated cost and length of medical treatment;

• Evidence regarding ability to pay for the treatment; and• Proof of social, economic, and professional ties in the home

country that will compel the applicant to return to his/her home country following completion of the medical treatment.

Environmental parks and other natural assets

1. Norwegian-Russian environmental cooperation – Cooperation between neighbors Norway and Russia in the High North encompasses a wide range of areas. The Norwegian government website (MFA Norway 2014) discusses the following:

a. Marine environment – This involves the establishment of a joint environmental monitoring program for the Barents Sea, which is of vital importance due to the increasing commercial activity in the High North, particularly in the oil and gas industry. The joint environmental monitoring program and integrated management plan will create a discussion framework on the expansion of the Norwegian and Russian offshore and business cooperation.

b. Environmental cooperation – This encompasses cooperation on conservation of biodiversity, management of protected areas, and protection of joint populations and water resources. “The largest and most prolonged initiative to have been carried out in this area is the program for cleaner production, in which close to 2,000 Russian engineers have received training in environmentally friendly and resource-efficient methods of production,” according to the Norwegian website.

c. Cultural heritage conservation – This “has been ongoing since 1995. A cultural heritage initiative in connection with


the Kenozero National Park in Arkhangelsk oblast was particularly successful... In 2009, Russian craftsmen were involved in the restoration of buildings in the fishing village of Hamningberg in Finmark. The buildings had originally been constructed by Russian settlers (Pomors) in the 19th century” (MFA Norway 2014, p. 3).

d. Indigenous peoples – Norway and Russia are considering the possibility of developing standard agreements governing contacts between industry and indigenous people’s traditional livelihoods.

e. Others – Cooperation on climate change began in 2011. The two countries are also involved in cooperation on surveys of radioactive pollution. A cooperation agreement on local border traffic has also been approved.

2. Okavango River Basin Commission (OKACOM) – The Okavango River Basin in Southern Africa is one of the most important transboundary natural resources in the region and in the world. Meanwhile, OKACOM was established in 1994 by the governments of Angola, Botswana, and Namibia—the three Okavango Basin countries—to develop an integrated basin-wide management plan. To support OKACOM, the Swedish International Development Agency funded the Every River has its People Project (2000–2009), which promoted participation of basin stakeholders in the management of water-related resources. The project targeted community initiatives in the gazetting of conservancies and community forests, the development of emerging conservancies, the establishment of conservation agriculture, the marketing and sustainable harvesting of indigenous natural products, the development of community campsites, and the development of cottage industries such as beekeeping and bird guiding (Wamunyima 2012). The results of the transboundary Every River has its People natural resource management project include the following:

a. Transboundary diagnostic analysis, which was completed in 2010, provided a careful technical assessment of the Okavango River. The diagnostic analysis looked at the river’s water quantity and quality, the characteristics of the ecosystem along the river, the nature and needs of the


communities living there, and the political and governance institutions along it.

b. Clear articulation of the effects of development along the river by water managers, ecologists, engineers, and economists, will enable decisionmakers to better understand the impact of investments (e.g., dams, irrigations, power systems).

c. The establishment of the Okavango River Basin Management in 2008 served as the foundation for developing the basin stakeholders’ capacity and processes and facilitated the attainment of their shared agenda, as well as the creation of a planning platform.

3. Southern African Development Community’s (SADC) Transboundary Natural Resource Management (TBNRM) – The TBNRM agreements in the SADC allow free movement of wildlife between and among countries sharing common borders. They typically cover wildlife conservation and water resource management. These initiatives are increasingly gaining prominence as a holistic approach to environmental and natural resource management because ecosystems span across borders, and workable solutions can only be attained with the involvement of stakeholders on both sides of the borders (Mafuta 2014).

The initiatives of the TBNRM include the following:

a. Zimoza (Zimbabwe-Mozambique-Zambia) TBNRM – This initiative is located in Zambia’s Luangwa district and the adjacent Zumbo district in Mozambique, as well as in Zimbabwe’s Guruve district on the other side of the Zambezi River.

b. Four Corners TBNRM – This initiative is located around the Caprivi Strip—one of the few places in the world where four countries meet (i.e., Botswana, Namibia, Zambia, and Zimbabwe).

c. Kruger Park TBNRM – This involves South Africa, Mozambique, Zimbabwe, and Swaziland.

Aside from natural assets, there are many shared infrastructure assets within the Zambezi Basin (Mafuta 2014), including the historic Victoria Falls Bridge—an important


trade and economic link between the south (Botswana, South Africa, and Zimbabwe) and the north (Zambia and the Democratic Republic of Congo). The bridge is also known for its world-famous bungee jumping events that attract thousands of tourists.

Business, trade, and investment

1. Australia’s Enterprise Migration Agreements (EMA) Program – Australia’s visa program for foreign labor is the standard Subclass 457. The EMA is designed to facilitate controlled access to semiskilled temporary workers where there is a genuine need (Holding Redlich 2014), especially in resource-intensive and extractive industries. Projects with at least AUD 2 billion in capital costs and a peak workforce of at least 1,500 workers are eligible to apply for an EMA. Australia’s EMA will be custom designed between the project owner and the Department of Immigration and Citizenship to meet the workforce needs of that project. An approved EMA will have an associated labor agreement. It will also enable other concessions to be negotiated to meet a project’s needs.

2. US-Mexico Business Facilitation Program (BFP) – The US Embassy in Mexico’s BFP offers expedited visa processing to participating companies/universities’ employees who are traveling on business to the US (US Embassy Mexico 2014). The program also provides participating companies and universities access to the appointment system as well as allows a company or university representative to schedule visa application appointment in a reserved appointment block. The basic participation requirements are:

a. In the case of a US company, it must be the Mexican branch/affiliate/subsidiary of the US company that applies for BFP membership. Meanwhile, the Mexican or non-US company must have at least 100 employees. In the case of a Mexican or US company with fewer than 100 employees, such must obtain a recommendation from the American Chamber of Commerce and its Mexican counterpart.

b. In the case of Mexican universities, the organization must submit a copy of its state or federal accreditation.


c. Applicants must be direct-hire employees of BFP member-companies or universities. They must be traveling for work-related purposes.

3. New US-Russia bilateral visa agreement – Under the new bilateral agreement that took effect in September 2012, American and Russian travelers for business and tourism are now eligible to receive three-year, multiple-entry visas and can stay for up to six consecutive months (Coffey et al. 2012). The agreement removes previous restrictions on visa validity periods and entries. Previously, the validity period for Russian travelers on business or tourism was limited to two years. Further, under the former policy, US travelers were limited to stay in Russia for up to 90 days within any given six-month period, with a maximum one-year validity period. Tourist visas to Russia were previously limited to two entries within a 30-day validity period.

The new visa regime eliminates the need for an exit visa in the case of US citizens who lose their passports; while in Russia, the previous policy already allowed Russian citizens to depart from the US without an exit visa. The agreement also abolished the requirement for visitors on business or tourism to obtain a letter of invitation. However, Russian tourism visas still require evidence of advance accommodation.

4. Netherlands’ “Orange Carpet” visa procedure – This program facilitates visa procedures of third-country nationals traveling for business purposes (NFIA 2014). Under this program, foreign business employees (and their families) with Schengen visas will enjoy key advantages:

a. Expedited immigration procedures, wherein there is no need to schedule an appointment nor make a personal appearance (until the introduction of biometrical fingerprints);

b. No-strings-attached selection based on relatively low-income requirement;

c. Free, confidential, and up-to-date immigration advice from the Netherlands Foreign Investment Agency; and

d. Long-term, multiple-entry visa will be issued if requirements are met.


Localbordertraffic

1. Local Border Traffic Agreement between Norway and Russia – Current visa requirements between the two countries are deemed to be the greatest practical obstacle to their cooperation. A special scheme that allows Russian citizens residing in Murmansk and Arkhangelsk to apply for multiple-entry visas without first obtaining an invitation (Pomor visa) was introduced in 2008, making it easier for people living in these areas to travel to Norway. Better yet, since the Norwegian government had long aimed to establish a visa-free regime with Russia, the two countries signed an agreement on Local Border Traffic in Oslo in November 2010, which established the following (MFA Norway 2014):

a. Individuals legally residing in the border area for at least the last three years may be issued with local border traffic permit valid for up to three years.

b. The border area is defined as: (1) Norway – that part of Sor-Varanger municipality that lies within 30 kilometers (km) of the state border and (2) Russia – the area within 30 km of the state border, including Nikel and Pechenga, as well as the whole of Zapolyarny district and Korzunovo.

c. Holders of local border traffic permits may stay in the neighboring state’s border area for up to 15 days at a time without a visa. There is no limit on the total length of stay in the other state’s border area within the period of validity of a border traffic permit.

d. The local border traffic permit does not itself grant the right to work in the neighboring state’s border area.

e. The Norwegian Consulate General in Murmansk will issue local border traffic permits to residents of the Russian border area. The Russian Consulate General in Kirkenes will issue local border traffic permits to residents in the Norwegian border area.

2. Zambezi cross-border movement of people – In 2005, the SADC signed the protocol on the Facilitation of Movement of Persons in the SADC region, focusing on the Zambezi River Basin where communities share assets, cultural values, traditional leadership, economic opportunities, and languages


across national borders (Mafuta 2014). This protocol was expected to boost trade and tourism across the Zambezi area. It aims to facilitate: (1) entry into member-states without the need for visa for a maximum period of 90 days per year for bona fide visits and in accordance with the laws of the member-state, (2) permanent and temporary residence in the territory of another member-state, and (3) work in the territory of another state. Under this protocol, the member-states agreed to cooperate in harmonizing travel, whether by air, land, or water, and to increase and improve travel facilities, especially across mutual borders.

Travel within a region: The Schengen visaThe Schengen visa is unique and deserves a separate description for it is the epitome of visa-less travel within a region, say, a common market. According to the Schengen Agreement (1985), "it led to the creation of Europe’s borderless Schengen Area in 1995. The treaty was signed on 14 June 1985 between five of the then 10 member-states of the European Economic Community near the town of Schengen in Luxembourg. It proposed the gradual abolition of border checks at the signatories’ common borders. Measures proposed included reduced speed vehicle checks, which will allow vehicles to cross borders without stopping (i.e., residents in border areas can cross borders from fixed checkpoints), and the harmonization of visa policies.”

“In 1990, the Agreement was supplemented by the Schengen Convention, which proposed the abolition of internal border controls and a common visa policy. The Schengen Area operates much like a single state for international travel purposes with external border controls for travelers entering and exiting the area, and common visas, but with no internal border controls. It currently consists of 26 European countries covering a population of over 400 million people and an area of 4.3 million sq km. (EC n.d.).”

Recommendations to facilitate PTP tourism in the ASEAN and APECGiven the many types of travelers covered under the ASEAN PTP tourism, as well as the wide range of highly complex tools that are available (as shown in Table 8), it is difficult at this stage to provide specific recommendations on how to facilitate travel among people


covered under the proposed PTP promotion. Thus, this report focuses instead on the following general recommendations.

Long-term goal

Set a long-term goal of achieving the equivalent of a Schengen visa among ASEAN nationals – The Schengen visa in Western Europe is the epitome of free, borderless travel within a region. The Schengen Agreement provided for harmonization of visa policies, allowing residents in border areas freedom to cross borders away from fixed checkpoints and the replacement of passport checks with visual surveillance of vehicles at reduced speed that allowed vehicles without stopping. Adopting a visa regime equivalent to the Schengen visa would require intensive discussions on the following issues:

• Administrative aspects – Setting out the rules on visas that will hold for the common area and setting up the required administrative procedures.

• Legal aspects – Formulating the legal acts that set out the conditions for entry into the common area.

• Economic and financial aspects – Estimating the costs involved in implementing the common rules on visa, including foregone visa-fee revenues.

Table 8. Examples of PTP facilitation arrangements, from the simplest to the most comprehensive

PTP Facilitation Arrangements Examples

Visa waiver Harmonization of procedures, fees, and regulations, usually under bilateral agreements

Visa facilitation agreements (VFA)

EU VFA with nine Eastern European countries, ASEAN VFA covering 10 countries

Broader travel easing and institutional strengthening to facilitate travel

Electronic visas, mutual recognition programs for selected professions,purpose-specificvisas(e.g.,student,scientific,andbusiness visas), Australia Electronic Travel Authority Program

Wider context of cross-border development programs

LSDI to combat malaria, SADC Transborder Natural Resource Management in Southern Africa, Okavango River Basin Cooperation, Africa-wide Onchocerciasis Control Program, HIV/AIDS control along transport corridors in Sub-Saharan Africa, US-Canada Border Action Plan

Localbordertraffic Norway/Russia in the High North, Zambezi cross-border movement of people

Source: Authors' compilation


• Security aspects – Spelling out cooperation among police and judicial bodies to ensure that problems involving security are minimized or dealt with properly if they occur.

Medium-term goals

Standardize visa requirements and regulations for non-ASEAN and APEC nationals – As this study has shown, ASEAN member-states do not yet have standardized regulations and procedures for the granting of visas to non-ASEAN nationals. Thus, ASEAN member-states are encouraged:

• To work toward a common list of countries that ASEAN member-states can grant a regional travel visa to, as well as toward a standardized visa validity and extension period;

• To harmonize rules on eligibility, exemptions, and documentary requirements; and

• To learn from good practices around the world and consider adopting those that are relevant to, and feasible for, the region. The recent EU visa reforms are particularly useful as reference points.

Standardize visa requirements and procedures for intra-ASEAN or intra-APEC PTP tourists – With ASEAN 2015 on the horizon, the flow of PTP tourism is expected to increase. To deal with this travel traffic, ASEAN member-states are encouraged:

• To establish common or standardized regulations and procedures within ASEAN for PTP tourists:

a. Formulation of a common definition of who is to be covered under PTP tourism;

b. Definition of PTP visa holders’ rights, verification, recruitment protocols, sponsorship requirements and monitoring, and risk management;

c. Creation of a common framework for PTP tourists’ breaches, sanctions, and penalties; and

d. Formulation of new visas for PTP tourists, if necessary.

• To achieve mutual recognition agreements on professional services or occupations covered under PTP tourism:


a. Recognition of overseas qualifications, licensing (if any, e.g., for professional travelers), and registration requirements;

b. Establishment of sponsorship arrangements, obligations, and undertakings;

c. Preparation, lodgement/application, and approval of sponsorships, nominations, and visa applications; and

d. Language requirements, including for licensing, registration, or accreditation.

• To formulate new visas for PTP tourists as defined above, if necessary. Lessons may be drawn from the student visa of the EU and the US, and the J visa (for internships and the like) of the US; and

• To leverage or scale up successful initiatives (e.g., IDRL guidelines for disaster response, model acts in environmental management).

Immediate and short-term goals

Improve overall visa processing and facilitation – The APEC visa facilitation study already highlighted a few important areas of opportunity including:

• Improving the delivery of travel and visa information. To do so, existing institutions, such as the APEC Business Advisory Council, consulates, and media, can be tapped. Improvement is needed in the following areas: availability of information in multiple languages, simplification of instructions, user-friendly and reliable website, and increased use of social media. More information, education, and communication materials are also needed due to the rapid influx of tourists.

• Facilitating current processes, especially those still operating under a “paper-based system” and relying on face-to-face personal interviews. The key areas where improvement is needed are: more extensive use of information technology (i.e., official website, e-mail, social media), interconnectivity of entry and exit points, and consideration of visas on arrival.

• Implementing e-visa programs. This is deemed the best opportunity for visa facilitation, especially for countries with very limited network of embassies and consulates.


Focus on facilitating travel involving local border traffic – Improving travel across local borders has not been given much attention in ASEAN discussions, perhaps, because of the limited land borders in the region compared to those in Africa, North America, South America, and Europe. The Zambezi cross-border traffic and the Russia-Norway local border traffic arrangements should give useful examples of how this issue can be dealt with. Water-border traffic activities (e.g., seas, the Mekong River) involving local residents are also becoming more important. The ASEAN can learn from the examples and experiences of those locations that had dealt with this issue in the past.

Appendix

Appendix 1. List of Embassies Contacted

•Brunei Darussalam Embassy

Norkhalilah Roslin

Phone: 816-2836

Email: [email protected]

•Cambodian Embassy

Phone: 818-9981


•Indonesian Embassy

Phone: 892-5061


•Lao PDR Embassy

Phone: 852-5759

•Myanmar Embassy

Phone: 893-1944


•Singaporean Embassy

Phone: 856-9922


•Thailand Embassy

Phone: 815-4219


•Vietnam Embassy

Phone: 998 275 6666



Appendix Figure A. Growth of tourist arrivals in ASEAN, 1991–2010

Source: ASEAN Secretariat (2012)

Appendix Table A. Tourist arrivals in ASEAN member-states, 2009 and 2010

No. Country 2009 2010 Growth (%)

1 Brunei Darussalam* 157,464 214,290 36.09

2 Cambodia 2,161,577 2,508,289 16.04

3 Indonesia 6,323,730 7,002,944 10.74

4 Lao PDR 2,008,363 2,513,028 25.13

5 Malaysia 23,646,191 24,577,196 3.94

6 Myanmar 762,547 791,505 3.80

7 Philippines 3,017,099 3,520,471 16.68

8 Singapore 9,681,259 11,638,663 20.22

9 Thailand 14,149,841 15,936,400 12.63

10 Viet Nam 3,772,259 5,049,855 33.87

TOTAL 65,680,330 73,752,641 12.29

* Only number of international arrivals by airSource: ASEAN Secretariat (2012)


Appendix Figure B. Total ASEAN tourist arrivals and intra-ASEAN tourist arrivals, 2000–2010


Appendix Table B. International tourist arrivals and receipts in ASEAN member-states

Source: WEF 2012

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AbstractLabor mobility, or professional service mobility in particular, has become increasingly important. Its prevalence (in terms of volume of jobs) in trade in services and its economic contribution to the Asia-Pacific Economic Cooperation (APEC) and other regional trading blocs are growing. However, as appropriately noted in the General Agreement on Trade and Services (GATS), the movement of natural persons continues to encounter barriers due to misconceptions and political issues. In this study, the importance of, as well as barriers to, professional service mobility is explained in the hope of making this a priority issue in the upcoming APEC Summit in 2015.

Documents from the APEC database since its inception until 2013; trends and data from the APEC, World Bank, and United Nations Conference on Trade and Development (UNCTAD); and literature from International Organization for Migration, Philippine Institute for Development Studies, UNCTAD, University of Southern California Marshall School of Business, and Pacific Economic Cooperation Council have been extremely helpful in identifying the nuances and issues behind the “unliberalized” state of labor mobility in APEC. These show that policies and programs encourage the movement of professional workers but deter the movement of lower-skilled workers; that discussions on labor mobility are few and far between; and that the focus of labor mobility is on its enhancement rather than its facilitation. Literature on the links between labor mobility and human development, labor mobility and inclusive growth, and labor mobility and trade all have shown that the liberalization of professional workers has a positive impact and is a necessary condition to economic growth and development.

6Stephanie Rose E. Flores, Kathrina G. Gonzales, and Aniceto C. Orbeta Jr.

Key Issues and Challenges in Professional Service Mobility

144 Key Issues and Challenges in Professional Service Mobility

Following the study’s focus group discussions (FGD), the APEC Human Resources Development Working Group (HRDWG) provided recommendations based on these main points: (1) Professional service mobility is not synonymous with migration given that the former is impermanent and that the relationship is between a foreign employer and an intermediary; (2) Skilled workers pertain to those bearing professional licenses, while unskilled (lower-skilled) workers pertain to blue-collar workers, but such distinction must be abandoned; and (3) Education/training is important to all sectors of society, as indicated by their preference for professional workers over lower-skilled workers.

The study recommends that a comprehensive discussion on professional service mobility be one of the priorities in the APEC 2015 Summit. It also pushes forward discussions that delve into the APEC-wide Qualifications Referencing Framework, guiding principles in country-to-country labor policies, human capital management, and the systematic collection of good labor statistics.

IntroductionLabor mobility or the freer movement of workers within the region remains a core issue faced by the Philippines and other APEC economies. In this study, the term professional service mobility will be used interchangeably with labor mobility—the former being deemed more appropriate on the context of the study, as noted by FGD1 participants. In addition, professional service mobility is inclusive of both professionals and other careers not usually counted as professionals because of a recommendation that will be explained later. Labor mobility, meanwhile, is a concept already widely used in several studies.

Although the overall theme of the summit has not been formalized as of date, the APEC National Organizing Council has already identified the four priorities for the APEC Summit, namely, (1) enhancing the regional economic agenda, (2) fostering the small and medium enterprises' participation in regional and global markets, (3) supporting and investing in human resources, and (4) building sustainable and resilient communities. Professional service mobility falls under enhancing the regional economic agenda.2 Inclusive growth will also

1 An FGD is a research methodology wherein a small number of people are gathered to discuss a topic of interest.

2 Under the subpriority, Promoting Connectivity, including Through Services, issues on professional service mobility are discussed together with issues on global value chains, ecotourism, people-to-people tourism, and supply chain connectivity. Other subpriorities under Enhancing the Regional Economic Agenda include: Support for the Multilateral Trading System, Advancing theFreeTradeAgreementoftheAsiaPacific,MultiyearPlanonInfrastructureDevelopmentand Investment, including bankable projects, and Advancing Regulatory Coherence.

Flores, Gonzales, and Orbeta 145

be one of the overarching themes for the summit. This is aligned with President Benigno S. Aquino’s main economic platform as stipulated in the Philippine Development Plan (PDP) 2011–2016. Inclusive growth as defined in the PDP is

“…growth that is rapid enough to matter, given the country’s large population, geographical differences, and social complexity. It is sustained growth that creates jobs, draws the majority into the economic and social mainstream, and continuously reduces mass poverty” (NEDA 2011, p. 18).

Thus, inclusive growth is growth that is trickled down to the poor. The concept of labor mobility relates to the main goal of achieving poverty reduction and empowerment of the poor and the vulnerable through the provision of jobs for different skill sets.3

The PDP recognizes the nation’s ties with other countries and its membership in various regional trading blocs, such as the Association of Southeast Asian Nations (ASEAN) and APEC. According to PDP (cited by Riguer 2013, p. 70):

“An outward-looking orientation must be complemented by an alignment of laws and regulations that facilitate the expected benefits and lessen any adverse effects of interfacing closely with the world economy. Internal processes and legal framework must be strengthened to take advantage of opportunities presented by the global economic environment.”

This highlights the need to review the country’s laws, such as those pertaining to labor mobility, to maximize the economic benefits of globalization. The resulting harmonization of country-to-country laws can bring about the desired benefits from liberalization. Equally important is the alignment of the priorities established by the APEC National Organizing Council with that of the national government.

Meanwhile, the Technical Board on APEC Matters (TBAM) cluster on Human Resource Development reinforces the priority on Supporting and Investing in Human Resources as the major focus of the next APEC Summit because of its desired emphasis on human resources as a “be all

3 The PDP addressed 18 specific sector outcomes, which are subgoals to the government’sfive major posts or goals (i.e., Anti-corruption/Transparent, Accountable, and ParticipatoryGovernance; Poverty Reduction and Empowerment of the Poor and the Vulnerable; Rapid, Inclusive, and Sustained Economic Growth; Just and Lasting Peace and the Rule of Law; and Integrity of the Environment and Climate Change Mitigation and Adaptation).


and end all” of an economy. Similar to the goals expressed in the PDP, inclusive growth may be achieved through investment in human capital. After all, human capital development is the strong link between trade and economic growth. Enhancing the quality of labor can spur further trade and economic growth, and vice versa. The Asia-Pacific region as a whole can cooperate to bring about human capital development along with equitable growth, both domestically and regionally.

The APEC has already attained some level of liberalization of goods by lowering tariffs and liberalizing several services through outsourcing; yet, a liberalized labor movement appears to have been left behind. Labor mobility is not given importance, being a highly sensitive topic due to various political reasons. Some of the reasons and misconceptions for such neglect are: labor mobility as synonymous with migration, labor shortage in receiving economies, and the brain drain occurring in sending economies. While studies have shown that the liberalization of the movement of natural persons is largely beneficial to both receiving and sending countries, and to the region as a whole (Hamilton and Whalley 1984; Walmsley and Winters 2002; PECC-ABAC 2008; USC Marshall ABAC Research Team 2009), most member-economies continue to take a protectionist stance toward labor mobility.

The bloc’s protectionist stance toward labor mobility is manifested in many ways. For example, there is the long application processing periods for work permits. Visa application periods vary widely across countries. For visas to Canada, the processing period takes an average of six to eight weeks (Government of Canada 2014), while that to Australia takes four weeks. On the other hand, visa applications to China and the Philippines require four working days (Embassy of the PRC 2014; Travisa 2014). In another example, there is the case of “job mismatch” as expressed below by an interviewee of the USC Marshall ABAC team (2009, p. 43):

“A business in Malaysia wanted to hire 20 Indonesian engineers because they could not find Malaysian engineers with the particular skills to do the job. The government refused because they did not believe that it took a specific skill set to operate the machinery and thought that there were enough Malaysian engineers who could fit the role. The business finally invited a high-level government official to watch a test of a Malaysian and an Indonesian engineer. After witnessing that the Malaysian engineer did not even know how to turn on the machine, the government official finally understood that their economy lacked engineers with the right training for this job.”


At present, APEC has only facilitated or managed professional service mobility4 mainly due to a slightly liberalized movement separately initiated by the ASEAN member-states and North American Free Trade Agreement (NAFTA) member-states. The APEC’s major initiatives so far are the APEC Business Travel Card and the bilateral mutual recognition agreements (MRAs). Note that some APEC economies are also part of the ASEAN, while others are under the NAFTA.

The ASEAN, for its part, is pushing for the formation of the ASEAN Economic Community in 2015. It already has the Labor Ministers’ Work Program and the Declaration on the Protection and Promotion of the Rights of Migrant Workers in place. These initiatives aid ASEAN countries to achieve their commitment to protect workers outside their home country. The organization’s most recent and important achievement is the ASEAN Qualifications Referencing Framework (AQRF), which creates appropriate standards for skills needed by different industries throughout the region.

On the other hand, NAFTA has a chapter dedicated to labor mobility, allowing professionals with a bachelor’s degree as the minimum requirement to move across Canada, the United States, and Mexico. The APEC, meanwhile, has been keenly focused on human resource development initiatives especially in the realm of education and job training. However, the initiatives that will enhance and facilitate labor mobility itself are few and far between, and still in progress. Hence, while ASEAN commitments do facilitate movement of labor, full mobility (or truly free movement) in Asia Pacific is seen as unfeasible. This is due to the varying and set national policies of APEC economies that are respected at the regional level. A glimmer of hope is found, however, in the advancements in labor mobility. The ASEAN countries appear to be a majority subgroup in APEC. Thus, the strong influence of ASEAN countries in APEC makes it likely for the latter to initiate discussions on labor mobility in the coming years. The APEC, however, is urged to pursue a full labor mobility stance in the long term similar to that implemented in other regional trading blocs such as the European Union (EU), the Mercado Comúndel Sur, and the Commonwealth of Independent States. These trading blocs’ success in attaining full labor mobility will be discussed in the succeeding sections. There is a need to learn from these other blocs’ experiences so that APEC can attain maximum benefits from liberalized labor mobility policies.

4 Facilitated or managed professional service mobility means that while commitments are being made so as to achieve a single production base (as in ASEAN), national laws of its member-states are acknowledged and respected (Riguer 2013).


ObjectiveThis study aims to explore the ways to strengthen the cooperation on professional service mobility in the context of APEC economies’ legal and regulatory frameworks and policy environment. The following questions will be addressed in this study:

1. What is the importance of professional service mobility in the Asia-Pacific region and in other regions worldwide? What are the issues in professional service mobility and its liberalization?

2. What has been discussed by APEC economies in relation to the concept of professional service mobility and its issues?

3. What have been the recent developments on professional service mobility outside of APEC?

4. Are there existing or emerging opportunities and initiatives for cooperation within the APEC region?

5. What are the recommended ways to address the issues that hinder the liberalization of professional service mobility (as discussed during the HRDWG?5

While a full labor mobility stance is desired in the long run, it may not be appropriate for the region for the moment. Also, a more open and integrated regional economy in the APEC region may not be advantageous to low-skilled workers—thus, is counter to the aim of making integration beneficial to the whole workforce. It is therefore important to identify issues and challenges relevant to labor mobility not only in the interest of the Philippines but also within the APEC context as well.

MethodologyTo achieve the objective, methods used in this study include a thorough review of literature and gathering of qualitative data and analysis. Literature examined include meeting summaries of the HRDWG from 1997 to 2013; established Leaders’ Declaration from 1997 to 2013; and literature on the labor mobility concept from recognized institutions, such as the World Bank and the International Organization for Migration (IOM). Experiences of other trading blocs were also examined. Meanwhile, qualitative data were collected through the conduct of FGDs with experts from the National HRDWG of APEC. Some inputs

5 These recommendations from National HRDWG representatives will complement the study’s findingson trade in services andonhow toachieve regional economic integration. This isin line with the increasing role of the services sectors in the growth and evolution of APEC economies, including the Philippines, where the share of the services sector in the gross domestic product (GDP) continues to increase.


were taken from the National Workshop on Services,6 while analyses of the linkages between the liberalization of labor, economic growth and development, and labor mobility and inclusive growth were processed.

SignificanceofthestudyThe demographics of the Asia-Pacific region, particularly the developing countries, show huge potential for economic growth coming from human resources. Several commentaries from global leaders, the academe, and private sector have acknowledged that the youth can be the main economic asset for a country or a region. In particular, an emergence of lower dependency ratios and a booming, productive economy are likely scenarios if the country has a declining proportion of children as well as an increasing proportion of youth and working adults.

Note that the working population is normally between ages 15 and 60 years. Sixty percent of the youth (people from ages 15–24 years) alone is said to come from the Asia-Pacific (UNESCAP 2013). Trends show that for developing countries in Asia and Africa, increases in the working-age population are sustained; while elsewhere in the world, it is characterized by an aging population (Lee and Mason 2011). Hence, given that the population in most developing countries is increasingly of working age, such is expected to be favorable to these nations’ economy.

The catch is that benefits will only be apparent if governments ensure that the needs in education and training and the supply of jobs are met (Madsen et al. 2010). Education and training are the cornerstones of human capital development, and the human capital theory has concretized its importance.

In the human capital theory, the supply of jobs is assumed to be present. If the three requirements (i.e., education, training, and supply of jobs) are not met, the young population will only be a bane to a country. It may lead to greater conflict, weak governance, gender inequality, and even higher fertility (leading to even greater population growth). Greater population growth on its own has adverse effects such as climate change and environmental issues. It is important, therefore, to take note of such trends and the underlying policies that support human resources so as to achieve inclusive economic growth and development. The inclusion of several kinds of careers for mobility—professional and nonprofessional, for instance—can achieve the inclusive growth objective. Labor mobility policies that are conducive to these trends will help in supporting and investing in human resources, which is one of the major priorities in the APEC Summit.

6 See page 176 for details of the workshop.


Key issues and importance of labor mobility in APEC

Overview of the services sectorServices are defined by the United Nations (as cited by Serafica 2014) as the result of a production activity that changes the conditions of consuming units or facilitates the exchange of products or financial assets. Trade in services has become increasingly prominent in international trade, although its growth accelerated only during the 1990s. The importance of trade in services in the economy can be measured as a percentage of GDP. Global trade in services used to be less than 2 percent in 1977, but it has ballooned to roughly 75 percent in 2007 (Cattaneo et al. 2010).

Figure 1 presents an ever-growing contribution of trade in services to the average GDP of low-, middle-, and high-income countries, and the world average. This is to point out that no matter what the change in the measure for trade in services is (from mere percentage of GDP to value-added percentages, which will be discussed later), its contribution to GDP is steadily climbing.

Data on trade in services in the 1970s were recorded simply as a percentage of GDP, as seen on the left axis. Today, however, it is being recorded as value-added trade, as seen on the right axis. Over the years, data on trade in services have shown exponential growth as several services become part of a process of final products. It should be noted

Figure 1. Trade in services as a percentage of GDP, 1977–2007

Source: Cattaneo et al. (2010)


that prior to and during the 1970s, a firm’s production process was solely confined in one country. Today, the prevalence of information and communication technologies (ICTs) has made it possible to expand production processes offshore. This scales the production process to a global one, hence, the relatively new concept of GVCs.

Global value chain (GVC) is the term given to borderless production systems that are characterized by: (1) sequential chains or complex networks globally, regionally, or bilaterally; (2) fragmentation of production processes and dispersion of tasks; and (3) transnational corporations as typical coordinators (UNCTAD 2013). The role of services in GVCs is two-fold: (1) they act as glue within GVCs of manufactures and (2) they constitute GVCs on their own. Services are delivered within the product, for they are already embodied during the production processes. It has been observed that global services value chains are already part of multinational corporations’ operations and will be implemented in smaller businesses as well in the near future.

Data on trade in services are measured as value added because the emergence of GVCs has led to double counting of trade in services. With the fragmentation of tasks, a raw material used for a firm’s production may be counted several times as exports in different countries when it goes through different production stages. Take for example a raw material that is used in country A, then passed to country B for stage 1 of production, then sent to country C for stage 2 of production. In GDP accounting, that raw material being referred to is counted only once: as a contribution to country A’s GDP. However, that original material will be counted as exports in several countries where a production process took place. Hence, recorded world exports are likely to balloon.

Trends reported by the UNCTAD (2013) show that the global economy is characterized by the prevalence of GVCs, with transnational GVCs accounting for 80 percent of global trade. Foreign direct investment valued at USD 1.4 trillion is attributed to the ever-increasing internationalization. Also, value-added trade is said to have contributed 30 percent, on the average, to developing countries’ GDP, while it makes up 18 percent of developed countries’ GDP. In the Asia-Pacific region, meanwhile, services in APEC contribute 68 percent to the average GDP among APEC economies, 19 percent to the average share in total exports of goods and services among APEC economies, and 39 percent to the average share in value-added trade (Pasadilla 2014 ).

In the Philippines, the contribution of the services sector to GDP has been accelerating for the past decade (Serafica 2014). Figure 2 presents the six main industries (i.e., agriculture; manufacturing; electricity, gas,


and water; mining and quarrying; construction; and services) and their contribution to the country’s GDP. For years 2000–2012, only the services sector had consistently provided large value-added gains to the economy, while other sectors gave modest contributions. Such phenomenon is explained by the fact that services are demanded both as intermediate input and as final consumption itself, unlike the other sectors where their outputs are only counted in their finished stage. Note that services also account for 62.15 percent of their intermediate inputs.

In gross terms, the contribution of trade in services to the domestic economy’s exports is 23.53 percent; while in value-added terms, trade in services’ contribution is at 44.1 percent.

Such statistics above prove the importance of trade in services to the economy. Yet, existing trade policies have not helped in this acceleration but rather restricted the growth. In particular, the liberalization of trade regulations has led to an exponential increase in flows of capital and goods between economies, but the restrictive stance in the freer movement of the other factors of production—workers, in particular—remains. This is a crucial matter because the growth of the services sector is mainly dependent on labor. Globally, the services sector is the biggest employer of labor (Tullao 2014).

Importance of human capital developmentFrom another perspective, growth in the services sector would not be possible without increasing the endowment of human capital.

Figure 2. Gross domestic product by industrial origin

Source: Serafica (2014)


Investment in human capital is necessary to achieve economic growth, both domestically and globally. There are three ways of investing in human capital: through education, skills development, and job training. Linkages between human capital development and economic growth and development are prevalent, but these only focus heavily on the domestic economy. The cumulative productivity in a society (i.e., across all job classifications and for a sustained period of time) contributes to economic development. Productivity is rooted in every individual whose level is signified by his/her human capital endowment. Through education and skills and job training, the required job tasks will be delivered with the highest quality and efficiency.

Linkages between trade in services and human capital development and vice versa, meanwhile, are indirect but nevertheless strong. Isakkson (2002) shows that human capital development is vital in forging a strong link between trade and economic growth. The core behind this is the nature of a nation’s human capital: A country’s ability to adopt, adapt, and imitate new technology is characterized by its human capital endowment.

The link between human capital development and trade, meanwhile, lies in the rationale that trade will increase with the help of the labor factor. Here, a domestic economy’s labor can be enhanced (or the quality of labor will be improved) through mobility of natural persons. Education and trainings received in other countries enhance the quality of labor endowed by professionals as they learn of other nations’ best practices. The skills and abilities acquired are then adapted in the domestic economy, which eventually help to accelerate trade and globalization.

DefinitionofprofessionalservicemobilityThe focus of this study is on professional services. Tullao (2014) defines professional services as those employed in activities with limited use of manual labor. Usually, these activities are highly knowledge intensive in nature and are performed by individuals with license or are accredited in a particular profession. Nonlicensed individuals who are highly educated and skilled professionals may also perform such professional services.

Appendix 1 provides a list of professional services as defined in the GATS and a list of regulated professions as provided by the Professional Regulation Commission (Cueto 2014). Workers who are not in the list are usually referred to as unskilled or lower-skilled workers. Occupations such as plumbers, domestic workers, welders, and construction workers, in general, are categorized as unskilled or lower-skilled workers. However, it will be pointed out at the latter part of this paper that part


of the recommendation here is to remove the classification between “skilled” and “unskilled” workers.

Professional service mobility or labor mobility policies have focused more on enhancing skills through trainings and certifications, rather than on facilitating the movement of workers. Until now, factors such as the complex process in procuring temporary working visas and foreign worker quotas set by governments exist and create a domino effect. Talks on labor mobility are greatly neglected as compared to trade of goods, and this neglect will hinder economic prosperity despite the best effort at liberalizing trade in goods.

Labor mobility comes into play through Mode 47 of the GATS: Movement of Natural Persons. The term “natural persons” refers to self-employed service suppliers who are natural citizens of a particular country, or natural citizens of a particular country who are employed by a service supplier to deliver or supply the service. These include “short-term employment of foreign doctors or teachers, intra-corporate staff transfers and... short-term employment of foreign staff in foreign affiliates or short-term employment of construction workers or paid domestic helpers” (Aldaba 2013, p. 2).

Labor mobility (or the movement of natural persons) is not acknowledged as a major mode of supply, as evidenced by the contradiction between the increasing migration flows and several restrictive policies and processes. Data presented by Shiino (2014) also show that the estimated share to the total value of services trade by Supply Mode 4 is a mere 1–2 percent. This is a diminutive contribution as compared to the other modes of supply: cross-border supply contributes an estimated 35 percent to the total value of services trade, consumption abroad accounts for an estimated 10–35 percent, and commercial presence accounts for half of the total value of services trade. This small contribution might explain the weak support for the liberalization of professional service mobility. It appears, however, that because the focus is only from the perspective of trade in services, the contribution of movements of natural persons to the respective domestic economies is not captured. Hence, there is still a need to remind stakeholders that the services sector remains the biggest employer of labor (Tullao 2014).

Labor mobility is synonymous with temporary worker migration. However, the term migration spurs a lot of misconceptions—mostly relating to the possibility of permanent residency and the corresponding

7 According to the World Trade Organization (2014), there are four modes of supplying services as stated in the GATS: (1) cross-border trade, (2) consumption abroad, (3) commercial presence, and (4) presence of natural persons.


social, political, and cultural issues as well as the individual-to-employer relationship. The topic of migration brings discomfort to government officials and some citizen groups as this involves issues on unwanted burden over migrants’ social insurance and other services, risks of lower wages, and tighter competition over available jobs.

Permanent migration does not help the domestic economy mainly due to brain drain. Valuable talent departing the country for better opportunities leaves the domestic economy at a loss. The economy loses when, after having invested in his education and training, a professional’s talent is used elsewhere and not applied in his home country. While much of the hype is centered on the business process outsourcing industry—or the GATS’ Mode 1 classification (cross-border supply)—labor mobility, which has been observed to contribute largely to economic prosperity but could not be accurately measured as of the moment, continues to be neglected.

BenefitsinliberalizationoflaborDespite the tremendous expansion of GVCs, outsourcing and relocation (GATS Mode 1) have only benefited some industries, such as manufacturing, call centers, information technology, and certain professional services. Much of this benefit is because outsourcing (or relocation) is cost efficient, and it addresses labor shortages. However, the same models cannot be applied to industries such as construction, agriculture, service workers, and health care. The movement of natural persons to countries that are in need of labor supply in these industries will bring about greater efficiency.

Professional service mobility helps both receiving and sending economies through the following (Jurado 1999; IOM 2007; UNCTAD 2007; PECC-ABAC 2008; USC Marshall ABAC Research Team 2009; WB 2011):

Professional service mobility creates a balance between labor shortages and labor surplus across economies. Figure 3 presents a map of receiving and sending economies in APEC. Receiving economies are composed of countries that experience labor shortages, while sending economies are those that have labor surpluses. In the figure, receiving economies are marked red, while sending economies are in grey. Data on labor shortages and labor surpluses, however, are not easily attainable, and measurements differ from country to country. Usually, nonexperts would attribute labor shortages to declining unemployment rates and increasing employment, “sometimes coupled with accelerating real


earnings to indicate growing labor tightness” (OECD 2003, p. 103). Labor shortages/surpluses could be more accurately measured through occupation-specific job vacancies.

Several factors cause large discrepancies in labor among countries: First, demographic gaps exist. Young populations predominate

APEC’s developing countries such as the Philippines, China, and Malaysia. Meanwhile, aging populations in APEC, in general, include developed countries such as Japan, the United States, and Canada. Japan, in particular, has a fourth of its total population at over 65 years old. It has a median age of 46 years old and an average life span of 84 years old (Pearce 2014). Its aging demographics, thus, need nurses and caregivers. The UN reported that an estimated 17 million foreign workers will be needed by Japan to restore its demographic equilibrium (USC Marshall ABAC Research Team 2009). The Japanese government has already announced its job vacancies through the Philippine Overseas Employment Administration. As of 2012, there are 77,248 temporary Filipino workers in Japan (CFO 2012).

On the other hand, the Philippines is globally known as the largest exporter of nurses and caregivers. As of 2013, 100,000 Filipino nurses are being produced every year, which signifies a surplus in the said profession. The country has been in a sustained partnership with Japan since 2008 through the Movement of Natural Persons of the Philippines-Japan Economic Partnership Agreement.

Aside from their difference in age, there, too, is the gap between highly skilled and lower-skilled workers. Developed nations have bigger

Figure 3. Map of receiving countries and sending countries in APEC

Legend: Red – receiving countries, Gray – sending countriesSource: USC Marshall ABAC Research Team (2009)


proportion of populations with high educational attainment than the developing nations. This implies that since their people with higher educational attainment tend to take highly skilled jobs, vacancies for lower-skilled jobs tend to increase.

Second, the level of democracy may be a factor in labor gaps. For example, threats to human security such as martial law or terrorism for a lengthened period as well as poorly waged, blue-collared workers in an area may increase labor shortages. Singapore serves as an apt example. Prior to independence, Singapore was once a part of Malaysia, along with Malaya, North Borneo, and Sarawak islands. Riots ensued because of racial tensions between the Chinese and Malays, and Singapore was purged out of the Malaysian Federation. A late realization of the adverse effects of closing the economy to temporary labor migrants brought about policy changes in the 1980s. Opening the country to foreign workers was one of the eventual strategies implemented to boost economic growth, concurrent to investments in the manufacturing sector. A total revamp of the public infrastructure transportation systems required workers in the manufacturing and construction sectors. Opening up the economy to trade required temporary professional workers. Domestic workers were also needed as office work became widespread. As of 2013, Singapore’s total foreign workforce was at 1.3 million (Singapore Ministry of Manpower 2014). Given that its population is only a low 5.4 million, the proportion of temporary foreign workers in Singapore is 24 percent—the highest in Asia.

Third, the level of development in a country may indicate its level of labor. For example, the presence of highly developed infrastructure, such as good public transport systems, may entice professionals to move to the said area. Other factors such as abundance (or lack) of educational opportunities or efficient health care and social security systems affect how workers are attracted to a location. All these factors tend to produce gaps between demand and supply for labor in a given country. Liberalized professional service mobility policies have the capacity to bridge this gap.

Professional service mobility makes location-specific jobs present in most, if not all, countries. Vacancies in nursing, construction, or agriculture work need to be filled in as they cannot be outsourced and are part of some industries affected by structural change. For instance, Canada needs agricultural workers during harvest time; hence, it has fortified a bilateral partnership with Mexico and the Caribbean Island countries through the Canadian-Mexico Seasonal Agricultural Workers Program. An estimated 20,000–25,000 workers arrive from Mexico during


Canadian harvest season around March until November (University of Toronto 2012). These farmers either work in Ontario to produce wine or in Leamington to harvest tomatoes. Agricultural jobs are location specific; hence, they benefit both countries. This arrangement helps the receiving economy in terms of its agricultural industry’s survival and benefits the sending economy in terms of remittances gained from sending laborers. Industrialization, which happened mostly in developed countries, has led to labor shifts from agriculture to manufacturing to services. Also, due to trade in goods and most recently, in trade in services, labor shifts are occurring as countries choose the industries that exploit their respective comparative advantages. Vacancies in the Canadian agricultural sector are plentiful due to having passed through these structural labor shifts.

Professional service mobility provides a continuum in the process of globalization and the benefits that come with it. Due to globalization, competition among businesses is heightened. In the perspective of a business owner, businesses will desire to expand their production inputs at time of need. The presence of temporary labor mobility will help make businesses succeed by getting labor as swiftly as possible.

Professional service mobility enhances regional economic integration through circular migration flows involving the “acquisition of skills and knowledge in the early career in a foreign economy and its transfer and use in the native economy later in the career”. The inflow of finances, information, and practices from other countries will integrate both sending and receiving countries in APEC together. It will heighten the mix and produce a freer flow of cultural ideologies already being achieved through the liberalized trade in goods.

Professional service mobility creates a link between mobility and economic development through remittances. The impact of remittances to a country’s economic growth cannot be denied. In basic macroeconomics, remittances make an impact through the balance of payments. In particular, inflows of capital increase the current account and prevent current account deficits. Remittances also contribute to greater consumption, which is a major driver of GDP. The Philippines is a testament to this. Every year, remittances are making record highs; the most recent (2013) of which is at USD 22.9 billion.8

8 Representing cash remittances sent through banks. An estimated total remittances of USD25.4billionissaidtohaveflowedintothecountry(www.bsp.gov.ph).


Professional service mobility, leading to a scattering of nationalities (also known as diaspora), may enhance economic development. In relation to remittances, the Pacific Economic Cooperation Council (PECC)-ABAC study (2008) presents some examples on how diaspora communities benefited certain economies. Overseas workers may benefit economies by acting as middlemen in bringing in foreign direct investments to the sending economy. They can also be bridgeheads so that the receiving economy can successfully enter its products into the sending economy. All these generate income and may be able to contribute to economic growth.

Professional service mobility enhances human capital development of the whole region. Tullao (2014) states that the presence of professionals in countries in need will improve the quality of labor in the region. When education professionals provide education in countries in need, human capital is developed. When health care or medical care is provided by health professionals in countries in need, human capital is also developed. Lastly, when training is given by experts in their respective professional fields, human capital is developed.

Professional service mobility spurs competition among countries in terms of labor. Just like the provision of goods that achieves perfect competition by eliminating market barriers, greater competition in the workforce will be ignited by removing barriers in professional service mobility. While government officials doubt whether the Philippines will lose out to other professionals in APEC, Filipinos actually have the edge in terms of customer care (and customer satisfaction is key in any profession) and are skilled and equipped in good work ethics.

Issues in the liberalization of professional service mobilityNotwithstanding the benefits, several issues, such as operational and practical issues, come into play whenever talks on the liberalization of labor abound. In gist, APEC policies on labor mobility are two-faced—favoring skilled professionals and businessmen while discriminating lower-skilled workers. The USC Marshall-ABAC (2009) study summarizes these issues by classifying the barriers into four: socioeconomic, political, administrative, and cultural (Figure 4). Appendix 2 presents in detail the findings of the USC Marshall-ABAC study.

An example of a socioeconomic barrier is the complexity in identifying legitimate employers as this leads to abuse of human rights. In the same way, barriers in the identification of workers and businesses break down the trust between two countries. Another example is the lack of health


insurance or insurance for workers who provide service in another country. Ideally, the provision of social security benefits would already constitute an ideal labor migration system.

A specific example of political barriers is the differing domestic laws and regulations, which will likely discriminate against individuals who attempt to provide services abroad. Hence, trade in services through labor mobility remains highly restrictive. Another political barrier is the lack of a single regulatory framework for the region, which hurts businesses that want more labor than what the government allows.

Administrative barriers, meanwhile, highlight the complexities in the free trade agreements (FTAs) and memoranda of understanding (MOUs). No international labor agreement standards exist. Thus, FTAs and MOUs are inconsistent and lacking in detail. Also, administration procedures in the worker’s travel logistics are complicated, and the corresponding fees are expensive. These sentiments are reflected as well in a study by the PECC-ABAC (2008), which said that “at every stage of the process—recruitment, preparation to travel to the destination, transit to the destination, at the destination and upon return to the home country—migrant workers are subject to making payments for services and to gatekeepers” (p. 21).

Figure 4. Barriers in the liberalization of labor

Source: USC Marshall ABAC Research Team (2009)


The documentation of migration flows also poses an administrative barrier in freer movement of workers. Mobility outside legal channels occurs in the region, thus, labor flows may be inaccurately reported. A well-documented system in the labor mobility process will enhance the legal process and encourage migrant workers to go through the legal process.

Lastly, cultural barriers that include language constraints usually lead to ineffective communication and coordination between economies. In addition, workers are usually unaware of cultural sensitivities in another country and might have actions that inadvertently go against the tradition or laws of the said country. This situation usually causes tension between two countries. Racism, which may be in the form of slurs and discriminatory treatment, is also rampant in some parts of the world. An issue exposed by the PECC-KOPEC study is the increased feminization of women. Although labor-exporting countries do allow mobility of women, the reality is that women tend to end up in jobs less skilled than what they signed up for. This actually holds true for both genders and for labor-exporting developing countries as well.

Previous APEC discussions on labor mobility reviewTalks on labor mobility had been very sparse in the 1990s and only started to become prevalent in more recent years. The APEC documents reveal that since the early 1990s, issues related to labor focused largely on human capital development through education and training and educational mobility. Rarely had there been discussions to improve and liberalize policies on labor mobility. Trade liberalization talks during this period focused on trade of goods and on lowering tariffs. However, the GATS, which was formed during the Uruguay Round that APEC participated in, began to encourage the regional bloc to initiate talks on the liberalization of trade in services. Other regional blocs were more advanced on such discussions, but APEC eventually managed to catch up, setting up initiatives to enhance labor mobility through bilateral MRAs and the APEC Business Travel Card schemes. The year-by-year progress of talks on labor mobility is discussed below:

1993 - As manifested by the Leaders’ Declaration in Blake Island, the APEC regional bloc was formed. The Leaders’ Declaration in Blake Island initiated the APEC Education Program and APEC Business Volunteer Program—both of which were seen to enhance labor mobility—to further hone managerial skills and techniques, and to ignite cooperation in human resource development. Leaders had recognized early on that the “people


of the region are its most important asset”, and developing human resources should be prioritized as the region’s dynamism is largely dependent upon such resources. The HRDWG was formed, which has three focus areas: the Capacity Building Network, the Education Network, and the Labor and Social Protection Network.

1994 - The Declaration of the Human Development Resources Framework in Bogor, Jakarta, prioritized human development skills through training and education. Another priority relevant to labor mobility—the analysis of the regional labor market for trends and forecasts—was also emphasized.

1995 - In the Osaka agenda, economies were tasked to conduct the following to enhance the mobility of business people engaged in the conduct of trade and investment in the Asia-Pacific region: (1) exchange of information on regulatory regimes pertaining to the mobility of business people in the region, (2) scope for regional cooperation in streamlining and accelerating the processing of visas for short-term business travel and temporary residency for business people, and (3) dialogue on mobility issues with the business community.

The development of joint activities/dialogue of the HRDWG included the facilitation of mobility for qualified persons through bilateral agreements between interested APEC economies for the MRA of professional qualifications. Countries were asked to propose projects for funding that would enhance human resource development in terms of education, training, and mobility processes.

1996 - The Manila Action Plan for APEC was outlined in all APEC economies’ individual action plans, and the organization of the APEC Business Advisory Council (ABAC) was created. On labor mobility, ABAC urged member-economies to facilitate the movement of businesspersons and enhance human resources. Specifically, one recommendation was to introduce a five-year APEC Business Visa that will allow multiple entries for a minimum of 60 days per entry, APEC Business Immigration lanes in ports of entry, expedited immigration processing for APEC Business Visa holders, and faster extension of business residency visas. The commencement of the APEC Business Travel Card scheme was announced, with three countries conducting the trial: Australia, Korea, and the Philippines. Another recommendation, which was assigned to HRDWG,


was to establish a set of common professional standards for APEC-wide recognition.

1997 - In the Senior Officials’ Meeting in Vancouver, Canada, the status of the implementation of and improvements on individual action plans were reported. Countries started to participate in the APEC Business Travel Card after the trial’s success. MRAs were developed, or in the process of being developed, in industries such as automotive products, food products, fish products, electrical and electronic equipment safety, telecommunications, and laboratory accreditation.

1998 - In the 18th HRDWG in Chinese Taipei, Canada reported on the autopilot Electronic Source Book project they spearheaded. While several projects were being conducted or proposed by member-economies, none was directly related to the facilitation of labor mobility. Most projects focused on skills training and education mobility. In Malaysia, the Kuala Lumpur Action Programme on Skills Development was enacted. Some ongoing projects related to labor mobility were: (1) the Japan-APEC Partnership for Education and Training, wherein foreign students were provided on-the-job training at two- to three-year terms and (2) the Business Volunteer Program, wherein experts in the private sector would be dispatched across the APEC region for further capacity building.

1999 - During the 19th APEC HRDWG Meeting in Hong Kong, China, the importance of quality human resources in meeting the issues on education, labor-related training, and labor mobility protection and unemployment was emphasized. Canada presented a completed coordination paper on “Developing Human Capital”. Either completion or progress reports on other projects such as the University Mobility in Asia and the Pacific, Japan-APEC Partnership for Education and Training, APEC Youth Skill Camp Program, APEC Vocational Training Program, and APEC Business Volunteer Program were presented.

2000 - In the 22nd APEC HRDWG Meeting in Bandar Seri Begawan, Brunei, progress reports on projects similar to those initiated earlier were presented. To tackle the issue of labor mobility, Japan proposed and spearheaded an event entitled Workshop on International Migration and HRD, Phase II: Symposium on International Migration and Structural Change in APEC Member-Economies. Meanwhile, the United States and the Philippines proposed an APEC Forum on Cross-Cultural


Understanding of the Implementation of Standards and Accreditation in Supply-Chain Management (Philippines/USA).

2001, 2002, 2003 - Not much progress on labor mobility was made.2004 - In the 26th HRDWG Meeting in Jeju, Korea, APEC economies

committed to discuss the issue of labor mobility during the second part of the Osaka Action Plan. In particular, such commitment was centered on enhancing the quality of the labor force and mobility of qualified persons. Although the APEC HRDWG, for years 2002–2004, made it the member-economies’ priority to facilitate the mobility of qualified persons to address skills shortages, no project materialized.

In the Leaders’ Declaration in Santiago, Chile, leaders of member-economies acknowledged the actions already taken by APEC, particularly its implementation of business mobility initiatives, such as the Advance Passenger Information Systems, Regional Movement Alert List System, and the cooperation in the issuance of machine-readable travel documents by 2008.

2005, 2006, 2007 - Although labor mobility was given priority in the 2004 Leaders’ Declaration, there was not much headway in the discussions, and any progress there was remained focused on the mobility of business people.

2008 - In Hanoi, Viet Nam, an APEC seminar on Social Policies for Migrants to Prevent the Transmission of Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome (HIV/AIDS) took place. The Philippines’ stance toward protection of migrant workers from the disease is based on existing policies on migration and HIV/AIDS. Locally, Republic Act (RA) 8504—or the Philippine AIDS Prevention and Control Act—has a specific clause related to temporary labor workers as follows:

“All Overseas Filipino Workers, diplomatic, military, trade and labor officials and personnel to be assigned overseas shall undergo or attend a seminar on the cause, prevention, and consequences of HIV/AIDS before certification for overseas assignment.”

Meanwhile, RA 8402—or the Migrant Workers and Overseas Filipino Act of 1995—focuses on the dignity of the temporary labor worker. Similarly, international conventions and declarations, notably the International Convention on the Protection of the Rights of All Migrant Workers and Members of their Families (Convention 90), the International Labour Organization’s (ILO) Convention Concerning Migration in Abusive Conditions and the Promotion of Equality of


Opportunity and Treatment of Migrant Workers (No. 143), and the ASEAN Declaration on the Protection and Promotion of the Rights of Migrant Workers, all upheld the rights of temporary labor migrant workers.

2009 - In Singapore, leaders of APEC economies committed, as part of the APEC inclusive growth agenda, to “put job creation at the heart of our economic strategy and enhance cooperation to address the social implications of globalization. In addition, they will facilitate the retraining, skills upgrading, and mobility of our workers so that they can secure jobs, especially in new and growing industries.”

Alongside the declaration, leaders endorsed the APEC Principles for Cross-Border Trade in Services, the APEC Services Action Plan, and the Supply Chain Connectivity Framework.

Projects related to labor mobility included the completed mapping of APEC qualifications frameworks and a proposal regarding a seminar on qualifications frameworks. The formulation of national qualification frameworks will ensure development of workers’ skills, facilitate labor mobility, and enhance access to higher and different levels of education and training.

2010 - The latest Economic Leaders’ Meeting in Yokohama, Japan, resulted in more commitments stemming from the Bogor goals to enhance trade in services in the Asia-Pacific region. In particular, it has encouraged broader participation from the private sector in advancing trade in services for the purpose of: (1) generating better quality and more productive jobs and (2) raising the productivity of industries throughout the region. Prior to such commitment, there already had been an agenda to enhance supply chain productivity at the border, behind the border, and across the border. A goal to improve supply chain performance by 10 percent in terms of time, cost, and uncertainty was established.

It is clear in the Bogor goals of 2010 that “all APEC economies must maintain their individual and collective commitment to further liberalize and facilitate trade and investment by reducing and eliminating tariffs, restrictions on trade in services, and restrictions on investment, and by promoting improvement in other areas, including non-tariff measures.” The Bogor goals included developing an APEC Connectivity Framework composed of institutional connectivity, physical connectivity, and people-to-people connectivity. This framework


will greatly help in raising the bar in trade in services through enhanced labor mobility. The facilitation of people’s movement—from tourists to professionals and workers—will be the focus under the people-to-people connectivity.

It was also during this year that the APEC New Strategy for Structural Reform was endorsed. One of the five key areas under the strategy is to promote labor market opportunities, training, and education.

During the HRDWG meeting in Yokohama, Japan, the HRDWG Work Plan of 2010 was formulated. The work plan has three aims: to develop 21st century knowledge and skills for all, to integrate human resource development into the global economy, and to address the social dimension of globalization. One completed project on labor mobility is the Comparability and Benchmarking of Competencies and Qualification Frameworks in the APEC Region (with focus on construction/welding).

2011 - Labor mobility was not discussed nor prioritized in the Leaders’ Declarations.

2012 - In the Leaders’ Declaration in Vladivostok, Russia, leaders committed to facilitate the mobility of students, educators, and researchers through higher education cooperation. Students’ mobility can be achieved by comparing best practices in course accreditation and quality assurance systems, good regulatory practices, and transparency of student visa requirements. Meanwhile, developing existing and joint research activities is one way to enhance the mobility of researchers. The mobility of education providers could be improved, too, by focusing on transparency and mapping the policies regarding the establishment of foreign providers, as well as benchmarking and identifying best practices on quality assurance systems within APEC. Lastly, the existing network of bilateral agreements should also include an examination of issues on the design and delivery of educational content, as well as of the data on educational programs within APEC economies.

Since APEC’s conception, temporary labor mobility and its enhancement, facilitation, and the like were discussed sparingly. The focus of discussions was mainly on Mode 1 and Mode 3 of GATS. Mode 1 of GATS pertains to services that are supplied from a territory within one country to another country (technically called cross-border trade). An example of this would be a receipt of services from country A through telecommunications,


postal infrastructure, or other forms of ICTs. Meanwhile, Mode 3 is aptly called commercial presence—a type of service supply wherein services are provided within country A by a locally established affiliate, subsidiary, or representative office of a foreign-owned and -controlled company.

Recent developmentsDuring the IOM’s Intersessional Workshop on Free Movement of Persons in Regional Integration Processes, an overview of the different trading blocs and the degree of freedom in labor mobility among these blocs was presented (IOM 2007). Results showed that full labor mobility are present in the EU, European Economic Area, the Nordic Common Labor Market, the European Free Trade Association, Common Market for Eastern and Southern Africa, Economic Community of West African States, Andean Community of Nations, and the Commonwealth of Independent States.

On the other hand, trading blocs with labor market access for certain groups only consist of the Caribbean Community (CARICOM) or the Caricom Single Market and Economy, NAFTA, the Economic Community of Central African States, the ASEAN, and the South African Development Authority. Lastly, trading blocs with no market access but only have facilitated entry include the South Asian Association for Regional Cooperation, the APEC, the Community of Sahel-Saharan States, the Intergovernmental Authority on Development, and the East African Community. An overview of the stance taken by some trading blocs are discussed below.

ASEANIn 2000, member-economies of the ASEAN established the Labour Ministers Work Programme, acknowledging human capital development as a primary concern and the need to prepare the labor force amid globalization and trade liberalization. Its framework features five top priorities: (1) employment generation, (2) labor market monitoring, (3) labor mobility, (4) social protection, and (5) tripartite cooperation. Meanwhile, in 2007, the organization formed the ASEAN Declaration on the Protection and Promotion of the Rights of Migrant Workers as one of its initiatives in establishing an ASEAN Economic Community to be fully implemented in 2015. Appendix 3 shows salient features of the ASEAN Economic Community blueprint.

The formation of an ASEAN Community rests on three pillars: an ASEAN Security Community, an ASEAN Economic Community, and an ASEAN Sociocultural Community. The ASEAN declaration is also based


on the Universal Declaration on Human Rights as adopted by the General Assembly Resolution 217(A)(III), the Convention on the Elimination of All Forms of Discrimination against Women, and the Convention on the Rights of the Child. An excerpt below presents the commitments in the declaration (ASEAN 2007, main page):

“For purposes of protecting and promoting the rights of migrant workers, ASEAN Member Countries, in accordance with national laws, regulations, and policies, will:

• Promote decent, humane, productive, dignified, and remunerative employment for migrant workers;

• Establish and implement human resource development programs and reintegration programs for migrant workers in their countries of origin;

• Take concrete measures to prevent or curb the smuggling and trafficking in persons by, among others, introducing stiffer penalties for those who are involved in these activities;

• Facilitate data-sharing on matters related to migrant workers, for the purpose of enhancing policies and programs concerning migrant workers in both sending and receiving states;

• Promote capacity building by sharing of information, best practices as well as opportunities and challenges encountered by ASEAN Member Countries in relation to protection and promotion of migrant workers’ rights and welfare;

• Extend assistance to migrant workers of ASEAN Member Countries who are caught in conflict or crisis situations outside ASEAN in the event of need and based on the capacities and resources of the Embassies and Consular Offices of the relevant ASEAN Member Countries, based on bilateral consultations and arrangements;

• Encourage international organizations, ASEAN dialogue partners, and other countries to respect the principles and extend support and assistance to the implementation of the measures contained in this declaration; and

• Task the relevant ASEAN bodies to follow up on the declaration and to develop an ASEAN instrument on the protection and promotion of the rights of migrant workers, consistent with ASEAN’s vision of a caring and sharing Community, and direct the Secretary-General of ASEAN to submit annually a report on the progress of the implementation of the declaration to the summit through the ASEAN Ministerial Meeting.”


As a follow up to the ASEAN declaration, a work plan was formulated, wherein projects and initiatives were based on three thrusts:

1. Step up the protection and promotion of the rights of migrant workers against exploitation and mistreatment,

2. Strengthen the protection and promotion of the rights of migrant workers by enhancing labor migration governance in ASEAN member-states, and

3. Drive regional cooperation to fight human trafficking in the ASEAN.

For the first thrust, a policy repository of best practices in migrant worker management policies and stronger information services were proposed. Policies pertained to the regulation of recruitment agencies, provision of basic information services to migrant workers, resolution of employment disputes, and repatriation of migrant workers. Meanwhile, it recognized the need for information and communication tools, such as brochures and pamphlets, to guide temporary migrant workers on processes and requirements. A particular initiative under the first thrust is the establishment of the AQRF, which the Philippines currently chairs. The AQRF aims, among others, to facilitate the mobility of practitioners within ASEAN, to exchange information and enhance cooperation regarding mutual recognition of practitioners, to promote adoption of best practices on standards and qualifications, and to provide opportunities for capacity building and training of practitioners.

Appendix 4 provides a list of the MRAs already implemented throughout the regional bloc and updates on the commitments made by the Philippines in the ASEAN Framework Agreement on Services (Tullao 2014). Behind these initiatives is the premise that when qualification standards are consistent throughout the ASEAN, it would be easier for businesses to hire manpower based on their skills; thus, labor mobility processes in terms of recruitment would be smoother. Latest records show that key features, underlying principles, and the structure of the AQRF have been finalized in November 2013 during the 3rd meeting of the Task Force of the AQRF. The Philippines and China are said to have begun the comparability of qualifications process, starting with welding qualifications. The second thrust focuses on labor mobility governance as a means to promote and protect temporary workers. Proposals, thus, were mainly on workshops on best practices regarding overseas employment administration and the protection of temporary migrant workers. Specific examples of workshop topics are


on the elimination of recruitment practices and information services for migrant workers.

Lastly, the expertise of the Senior Officials Meeting on Transnational Crime was combined with the Labour Ministers Meeting to attain regional cooperation against human trafficking in the ASEAN.

The APEC can learn from the ASEAN’s commendable efforts in the promotion and facilitation of labor mobility. Given that members of the ASEAN are also members of the APEC, taking these issues and practices to the latter’s discussion table will enlighten other countries as well as help APEC assess its projects’ impact—along with their strengths and flaws—on labor mobility in the region. The AQRF is one initiative that can be brought into the APEC’s radar.

NAFTACanada, Mexico, and the United States, all members of the NAFTA, are also part of APEC. A whole chapter in their FTA is dedicated to the mobility of workers. In NAFTA, temporary labor mobility benefits are applied only to business visitors, traders, investors, intracompany transferees, and professionals; that is, lower-skilled workers are not given mobility benefits. The application of benefits is not limited to the services industry alone. Professionals from the agricultural and manufacturing sectors are also allowed to travel to the countries in agreement. A bachelor’s degree is the minimum qualification for all professions. Self-employed persons are not qualified.

EUThe EU has been very progressive in liberalizing trade in services through labor mobility. In their Treaty of Rome in 1958, the mobility concept was already tackled, but it was only in the 1970s that the true free movement of workers was implemented. The EU community regards the free movement of workers as a fundamental right. In Article 45 of the Treaty of the Functioning European Union, full mobility within the Union includes mobility of workers. The treaty’s definition of workers was all encompassing: A worker is any person who engages in an economic activity or is part of the labor force. This means that, aside from skilled and lower-skilled temporary migrant workers, the self-employed workers, working students engaged in vocational training, and even unemployed persons looking for jobs are free to work in another member-state. Regardless of the nationality, all temporary migrant workers are equally entitled to social security and pensions. In 1964, the Council Directive 1964/221/EEC was issued. The directive pertains to public security or public health


circumstances where a member-state can deny entry to a temporary migrant worker. Examples of such circumstances are when workers carry viral diseases, are addicted to drugs, or are deemed mentally unfit to conduct themselves and live as temporary migrant workers in another member-state. Those with previous criminal charges may also be refused to work in the receiving country. In 1985, the Schengen Agreement was formed, prompting EU members to eliminate checks at shared borders as well as visa issuances. In 2005, the Council Directive 2005/36/EC was implemented. This mandated member-states to recognize professional qualifications of workers in the region to better facilitate worker mobility. Mutual recognition of qualifications is on a region-wide basis and applicable to the following professions: nurses, dental practitioners, veterinary surgeons, midwives, architects, pharmacists, and doctors.

Emerging opportunities and initiatives for cooperation

APEC documents and recent meetingsCurrently, the greatest accomplishment in APEC’s labor mobility is the establishment of the APEC Business Travel Card program, where discussions are focused on improving its facilitation. In particular, member-economies have noted the following issues to work on:

• Improving the system of APEC Business Travel Cards• Expansion of the program in terms of geography and in areas of

application• Introducing automated customs systems• Harmonizing standards of migration services

The Philippines has agreed and committed with all these suggestions according to the presentation of Foreign Affairs Undersecretary Laura Q. del Rosario before the APEC 2015 Summit National Organizing Committee. During the first meeting of the National HRDWG in October 2013, the Philippines, as the host of the APEC 2015 Summit, decided on inclusive growth as the overall theme for the summit. Thus, project proposals from different implementing agencies are urged to be related to this theme. This is in fact a good opportunity to include or consider the study on labor mobility liberalization for lower-skilled workers. Aside from focusing on improvements in skilled labor mobility, proposals also aimed to facilitate labor mobility through education and skills training. An upcoming high-level meeting on human capacity building was


proposed by the Technical Education and Skills Development Authority (TESDA). The meeting will include the following subthemes:

• Developing the 21st Century Skilled Workforce: Key to Competitiveness and Sustained Growth

• Green and Blue Skills: Imperatives to Human Capital Development Efforts

• Technology in Skills Development: Increasing the Reach and Improving Quality of Technical Vocational Education and Training

• Skills Development for Inclusive Growth: Showcasing Promising Initiatives

Under the first subtheme, an APEC-wide Qualifications Referencing Framework (QRF) similar to the ASEAN Referencing Framework was brought up in local discussions. According to the dialogues, eliminating the MRAs will pave the way for a region-wide recognition of skills, which will then positively liberalize labor mobility in the region. In the latest National HRDWG discussions in February 2014, attendees proposed to make human capital development the first priority of the APEC 2015 Summit based on the rationale that human capital development through education and skills training must be addressed first before establishing regional economic integration. Subpriorities include:

• Development of the 21st century workforce: key to competitiveness and sustained growth

• Development of knowledge capital• Cooperation in education to foster innovation in science and

technology• Increased productivity of micro, small, and medium enterprises

through skills training• Development of an APEC-wide qualifications referencing

framework

It should be noted that the escalation of the APEC QRF from an initiative to a priority will also be discussed in the APEC 2015 Summit.

FGDsAn FGD between the research team and members of the TBAM-HRDWG was held at the Philippine Institute for Development Studies on March 26, 2014. The study’s zero draft on labor mobility was presented to the


members of the TBAM-HRDWG to gain their views on the liberalization of labor mobility and to solicit recommendations on points to discuss during the APEC 2015 Summit. Members of the TBAM-HRDWG came from the Department of Labor and Employment (DOLE), TESDA, Commission on Higher Education (CHED), and Department of Foreign Affairs (DFA).

The following guide questions were asked during the study’s FGD:

• Among the issues on labor mobility, which are appropriate, necessary, and feasible for discussion during the APEC 2015 Summit?

• Should we still focus on human capital development (education, skills training)?

• There has been much focus on enhancing labor mobility, but what about commitments to harmonize country-by-country labor policies?

• Should we create standards for country-to-country labor agreements?

• What about the facilitation of labor itself (e.g., improving processes, administration)?

• What indicators, measures, and labor statistics would help to establish a good labor mobility model?

• What can we learn from other regional trading blocs regarding their stance and policies on labor mobility?

The most relevant topic discussed centered on the misconceptions on the definition of labor mobility and how it differs from the term labor migration.

In labor mobility, the transaction is between the employer and the service provider and not a direct transaction between the employer and the individual worker. For example, an employer in Country A is in need of a specific number of professionals with a certain skill set. Service-providing firms throughout the region would then bid for the provision of manpower. The winning bidder is expected to provide the manpower to the said employer as well as to process visas and arrange other overseas employment requirements. The manpower is expected to work for the said company according to the terms stipulated in their contracts. By this very definition, labor mobility is deemed acceptable in APEC only if workers are deployed through a legal intermediary—a registered manpower firm—for a certain period of time. Governments in the Asia Pacific want to ensure that workers deployed abroad will


return after a contract expires, and deployed again only after a new contract is renewed.

Governments also want transactions to be above reproach, and a registered manpower agency is a way to curb illegal practices (i.e., tago nang tago or TNT, fake passports, fake visas). Meanwhile, the manpower agency itself is also expected to find workers with a skill set that is relevant to the job and who will stay throughout the contract period. Employees who terminate their contract midstream, however, can easily be replaced by a candidate from the same service-providing firm.

While the definition of labor mobility was clear to all representatives in the TBAM-HRDWG meeting, Jose Sandoval’s (from DOLE) question—on whether only Filipinos should be hired as workers by manpower agencies even if non-Filipino residents are qualified—instigated a lively discussion. Mr. Sandoval asserted that since the bidding of services is global, then the hiring of workers should be global, too. In contrast, other participants were concerned that such stance might affect the Filipinos’ global competitiveness and capability to compete with foreign workers.

Other comments from participants brought out emerging opportunities not mentioned in the study. The first is on the signed MRA for tourism professionals, which aimed to standardize tourism in the ASEAN region. Patty dela Rama of TESDA stated that this MRA is an initiative implemented by the Department of Tourism on November 9, 2012. Prior to this, an agreement on the benchmarking of tourism professionals’ qualifications was signed on January 2009. Other projects that establish professional qualifications are shown in Appendix 5.

The second identified opportunity is the project on the inclusion of “cooperation of future jobs” in high-level policy dialogues on science and technology in higher education. According to Lily Freida Milla of CHED, preparations are already under way for this project to be launched in 2015.

Lastly, Attorney Milla pointed out that participants from the National Class Workshop are unanimous in pushing for APEC Travel Cards to bring local faculty members and experts to universities in other countries.

Discussants were then asked if it was still necessary, appropriate, and feasible to focus on human capital development as a priority for the APEC Summit 2015. The question was raised because, as manifested during APEC discussions from 1989 to 2011, several projects on education and training (or the enhancement of labor mobility) were already implemented. However, not enough attention has been given to the issue of how to facilitate labor mobility.

Rebecca Calzado of DOLE and Patty dela Rama of TESDA agreed that there is still a need to prioritize human capacity development during


the APEC Summit 2015. Highly skilled professionals and skilled workers should, of course, be prioritized simply because of their qualifications. The president’s inclusive growth objective as stipulated in the PDP is a good reminder of the constant pursuit of this direction.

The discussion also tackled the definitions of skilled and unskilled workers. The FGD participants noted that the public has somehow degraded the term unskilled workers by incorrectly assuming that these workers have no skills and are not worth prioritizing because any employer would prefer workers with skills. Unskilled workers are usually blue-collar workers (e.g., welders, plumbers, gardeners), that are, on the contrary, skilled workers although not classified as professionals.

It was pointed out that, first, the MRAs are now slowly being expanded to cover blue-collar jobs such as those engaged in construction work and manufacturing; second, a Qualifications Referencing Framework is also being expanded to include such skill set; and third, a database on workers with certified skills is being proposed.

To address the public’s misconception, the definition of the terms “skilled” and “unskilled” workers need to be harmonized. Discussants agreed that some programs could eventually turn “unskilled” workers into skilled ones through certifications. Hence, a DFA representative in the FGD had proposed that in lieu of the term temporary mobile workers, the name professional service workers be used. In such proposal, there is no need to segregate professionals from low-skilled workers. Removing the stigma on blue-collar workers by unifying these two groups, in fact, allows for inclusive growth.

This study’s research team, however, was concerned that member-economies might object to this change and insist that professionals have “earned” their right to such label. To defuse such concern, it might be necessary for the APEC Summit 2015 delegation team to constantly emphasize the overall theme of inclusive and equitable growth to other member-economies. Discrimination, after all, hinders access to opportunities. The fulfillment of the Asia-Pacific economic integration must also ensure that every laborer in the region, whether professionally licensed or not, must have access to job opportunities.

The FGD participants also tackled member-economies’ commitments to harmonize country-to-country labor policies. They noted that discussions on labor policies should be excluded as a priority during the APEC Summit because these interfere with individual economies’ sovereignties. It is deemed politically inappropriate for member-economies to discuss the issue this early on a regional level. Once the proposed initiatives (e.g., APEC MRAs, APEC Regional Qualifications


Frameworks, high-level policy dialogues on science and technology in higher education) and the issues (i.e., prevalent discrimination against low-skilled workers) are settled, discussions on how to harmonize country-to-country labor policies can commence.

The TBAM-HRDWG concluded by concurring that the following issues on labor mobility are deemed appropriate, necessary, and feasible topics for the APEC Summit 2015:

• Emphasis on labor mobility as part of trade in services• MRAs on qualification standards• Human capital development and management, particularly on

capacity building• Development of guiding principles for country-to-country labor

agreements and labor components in trade agreements• Identification of indicators, measures, and data that can help

establish a good labor mobility model (e.g., skills mapping, exchange of information on labor supply and demand)

• Lessons from other regional trading blocs on their stance and policies on labor mobility

National Workshop on ServicesThe National Workshop on Services held on June 2–4, 2014 at the Asian Institute of Management in Makati, Philippines, showcased studies on several aspects of services. The workshop was attended by professionals from the academe, government, and different industries. Representatives from different industries presented market trends, issues, strengths, and weaknesses on their respective industries in an attempt to provide an overall view of their competitiveness in preparation for the ASEAN Economic Integration and the APEC Summit in 2015. The sectoral approach or perspective in tackling labor mobility was also discussed.

Some notable insights during the workshop are:

The Philippines has the potential to be a maritime cluster offering a full suite of services to the world. Huge opportunities remain in the maritime industry as Filipino seafarers continue to be sought after globally. Magsaysay-Ho (2014) cited Singapore’s experience as an example of how the Philippines can turn into a maritime cluster. Ultimately, the goal is to bring about a Filipino seafarer who is internationally exposed, competent, skilled, and experienced. There


are, however, areas that need to be improved before this vision of a competitive maritime cluster can be realized. Relevant areas of focus are ship management, education and training, surveys and audits, and trade and infrastructure.

Another aim is for the Philippines to be regarded as a natural destination for ship management services and a source of technical, marine, and crewing staff and managers.

• On maritime education and training: A suitable number of experienced instructors and training equipment as well as a pool of educated and trained seafarers for ships and shore-based opportunities are desired.

• On surveys and audits: A pool of surveyors and auditors working for certification bodies, such as classification societies, insurance underwriters, protection and indemnity clubs, insurance adjusters from the Philippines and catering to the global market, are envisioned.

• On port infrastructure: Appropriate technology and efficient logistics processes are all necessary. In this light, policies that liberalize the mobility of Filipino seafarers and certify their skills as at par with the region’s standards through the QRF will boost the maritime sector.

The Philippines can take the lead in analytics services industry as promised by leaders in information technology-business processing management (IT-BPM). Bongato (2014) presented significant achievements in the Philippines’ IT-BPM sector: 900,000 jobs in the IT-BPM industry as of 2013, revenue of USD 15.5 billion in 2013, second in global outsourcing destination, and first in voice outsourcing. Filipino workers are skilled English-speaking professionals, with a Western-based legal and accounting knowledge and certified in voice and customer service. Moreover, the country’s IT-BPM sector is not only confined to voice services but also features a wide range of outsourced services ranging from finance and accounting, health care, legal, gaming, to programming.

The IT-BPM industry exemplifies more the benefits of trade in services in terms of Modes 1 and 3 of the GATS. However, the temporary mobility of Filipinos—either those classified as professionals (especially in such fields as gaming, IT, and animation) or those in other fields not considered as professional services nor requiring professional licenses—may help improve their know-how and skills upon return to the country.


The Philippines has the capability to be known as home to world-class brands with the internationalization of Philippine franchise brands. Sibal-Limjoco (2014), vice-chairman of the Philippine Franchise Association, noted that there is some difficulty in identifying suitable local partners and in hiring employees with professional-level skills. These professionals face limitations on labor mobility; lack of mutual recognition of skills and qualifications; and restrictions on visa, travel, and work. To address the issues, the development of MRAs for franchise professionals and facilitation of labor mobility of franchise professionals are recommended. These would include, in particular, certification programs for franchising professionals in APEC, a one-stop shop business assistance network, education and training, and frequent APEC franchise expositions.

The Philippines has opportunities in the international telehealth and medical retirement sector. The presentation by Dr. Jaime Galvez-Tan, president of Health Futures Foundation, revealed some opportunities in the telehealth industry and medical tourism. While Galvez-Tan (2014) lamented the rampant brain drain or outmigration of health professionals, he was optimistic that negotiations with regard to MRAs and collaborations with Filipino professionals with foreign licenses would happen. There is some potential in the Philippine medical services, particularly in telehealth; international and medical retirement; health professional registries; and world-class medical, dental, and health sciences education. A boost in the standardization of licensed nursing schools will improve the quality of nurses and, along with the QRF, will enhance professional service mobility.

Serafica (2014) noted the need to have a comprehensive, consistent, and coherent services strategy, given the insights gained from the workshop:

• Services are valuable in international trade.• Numerous opportunities abound for new business models and

digital services.• Manufacturing-related services will expand out of China and

Thailand.• Growth in the services sector is currently limited to business

process outsourcing.• Telecommunications and real estate industries are touted as

high-growth industries, and these businesses are limited to only a few geographical areas.


A comprehensive services strategy can facilitate efficiency in cost and quality at the firm level. However, this services strategy needs to be aligned with the inclusive growth objective of the administration and formulated in conjunction with strategies of both the agriculture and manufacturing sectors. It will greatly improve Asia-Pacific labor mobility, as it can resolve job mismatch and bring in investment in education and skills and job training.

Key recommendations in this workshop include:

• Services must be given a higher profile in APEC. The ABAC and PECC have seen the urgency to discuss and elevate services, as a topic to the Senior Officials’ Meeting, given that services also encompass different working groups.

• “Services initiatives” must be directly coordinated with the Senior Officials’ Meeting. As noted above, issues on the different kinds of services, as raised in different working groups, will be better and immediately recognized if coordinated under a higher body, which, in this case, is the Senior Officials’ Meeting.

• Emerging issues (e.g., cloud computing, data privacy, and cross-border trade) and “servicification” or subsidies in manufacturing, while fairly new, should be included already in discussions.

• Public-private dialogue in Manila must be pursued in the Senior Officials’ Meeting 2015. The inclusion of a public-private dialogue similar to that of the National Workshop of Services, wherein representatives from both the private and public sector were included, will help in pinpointing urgent issues in each industry.

• Inclusive growth ought to be highlighted as a goal of both the PDP and APEC (revisiting APEC Growth Strategy in 2015). Eduardo Pedrosa, secretary-general of PECC, emphasized that inclusive growth is not only part of the PDP, but it is also included in the APEC growth strategy—in particular, in APEC’s five growth attributes: balanced, inclusive, sustainable, innovative, and secure growth.

Summary and recommendationsProfessional service mobility is supposed to be an utmost priority in the Asia-Pacific region. Yet, only recently have there been movements and discussions on issues on professional service mobility. The increasing internationalization of trade in services alone is one of the compelling reasons to make such discussions a priority. Data show that the great and constantly growing number of people moving from one country to another


(movement of natural persons) to work and find better opportunities significantly contribute to trade, aside from other GATS supply modes (e.g., outsourcing and commercial presence). Also, data pertaining to remittances in APEC greatly affect the whole trade in services.

Additional benefits of liberalizing professional service mobility are: (1) it sets the balance between labor shortages and labor surpluses, (2) it makes location-specific jobs available in most countries, (3) it provides a natural continuum to globalization, (4) it contributes to economic development through remittances, (5) it enhances regional economic integration through the spread of knowledge capital, (6) it improves human capital development of the whole Asia-Pacific region, and (7) it triggers competition among countries in terms of labor.

On the other hand, there are several barriers or challenges to the free flow of labor in the region. In fact, as noted in the discussions earlier, the free movement of labor is not feasible in most trading blocs, with Europe as the only notable exception. Examples of these barriers are the complex FTAs and/or MRAs; protectionism, restrictive visa requirements; and complicated processes. Documents from APEC summits from 1993 to 2013 show little evidence that issues concerning professional service mobility were addressed. Initiatives such as the APEC Travel Card for businesspersons, as well as bilateral MRAs in some professions, have been implemented but were not enough to promote labor mobility. Major concerns surrounding professional service mobility include the restrictions in mobility in certain occupations, the discrimination against lower-skilled workers, human trafficking, and the many misconceptions on the topic.

In a National APEC HRDWG meeting on labor mobility, an agreement was reached to differentiate labor mobility from migration. That is, it was made clear that labor mobility is facilitated by an intermediary or a manpower agency.

It was likewise clarified that lower-skilled workers should be defined as those people who do not bear any qualifications while skilled workers refer to people who bear certifications and qualifications. These skilled workers—workers who are either professionally licensed or those certified through the QRF—are proposed to be altogether called as professional service workers.

The discrimination against lower-skilled workers is another issue that is being addressed through several initiatives. More often, those working abroad receive harsher treatment. In addition, foreign employers would prefer their own nationals because of nationalistic sentiments; they would also likely perceive their own workers as more skilled and


imbibed with the skills close to their standards. Receiving governments, too, are likely to perceive lower-skilled foreign workers as those who may resort to overstaying in the host country for better opportunities. It is the educated and skilled workers that are also favored because of their work values or knowledge capital.

Thus, the National APEC Working Group is now planning a region-wide QRF similar to that of the ASEAN. One way to eliminate such negative perception toward lower-skilled workers is to provide certifications for specific technical skill sets. Benchmarking has been established even for unlicensed occupations such as construction workers and certifying skills such as concrete block laying. As suggested by DOLE’s Rebecca Calzado, there should be a concept of a global worker—one imbibed with skills that are internationally benchmarked.

Also, more capacity trainings for lower-skilled workers are now in the pipeline.

Unlike the ASEAN and EU, APEC is still far from achieving a liberalized professional service mobility. Therefore, to jump-start discussions on APEC’s labor mobility, this study echoes what have been recommended by experts from the APEC HRDWG in the past years. For the APEC 2015 Summit, the study recommends that: (1) an emphasis on labor mobility as part of trade in services be made; (2) initiatives to create an APEC-wide Mutual Recognition Arrangements of Qualification Standards be established; (3) human capital management be prioritized along with human capital development; (4) guiding principles for country-to-country labor agreements and labor components in trade agreements be developed; and (5) cooperation for the collection of good labor statistical data, such as skills maps, and information on labor supply and demand throughout the region be highlighted.


Appendix

Appendix 1. List of professions per GATS and Professional Regulation Commission

Professional services according to the GATS

Legal services Accounting, auditing, and bookkeeping services Taxation services Architectural services Engineering services

Integrated engineering services Urban planning and landscape architectural services Medical and dental services Veterinary services Services provided by midwives, nurses, physiotherapist, and paramedical personnel

Licensed professions regulated by the Professional Regulation Commission

I. Technology professionsAgricultureArchitectureChemistryEnvironmental planningFisheriesForestry

GeologyInterior designLandscape architectureMaster plumbersSugar technology

II. Health and allied professionsDentistryMedical technologyMedicineMidwiferyNursingNutrition and dietetics

OptometryPharmacyPhysical therapy/Occupational therapyRadiologic technologyRespiratory therapyVeterinary medicine

III. Business, education, economics professions

AccountancyCriminologyCustoms brokersGuidance counselingLibrarian

MarinedeckofficersMarineengineerofficersProfessional teachersPsychologyReal estate servicesSocial workers

IV. Engineering professionsAeronautical Agricultural Chemical Civil Electrical Electronics

Geodetic Mechanical MetallurgicalMining Naval architecture and marine Sanitary

Source: Cueto (2014); Tullao (2014)


Appendix 2. Facilitating temporary labor mobility within the APEC region: Opportunities and challenges

Issues and challenges to labor mobility

1. Themostcriticalfrictions,bottlenecks,barriers,andproblemsintemporarylaborflowsreported include:

a. Absence or complexity of labor agreements in FTAs and MOUsb. Restrictiveness of national temporary worker visa regimesc. Deficientgovernmentalagencycapabilitiesandsystemsformanagingand

coordinatingtemporaryworkerflowswithinandacrosseconomiesd. Misalignments between government labor policies and programs, and immediate

business needse. High recruitment fees and travel logistics costs for businesses and workersf. Lack of adequate governance of labor recruitment/placement agencies and foreign

employersg. Lackofmutualrecognitionandverificationofworkerqualificationsandcredentialsh. Overly restrictive temporary worker visa regimes driven by protectionist sentiment

and cultural biasesi. Weak or nonexistent processes and systems to ensure the repatriation of workers

2. Existing temporary worker labor policy within APEC is uneven and patchy. About 98 percent of all labor provisions in FTAs focus on the movement of businesspersons. The movement of the skilled and unskilled workers has been neglected: 10 of the 42 FTAs have no chapter on labor mobility, 28 FTAs address labor in a Movement of Business or Natural Persons chapter, and only seven contain a labor chapter.

3. Thescopeandcomprehensivenessoflabor-specificMOU,negotiatedinplaceoforassupplements to FTAs, are equally lacking. MOUs contain 30 percent fewer provisions thanFTAs,andtheyaretypicallywrittenwithlessspecificpolicydetail.Disquietingly,ofthe39labor-specificMOUsidentified,morethanathird(equivalentto14agreements)were not available to the public.

4. No international labor agreement standards nor labor mobility model measures exist. The absence of guidelines has resulted in differing approaches to preparing labor agreements. Against a proposed set of 30 essential labor provisions (considered important for ensuring comprehensiveness and effectiveness), the most thoroughly prepared labor agreement includes less than half.

5. Business executives do not want more studies documenting the existence of labor shortages. Executives want the conversation in APEC to focus on developing more policies toimprovetemporarylaborflows.Improvingthecyclicalpatternoftemporaryworkermovement is a key concern of stakeholders in both sending and receiving economies.

6. Specifickeyproblemsreportedbybusinesseswere:thelackofcomprehensiveworkermovementpoliciesthatcreateinefficienciesandhightransactioncosts;overlyrestrictiveentry requirements in some economies; arbitrary quotas misaligned with labor shortages that reduce the level of workers hired; costs incurred by businesses and workers from placement fees, double taxation, and lack of pension portability; unregulated recruiting agencies; lack of worker predeparture training; lack of mutually recognized training, assessment,andqualifications;andassurancethatworkersreturnhomewhentheiremployment term is complete.

Source: USC Marshall ABAC Research Team (2009)


Appendix 3. Salient features of the ASEAN Economic Community blueprint

Goal: Free flow of servicesFreeflowoftradeinservicesisoneoftheimportantelementsinrealizingtheASEANEconomicCommunity, where there will be substantially no restriction to ASEAN services suppliers in providing services and in establishing companies across national borders within the region, subject to domestic regulations. Liberalization of services has been carried out through rounds of negotiation mainly under the Coordinating Committee on Services. Negotiation of somespecificservicessectors,suchasfinancialservicesandairtransport,arecarriedoutbytheir respective Ministerial bodies. In liberalizing services, there should be no back-loading ofcommitments,andpre-agreedflexibilityshallbeaccordedtoallASEANmember-states.Infacilitatingthefreeflowofservicesby2015,ASEANisalsoworkingtowardrecognitionofprofessionalqualificationswithaviewtofacilitatetheirmovementwithintheregion.

Action steps:i. Remove substantially all restrictions on trade in services for four priority services sectors:

airtransport,e-ASEAN,healthcare,andtourismby2010,andthefifthpriorityservicessector, logistics services, by 2013;

ii. Remove substantially all restrictions on trade in services for all other services sectors by 2015;iii. Undertake liberalization through consecutive rounds of every two years until 2015—i.e.,

2008, 2010, 2012, 2014, and 2015;iv. Target to schedule minimum numbers of new subsectors for each round: 10 subsectors

in 2008, 15 in 2010, 20 in 2012, 20 in 2014, and 7 in 2015, based on GATS W/120 universeofclassification;

v. Schedule packages of commitments for every round according to the following parameters:• NorestrictionsforModes1and2ofGATS,withexceptionsduetobonafide

regulatory reasons (such as public safety), which are subject to agreement by all member-countries on a case-by-case basis;

• Allow for foreign (ASEAN) equity participation of not less than 51 percent by 2008 and 70 percent by 2010 for the four priority services sectors; not less than 49 percent by 2008, 51 percent by 2010, and 70 percent by 2013 for logistics services; and not less than 49 percent by 2008, 51 percent by 2010, and 70 percent by 2015 for other services sectors; and

• Progressively remove other Mode 3 market access limitations by 2015; vi. Set the parameters of liberalization for national treatment limitations, Mode 4, and

limitations in the horizontal commitments for each round by 2009; vii. Schedule commitments according to agreed parameters for national treatment

limitations, Mode 4, and limitations in the horizontal commitments set in 2009; viii. Complete the compilation of an inventory of barriers to services by August 2008; ix. Allowforoverallflexibilitiesthatcoverthesubsectorstotallyexcludedfromliberalization,

and the subsectors in which not all the agreed parameters of liberalization of the modes of supply are met, in scheduling liberalization commitments. The scheduling of liberalization commitments in each round shall be accorded with the following flexibilities:Ifpossible,catchupinthenextroundifamember-countryisnotabletomeet the parameters of commitments set for the previous round; • Allow for substituting subsectors that have been agreed to be liberalized in a round

but for which a member-country is not able to make commitments with subsectors outside the agreed subsectors; and

• Liberalize through the ASEAN minus X formula. • Complete MRAs currently under negotiation, i.e., architectural services, accountancy

services,surveyingqualifications,medicalpractitionersby2008,anddentalpractitioners by 2009;

• Implement the MRAs expeditiously according to the provisions of each respective MRA; • Identify and develop MRAs for other professional services by 2012, to be completed

by 2015; and • Strengthen human resource development and capacity building in the area of services.


Appendix 3. (Continued)

Goal: Free flow of skilled labor Allowing for managed mobility or facilitated entry for the movement of natural persons engaged in trade in goods, services, and investments, according to the prevailing regulations ofthereceivingcountry….Infacilitatingthefreeflowofservices(by2015),ASEANisalsoworking toward harmonization and standardization, with a view to facilitate their movement within the region.

Action steps:i. Facilitate the issuance of visas and employment passes for ASEAN professionals and skilled

labor who are engaged in cross-border trade and investment-related activities;ii. Enhance cooperation among ASEAN University Network members to increase mobility for

both students and staff within the region; iii. Developcorecompetenciesandqualificationsforjob/occupationalandtrainersskills

required in the priority services sectors (by 2009) and in other services sectors (from 2010 to 2015); and

iv. Strengthen the research capabilities of each ASEAN member-country in terms of promoting skills, job placements, and developing labor market information networks among ASEAN member-countries.

Source: Riguer (2013)

Appendix 4. Established MRAs in ASEAN

ASEAN MRA for dental practitionersASEAN MRA for engineering servicesASEAN MRA for nursing servicesASEAN MRA for accountancy servicesASEANMRAforsurveyingqualificationsASEAN MRA for architectural servicesASEAN MRA for medical practitioners

Updates on the commitments made by the Philippines per 8th ASEAN Framework Agreement on Services:Subsectors with commitments in terms of reciprocity requirements and equivalence of registration and licensingAuditing services: Financial auditing and accounting review Bookkeeping services except tax returns Architectural services Taxation services Engineering services: civil, electrical, mechanical, and geodetic

Source: ASEAN 2013 (www.asean.org); Tullao (2014)


Appendix 5. Inputs provided by TESDA regarding details of MRAs

• ASEAN MRA on Tourism Professionals (MRA-TP)

The MRAs are arrangements between two or more parties to mutually recognize or accept some or all aspects of one another’s conformity with assessment results. One of the objectives of the MRA-TP is to ease the mobility of tourism professionals within ASEAN basedonacompetency-basedtourismqualifications/certificates.TheMRAwassignedbythe ASEAN member-states on January 6, 2009 in Hanoi, Viet Nam. TESDA, for its part (in partnership with the Department of Tourism – Tourism Industry Board Foundation, Inc.), has done the following: • Comparability of competency standard/training regulations with the ASEAN Tourism

Toolbox under the ASEAN MRA-TP;• ConductofASEANMRAbriefing/awarenessprograminallregions;• Conduct of National Master Trainers and Master Assessors Training for the

implementation of the ASEAN MRA and Philippine Trainers and Assessors Training

• Benchmarkingofqualificationsonships’cooks

In compliance with the ILO Maritime Labor Convention 2006 Guidelines, TESDA has developed and promulgated the Training Regulations on Ships’ Catering Services, NC I, II, and III in May 2013. These training regulation sessions are now being offered in various maritime schools in the country. One recent development in the area is the approval and adoption of new guidelines on the Training of Ship’s Cooks last March 2014. These new guidelines were the result of the meeting of experts in Geneva on September 23–27, 2013. In response to this development, TESDA convened a meeting of experts who were involved in the development of the training regulations last April 25, 2014. The meeting explored the need to update the newly promulgated existing training regulations on ships’ catering services based on the new guidelines.

• Benchmarkingofqualificationsonconstruction

The ASEAN Constructors Federation (ACF) is currently chaired by the representative of the Philippine Constructors Association (PCA). One of the main projects initiated by the PCA is the Construction Standard Trade Skills Training program, which aims to harmonizetheskillsstandards/trainingregulationsandassessmentandcertificationacrossASEANcountries.TheACFhasidentifiedthefollowingpriorityknowledgeforskills standardization: • Reinforcement steel works • System formwork installation• Timber formwork • Brick laying• Concrete block laying• Plastering• Tile setting• Welding • Structural steel work• Lifting/Earthmoving equipment

The PCA and TESDA have collaborated in the development of training regulations, competency-based curriculum, and competency assessment tools for two priority skills: • System Formworks Installation NC II (promulgated by TESDA on May 9, 2012)• Reinforced Steel Works NC II (promulgated by TESDA in December 2013)

• Regional Model Competency Standards (RMCS) for Manufacturing

TESDA has done RMCS for the training regulations related to manufacturing. A comparative analysis matrix was made that equates the functional area on themanufacturingRMCStoTVETqualifications.Qualificationswerecategorizedinto



competency types such as (1) Basic – sets of competency that every worker must possess, (2) Common – sets of competency required of workers in a particular sector/industry, and (3) Core – set of specialized units of competency required of workers unique in a particular area of work.Someofthequalificationsthathaveacorrespondingfunctionalareaare:• Heavy equipment operation• Heavy equipment servicing• Visual graphics design• Footwear making• Machining• Carpentry• Foundry molding• Foundry pattern making• Welding• Building wiring installation• Automotive mechanical assembly• Automotive electrical assembly• Gas welding• Shielded metal arc welding, gas-shielded metal arc welding, and gas tungsten arc

weldingqualifications• Painting machine operation• Process inspection• Automotive servicing

• Regional Model Competency Standards for Domestic Worker (DOMWORKS)

The ILO co-hosted with TESDA a technical validation workshop for DOMWORKS. The main objective of the workshop was to review and validate the content of the draft RMCS prepared by the ILO. The following were the objectives of the workshop: • To enable participants to gain understanding of the RMCS for domestic work and

familiarize with the contents and how it can be applied;• To draw on the practices and lessons learned from the development and

implementation of existing relevant competency standards and training practices in theregionandconsiderthesewhenfinalizingtheRMCS;

• Toreviewandfindtheappropriatewaystoincorporatecoreworkskillsanddecent work elements into the draft RMCS. These competencies relate to effective communication, negotiation skills, living and working abroad, reproductive rights, skills responding to green concerns, empowerment skills, knowledge on workers’ rights, and how to deal with excessive overtime and reasonable wage and other related issues;

• To advise how the domestic work RMCS can be aligned with and support the ASEAN mutual recognition framework and the development of the ASEAN Reference QualificationFramework.

TheoutputoftheworkshopisthefinaldraftRMCSfordomesticworkers.Itcoversthefollowing functional areas:

• Domestic Work Functional Area-A: Core units• Domestic Work Functional Area-B: Domestic cleaning and basic housekeeping• Domestic Work Functional Area-C: Basics of cooking• Domestic Work Functional Area-D: Caring for infants and children• Domestic Work Functional Area-E: Caring for elderly people• Domestic Work Functional Area-F: Caring for household pets and plants

• ComparabilityandbenchmarkingofcompetenciesandqualificationframeworksintheAPEC region (Pilot area: Construction/Welding)

As part of the APEC HRDWG Project, the Philippines, through TESDA, and the People’s Republic of China have jointly implemented a project entitled, “Comparability and



BenchmarkingofCompetenciesandQualificationFrameworksinAPECRegion(PilotArea:Construction/Welding)”in2009.Thisisinresponsetotheministers’callstoaddressthe challenges in the 21st century skills through capacity building and human resources development. The project saw the need to equip economies with the proper information, policies, and training to take full advantage of freer movement of human capital and wider employment opportunities and to address the mismatch of skills and labor market requirements. Some of the recommendations of the study are as follows:• The APEC member-economies should work together to analyze the existing regional

qualificationsframework(suchasEU’squalificationsframework).• APEC should use the survey result and the lessons provided by economies with

NationalQualificationFrameworkstofacilitateongoingdialoguebetweenmember-economiesandotherAsia-Pacificeconomiesonnationalqualificationsframeworks.

Onthebasisofresearchandpractice,aproposalforavoluntaryregionalqualificationframework should be developed and disseminated amongst member-economies for comment.

Source: TESDA Planning Office (2014)

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AbstractWell-developed infrastructure systems and services strengthen the connectivity of Asia-Pacific Economic Cooperation (APEC) economies. Hence, the efforts of APEC to enhance connectivity through infrastructure—which not only create positive spillover effects but also produce greater net benefits for member-economies—should be considered regional public goods. To contribute to APEC efforts and, at the same time, help meet the infrastructure development needs of the country, the Philippine government should elevate cross-cutting topics and sector-specific concerns as priorities for discussion during its hosting of APEC 2015. The Philippines can propose regional cooperation on investing and building disaster-resilient infrastructure, as well as sharing of best practices and lessons learned in complying with infrastructure resilience requirements. The Philippines can also explore public-private partnerships (PPPs) and zero in on the need for dynamic capacity building and sharing of best practices on viability studies, risk sharing, and contracting—which are crucial factors in ensuring that PPP projects are bankable. The Philippines can also recommend knowledge sharing and actual investments toward infrastructure quality upgrading in the transport, energy, and telecommunications and information sectors.

IntroductionThe purpose of this study is to assess how the Philippines is faring in infrastructure development and physical connectivity within the APEC

7Adoracion M. Navarro

Philippine Priorities in Expanding APEC-Wide Connectivity through Infrastructure Development

194 APEC-wide Connectivity through Infrastructure Development

region. It also aims to recommend strategies and activities that the Philippines can elevate to APEC discussions on infrastructure.

Building on APEC’s recent initiatives, this study profiled APEC organizational structures for infrastructure, assessed those initiatives, and identified the complementation between domestic concerns and such initiatives.

APEC has working groups for three sectors: (1) transportation, (2) telecommunications and information, and (3) energy. While there is still no working group on water under the APEC organizational structure, water security issues are already being discussed in the APEC Business Advisory Council—a structure outside of APEC that provides inputs from the business sector. As recommendations are likely to be sustained if they are linked to APEC initiatives that are already in place, this study limits its focus on the three sectors that are within the organizational structure of APEC.

Analytical frameworkPhysical connectivity, through infrastructure development, enables all APEC economies to share the positive spillover effects of regional cooperation. The theory of public goods applied at a regional level cements this foundation.

Smith (1776), whose works remain relevant today, asserted the importance of connectivity-enhancing physical infrastructure in promoting inclusive growth. In his An inquiry into the nature and causes of the wealth of nations, he said:

“Good roads, canals, and navigable rivers, by diminishing the expense of carriage, put the remote parts of the country more nearly upon a level with those in the neighborhood of the town. They are upon that account the greatest of all improvements. They encourage the cultivation of the remote, which must always be the most extensive circle of the country... Though they introduce some rival commodities into the old market, they open many new markets to its produce”.

Physical infrastructure enables connectivity and increases opportunities for engaging in economic activities, such as trade and tourism. It stimulates the mobility of production inputs like labor, financial capital, machineries, and equipment. It also speeds up the delivery of social services to remote areas. This is true not only at the country level but also at the regional level.

Navarro 195

Regional cooperation in infrastructure development can be viewed as a public good because it creates positive spillover effects for each member of the region, or provides a member greater net benefits than what it could achieve if it were to produce the good on its own. Regional public goods provide benefits to individuals in two or more nations in a well-defined region—depending on geological, political, geographical, cultural, or meteorological basis (Sandler 2007). The APEC region, for instance, considers its ties as political and geographical.

Regional public goods are also characterized by their nonexcludability and nonrivalry properties. To illustrate, harmonized regional standards are pure public goods because their benefits are completely nonrival and nonexcludable. This means that a country’s use of regional standards does not reduce other countries’ benefits from these standards. Moreover, the availability of information on these standards prohibits the exclusion of and by any country. A regional financing facility, in contrast, is an impure public good because its benefits are partially rivaled and may be partially exclusive. Successful access to financing facility by one country reduces the amount of financing, at least relative to the seed money, which can be made available to other member-countries. The facility may be partially exclusive if there are certain criteria to be met before a member-country can apply for financing.

Within APEC, infrastructure connectivity cooperation as a regional public good is being delivered through efforts in: (1) improving cross-border infrastructure, (2) enhancing technology utilization and bridging the technology divide, (3) expanding investment flows through innovative financing schemes such as PPP projects, and (4) sharing of best practices and harmonization of standards.

State of infrastructure development and physical connectivity within APECThe Philippines is lagging behind most of its APEC neighbors in infrastructure stock and quality rankings. According to the Global Enabling Trade Report 2014, the Philippines and Peru have the poorest trade-enabling infrastructure among APEC economies (Figure 1).

In terms of the quality of overall infrastructure, the Philippines also ranked low, with a score of 3.7 (maximum possible score is 7), according to the Global Competitiveness Report 2013–2014. This puts the country in the 98th place among the 148 countries that were ranked. Among APEC economies, the Philippines is third from the bottom (Table 1).

The underinvestment in capacity expansion or upgrading and coordination failures within the institutional and regulatory environment


have been detrimental to the state of Philippine infrastructure. A mapping of fiscal resources from 2008 to 20121 illustrates the poor infrastructure investment record in the country (Navarro and Llanto 2014a). During this period, the share of public infrastructure on gross domestic product (GDP) ranged from 1.4 percent to 2.09 percent—far from the current target of 5 percent of GDP over the medium term. The Philippine Development Plan 2011–2016 also explains that inadequate project preparation, poor project quality at entry, and poor project execution are causing implementation delays. In addition, the institutional and regulatory environment faces the following challenges: (1) the need to separate the operation and regulatory functions, especially in the ports

1 This time period was dictated by the coverage of the Navarro and Llanto (2014a) study.

Figure 1. Infrastructure scores in enabling trade index, 2014

3.4 3.4

3.9 3.9 3.9

4.2 4.3 4.4

4.6 5.0 5.1 5.2 5.2

5.5 5.8 5.8 5.9 6.0 6.1

0 1 2 3 4 5 6 7

PeruPhilippines

IndonesiaMexico

Viet NamRussia

ThailandChile

People's Republic of ChinaNew Zealand

MalaysiaAustralia

CanadaChinese Taipei

Republic of KoreaUnited States

JapanHong Kong, China

Singapore

Infrastructure subindex

Note: Maximum possible score is 7. No available scores for Brunei Darussalam and Papua New Guinea.Source: World Economic Forum (WEF) 2014

Navarro 197

sector; (2) the need to establish independent regulators and create regulatory frameworks in sectors where they are lacking; and (3) the need to strengthen regulatory institutions.

Consequently, the Philippines’ poor rankings in infrastructure availability and quality among the sectors of transportation, telecommunications and information, and energy are evident compared with the rankings of other APEC economies.

TransportationThe Global Competitiveness Report’s rankings show that within APEC, the Philippines is among the countries with the poorest quality of transportation infrastructure—airports, roads, railroads, and ports. The country is at the bottom of the ranking in terms of quality of air and sea (port) transport infrastructure, fourth from the bottom in terms of quality of roads, and second from the bottom in terms of quality of railroad infrastructure (Table 2).

Meanwhile, the Global Enabling Trade Report 2014, which

includes transport services, reveals almost the same pattern. Among APEC economies, the Philippines scored the lowest in terms of availability and quality of transport infrastructure and transport services (Figure 2). The rankings are based on the enabling transport subindexes in the overall enabling trade index measure. The enabling transport subindex indicates the extent to which a country has transport infrastructure in place to facilitate the movement of goods within the country and across its borders.

In terms of connectivity via maritime transportation, the Philippines is also among the lowest-ranked APEC economies in the 2013 liner

Table 1. Quality of overall infrastructure within APEC, 2014

ASEAN EconomiesQuality

of Overall Infrastructure

Hong Kong, China 6.5

Singapore 6.4

Japan 6.0

Canada 5.8

United States 5.7

Republic of Korea 5.6

Chinese Taipei 5.5

Malaysia 5.5

Australia 5.2

Brunei Darussalam 5.1

New Zealand 5.1

Chile 5.0

Thailand 4.5

Mexico 4.4

People's Republic of China 4.3

Indonesia 4.0

Russia 3.8

The Philippines 3.7

Peru 3.6

Viet Nam 3.4

Note: Values are on a 1-to-7 scale. A total of 148 economies were surveyed. Papua New Guinea was not included in the survey.

Source: WEF (2013)


shipping connectivity index (LSCI) of the United Nations Conference on Trade and Development (UNCTAD). It was ranked 16th among the 20 APEC economies assessed by UNCTAD (Table 3). The LSCI measures how well a country is connected to global shipping networks. The UNCTAD computes the index based on the country’s number of ships, container-carrying capacity of ships, maximum vessel size, number of services, and number of companies that deploy container ships.

Telecommunications and informationThe indicators for the telecommunications and information sector2 are also not reassuring. In terms of networked readiness index computed in

2 This study used the phrase “telecommunications and information” to refer to the sector, rather than information and communications technology (ICT), to be consistent with the terminology of APEC.

Table 2. Quality of transport infrastructure within APEC, 2014

ASEAN EconomiesQuality of

Air Transport Infrastructure

Quality of Roads

Quality of Railroad

Infrastructure

Quality of Port

Infrastructure

Singapore 6.8 6.2 5.6 6.8

Hong Kong, China 6.7 6.2 6.5 6.6

New Zealand 6.0 5.0 3.7 5.5

Canada 5.9 5.6 5.0 5.5

United States 5.9 5.7 4.9 5.7

Republic of Korea 5.8 5.8 5.7 5.5

Malaysia 5.8 5.4 4.8 5.4

Australia 5.6 4.9 4.1 5.0

Thailand 5.5 4.9 2.6 4.5

Chinese Taipei 5.4 5.9 5.7 5.3

Japan 5.2 6.0 6.7 5.2

Chile 5.2 5.4 2.7 5.2

Brunei Darussalam 4.8 5.0 n/a 4.7

Mexico 4.7 4.6 2.8 4.4

People's Republic of China 4.5 4.5 4.7 4.5

Indonesia 4.5 3.7 3.5 3.9

Peru 4.2 3.3 1.8 3.7

Viet Nam 4.0 3.1 3.0 3.7

Russia 3.9 2.5 4.2 3.9

The Philippines 3.5 3.6 2.1 3.4


Source: WEF (2013)

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The Global Information Technology Report 2014, the Philippines and Mexico are third from the bottom among APEC economies (Figure 3). The networked readiness index measures: (1) the environment for ICT, (2) the readiness of a society to use ICT, (3) the actual usage of all main stakeholders, and (4) the impact that ICT generates in the economy and society.

In The Global Enabling Trade Report 2014, the Philippines is second from the bottom in the ranking of availability and use of ICT (Figure 4). This subindex measures the extent to which a country has ICT infrastructure in place necessary to facilitate the movement of goods within the country and across its borders.

The 2011 (latest available) compilation of telecommunications indicators by the International Telecommunication Union (ITU) shows that the Philippines is third from the bottom in terms of actual Internet subscription density (Figure 5). Internet subscriptions, according to the ITU, are subscriptions with fixed (wired) Internet access, including all dial-up and total fixed broadband subscriptions. Only active subscriptions that have used the telecommunications system within the past three months are included.

Nevertheless, the Philippines has a mobile cellular subscription density of 107 subscriptions per 100 people in 2012 (Figure 6). Mobile subscriptions, hence, are greater than the country’s population, and there are people who are subscribed to more than one mobile carrier. In measuring mobile cellular subscription density, the ITU considers the subscriptions to a public mobile telephone service and access to

Table 3. Liner shipping connectivity index (LSCI), 2013

APEC Economy LSCI in 2013

Rank within APEC

Singapore 106.91 1

Malaysia 98.18 2

United States 92.80 3

Japan 65.68 4

Chinese Taipei 64.23 5

Viet Nam 43.26 6

Mexico 41.80 7

Canada 38.44 8

Thailand 38.32 9

Chile 32.98 10

Peru 32.84 11

Australia 29.87 12

Indonesia 27.41 13

Russia 25.73 14

New Zealand 18.95 15

Philippines 18.11 16

Hong Kong, China 10.73 17

Papua New Guinea 6.61 18

Brunei Darussalam 4.61 19

Republic of Korea 3.35 20

People's Republic of China n.a. n.a.


Source: WEF (2013)

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Public Switched Telephone Network using cellular technology, including the number of active prepaid SIM cards during the past three months. The ITU definition includes all mobile cellular subscriptions that offer voice communications through either analog or digital cellular systems. However, it excludes mobile broadband subscriptions via data cards or USB modems and subscriptions to public mobile data services, private-trunked mobile radio, telepoint or radio paging, and telemetry services.

EnergyThe Asia Pacific Energy Research Centre (APERC) projects that the final energy demand3 of APEC economies will increase from 4,758 million tonnes

3 Final energy demand means final (not intermediate) consumption by economic sectors like residential, transport, and others.

Figure 3. Networked readiness index, 2014

3.73 3.84 3.89 3.89 4.01 4.04 4.05

4.30 4.34

4.61 4.83

5.27 5.40 5.41 5.41 5.47 5.54 5.60 5.61

5.97

0 1 2 3 4 5 6 7

PeruViet Nam

PhilippinesMexico

ThailandIndonesia

People's Republic of ChinaRussia

Brunei DarrusalamChile

MalaysiaNew Zealand

AustraliaCanada

JapanChinese Taipei

Republic of KoreaHong Kong, China

United StatesSingapore

Network Readiness Index

Note: Scores are on a scale of 1 (worst possible outcome) to 7 (best possible outcome). Source: WEF and INSEAD (2014)


of oil equivalent (Mtoe) in 2010 to 6,861 Mtoe in 2035. This implies an average annual growth rate of 1.5 percent. China and the United States will dominate this demand. Together, they will account for more than 60 percent of the demand by 2035. In terms of per capita use, developed economies in APEC tend to use more of every energy source, except new and renewable energy (NRE). Developing economies, in contrast, tend to use more NRE in the form of biomass in the residential sector (APERC 2013).

The APERC’s outlook for primary energy supply4 in the region indicates that, under business-as-usual assumptions, supply will grow

4 The term “primary energy demand” is used interchangeably with “primary energy supply” and emphasizes the fact that demand must equal supply. However, the term “primary energy supply” is customarily used in the energy sector.

Figure 4. Availability and use of ICT, 2014

3.6 3.7 3.7 3.7 3.8 3.9

4.1 4.9 5.0 5.0

5.3 5.7 5.8 5.9 5.9 6.0 6.0

6.2 6.4

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PeruPhilippines

IndonesiaPeople's Republic of China

MexicoThailand

Viet NamRussia

ChileMalaysia

CanadaChinese Taipei

New ZealandAustralia

United StatesJapan

Hong Kong, ChinaSingapore

Republic of Korea

Availability and use of ICTs

Note: Maximum possible score is 7. No available scores for Brunei Darussalam and Papua New Guinea.Source: WEF (2014)

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from 7,204 Mtoe in 2010 to 10,057 Mtoe by 2035. This implies an average annual growth rate of 1.4 percent (APERC 2013).

Among the strategies of APEC to ensure energy security is to reduce aggregate energy intensity by at least 45 percent by 2035 (with 2005 as base year). Energy intensity is energy consumption relative to GDP, which can be referred to as the energy consumed in order to produce the unit of GDP. Hence, it is a measure of overall energy efficiency in an economy. The original goal, which was set in the 2007 APEC Leaders’ Meeting, was a 25-percent reduction in energy intensity. This goal was reset to 45 percent in 2011 when it became evident that APEC, as a whole, is likely to achieve the initial goal of 25 percent. Projections by the APERC show that the Philippines is likely to meet the 45-percent target by 2035 (Figure 7).

Figure 5. Internet subscriptions per 100 inhabitants (in 2011, unless stated otherwise)

0.73 4.07

5.47 5.53

6.76 7.8 8.35

10.45 11.73

13.6 20.01

26.19 26.41 26.72

27.75 30.61

31.71 32.75

36.91 42.95

0 10 20 30 40 50

IndonesiaPeru

PhilippinesThailand

Brunei DarussalamViet Nam

ChinaMexico

ChileRussia

MalaysiaChinese Taipei

AustraliaSingapore

United StatesJapan

New ZealandCanada

KoreaHong Kong, China

Note on data availability: China – 2009, Indonesia – 2008, Malaysia – 2009, Papua New Guinea - n.a., United States – 2010, Viet Nam – 2008, all others – 2011.

Source: International Telecommunication Union (ITU) (n.d.)


Figure 7. APEC final energy intensity per economy

Source: Asia Pacific Energy Research Centre (2013)

Figure 6. Mobile cellular subscriptions per 100 inhabitants, 2012

38

76

81

87

98

99

106

107

109

110

110

114

115

120

126

138

141

149

153

184

228

0 50 100 150 200 250

Papua New Guinea

Canada

China

Mexico

United States

Peru

Australia

Philippines

Japan

New Zealand

Korea

Brunei Darussalam

Indonesia

Thailand

Chinese Taipei

Chile

Malaysia

Viet Nam

Singapore

Russia

Hong Kong, China

Source: ITU (n.d.)

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The APERC also observes that NRE source development, especially for electricity, has reached the mainstream. This is because many APEC economies are pursuing policies to promote NRE development. Technological improvement also continues to reduce the cost of NRE.

In the Philippines, a feed-in tariff (FIT) policy has recently been adopted, and the adoption of renewable portfolio standard is currently being studied. The FIT policy offers guaranteed payments on a fixed rate for renewable energy sources. It will be funded by FIT allowance, which will be charged to electricity consumers who are being supplied through the transmission network. The renewable portfolio standard, meanwhile, is a policy requiring identified sectors to source a portion of their energy supply from renewable energy sources.

However, the most pressing issue in the Philippines is the high price of electricity. The Japan External Trade Organization (JETRO)’s survey of electricity prices in selected cities in Asia and Oceania for fiscal year 2012 shows that Philippine cities Manila and Cebu have high electricity prices, trailing very closely to Japanese cities Yokohama, Chiba, and Nagoya, as well as Sydney in Australia (see Table 4; only 11 APEC members are included in the survey of JETRO 2013). The high price of electricity in the Philippines is greatly related to the tightness of supply, and the public and private sectors recognize that new investments in generation capacity are needed to address this concern.

Increasing the stock and improving the quality of Philippine infrastructure can be addressed through more vigorous investments and accelerated institutional reforms. APEC can play a role in this area through regional financing, including the PPP type, and increased regional cooperation on institutional reforms and capacity building. These types of strategies have been recognized several times in various APEC meetings. To illustrate, the 2010 APEC Economic Leaders’ Declaration in Yokohama emphasized APEC’s convening power to help member-economies raise infrastructure financing. Moreover, the 2012 Declaration in Vladivostok encouraged more PPPs in infrastructure, and the 2013 Declaration in Bali stated that member-economies are committed to a Multiyear Plan on Infrastructure Development and Investment.

Recent initiatives of APEC structures on infrastructureWithin the APEC framework, commitments made by member-economies are voluntary and nonbinding. Members nevertheless make such commitments because these deliver regional public goods that create positive spillover effects and shape broader global initiatives. For instance, the 45-percent reduction in aggregate energy intensity by 2035


is purely voluntary. Meeting this target without constraining economic growth is beneficial for a member-economy because energy efficiency allows monetary savings. These savings can then be allocated for other purposes like physical and human capital investments.

The vehicles for exploring possible areas of cooperation, initiatives, and commitments within APEC are formal structures like sectoral ministerial meetings and working groups. The ministers’ declarations during sectoral ministerial meetings provide the working groups with political guidance and directions regarding key priorities, initiatives,

Table 4. Electricity rates for general use in selected cities, 2012

City APEC Economy 2012 Electricity Rate for General Use per kWh (USD)

Sydney Australia 0.28

Hong Kong China 0.14

Wuhan China 0.09

Shenzhen China 0.11

Qingdao China 0.09

Shenyang China 0.08

Dalian China 0.08

Guangzhou China 0.10

Shanghai China 0.10

Beijing China 0.08

Batam Indonesia 0.06

Jakarta Indonesia 0.08

Nagoya Japan 0.26

Yokohama Japan 0.27

Chiba Japan 0.27

Kuala Lumpur Malaysia 0.11

Auckland New Zealand 0.13

Cebu Philippines 0.24

Manila Philippines 0.25

Singapore Singapore 0.23

Seoul South Korea 0.07

Taipei Taiwan 0.12

Bangkok Thailand 0.11

Danang Viet Nam 0.08

Ho Chi Minh Viet Nam 0.08

Hanoi Viet Nam 0.08

Source: Japan External Trade Organization (2013)

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and work programs. For infrastructure and physical connectivity, there are working groups on transportation, telecommunications and information, and energy.

Transportation Working GroupThe Transportation Working Group (TPTWG) is concerned with ways to achieve efficient and safe transportation of goods and people within the Asia-Pacific region. Its efforts are directed toward balancing the efficiency, safety, and environmental sustainability of APEC transport systems with trade facilitation requirements.

The TPTWG is comprised of four expert groups corresponding to major modes of transportation: (1) Aviation Experts Group, (2) Maritime Experts Group, (3) Land Experts Group, and (4) Intermodal Experts Group. Each expert group also has respective subgroups, as depicted in the organizational structure in Figure 8.

Figure 8. APEC TPTWG structure

Source: Author’s compilation from APEC-TPTWG documents

Observers:ASEANSecretariat,PacificEconomicCooperationCouncil(PECC),andPacificIslandsForumSecretariat(PIF)OfficialGuest:Macau-ChinaOther Guests: International Maritime Organization (IMO), Organization of American States (OAS), International Motorcycle Manufacturers Association (IMMA), International Association of Maritime Universities (IAMU), and International Multimodal Transport Association (IMTA)


Recent initiatives, as formalized in the 8th Transportation Ministerial Meeting in Tokyo, Japan on 5 September 2013, include the following:

On promoting connectivityThe Transportation Ministerial Meeting tasked the TPTWG to create a “Connectivity Map” that will contain the envisioned physical and institutional integration in the region by 2020. It also called for the continued liberalization of aviation markets and recognized the efforts of TPTWG in coming up with documents containing core principles that detail the best practices in aviation and commercial maritime operations. It also encouraged the continued development of each economy on their capabilities for global navigation satellite system interference detection and mitigation.

On enhancing transport infrastructureThe Transportation Ministerial Meeting called on all member-economies to upgrade and invest in infrastructure and develop a multiyear plan to improve physical connectivity. It also promoted the use of PPPs and directed the TPTWG to explore opportunities where member-economies can share best practices with regard to financing and operations of PPPs.

On sharing of best practices and informationThe Transportation Ministerial Meeting asked the TPTWG to develop a “Quality Transport” vision and emphasized the need for knowledge sharing on advanced transportation systems, policy and regulatory measures, innovative technologies, and universal design concepts. It also encouraged the sharing of information and best practices in dealing with national disasters, safety and security, vehicles standard harmonization, and women in transportation.

Among these initiatives, the Philippines can take the following concerns as host economy priorities: (1) upgrading and investing in infrastructure, (2) use of PPPs in financing and operating infrastructure, and (3) sharing of best practices in building disaster-resilient infrastructure.

Telecommunications and Information Working GroupThe Telecommunications and Information Working Group (TEL) aims to improve telecommunications and information infrastructure in the Asia-Pacific region and promote the transition from an Asia-Pacific Information Infrastructure into the Asia-Pacific Information Society. Its strategies include developing and implementing appropriate

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telecommunications and information policies, including relevant human resource and development cooperation strategies.

The working group has three steering groups: (1) for liberalization-related policies, (2) for ICT infrastructure and applications, and (3) for promoting security and trust in the use of ICT. Under the liberalization steering group is a special task force on mutual recognition agreement (MRA). The task force was created to implement MRAs for conformity assessment of telecommunications equipment and equivalence of technical requirements, respectively (Figure 9).

Among the recent initiatives under the telecommunications and information sector are the following:

On liberalizationThe recent focus has been on the promotion of liberalization of ICT trade and investments. For instance, to promote telecommunications equipment trade in the region, MRAs have been prepared. The TEL Ministerial Meeting called on APEC economies to integrate and implement, whenever possible, the MRA for conformity assessment of telecommunication equipment and the MRA for equivalence of technical requirements.

On ICT developmentAPEC economies are encouraged to promote best practices in several applications including e-Government, e-Business, and e-Health. In

Figure 9. APEC TEL structure

Source: Author’s compilation from APEC-TEL documents


line with this, the ICT Development Steering Group reported in 2013 the expansion of the APEC e-Government Research Center at Waseda University, Japan. Moreover, Japan and Singapore spearheaded an extension of ICT applications to people with special needs (e.g., disabled and elderly). “Universal Access by 2015” was also endorsed as a target by the TEL Ministerial Meeting in 2010. This aims to achieve universal broadband access in all APEC economies by 2015. However, it seems that there is not enough timely information available to verify the pace at which this target is being met because in the 48th TEL Ministerial Meeting in 2013, the report on fixed broadband penetration in the region was still using 2010 data (Figure 10).

On security and prosperityThe recent focus is on building trust in e-commerce and combating cybercrime, as expressed in the 48th TEL Ministerial Meeting in 2013. For this purpose, the Security and Prosperity Steering Group has been conducting capacity-building workshops covering cyber security awareness raising, preventive education on ICT misuse, risk management in the Internet economy, as well as dealing with botnets or compromised and illegally controlled computer or robot-networks via the Internet.

Other concernsOn natural disasters: the TEL Ministerial Meeting acknowledged the significant role of ICT in mitigating the impacts of natural calamities

Figure 10. Fixed broadband density in Asia Pacific, 2010

Source: ITU (n.d.) as cited by APEC ICT Development Steering Group in 2013 TEL Ministerial Meeting

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and disasters. APEC economies are therefore encouraged to develop ICTs as a disaster response and recovery tool.

On reduction of roaming costs: APEC economies are encouraged to explore various ways to reduce telecommunications roaming services. Cost reduction would be beneficial for businesses and consumers. It could also promote further integration in the region.

It is emerging from the recent direction of APEC efforts in the sector that the Philippines, as host economy, can lead the discussions on the use of ICT in disaster prevention, mitigation, and response.

Energy Working GroupThe Energy Working Group (EWG) primarily aims to maximize the social and economic benefits received by the Asia-Pacific region from the energy sector. It also aims to efficiently manage the supply and use of energy in the region while mitigating possible adverse environmental effects.

Helping the EWG perform its functions are four expert groups, one each for the following: (1) the use of clean fossil fuels and clean energy technologies, (2) the promotion of energy conservation and the application of energy-efficient practices and technologies, (3) the collection of statistics on energy demand and supply and other related information, and (4) the promotion of increased use of NRE technologies. In addition, APERC supports the EWG work through research activities. The APERC’s research thrusts are guided by EWG priorities and energy ministerial declarations. There is also a public-private sector dialogue mechanism called the EWG Business Network (EBN). The EBN gives the EWG inputs for energy policy issues from an industry perspective (Figure 11).

Recent initiatives include the following:

On the Energy Security Initiative (ESI)Instituted in 2001, the ESI is meant to prepare APEC economies for possible energy supply disruptions. Continuing preparations include various joint exercises on oil and gas data gathering, natural gas trade, and oil supply emergency responses.

On the Energy Smart Communities Initiative (ESCI)The ESCI was launched in 2010 and is composed of four main pillars: (1) Smart Transport, (2) Smart Buildings, (3) Smart Grids, and (4) Smart Jobs and Consumers. The ESCI established a Knowledge Sharing Platform (KSP) in 2011 to serve as a tool for collecting and sharing data and information on best practices that are in line with the focus of ESCI.


APEC economies are encouraged to disseminate current environmental technologies and energy-saving methods through the KSP. The EWG reported that APEC has made some progress in implementing the four pillars of ESCI through Low-Carbon Town Models. As of November 2013, there are already three Low-Carbon Town Models, which are located in China, Thailand, and Viet Nam.

OnenergyefficiencyOne of the tools that the APEC is using to promote energy efficiency and, thereby, achieve its goal of reducing aggregate energy intensity by 45 percent by 2035 is the Peer Review Mechanism on Energy Efficiency (PREE). The PREE examines the energy efficiency of a host economy and identifies best practices that can be shared to contribute to overall energy efficiency improvement in the region. In line with this, the 2012 Energy Ministerial Conference reaffirmed its commitment to green growth goals including the 45-percent energy intensity reduction.

To reduce gas emissions and dependency of the transport sector on oil, the joint Transport and Energy Ministerial Conference in 2011 also urged member-economies to develop energy-efficient and sustainable transport systems. These include municipal and railway transportation, as well as electronic and fuel-efficient conventional vehicles.

Figure 11. APEC EWG structure

Source: Author’s compilation from APEC-EWG documents

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On renewable energyAn APEC Conference on Clean, Renewable, and Sustainable Use of Energy was held in October 2013 to urge APEC economies to take the following actions: (1) boost investments in the clean and renewable energy sector through appropriate government policies, open and transparent regulatory systems, and a conducive business environment; (2) conduct capacity building and engage in technical cooperation in renewable projects that involve appropriate technologies and require skilled human resources; and (3) foster cooperation among APEC economies to engage in clean and renewable energy development projects and decrease energy intensity. At the October 2013 APEC Ministerial Meeting in Bali, Indonesia, the APEC ministers established the APEC Public-Private Partnership on Environmental Goods and Services (PPEGS). The PPEGS is meant as a forum or dialogue platform, and its inaugural meeting took place in 2014. Promoting renewable and clean energy trade, investment and utilization was one of the topics of the inaugural meeting.

For the host economy priorities on energy, the Philippines can steer the discussions on energy concerns to include building energy resilience in case of disasters and calamities. At present, discussions on the ESI are focused on energy supply disruptions and oil supply emergency response. But in the case of APEC economies with a higher risk of exposure to natural hazards, resilience in terms of physical infrastructure is also a significant concern. The Philippines can also advocate the sharing of best practices on tools or policies for ensuring electricity price affordability in a restructured and liberalized industry.

Recommendations on host economy prioritiesAmong other factors, the level of infrastructure development in each APEC economy determines the pace of expanding connectivity within APEC. The Philippines, thus, needs to advance infrastructure development to increase its stock and improve the quality of its infrastructure assets and services. The country also needs to employ effective infrastructure networks for disaster response and repairing damaged physical infrastructure during natural calamities or armed conflict. The priorities of the Philippines as host economy for APEC 2015 should then be aimed at regional cooperation on investing in good infrastructure, building resilient infrastructure, and sharing of best practices on the effective use of infrastructure during calamities.


These recommendations build on past APEC initiatives and, at the same time, offer fresh ideas on tackling developmental challenges. They are also consistent with the Philippine Development Plan 2011–2016, which recognizes inadequate infrastructure as a major constraint to inclusive economic growth. The following are in-depth discussions of the cross-cutting topics and sector-specific recommendations being offered by this study.

Building disaster-resilient infrastructureIn the Philippines, the socioeconomic benefit of building disaster-resilient infrastructure is expectedly high because disasters not only cause a significant amount of damage to economic sectors but also exact a heavy toll in terms of human lives lost. Avoiding the cost of reconstruction and rehabilitation and preventing the loss of human lives are significant motivations to make infrastructure in the Philippines disaster resilient. The country’s experience with Typhoon Haiyan in November 2013 demonstrates how large the averted cost can be had there been a functional disaster-resilient system in place.

Super Typhoon Haiyan, with local name Yolanda, hit nine of the country’s 17 administrative regions. It affected 16,078,181 persons or 3,424,593 families in 12,139 barangays located in 44 provinces, 591 municipalities, and 57 cities (NDRRMC 2014a). The typhoon left 6,300 individuals dead, 28,289 injured, and 1,061 missing (NDRRMC 2014b).

According to the Reconstruction Assistance on Yolanda Plan prepared by the National Economic and Development Authority (NEDA 2013), the typhoon caused heavy damages and losses to physical infrastructure estimated at PHP 33.98 billion or USD 772.27 million (using USD 1=PHP 44 exchange rate).

It is therefore recommended that regional cooperation be sought on building disaster-resilient infrastructure. Particularly, the Philippines can push for technical assistance from developed member-economies to disaster-prone ones. Such assistance should aim to build the capacity of the latter to assess the requirements of, design the plans for, and adopt technologies for disaster-resilient infrastructure.

Sharing of best practices in building disaster-resilient roads, bridges, ports, and air transport infrastructure can also be sought. The Philippines can also share lessons learned in complying with infrastructure resilience requirements (e.g., plans, technologies, and logistics for humanitarian activities) from its experience with strong typhoons, earthquakes, and other calamities.

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Regional cooperation on financing or investing in modern ICT to prevent and respond to disasters can also be sought. The Philippines can also share lessons learned in the effective role of ICT infrastructure on disaster preparedness, such as the Nationwide Operational Assessment of Hazards or Project NOAH of the Department of Science and Technology.

In the energy sector, regional cooperation on building energy resilience (in terms of infrastructure and supply) can also be sought. The Philippines can push for the sharing of best practices and exchange of knowledge on construction techniques for disaster-resilient energy infrastructure. The ongoing APEC ESI can be a platform for the Philippines’ leadership in the discussion of this topic. For years, ESI discussions revolved around energy supply stocking and oil supply emergency response, yet some APEC economies face higher risks of natural calamity-induced energy insecurity. With respect to supply, the Philippines can push for building more knowledge base on how regional market integration can be an instrument for dealing with emergency situations in the Asia-Pacific region. In the Association of Southeast Asian Nations (ASEAN) region, a number of research on ASEAN energy market integration are currently being conducted. For instance, possible steps toward a future integrated ASEAN energy market, which can help secure the energy needs of the ASEAN region, are identified in Navarro and Tri Sambodo (2013).

Financing infrastructure developmentAccording to Navarro and Llanto (2014a), infrastructure development in the Philippine Public Investment Program 2011–2016 is mostly financed by the national government. The national government, aided with official development assistance (ODA) loans, will shoulder 67.72 percent of the investment program. Private sector investment will contribute 18.51 percent and investments by government-owned and -controlled corporations will take care of 8.77 percent. The remaining 5 percent will be shouldered by local government units, ODA grants, and other sources.

Recently, the government has been enjoying a wide fiscal space as fiscal deficit reduction targets have been surpassed for three consecutive years under the Aquino administration. This means more resources for critical government programs and projects. However, sustaining public investments remains a concern as the government is still a poor performer in terms of revenue generation. The Philippine government revenue collections in 2013 (PHP 1,716.1 billion or USD 39 billion) was 14.8 percent of GDP, which is low when compared to the average


revenue-to-GDP ratio of 18.6 in the ASEAN region (Navarro and Llanto 2014b). Thus, other sources of financing, including ODA and private sector funds, will be needed to ensure the sustainability of infrastructure investments. The Philippines, therefore, needs to raise the topic of augmenting local resources for infrastructure investments with regional resources, such as ODA and regional equity funds, in APEC discussions on financing infrastructure. Information sharing on best practices on the use of such sources can also be pursued.

Among ODA partners for infrastructure loans, Japan has consistently been the biggest source, as indicated by the 2010–2012 data in Table 5.

Most of the bilateral sources of ODA loans for infrastructure projects are APEC economies, and it is expected that these sources will continue to play a significant role in financing Philippine infrastructure investments. China, in particular, is contemplating a more active role in infrastructure financing in the Asia-Pacific region through its planned Asian Infrastructure Investment Bank (AIIB), which will have a start-up capital of USD 50 billion (Reuters 2014). APEC meetings could serve as a venue to press for further information revelation regarding AIIB policies, such as those related to currency risk bearing, project governance, and environmental assessments.

A decreasing trend in Philippine ODA loans for infrastructure has been observed in 2008–2012 (Navarro and Llanto 2014a). This may be associated with the improvement of fiscal space and the restudy and inclusion of some infrastructure projects in the public investment program to the PPP program. However, this is a medium-term trend; it is still necessary to ensure that sources, whether domestic or external, are available to make infrastructure investments sustainable for the longer term.

Table 5. Infrastructure loan amount by development partner, 2010–2012 (USD million)

Developing Partner 2010 2011 2012 Total

Japan 2,810.11 2,297.43 2,476.88 7,584.42

France 744.46 721.52 1,181.39 2,647.37

China 1,016.60 1,016.60 297.39 2,330.59

World Bank 496 485.56 761.99 1,743.55

Korea 206.33 219.62 237.66 663.61

Asian Development Bank 31.1 31.1 93.1 155.3

Others 287.09 178.52 137.59 603.2

Source: NEDA Monitoring and Evaluation Staff

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Given the momentum gained thus far in PPP program implementation, PPPs will be a significant mode of project financing. This implies that the government needs to improve PPP quality, from project-at-entry to contracting and implementation.

The bankability of Philippine PPP projects in the initial pipeline (released in 2010) has been questioned in the past; hence, the challenge of making PPPs bankable remains. Given the Philippine strategy of using PPPs to accelerate infrastructure investments, the Philippines should prioritize PPP-related topics in APEC discussions.

To ensure that PPP projects are bankable, the project studies and contract design must sufficiently show that risk sharing between the private partner and the government-implementing agency is appropriate and will allow the private partner to have reasonable returns. Demand projections, which are the primary basis of revenue projections, must also be realistic and based on solid assumptions. There must also be safeguards in the proposed contracts for the protection of the rights of the parties involved (e.g., the right to compensation by the private partner if contractually agreed tariff adjustments are disallowed by the government and the right of the government agency partner to sequester performance bonds and warranties in case the private partner fails in its obligations). In APEC talks, therefore, the Philippines can drive PPP-related discussions by advocating the need for more sharing of knowledge and best practices on appropriate risk allocation and contract design, management, and monitoring. Moreover, the Philippines can ask for regional cooperation on sustained, dynamic, and productive capacity-building assistance for PPP units in less-advanced APEC economies. This will allow the latter to generate a pipeline of bankable infrastructure PPPs. Since knowledge on PPPs is not static, capacity building should be dynamic.

Other recommendationsThe Philippines can also raise the following recommendations:

On transportRegional cooperation will be needed in terms of knowledge sharing and actual investments on upgrading maritime safety standards, expanding air transport capacity, and improving the quality of air transport services. Such efforts are necessary, given that the country's maritime safety record is poor, and its air transport network is in dire need of capacity expansion and improvements (e.g., Communications, Navigation and Surveillance/Air Traffic Management Systems, and night-landing capabilities).


On telecommunications and informationRegional cooperation can also play a role in facilitating investments to increase the capacity of Philippine broadband infrastructure. Note that for this, the relevant regional sources of financing for capital investments in the sector are equity funds and commercial credit rather than ODA. This is because the Philippine telecommunications industry is private sector led, and Republic Act 8182 prohibits the use of ODA for telecommunications projects. The Philippines can also solicit best practices on the optimum utilization of broadband technologies, especially given that additional capacity from the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area submarine fiber optic cable is currently being completed (Brunei Times 2014).

On energyThe Philippines must support the continuing efforts to attain an energy-efficient APEC because of their positive implications to energy supply stability (i.e., any saving in energy consumption is additional energy supplied to the energy system). The Philippines can also take the lead in discussing the challenge of responding to public calls for maintaining electricity price affordability in a restructured and liberalized environment. The Philippines can further advocate knowledge sharing on how advanced member-economies with experience in electric power industry liberalization ensure affordability and reasonableness of their electricity tariffs and how they design policies and rules that minimize price spikes in electricity markets. There could be significant lessons to be learned from these member-economies given their historical experience in the design, implementation, and continuous refinements of electricity industry policies and electricity market rules. The contribution of this initiative to the Philippines may be significant because one of the major problems in the domestic electric power industry is the high price of electricity.

ReferencesAsia Pacific Energy Research Centre (APERC). 2013. APEC energy

demand and supply outlook, 5th ed. Tokyo, Japan: APERC.Brunei Times. 2014. BIMP-EAGA’s rink project eyes 2014 completion.

http:/ /www.bt.com.bn/business-national/2014/02/26/bimp -eaga%E2%80%99s-rink-project-eyes-2014-completion (accessed March 2014).

Japan External Trade Organization (JETRO). 2013. The 23rd survey of investment-related costs in Asia and Oceania. Tokyo, Japan: JETRO.

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International Telecommunication Union. n.d. Statistics database. http://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx. (accessed March 15, 2014).

National Disaster Risk Reduction and Management Council (NDRRMC). 2014a. Situation Report No. 8 http://reliefweb.int/sites/reliefweb .int/files/resources/NDRRMC%20Update%20-%20Sitrep%20No%20108%20re%20TY%20Yolanda%20-%2003%20April%202014.pdf (accessed April 2014).

———. 2014b. NDRRMC Update http://www.ndrrmc.gov.ph/attachments/article/1177/Update%20Effects%20TY%20YOLANDA%2017%20April%202014.pdf (accessed April 2014).

National Economic and Development Authority (NEDA). 2011. Philippine Development Plan 2011–2016. Pasig City, Philippines: NEDA.

———. 2013. Reconstruction Assistance on Yolanda (RAY) Plan (version December 16, 2013). Pasig City, Philippines: NEDA.

Navarro, A. and G. Llanto. 2014a. Financing infrastructure in the Philippines: Fiscal landscape and resources mobilization. PIDS Discussion Paper No. 2014–01. Makati City, Philippines: Philippine Institute for Development Studies (PIDS).

———. 2014b. The Philippine economy in 2013 and prospects for 2014. Development Research News January–March 2014. Makati City, Philippines: PIDS.

Navarro, A. and M. Tri Sambodo. 2013. The pathway to ASEAN energy market integration. Bangkok, Thailand: ASEAN Studies Center, Chulalongkorn University.

Reuters. 2014. China starts work on $50 bln Asia infrastructure bank. http://www.reuters.com/article/2014/03/07/china-bank -idUSL3N0M42NQ20140307 (accessed March 2014).

Sandler, T. 2007. Regional public goods, aid, and development. Tokyo, Japan: Asian Development Bank Institute. www.adbi.org/files/cpp.sandler.regional.public.goods.aid.development.pdf (accessed February 2014).

Smith, A. 1776. An inquiry into the nature and causes of the wealth of nations, Chapter 11 of Book 1. London: Methuen & Co., Ltd.

United Nations Conference on Trade and Development (UNCTAD). 2013. Review of maritime transport 2013. Geneva, Switzerland: United Nations Publications.

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———. 2014. The Global Enabling Trade Report 2014. Geneva, Switzerland: WEF.


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AbstractSupply chain connectivity is vital for the efficient flow of trade among Asia-Pacific Economic Cooperation (APEC) economies. This paper reviews the literature on supply chain management (SCM), describes the barriers to enhancing participation in the global supply chain, analyzes the various measures of supply chain performance, and suggests steps for the Philippines to fully reap the benefits of the global value chain (GVC).

IntroductionTrade is the lifeblood of the world economy and a key driver of global integration, helping small and medium enterprises (SMEs) to grow and create jobs. Supply chain connectivity is vital for the efficient flow of trade among APEC economies. In principle, SCM focuses on getting products and services where and when they are needed, and involves the coordination and collaboration among producers, suppliers, customers, and third-party service providers. Hence, the ultimate objective of an integrated supply chain process is to allow firms to source the materials from any part of the world and to deliver them to customers in any part of the world.

Among APEC’s objectives are to enhance the transparency of the regulations on logistics and to improve government agencies’ coordination of the policies affecting the logistics sector. SCM is implemented by numerous companies in different countries with varying focus. Some concentrate on customer orientation, while others focus on cost reduction, streamlining of operations, and demand-supply alignment. The APEC’s Supply Chain Connectivity Framework targets a 10-percent improvement in supply chain performance in terms of reduced time and cost, and lesser uncertainty in moving goods and services throughout the Asia-Pacific region by 2015.

8Epictetus E. Patalinghug

Supply Chain Connectivity: Enhancing Participationin the Global Supply Chain

222 Supply Chain Connectivity: Enhancing Participation in the Global Supply Chain

Review of literatureIn a comprehensive study of the state of SCM in the Asia-Pacific region conducted by McMullan (1996), less than 60 percent of the respondents are found to have formal policies on specific SCM operations, while majority of the respondents indicate that SCM is not perceived as a strategic function in their companies.

Sahay and Mohan (2003) analyze the SCM practices of 156 Indian firms and discover that Indian organizations are more focused on customer relations in contrast to United States (US) firms that give more attention to cost reduction and streamlining of operations.

Falah et al. (2003) examine the SCM practices of 107 Saudi Arabian firms and find that Saudi Arabian companies have a low adoption rate on the establishment of supplier database, supplier communications, and inventory-reduction strategies. Joint-venture firms are reported to have a relatively high rate of adopting SCM practices.

Szwejczewski et al. (2005) examine the behavior of German manufacturing companies and find that majority of the firms have a partnership-like relationship with suppliers and are engaged in multiple-sourcing strategies. The study implies that German manufacturing companies have the potential to improve their performance by adopting best practices in supplier management.

In the study by Dorling et al. (2006), the successful adoption of vendor-managed inventory relationships in New Zealand is reported to have been adversely affected by the oligopolistic structure of the food retailers’ market, allowing buyers’ domination of suppliers and restricting the extent of partnership agreements.

Sohal and Perry (2006), after identifying the business environment factors that underpin the efficiency of the supply chain in the Australian cereal products industry, find that cereal yields are affected by globalization, industry complexity, buyer-seller power relationships, supply-chain labor requirements, and industry accountability requirements.

For their study, Kotzab et al. (2006) use a decision tool to identify prioritized strategies for improving SCM implementation and validate the approach among SCM managers of 100 Danish organizations.

In the Philippines, Talavera (2007) reports that only a few local industries adopt supply chain operations using information technology (IT) and that Philippine companies have not fully explored supply chain operations based on SCM principles.

Meanwhile, Austria (2009) notes that the Philippines’ participation in the global production network in the electronics industry has been limited to the labor-intensive, low-skill assembly and testing segment

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of the production chain. This leads to exports that are highly import dependent for inputs with minimal value added.

Intal (2009) argues that a key factor behind the remarkable growth in intraregional trade in East Asia has been the surge in cross-national production sharing among networks in the region that are connected to the global production networks.

Sturgeon and Lester (2004) also argue that the formation of global operating suppliers in advanced economies (e.g., in automobile and electronics industries) has altered the prospects for supplier-oriented industrial upgrade in East Asia.

Ng and Yeats (1999) analyze the nature and magnitude of, and motivation for, international production sharing in East Asia. They conclude that production sharing in East Asia is considerably greater than is generally recognized, and these countries’ comparative advantage in production or assembly operations conforms to the factor-intensity theory.

Jones and Kierzkowski (1990) introduce the concept of “production fragmentation” in which the physical dispersion of production nodes necessitates costly service links in terms of transportation, telecommunication, and other coordination tasks. They argue that technological advancement and lower trade barriers lead to a significant decline in service link costs and allow the production process to be split across different locations to leverage on economies of scale.

Arvis et al. (2007) find a positive association between logistics performance and important outcome indicators, such as trade openness. Hoekman and Nicita (2010), likewise, find a significant positive association between logistics performance and trade intensity. Wilson et al. (2005) discover that the potential gains from improved trade facilitation (logistics being part of it) are significantly larger than those from improvements in traditional market access constraints. Shepherd (2010a) shows that poorer trade facilitation (measured by longer lead times to export and import) is associated with higher reported levels of trade-related corruption. Meanwhile, Shepherd (2010b) assesses the effectiveness of trade facilitation programs in APEC and the Association of Southeast Asian Nations (ASEAN). The value-chain business model is unsustainable without a logistics sector that can reliably ensure on-time and low-cost delivery.

Saslavsky and Shepherd (2012) present evidence to support the hypothesis that trade in parts and components (a vital part of cross-border production chains in the Asia-Pacific region) is more sensitive to improvements in logistics performance than trade in final goods. According to Shepherd (2013), the transport and logistics sector is vital


in the GVC in connecting countries, spreading technology, and promoting best practices around the world. Delays due to poor transport and logistics performance can reduce exports and impede export diversification.

In Shepherd and Hamanaka’s (2013) study, the findings of general equilibrium models show that improvements in trade facilitation (including trade logistics performance) can substantially boost both exports and national welfare, and these effects are potentially larger than those coming from extensive tariff reductions on manufactured goods.

Briones and Israel (2014) examine the choke points in the supply chain of two selected commodity groups, namely, (1) crude coconut and (2) fish and crustacean, mollusks, and other aquatic invertebrates. They recommend specific types of road investments, competition policy in domestic shipping, restructuring for the crude coconut sector, and sanitary and phytosanitary measures for the fisheries sector.

The World Economic Forum (2013) finds that reducing supply chain barriers halfway to global best practice can increase the world’s gross domestic product (GDP) by nearly 5 percent.

One of APEC’s studies (2013a) identifies the action plan and the participating economies for each barrier (choke point) in the supply chain, while another study (APEC 2013b) provides the policy recommendations for each of the eight identified choke points.

Another APEC study (APEC 2013d) highlights how APEC has made significant progress in reducing the time and uncertainty involved in the supply chain performance and in implementing the projects of the Supply Chain Connectivity Framework Action Plan (SCFAP) to improve their supply chain performance.

Concrete efforts and progress made by many international organizations within the APEC in three key areas (i.e., institutional, physical, and people-to-people connectivity) are featured in yet another APEC study (2013e). This paper also highlights the key issues and challenges for these three aspects of connectivity, as well as the current state of connectivity in the region.

Barriers to enhancing participation in the global supply chainSupply chain barriers to trade can be defined1 as the lack of infrastructure, institutions, policies, and services facilitating the free flow of goods over borders. The World Economic Forum (WEF) report classifies

1 TheAPECdefines trade facilitationas the simplificationand rationalizationof customsandother administrative procedures that hinder, delay, or increase the cost of moving goods across international borders (APEC 2013e, p. 2).

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supply chain barriers into four categories: (1) market access, (2) border administration, (3) telecommunications and transport infrastructure, and (4) business environment (WEF 2013). This section will discuss these barriers and the economic consequences that they bring.

Market access barriersMarket access barriers include those that hinder foreign or domestic access, such as quotas, local content requirements, and technical standards that make it difficult to import products into a country. Similar to tariffs, such barriers to market access give domestic producers an advantage. While some of these measures are valid, they are sometimes abused and often not standardized, thus, these measures become barriers to trade.

Border administration barriersBorder administration barriers deal with three main categories: (1) efficiency of customs administration, (2) efficiency of import-export procedures, and (3) transparency of border administration. The efficiency of customs administration refers to the ease and speed at which goods can clear customs. It also refers to the quality and variety of services that customs agencies provide. If customs agencies do not have enough resources or do not adopt best practices, inefficiencies such as long waiting times and additional inspections may arise. Delays may occur because of the lack of risk-analysis tools or round-the-clock operations by customs agencies.

The efficiency of import-export procedures deals with the compliance of goods to import-export standards, as well as the coordination among various border-control agencies. Inefficiencies may occur if a good being imported is regulated by multiple agencies. These agencies usually work independently of one another and have their own sets of rules and regulations. They often do not coordinate well with one another, which therefore results in more delays in trade.2

Transparency of border administration barriers mitigates corruption. Products that are unable to clear customs incur delays, unless payoffs or bribes are made to officials. Compared to foreign firms, the local companies may be able to deal with such situation because of better relationships with officials or better knowledge of customs loopholes. Thus, it is the foreign firms, along with local firms that refuse to resort to bribery, that are more likely to exit the market in the face of pervasive

2 Thereisaneedtoaddress“behind-the-border”barriers,suchastheinvolvementofnumerousagencies beyond the Bureau of Customs, in the regulation of cross-border trade. For instance, each agency uses a different import permit system, i.e., a national single-window system is not yet operational.


corruption, which, incidentally, is the most difficult barrier to measure because rarely will the guilty admit to paying bribes.

Telecommunications and transport infrastructureTelecommunications and transport infrastructure barriers include: (1) availability and quality of transport infrastructure, (2) availability and quality of transport services, and (3) availability and use of information and communication technologies.

A good infrastructure facilitates trade. Inadequate transportation networks cause huge delays in the movement of goods from inland areas to coastal ports and vice versa. The availability and quality of transport infrastructure refer to the quality of roads and airports, as well as the congestion at ports, terminals, and other transportation hubs.

An efficient local logistics industry is vital for the efficient shipment of goods. However, there are also barriers to transport service providers. The scarcity of firms willing to ship goods within a country can cause considerable delays. Another factor to be considered is the number of trips these companies’ ships take. Infrequent trips cause goods to pile up in ports for a longer period of time, leading to more delays.

A reliable IT infrastructure is one that can facilitate trade. If the IT infrastructure is unstable, firms may have difficulty in tracking their merchandise, forcing them to turn to paper-based documentation. Thus, countries should invest in electronic customs-processing systems that are dependable.

Business environmentBusiness environment barriers include those that are related to the regulatory environment and physical security. If a country has an unstable government, or has problems in hiring foreign workers or obtaining trade finance, then additional costs and risks will be incurred. Physical safety is an important consideration of firms doing business in a particular country. High crime and theft rates can raise the cost of doing business in a particular area.

Effects of supply chain barriersSupply chain barriers affect businesses in four ways: (1) higher operating and capital expenses, (2) unscheduled or longer delays, (3) lower trade volume, and (4) increased risks. Each firm’s experiences will differ based on the specific barrier that it encounters and the actions that it takes to overcome the constraints. For example, delays in the transport of goods will affect a firm that sells fresh food more than a business entity that

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sells preserved or processed food. Additional costs incurred because of these barriers may cause firms to reduce their volume of trade, or worse, to see no reason at all to remain in the market.

Lessons learned (from APEC’s Supply Chain Connectivity Framework and APEC’s Supply Chain Initiative)The APEC constructed a measurement framework to measure the ability of the SCFAP to improve the supply chain performance. The organization found that 77 percent of SCFAP actions have been implemented between 2010 and 2012. APEC economies have been quite successful in reducing trade time by nearly 7 percent (using Doing Business data on export time and logistics performance index [LPI] data on import time). Meanwhile, there is some evidence of higher costs from unexpected supply chain disruptions due to natural events, such as earthquakes and floods (APEC 2013d). The benefits derived by member-economies from SCFAP projects in terms of improving supply chain performance are: (1) knowledge sharing, (2) improved relationship between the government and the private sector, and (3) adoption of new technologies.

An APEC report (2013d) also discusses the difficulties in accurately measuring and attributing the impact of SCFAP projects to improvement in time, costs, and uncertainty. It highlights the complexity of existing choke points, as these choke points are often interlinked with one another. In APEC’s Supply Chain Connectivity Framework, eight choke points are identified as those that need to be addressed to increase the supply chain performance by 10 percent in 2015.3

Supply chain barriers weigh on a business in four direct ways: (1) they add to costs, both in terms of higher operating costs and increased capital expenditures; (2) they slow down deliveries of the business by making the delays longer or less predictable; (3) they reduce volume of trade activity; and (4) they increase risks.

Based on APEC’s (2013d) findings, several recommendations have been proposed. First, economies should redouble their efforts to reduce the time, costs, and uncertainty of supply chain performance through existing and future actions within the eight choke points. Second, efforts should be targeted at maintaining the existing long-term measures that have been initiated earlier and to expand them by utilizing the strong progress in information and communication technology. Third, it is a must to improve the regulatory environment that supports the development

3 See Table 9 for more details.


of an efficient logistics and transportation sector. Fourth, appropriate capacity-building initiatives that directly address the existing gap in a systematic and sustainable manner should be encouraged. Fifth, further support should be provided to SMEs to ensure that there would be mutual collaboration between industry players within the logistics and transportation sector. Sixth, improvements have to be made on the design and implementation of SCFAP. Lastly, a further assessment of external indicators should be undertaken.

Measuring supply chain performanceIn 2010, APEC’s Committee on Trade and Investment, through the SCFAP, set a target of a 10-percent improvement in supply chain performance in terms of time, costs, and uncertainty by 2015. To implement the SCFAP, APEC’s Policy Support Unit worked with member-economies to build a performance measurement framework that will provide member-economies with information on how the agreed specific actions on each choke point (enshrined in SCFAP) are improving the supply chain performance. The current SCFAP measurement framework consists of three elements (APEC 2013d):

1. External indicators – Monitor the effects of SCFAP actions on measurable supply chain processes and outcomes.

2. Internal indicators – Monitor the degree to which SCFAP actions are in fact being implemented.

3. Self-assessment survey – Describes the actions taken by economies and subfora, and provides views on potential impact and recommendations on improving the remaining actions.

Measuring external indicatorsThe goal is to produce indicators that will provide useful information on the financial and time burdens that importers and exporters have to bear. The WB’s LPI and Doing Business Indicators (e.g., Trading Across Borders indicators), and the WEF’s enabling trade index (ETI) measure the time and cost aspects of the supply chain, while the uncertainty aspect is proxied by indicators of supply chain reliability (e.g., the percentage of shipments that meets a firm’s internal quality criteria).

The LPI is a perception index based on a survey of 1,000 logistics and trade facilitation professionals around the globe. It is used to measure logistics efficiency across countries. Respondents evaluate eight markets on six core dimensions on a scale of 1 (worst) to 5 (best). The six core dimensions are: (1) efficiency of the clearance process, (2) quality of

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trade and transport infrastructure, (3) ease of arranging competitively priced shipments, (4) competence and quality of logistics services, (5) ability to track and trace consignments, and (6) timeliness of shipments in reaching their destination (APEC 2013d; Shepherd and Hamanaka 2013; The World Bank Group 2014).

Meanwhile, the ETI is a composite index that measures the extent to which individual economies have developed institutions, policies, and services facilitating the free flow of goods over borders and destinations. It is composed of four subindexes and nine pillars. The four subindexes are: (1) market access, (2) border administration, (3) transport and communications infrastructure, and (4) transparency of border administration.

The nine pillars are: (1) domestic and foreign market access, (2) efficiency of customs administration, (3) efficiency of import-export procedures, (4) transparency of border administration, (5) availability and quality of transport infrastructure, (6) availability and quality of transport services, (7) availability and use of information and communication technology, (8) regulatory environment, and (9) physical security (APEC 2013d; WEF 2013).

To derive regional-level indicators, data for individual member-economies are aggregated using three approaches: (1) simple average, (2) GDP-weighted average, and (3) median. Trade-weighted average is not desirable as it will overstate performance because economies with significant supply chain difficulties receive small weights (APEC 2013d). Table 1 shows the LPI indicators for APEC economies for 2010 and 2012. Singapore is consistently on top, and Russian Federation and Papua New Guinea are the bottom two. Using Malaysia’s LPI as the median value, the Philippines is consistently below the median both for 2010 and 2012. However, the Philippines’ LPI has improved between 2010 and 2012. If Singapore’s LPI score represents the world’s technological frontier, then considerable work lies ahead for the APEC region’s public and private sectors in terms of improving logistics performance.

Table 2 shows the ETI scores for 2010 and 2012. Again, Singapore is on top, and the Russian Federation is at the bottom for both years. Using the ETI score for Chinese Taipei as the median score, the Philippines is at the lowest rung of the APEC economies, just slightly above the Russian Federation. However, the Philippines improved its ETI score in 2012 to the same level attained by Viet Nam in 2010.

The Philippines’ LPI score increased by 8.95 percent, while its ETI score improved by 6.45 percent between 2010 and 2012. Thus, the improvement of its LPI has been more rapid than that of its ETI.


While the two indices show an uptrend direction for the Philippines, the numbers are way below the APEC median scores—an indication that the Philippines still has to deal with the challenge of raising its supply chain capability to the level attained by an “average” APEC economy.

Alternative logistics indicatorsPanennungi (2012) attempts to study the link between transport cost (or logistics cost) and export performance. In measuring this link, he turns to a logistics cost index (both domestic and international). Using data from the 2010 World Bank Development Indicators, he constructs his domestic logistics index (DLI) and international logistics index (ILI) for all APEC economies using the following indicators and their respective weights (Table 3).

Table 2. ETI indicators of APEC economies

Country 2010 2012

Singapore 6.06 6.14

Hong Kong, SAR 5.70 5.67

New Zealand 5.33 5.34

Canada 5.29 5.22

Australia 5.13 5.08

Chile 5.06 5.12

United States 5.03 4.90

Japan 4.80 5.08

Republic of Korea 4.72 4.65

Chinese Taipei 4.72 4.81

Malaysia 4.71 4.90

China 4.72 4.22

Thailand 4.13 4.21

Peru 4.04 4.31

Mexico 4.04 4.08

Indonesia 3.97 4.19

Viet Nam 3.96 4.02

Philippines 3.72 3.96

Russian Federation 3.37 3.41

Note: No data for Brunei Darussalam and Papua New Guinea.

Source: WEF (2012)

Table 1. LPI indicators of APEC economies

Country 2010 2012

Singapore 4.22 4.15

Japan 4.19 4.11


Canada 4.03 4.99

Hong Kong, Special Administrative Region (SAR)

4.00 4.12

Australia 3.78 3.83


China 3.54 3.61


Malaysia 3.50 3.43

Thailand 3.16 3.08

Mexico 2.95 3.03

Chile 2.86 3.18

Peru 2.66 2.73


Viet Nam 2.56 2.68

Indonesia 2.54 2.54


Papua New Guinea 1.91 2.20

Note: No data for Brunei Darussalam and Chinese Taipei.

Source: World Bank (2014)

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DLI measures the domestic logistics support to produce local goods for consumption and export and to meet the demand for foreign goods. Meanwhile, ILI represents the international logistics support to have the capacity to move goods between and among countries. The increasing logistics performance improves a country’s economic capacity and, thereby, increases the competitiveness of its exports. Both DLI and ILI have a positive relationship with export performance (Panennungi 2012).

Table 4 shows the resulting DLI and ILI scores for APEC economies. Note that the highest DLI belongs to the US, and the lowest is that of the Philippines. For the ILI, China garners the highest possible score, while the Philippines has the lowest rating. Consequently, the Philippines’ DLI and ILI scores are not only lower than the global average; they are also lower than the APEC average.

International supply chain connectivity indicatorsThe United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) has an international supply chain connectivity index (ISCCI) that reflects the overall facilitation performance of a country along the international supply chain (UNESCAP 2013). The

Table 3. Variables comprising domestic and international logistics indices

A. Domestic logistics index (DLI)

Variable Weight (in %)

Percent of total roads paved 45

Percent of road sector energy consumption to total energy consumption 30

Quality of port infrastructure 10

Goods transported through railways (million ton per km) 5

Telephone lines per 100 people 5

Internet users per 100 people 5

B. International logistics index (ILI)

Variable Weight (in %)

Liner shipping connectivity index 30

Containerporttraffic(20footequivalentunits) 30

Quality of port infrastructure 20

Burden of customs procedure 10

Telephone lines per 100 people 5

Internet users per 100 people 5

Source: Panennungi (2012, Table 1, p. 164)


ISCCI is a composite index of the World Bank Doing Business Report’s “Trading Across Borders” (TAB) indicators, such as (1) import indicator: the number of documents, time, and cost involved in import; (2) export indicator: the number of documents, time, and cost involved in export; and (3) the United Nations Conference on Trade and Development’s (UNCTAD’s) liner shipping connectivity index (LSCI).

The LSCI is considered a measure of connectivity to maritime shipping, as well as a measure of trade facilitation (e.g., accessibility to global trade). The TAB import and export indicators and UNCTAD’s LSCI are given equal weight to arrive at an overall index, which is the ISCCI for a particular country.

Table 5 shows that the APEC economies Singapore, Hong Kong, Republic of Korea, China, and Malaysia are the world’s top five best-connected economies to international supply chains. The Philippines

Table 4. DLI and ILI scores for APEC economies, 2010

Country DLI ILI

Canada 3.078 2.798

Chile 2.483 2.310

China 2.559 5.000

Hong Kong, SAR 4.152 4.462

Indonesia 2.212 1.569

Japan 3.650 3.038


Malaysia 3.953 3.273

Mexico 3.125 1.751


Peru 2.592 1.496



Singapore 4.224 4.280

Thailand 3.953 2.197


Viet Nam 2.524 1.642

Global average 3.282 2.306

APEC average 3.255 2.704

Note: The range of the index is from 1 to 5. No data for Australia, Brunei Darussalam, Chinese Taipei, and Papua New Guinea.

Source: Panennungi (2012, Table 2, p. 164–165)

Table 5. International supply chain connectivity index of APEC economies, 2012

Country ISCCI Ranking

Singapore 1

Hong Kong, SAR 2

Republic of Korea 3

China 4

Malaysia 5

United States 8

Japan 17

Thailand 33

Viet Nam 37

Indonesia 46

New Zealand 48

Australia 49

Philippines 59

Russian Federation 118

Note: 180 economies are ranked. There are no data for Brunei Darussalam, Canada, Chile, Chinese Taipei, Papua New Guinea, Peru, and Mexico.

Source: UNESCAP (2013, Table 42, p. 50)

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ranks 59th out of 180 economies and ranks second to the last among APEC economies. The Philippines has to reduce its international trade costs and facilitate the integration of its domestic firms with the global production networks.

Supply chain reliability indicatorsThere is no direct indicator for uncertainty. However, an indirect measure is made by using a proxy indicator for supply chain reliability, such as the percentage of shipments that meets firm quality criteria. An increase in the reliability indicator can be interpreted symmetrically as a reduction in the level of supply chain uncertainty (APEC 2013d).

Talavera (2010) proposes two supply chain reliability indicators for Philippine manufacturing: (1) order-to-delivery time, which is defined as the time that elapses from the receipt of the customer’s order to the delivery of the goods and (2) order fulfillment performance, which is defined as the percentage of orders that meets customers’ specifications. In APEC’s assessment of SCFAP, the percentage of shipments that meets firm quality criteria is sourced from the LPI survey (APEC 2013d).

Internal indicatorsInternal indicators are designed to capture the qualitative aspects of the action plans’ progress and assessment based on: (1) how many projects and programs have been conducted based on SCFAP’s timeline and (2) what sort of improvements or changes the completed projects have been able to initiate or create at the ground level and how the improvements are related to the overall SCFAP goals (APEC 2013d). Table 6 shows that

Table 6. Progress of implementation of the eight choke points

Choke Point Element Implemented Total Element Percentage of

Implementation

1 9 12 75

2 6 10 60

3 7 8 88

4 5 9 56

5 17 22 77

6 25 27 93

7 7 9 78

8 3 6 50

Total 79 103 77

Source: APEC (2013d, Table 7, p. 20)


77 percent of actions have been completed to improve the supply chain performance. It likewise implies that there is still room for member-economies to add more actions within SCFAP to achieve the overall goal of a 10-percent improvement in supply chain performance in terms of time, cost, and uncertainty by 2015.

Self-assessment surveyA self-assessment survey is used as the third track to assess the progress of the SCFAP implementation. This approach is designed: (1) to collect information and views from APEC economies on the potential impact of Supply Chain Initiative actions on policy change and improvement in supply chain performance, (2) to gather policy recommendations on improving the remaining actions, (3) to gauge the desirability of adding new actions under the SCFAP, (4) to improve awareness and understanding of new technologies, and (5) to highlight the difficulties in accurately measuring the impact of SCFAP projects in terms of improvement on time, costs, and uncertainty (APEC 2013d).

The role of transport in the development of integrated supply chainTransportation plays a crucial role in supply chain operations, moving inputs from supply sites to manufacturing facilities, redistributing inventory among different plants and distribution centers, and delivering finished goods to consumers. Benefits that accrue from world-class operations at the points of supply and production will never be realized without excellent transportation planning and infrastructure. Having goods ready for delivery is not enough if it cannot be cost effectively delivered when and where they are needed.

Transportation refers to the movement of goods from one location to another, as it makes its way up the supply chain. Transportation is a major part of the costs incurred by most supply chains. Its role is even more significant because of the rise of global supply chains as well as e-commerce—both of which increase the distance that goods have to travel.

The success of a supply chain is closely linked to its use of transportation resources. Firms can utilize transportation resources to centralize inventories and operate with fewer facilities. Transportation serves as a link between different stages of the global supply chain. It allows goods to flow from suppliers to plants and, ultimately, to consumers. It allows firms to sell their goods all over the world. Therefore, transportation decisions have an impact on the profitability of

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the supply chain. It also has an influence on both facility and inventory choices within the supply chain (Chopra and Meindl 2012). Furthermore, transportation infrastructure is one of the factors that affect the smooth functioning of trade logistics (Shepherd and Hamanaka 2013).

World-class infrastructure is vital for a large metropolis, such as Metro Manila, to compete in the global marketplace. However, due to a lack of mass transit systems, as well as a road network stretched beyond capacity, one of the major problems plaguing this metropolis is traffic congestion. The gridlock results in lower productivity and delays in the transport of goods. The Japan International Cooperation Agency (JICA) estimates that traffic congestion causes losses amounting to PHP 2.4 billion a day because of lost work hours and business opportunities, as well as the cost of fuel consumed by vehicles.4

Thus, the challenge for the Philippines is how it will improve its connectivity by improving the efficiency of land, water, and air transportation. Table 7 shows that the Philippines lags behind its ASEAN neighbors in terms of quality of infrastructure. Table 8 also indicates that among the ASEAN 5, the Philippines specifically trails behind in road infrastructure.

Several recommendations have been made to improve Metro Manila’s infrastructure. These include enhancing airport and port facilities; adding mass transit and commuter rail lines; initiating modernized bus, jeepney,

4 JICA (2014).

Table 7. Ranking of selected ASEAN member-states in terms of quality of infrastructure

Country Quality of Overall Infrastructure

Quality of Roads

Quality of Port Infrastructure

Quality of Air Transport Infrastructure

Singapore 2 3 2 1

Malaysia 29 27 21 24

Brunei Darussalam 43 30 57 61

Thailand 49 39 56 33

Cambodia 72 66 69 75

Indonesia 92 90 104 89

Philippines 98 87 120 112

Viet Nam 119 120 113 94

Note: 144 countries were ranked; Lao PDR and Myanmar were not included.Source: Navarro and Llanto (2014, Table 1, p. 8)


and traffic systems; developing intermodal terminals; and constructing new roads and expressways. Inadequate funding for infrastructure contributed to the Philippines’ weakened competitiveness in world trade.

Shepherd (2011) finds a strong and positive relationship between transport prices and logistics performance. He reasons that end users of logistics services are prepared to pay a premium for good and reliable service because technology improvements that increase the service level might also increase costs. Countries with very high transport costs (above the world average), however, need to make significant improvements because they face comparative disadvantage in world trade vis-à-vis countries with low levels of transport costs.

Results of the OECD-World Trade Organization survey show that the private sector listed the following factors as national supply-side constraints in entering, establishing, or moving up the GVCs: (1) restrictive practices governing access to airport, rail, road, or maritime infrastructure; (2) market power of existing companies; and (3) transport service monopolies (Shepherd 2013).

Citing various sources, APEC (2013e) stresses the effects of physical connectivity: (1) from 7–10 percent of an economy’s overall productivity is associated with infrastructure, (2) every dollar of investment in physical infrastructure returns USD 1.11 in increased economic activity, and (3) infrastructure investment creates a return of 5–25 percent globally. Adequate investment in infrastructure could result in an accumulated reduction in trade costs from 11.5 percent to 25.3 percent of trade value in 2020 (APEC 2013d).

Definitely, transport faces serious constraint in the Philippines. Both LPI and ETI figures highlight the importance of quality transport infrastructure and services and their availability. The transport sector needs funding that can be invested in basic infrastructure,

Table 8. Road quality and density indicators

CountryTotal Road Network

(Thousand km)

Paved Roads as Percent

of Total Road Network

Population per km of Road

Population per km of

Paved Road

Indonesia 437.8 59.1 521 882

Malaysia 122.7 79.9 220 275

Philippines 200.8 22.2 426 1,913

Singapore 3.3 100.0 1,455 1,455

Thailand 98.1 99.9 683 684

Source: AmCham (2010, Table 37, p. 138)

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such as ports, airports, roads, and rail lines, as well as funding for continuous maintenance.

Navarro and Llanto (2014) argue that institutional weaknesses also constrain infrastructure investments, in addition to limited financial resources. Also, the Philippine Development Plan 2011–2016 concludes that “there is a growing sense among the public that progress has been too slow even in relation to the government's own pronouncements... pertaining to delays in the implementation of vital infrastructure projects, or the incessant complaints regarding the high cost of doing business in the country.” (NEDA 2014, p. 3). In the JICA report (2014), the following are among the institutional actions proposed:

1. Clear backlogs of unimplemented or (committed) projects,2. Ramp up delivery capacity of transport agencies,3. Improve capacity development for planning and project

preparation,4. Clear policy framework for privatization of rail lines,5. Strengthen development control and guidance to private sector

development, and 6. Outsource project studies to support current institutional

weakness.

The global value chain: Challenges for the PhilippinesThe rise of value chains5 can be traced back to the advent of the steam engine in the 19th century. Prior to this development, the costs of shipping goods from one country to another proved to be a major barrier to trade. In effect, people instead consumed goods that originate from relatively nearby locations. Steam power ushered in the first age of globalization in the late 19th century when trade rose dramatically among nations. Value chains involved a model of “trade in tasks”, where countries specialized in creating value within a larger global supply chain. Today, IT has enabled firms to unbundle their production processes and assign certain tasks to locations that can perform them most efficiently. Gains from trade has, thus, risen as developing nations access advanced technology and business know-how by participating in areas of the value chain where they have a competitive advantage.

An example of a value chain is the production of the iPod by Apple. This product is designed in California, while different inputs are sourced

5 Value chain is definedas the full rangeof activities required tobring aproductor servicefromconceptionthroughdifferentphasesofproduction,deliverytofinalconsumers,andfinaldisposal after use (Kapinsky and Morris 2001).


throughout Asia. The memory comes from the Republic of Korea, while the display is from Japan; the central processing unit is made in the US; and the video processors are made in Singapore and Taiwan. Final assembly is done in China, and the final product is shipped to the US for distribution (Goodman and Miller 2013).

The proliferation of free trade agreements in Asia in recent years is partly due to the importance of value chains. The WEF (2013) estimates that a reduction in GVC barriers can increase global GDP by 5 percent. This is in contrast to the 0.7-percent increase in global GDP that is estimated if tariffs worldwide were reduced to zero (WEF 2013).

For the Philippines to fully reap the benefits of the GVC, certain steps have to be done. The country has to promote policies that support private sector development in manufacturing and primary input processing. It should also try to attract more foreign direct investment (FDI) and build productive capacities in local firms. Institutional reforms should be effected to attract foreign investment. Benefits that can be derived from FDIs include the stimulation of local entrepreneurship through backward linkages, development of skilled workers, as well as technology and knowledge spillovers. FDI also facilitates skill creation in export-oriented industries that have strict efficiency and quality standards.

Another recommendation is for the country to encourage its manufacturing sector. The creation of supply chain linkages between foreign companies (such as transnational corporations or TNCs) and local firms in formal manufacturing helps develop local manufacturing companies that are capable of subcontracting tasks and, eventually, competing with foreign firms. Services activities can likewise be separated into “tasks”, and the country can then specialize in those tasks along the value chain where it has comparative advantage.

To gain from participating in the GVC, the Philippines should strengthen the business environment, support investment in research and development and design, and foster the development of important economic competencies. Lastly, it is important for the country to consistently enforce contracts (OECD 2013). Nations with sound legal systems tend to export more in more complex industries. Likewise, countries with well-functioning contractual institutions are better equipped to handle tasks that involve complex processes.

Oikawa (2008) explains that the Philippines lags behind its neighbors in TNC-led industrialization because of two factors. First, it attracts fewer FDIs than its neighbors. Second, it does not enjoy sufficient externalities from FDI inflows. These inflows, thus, do not

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guarantee positive spillovers to the host country. In his case study of the Cavite Export Processing Zone, Oikawa found that an enclave structure was developed in this zone with few locally owned suppliers emerging. Weak local entrepreneurship contributed to the poor linkage formation between the TNCs operating in the zone and the local firms based in the surrounding communities.

Austria (2009) also finds that the Philippines hardly progressed beyond the lowest level of the production chain (i.e., assembly and testing) in the electronics industry global production network due to the weaknesses and inadequacies of its support structures, such as poor infrastructure and logistics.

APEC economies have identified eight choke points that need to be addressed to increase supply chain performance by 10 percent. Supply chain performance is measured in terms of the reduction of time, cost, and uncertainty of moving goods and services across APEC economies. The eight choke points identified under SCFAP are:

1. Lack of transparency/awareness of full scope of regulatory issues affecting logistics, lack of awareness and coordination among government agencies on policies affecting logistics sector, absence of single contact point or champion agency on logistics matters;

2. Inefficient or inadequate transport infrastructure, lack of cross-border physical linkages (e.g., roads, bridges);

3. Lack of capacity of local/regional logistics subproviders;4. Inefficient clearance of goods at the border, lack of coordination

among border agencies, especially relating to clearance of regulated goods “at the border”;

5. Burdensome procedures for customs documentation and other procedures (including for preferential trade);

6. Underdeveloped, multimodal transport capabilities; inefficient air, land, and multimodal connectivity;

7. Variations in cross-border standards and regulations for the movements of goods, services, and business travelers; and

8. Lack of regional cross-border customs-transit arrangements.

Some of the policy recommendations intended to alleviate the choke points are listed in Table 9.

Table 10 lists the actions that the Philippines has done to overcome the SCFAP choke points. These actions come in the form of meetings, seminars, training programs, plans, and publications that can help the country improve its supply chain framework.


The Export Development Council-National Competitiveness Council (EDC-NCC) Task Force on Cabotage6 identifies these factors as responsible for the high cost of domestic shipping: (1) prohibition of the carriage of

6 EDC (2014).

Table 9. List of choke points and selected policy recommendations as identified by APEC

Choke Point Policy Recommendation

1. Transparency •Encourage coordination of policies, business certainty, engagement of stakeholders, reduction of corruption, and publication and dissemination of information.

2. Infrastructure •Maintain a single government coordinator, an infrastructure development plan at the central government level, or a domestic coordination process to advance cross-border or regional transport infrastructure development.•Sustain a process to coordinate with regional economies on cross-

border or regional transport infrastructure development issues.

3. Logistics capacity •Promote trade facilitation, knowledge improvement, stakeholder engagement, and competitiveness enhancement.

4. Clearance •Continue programs designed to reduce bureaucratic redundancy and increase institutional coherence when clearing goods at the border.•Uphold human resources programs designed to nurture

professional logistics management for clearing goods at the border as a human capital asset, both with respect to private sector and government representatives.

5. Documentation •Continue an electronic system for clearing goods at the border that can adapt to future technologies regarding online/electronic forms.•Maintain an open and transparent dispute settlement mechanism

with published timelines and procedures for arbitrating disputes between importers and customs agencies.

6. Connectivity •Sustain programs that support investments in trade and transport-related infrastructure, and include forward-looking metrics or criteria that take into account demographic, trade, or demand projections when developing cross-border transport infrastructure.•Continue programs designed to both set aside funds for

infrastructure maintenance and promote policies that take the total life cycle cost of an infrastructure asset into account at the time it is constructed.

7. Regulations and standards

•Maintain programs and adequate resources and streamline processes to facilitate the deployment, protection, and expeditious repair of submarine telecommunications cables.•Encourage the establishment of a trusted online environment.

8. Transit •Continue procedures to identify goods in transit and verify satisfaction of transit requirements.•Do not apply customs charges, formalities, or inspections other thanthosenecessaryforspecificlawenforcementpurposeswithrespect to the transit operation, until the goods arrive at the point of exit of an economy’s territory.

Source: APEC (2013b)

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foreign cargo by foreign vessels within Philippine ports; (2) high cost of cargo-handling fees; (3) taxes on fuel, profits, and purchases; (4) lack of economies of scale; and (5) high cost of terminal handling charges.

Llanto et al. (2007) describe the various inefficiencies that saddle the Philippine port sector, which include the following observations: (1) an effective intraport and interport competition among the country’s ports is absent; (2) port administration is highly centralized with the Philippine Ports Authority (PPA) as the central authority; (3) some semblance of competition emerges when concessions were awarded to private companies to operate the Manila International Container Terminal, South Harbor, and North Harbor, but direct competition among them needs to be enhanced by the PPA; and (4) port cargo-handling services are not competitive. The six cargo handlers at the North Harbor are allowed to operate only in specific piers dedicated to specific shipping lines.

Balisacan (1990) documents that handling costs in Philippine ports can easily exceed the net sea freight, particularly for short distances, such as the Cebu-Dumaguete route, whose handling costs exceed the net sea freight by about 40 percent. However, he concludes that high domestic transport cost is not simply due to shipping cost but due to other factors, such as poor farm-to-market roads, insufficient storage facilities, and poor communication and power infrastructure in the rural areas.

Table 11 presents comparative indicators on the number of documents, time, and cost needed to import and export in selected APEC economies. The Philippines shows an improvement in all indicators (except number of documents to import) from 2005 to 2012. In 2012, the Philippines’ cost

Table 10. List of actions undertaken by the Philippines to solve SCFAP choke points

Choke Point Policy Recommendation

Transparency • Initiative to advance the action plan for choke point 1 of the APEC Supply Chain Connectivity Framework • APEC guidelines for advance rulings• Symposium on supply chain connectivity• Compendium of best practices of national logistics associations• Improvement in the understanding of logistics services

Infrastructure •Studyandseminarsonenergy,transport,andenvironmentalbenefitsoftransit-oriented development

Documentation •Self-certificationoforigin-buildingprogram•Explorationofthepossibilityofadoptingelectroniccertificatesrelated

to customs procedures

Connectivity • Training in management of security, safety, and emerging technology in intermodal transportation and supply chain systems

Source: APEC (2013b)


to export is at par with Thailand, but still below those of China, Malaysia, Hong Kong, and Singapore. Likewise, in 2012 its cost to import is below those of Thailand and the Republic of Korea, but still above those of China, Malaysia, Hong Kong, Singapore, and Viet Nam.

Ishido (2012) explains that three major areas (transportation, business logistics, and trade facilitation) have to be dealt with to optimize the flow of goods throughout the logistics chain. He recommends that (1) more and better investments in infrastructure have an internal rate of return between 25 percent and 50 percent and a “medium” to “high” potential if implemented, (2) policies aimed at improving the efficiency of logistics service providers have an internal rate of return higher than 50 percent and a high potential if implemented, and (3) policies to improve trade facilitation have an internal rate of return higher than 50 percent and a “very high” potential if implemented. According to APEC (2013d), the WB’s Trading Across Borders indicators show a reduction in total trade transaction costs across the APEC region over the 2007–2010 period, resulting in total savings of USD 58.7 billion.

Finally, in a focus group discussion in the Philippine supply chain sector on January 29, 2014, participants were asked if a further improvement by 10 percent from the 2015 baseline to 2018 is doable. They answered in the affirmative.

The domestic logistics cost has a negative impact on exports. This factor is measured as a DLI—or “behind-the-border cost” that is not

Table 11. Trading across borders indicators

CountryDocuments to Export (number)

Time to Export

(days)

Cost to Export (USD per

container)

Documents to Import (number)

Time to Import

(days)

Cost to Import (USD per

container)

2005 2012 2005 2012 2005 2012 2005 2012 2005 2012 2005 2012

Philippines 8 7 17 15 800 585 8 8 18 14 800 660

China 6 8 18 21 390 580 11 5 24 24 430 615

Malaysia 7 5 18 11 432 435 7 6 14 8 385 420

Hong Kong 6 4 13 5 525 575 8 4 17 5 525 565

Indonesia 7 4 25 17 546 644 9 7 30 23 675 660

Republic of Korea 5 3 12 7 780 665 8 3 12 7 1,040 695

Singapore 4 4 5 5 416 456 4 4 3 4 367 439

Thailand 9 5 24 14 848 585 12 5 22 13 1,042 750

Viet Nam 6 6 24 21 669 610 8 8 23 21 881 600

Source: Aldaba (2013, Table 24, p. 39)

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included in international trade negotiations. For instance, the Manila truck ban adversely affects the domestic logistics cost. There are two contrasting effects of the Manila truck ban. It penalizes the truckers and logistics firms, but it benefits Manila’s students, teachers, employees, and commuters. It is suggested, therefore, that a summit of all stakeholders be convened to arrive at a long-term solution.

Hoekman (2013) states that domestic policies that increase trade costs may hurt the efficiency of supply chains or impose costs on firms in other countries. The Port of Manila gets 98 percent of foreign container traffic in Luzon, while both the Batangas Port and the Subic Port are extremely underutilized because shipping freight charges are much lower when cargo owners ship from the Manila Port due to economies of scale. The government can devise policies to make the Batangas and Subic ports more attractive to shippers. Habito (2014) argues that the Manila truck ban may serve as a policy intervention to make the Batangas Port and Subic Port attractive to shippers.

Austria (2009) provides some recommendations that will enable the country to benefit from the GVC. First, the country has to move away from the assembly and testing segment of the production chain that is labor intensive and where the country cannot compete with the likes of China in terms of labor costs. Therefore, the Philippines has to undergo an industrial upgrade and technological learning to specialize in high-value production. Instead of competing with low-labor cost countries, such as China, the Philippines should find niches to complement these nations. Second, the government should invest in developing local supplier industries because this is the only way that TNCs can increase the local content of goods produced by TNCs in the country. Lastly, the country must invest in good infrastructure and logistics that can lower production costs and enable a more efficient management of the supply chain. This includes lowering communication and power costs as well as enhancing port systems that can cut travel times. The country, thus, should open up to private sector investment in infrastructure. To attract private investors, the regulatory and legal environment must be reformed to ensure the stability of long-term investment agreements. Only when a more credible policy environment is in place will the confidence of foreign investors in the country increase.

Intal (2009), meanwhile, emphasizes the need for political stability to improve the investment climate in the country. According to him, the country needs substantial levels of investment so that it can move away from its dependence on semiconductor and garment exports that are vulnerable to competition from countries with lower labor costs.


Table 12 compares export and import data for the Philippines, ASEAN, and the world for the years 2010 and 2011. Here, the Philippines has a relatively small share of ASEAN trade compared to its neighbors. The Philippines ranked sixth in trade volume (exports plus imports) in 2010 and 2011, behind Singapore, Thailand, Malaysia, Indonesia, and Viet Nam, in that order. There is still room for improvement when it comes to attracting TNCs to set up operations in this country and making the country a more active part of the GVC.

Table 13 shows the Philippine exports and imports to some of its top trading partners. Trade with the ASEAN member-states makes up the biggest chunk of trade volume in 2010 and 2011. Improved supply chain performance may result in increased trade and integration with the Philippines’ ASEAN neighbors in such industries as electronics and automobile parts. Since APEC also includes China, Japan,

Table 12. Total exports and imports of the Philippines, ASEAN, and the world (in USD billion)

Country Total Exports Total Imports

2010 2011 2010 2011

Philippines 51.5 48.0 54.9 60.1

ASEAN 1,070.9 1,242.3 974.8 1,146.3

World 15,129.8 18,070.2 15,251.5 18,204.8

Sources: International Monetary Fund (2013); ASEAN (n.d.)

Table 13. Total Philippine exports and imports to selected countries/regions (in USD thousand)

Total Exports Total Imports

2010 2011 2010 2011

ASEAN 11,986,081 15,492,371 8,693,733 14,337,204

China 5,724,467 4,627,559 6,237,326 6,085,075

Japan 7,841,291 6,744,364 8,886,140 6,516,380

Republic of Korea 2,228,180 3,832,938 2,237,228 4,419,530

India 410,280 541,425 388,301 666,954

US 7,559,105 5,886,656 7,101,909 6,536,264

Europe 6,602,042 4,592,830 5,885,161 6,142,399

Australia 349,626 839,043 393,890 1,071,056

New Zealand 32,701 408,818 44,858 524,229

Sources: National Statistical Coordination Board (2013); National Statistics Office (2012)

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Republic of Korea, Australia, New Zealand, and the US, one can see that APEC economies form the biggest trading partner of the Philippines. Improving the country’s competitiveness through APEC’s programs, such as the SCFAP and ANSSR, would increase investment from and trade with other APEC economies. Moving up on the value chain and playing to its own strengths would enable the Philippines to complement the capabilities of its neighbors.

Public-private supply chain partnershipsCosts associated with global trade, such as those on transportation, communications, infrastructure, trade barriers, and border policies, are much higher in low-income countries due to policies on product regulations, such as product safety and health regulations, licensing requirements, and assessment procedures. A reduction in trade costs and improvement in connectivity are preconditions for expanding investments in supply chain activities, such as trade facilitation, and for improving transport-related logistics infrastructure and infrastructure services (Hoekman 2013).

A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer’s request, and supply chain connectivity makes it easier for businesses to perform their activities efficiently and globally. Three aspects of connectivity are identified:

1. Institutional connectivity addresses the behind-the-border issues, such as customs modernization, single-window initiative, and transport and logistics facilitation;

2. Physical connectivity refers to the need for better port, airport, road, and railway infrastructure that facilitate regional and global trade and travel;

3. People-to-people connectivity refers to the exchanges and networks across the globe that promote deeper integration between people, such as educational linkages, promotion of tourism, and increased mobility of professionals.

As discussed in the earlier section, the SCFAP identifies eight choke points (Table 9) that require public and private sector actions to help loosen the constraint on traders and ensure that supply chains operate more quickly, efficiently, and reliably. One such supply chain barrier is the lack of awareness and coordination among government agencies on policies affecting the logistics sector. To address this problem, establishing an institutional structure such as a “supply chain council” composed of


businesses, regulators, and trade officials can identify redundancies in the regulation and overlapping requirements from different agencies that do not coordinate and communicate with each other. The council can develop a plan to deal with the most detrimental policies or to establish a “policy performance baseline” that will monitor the effects of changes in policies (APEC 2013b; APEC 2013d; Hoekman 2013).

The Bureau of Customs (BOC) had implemented the electronic-to-mobile (E2M) system covering the entry and release of shipments through electronic means. However, the system went down many times whenever there was a power failure and when the payment system of the Philippine Clearing House and authorized agent banks went offline. The BOC, thus, has to resort to manual release of import shipments whenever the E2M system bogs down. It now proposes to change the E2M system with a new one called Philippine Integrated Customs System. Accessibility to spare parts for machines operating in the country should be enhanced and facilitated by BOC’s import release system and the single-window system once these are made operational.

Conclusions and recommendationsThe Philippines has a lot to gain by becoming a more active player in the GVC. However, several factors hinder the country’s attempts to maximize the benefits of the GVC. These include supply chain factors, such as low availability and quality of infrastructure and infrastructure services, poor logistics services, inefficiency in customs administration, inefficiency in import-export procedures, regulatory environment, and physical security. There are also other structural problems, such as poor quality and high cost of energy, inadequate technological capabilities, and lack of supplier industries.

One way to move up the value chain is for the country to upgrade its industries. This can be done by investing in science and technology in all levels of education. Higher education curricula should be reevaluated so that the skills being taught are aligned with the needs of the industry.

The Philippines has a lot to gain from the GVC. It has both the natural and human resources that can help propel growth and improve its standard of living. However, several reforms have to be made if the country were to maximize the benefits of global trade. These reforms should aim to make goods travel faster within and outside of the Philippines and to make it easier for firms, both foreign and domestic, to do business in the country. With the right policies, the Philippines will be well positioned to move up the GVC.

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As chair of the APEC 2015 Meeting, the Philippines can provide substantive leadership and direction on supply chain connectivity policies. The study recommends the following:

1. Encourage regional cooperation in establishing and nurturing the policy environment for new regional infrastructure projects;

2. Build the capacity of local logistics providers and SMEs by facilitating their access and link with multinational logistics corporations;

3. Promote initiatives in support of the APEC Principles of Transborder Logistics Services Optimization by simplifying and harmonizing trade and transportation procedures and practices, improving the awareness and understanding of new technologies, and optimizing transborder logistics. The latter includes authorized economic operator, single window, time release survey, secure and smart container, electronic certificate of origin, supply chain visibility, intelligent transportation system, and global navigation satellite system;

4. Address the impediments related to customs issues of the APEC Cross-Border Customs-Transit Arrangements, such as varying customs documentation standards, lack of adequate IT infrastructure and interoperable data-sharing system, multiple financial guarantees, arbitrary administrative fees, and delays at customs offices;

5. Undertake Philippine case studies to verify the duration, costs, and number of documentation affecting export and import;

6. Encourage member-economies to engage more with relevant stakeholders in identifying specific problems faced by each member-economy and priority areas/menu of actions with respect to various choke points, and in designing targeted capacity-building activities with measurable goals;

7. Develop policy guidelines or best-practice guidelines for each choke point as reference for member-economies;

8. Help in enhancing physical infrastructure of member-economies through the identification and allocation of funds for key projects (e.g., APEC to coordinate with the Asian Development Bank in prioritizing projects);

9. Encourage the APEC Policy Support Unit to establish the minimum number of indicators for measuring the progress on compliance; and


10. The Philippines should take the lead in setting higher “de minimis” values (e.g., above USD 100) to encourage other APEC economies to agree to exempt express and postal shipments from customs duties or taxes, and from certain documentation requirements for shipments valued higher than USD 100.

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AbstractThis study aims to establish the linkages between human capital and human resource development, and inclusive growth in an economy. Various studies have suggested that education, training, and human resource development, in general, raise the productivity of workers through the transmission of knowledge, skills, and competencies, which then increase the earning capacity of an individual. Because of the link between education and earning capacity, improving education will bring about inclusive growth, as these same educated individuals enhance their employment opportunities, improve their income, and pursue entrepreneurial options. The state of education in the Philippines, as well as in the member-economies of the Asia-Pacific Economic Cooperation (APEC), was analyzed in terms of four dimensions: quality, relevance, access and equity, and efficiency and effectiveness. Likewise, options for the development of human resources in the Philippines and lessons learnt from best practices in APEC economies were categorized according to these four dimensions. Lastly, this study enumerates several actionable recommendations on how member-economies in the Asia-Pacific region can cooperate to bridge their human resource gaps and ultimately attain inclusive growth.

IntroductionThe relationship between the quality of human resources of an economy and its level of material progress has long been established in many theoretical and empirical studies. That is, investment in human capital and training has a significant effect on the growth of both developing and developed economies. In addition, the sustained progress in developed economies has been attributed to the level of their knowledge capital.

9Tereso S. Tullao Jr., Christopher James R. Cabuay, and Daniel S. Hofileña

Establishing the Linkages of Human Resource Development with Inclusive Growth

254 Establishing the Linkages of Human Resource Development with Inclusive Growth

What is not evident, however, is whether investment in human capital and knowledge capital leads to inclusive growth.

Although the pursuit of inclusive growth is a major concern of developing economies, it is likewise important to a regional coalition, such as the APEC, to hasten its regional cooperation and integration initiatives. The 21 member-economies of the APEC have varied levels of economic development as well as differentiated stages of human resource development. Many developed economies have attained inclusive growth with their sustained development, while developing economies are still working toward this seemingly elusive goal. Given this asymmetry, one can explore the benefits of economic complementation and learn from the experiences of economies that have achieved inclusive growth.

Indeed, APEC, as a regional group, has something to contribute in improving the quality of human resources of its member-economies. Cooperative efforts on improving basic education, vocational and technical education, higher education, and research and development (R&D), as means to bridge the human resource gap within the region, were explored. Likewise, to mitigate the asymmetry in human resource development among APEC economies, partnerships and other cooperative initiatives that may be productive to all economies were investigated.

Objectives of the paperThis paper aims to establish the linkages between human capital and human resource development, and inclusive growth. This is complemented by the following subobjectives:

• To trace the linkages of education, human capital formation, and human resource development, on one hand, and economic development, on the other hand;

• To investigate the state of basic education, higher education, and skills training in APEC economies;

• To analyze some of the key issues confronting basic education, higher education, and technical education in the Philippines;

• To examine how human resource development issues are impeding the attainment of inclusive growth and the goals of the Philippine Development Plan (PDP) 2011–2016;

• To draw lessons from the experiences and best practices of APEC economies that may be relevant in resolving issues of human resource development in the Philippines; and

• To formulate possible cooperative mechanisms within APEC in narrowing the human resource development gaps within APEC economies.

Tullao,Cabuay,andHofileña 255

SignificanceofthepaperThe role of education in enhancing human capital and human resource development takes center stage in this study. A country’s essential educational features determine the quality of its labor force and the stock of its human capital—both of which are important in the initial stage of economic development. As the level and quality of education of a country’s human resources improve, so does the country’s capacity to conduct research, generate knowledge capital, and innovate.

Improving the stock of human capital through education can contribute to inclusive growth. Education enables individuals to participate in economic activities while directly expanding the productive capacity of an economy. The more educated and trained individuals are the ones most likely to participate in economic activities. Also, workers with higher stocks of human capital are likely to have improved earning potentials and productivity from employment in quality jobs.

For the Philippines, this paper provides policymakers an appreciation of the state of human resource development in the country and of how issues on education and training are contributing to or impeding the attainment of the goals of the PDP. In particular, such analysis can compel policymakers to consider investing in human resource development as a priority not only to close the gap with the more advanced APEC economies but more so to attain inclusive growth.

From a regional cooperative perspective, this paper allows APEC economies to learn from the region’s best practices on how human resource development can contribute toward inclusive growth. More importantly, it identifies and recommends cooperative initiatives that can be undertaken at the regional level to narrow the gaps in human resource development among APEC economies.

MethodologyTo attain its objectives, this study reviewed available literature, gathered pertinent data, examined issues on human resource development, and identified best practices and explored the benefits of regional cooperation.

Reviewing the literatureTo achieve subobjectives 1 and 2, an extensive review of theoretical, conceptual, and empirical literature that link education to human capital and human resource development, and then to inclusive growth, was conducted. This study also looked at the research studies of APEC that analyze the trends and demands of APEC economies’ labor markets.


Gathering data To attain subobjective 3, data on the state of basic and higher education were collected. These data included enrollment and graduation rates in APEC economies, universities, the courses that are offered, and the trainings provided, as well as human resource development programs offered in each member-economy and by APEC itself. Data sources include the World Bank, government agencies in charge of higher education in APEC economies, and human resource development institutions within the APEC.

Examining the issuesFor subobjectives 4 and 5, this study analyzed the issues confronting basic education, higher education, and technical education in the Philippines in terms of quality, relevance, access, finance, and effectiveness. Quality refers to the characteristics of educational inputs, particularly qualifications of teachers and curricular programs. Relevance is the matching of outputs with the functions of the various types of education. Access, meanwhile, refers to the ease of admission and the difficulties of retaining students in schools. Finance, which is an avenue to achieve efficiency and effectiveness, pertains to alternatives of funding the provision of various types of education. Lastly, efficiency and effectiveness relates to the resource requirements in producing the outputs. Investment in human resource development has implications on the PDP because the formation of human capital has to be efficient and equitable to promote rapid and inclusive growth.

Learning from best practices In attaining subobjective 6, relevant APEC documents and research studies on how human resource development has facilitated inclusive growth were reviewed. Best practices on how economies have enhanced access to education, promoted quality basic and higher education, and improved skills training in the workplace were identified. This also entailed enumerating the skills and competencies required to make individuals of all social strata more competitive in an international workplace.

Exploring complementationTo address subobjective 7, this study documented the successful regional cooperative programs undertaken by the Association of Southeast Asian Nations (ASEAN) University Network (AUN), the Southeast Asian Ministers of Education Organization (SEAMEO) with its other centers, and other regional organizations on improving basic education,


higher education, and R&D in the region. Discussions also included recommendations on how APEC can cooperate, support, expand, and improve these regional initiatives to enhance human resources and narrow down the gaps in human resource development between developed and developing economies in the region.

Role of education, training, and human resource development in the process of economic growthIt has been suggested by Becker (1964) and Mincer (1974) that investment in human capital is a strong driver of economic growth, as it increases the earning capacity of individuals. The human capital theory states that education, training, and human resource development, in general, raise worker productivity through the transmission of knowledge, skills, and competencies, thereby increasing future earnings of trained individuals (Becker 1964; Mincer 1974; Xiao 2001; as cited in Tullao and Cabuay 2013).

Education and economic growthOne of the earlier economic growth models proposed by Solow (1957) suggests that growth is determined by factor inputs, labor and capital, and also by technical change (Tullao and Cabuay 2013). Growth accounting studies (Tinbergen 1942; Fabricant 1954; and Abramovitz 1956 as cited by Crafts 2008) have pointed to total factor productivity as the determinant of technical change, which, in turn, is shaped by human resource development and management, institutional restructuring, and sociodemographic factors (Jajri 2007).

Education entails the transmission of knowledge, skills, and competencies to individuals, which enhances their productivity. However, the link between education and productivity is unclear. The most that education—educational attainment, in particular—can do is to serve as an indicator for employers to gauge the potential productivity of a worker (Spence 1973); although, at times, it can be the job itself that determines productivity rather than the educational attainment of worker (Thurow 1975).

Cooray (2009) provides a comprehensive review of literature on the effects of education on economic growth. Through his international empirical evidence, he reemphasized the findings of many studies (Barro 1991; Mankiw et al. 1992; and Hanushek 1995) that the quantity (i.e., enrollment rates) and quality (i.e., availability and quality of physical capital, teacher training) of education are positively associated with higher growth rates. The study concluded that much of the government expenditure needs to be focused on improving the quality of education.


Ozturk (2001) mentions that in the course of a country’s growth, education directly determines the country’s capacity to effectively utilize borrowed technology. Primary education and secondary education teach the basic skills needed in the workplace, such as numeracy, literacy, communication skills, and social skills, including working with teams. Technical skills and other work-related competencies can be learned in secondary and vocational education. Tertiary education prepares students for employment in industries using more sophisticated technologies that are imported, adapted, and improved. Meanwhile, higher education provides support for the development of sciences that generate knowledge capital, and of technology and innovation.

Educational and skills requirement at various stages of economic development

From unskilled workers to skilled workersThe development of an economy is complemented by the growth of various sectors, as well as the improvement in technologies, as it transits through various phases of development. Countries usually start with a growth bias on agriculture that uses traditional and undemanding technologies in agricultural and cottage industries. These production processes are uncomplicated, and use unskilled and semiskilled workers to perform manual labor (Tullao and Cabuay 2013). At this stage, little education is needed, and, perhaps, basic education is sufficient.

As the economy develops, the share of agriculture in national income declines, while the share of the industrial sector in generating income and employment begins to increase due to an expanding population and structural changes in the economy (Tullao and Cabuay 2013). This transformation is accompanied by changes in technology, as well as the types of workers needed in the economy. Unskilled workers that operate in traditional agriculture may no longer be applicable in mechanized and large-scale manufacturing production. At this stage of development, the economy may have to borrow technology from more developed nations to exploit opportunities in the manufacturing sector based on its resource endowment. From the human resource perspective, borrowed technology may require middle-skilled and technical workers. This implies that graduates of secondary education and technical/vocational training should have the appropriate competencies and dexterity to operate improved production techniques.


From skilled workers to highly skilled technicians and professionalsAs the economy further develops, it may use a mix of borrowed technology and locally developed technology (Tullao and Cabuay 2013). At this point, countries start to develop industries that produce intermediate inputs to help make their manufacturing sector be globally competitive. This requires the employment of higher-educated professionals, such as engineers, technicians, and technologists, to exhaust the country’s comparative advantage given its resource endowments. This marks the journey of a country toward middle-income status (Tullao 2012).

Beyond the stage of heavy manufacturing, the economy evolves further by developing differentiated manufactures. This may involve introducing innovation to the existing technologies—both borrowed and locally developed. This stage produces innovative products that utilize high value-adding services. It also requires the production of scientists, highly educated engineers, and highly skilled professionals (Tullao and Cabuay 2013), which creates a strong linkage between higher education and R&D.

Education and R&D

From human capital to knowledge capitalRomer’s (1986) endogenous growth theory highlights that as an economy evolves toward the stage of innovative technology, it will require strong linkage between higher education and R&D. The theory relieves the traditional growth theories of the assumption of decreasing returns to capital as it broadens the definition of capital to include human capital and knowledge capital (Tullao and Cabuay 2013). Romer introduces the concept of increasing returns to capital with decreasing returns to knowledge. He posited that in the long run, growth is driven by the accumulation of knowledge. In his model, human capital is composed of health, education, and training, whereas knowledge capital is investment in a country’s capacity for R&D. As a country moves toward innovative technology, it will require a supply of knowledge capital to generate innovations. This generation of knowledge capital is hinged on the country’s R&D capacity, which, in turn, is anchored on the level of human capital accumulation that is dependent on human resource development in general. Hence, as previously mentioned, highly educated and highly skilled professionals, scientists, and engineers (researchers in general) are needed to generate the R&D capability (and knowledge capital) for the country to innovate.


Ultimately, the capacity of a country to innovate will eventually determine its competitiveness in terms of “the development and diffusion of new products and services, and organizational and institutional innovations, such as new marketing strategies, management, policies, new services, and improved approaches to internal and external communications positioning” (Tullao 2012, p. 5).

Human resource development and inclusive growthThe growth in most developing countries has been characterized by rapid and sustained growth in gross domestic product (GDP) that is driven by a leading sector. However, not all sectors and social strata are growing at the same rate. For instance, a country's fast-growing output may be accompanied by a slower performance in agriculture, a low quality of human resources, poor access to and lack of quality education and health care services, and the widening income inequality between rural and urban areas, as well as among social strata. Hence, inclusive growth that benefits all sectors at the same time is warranted.

Inclusive growth refers to economic growth performance that encompasses equity, equality in both income and opportunities, and protection in market and employment transitions (Anand et al. 2013). This is an ideal form of progress because it has all social strata of an economy growing at the same rate as the growth in income, investment, and employment opportunities (Ianchovichina and Gable 2012).

Requirements for inclusive growthGrowth is unambiguously inclusive if the rise in the average income of individuals is coupled with an increase in equity.1 However, these two goals may not always go together. There have been various country cases wherein either there was pure income growth without any improvement in equity, or there was no income growth but had better income distribution. Many studies (Deloitte and AIMA 2011; Geron et al. 2011; Vaithiyanathan 2012; Anand et al. 2013) have already identified the ways to attain inclusive growth.

One of these avenues to inclusive growth is macroeconomic stability (Anand et al. 2013). An economy more open with trade, as well as with moderate price and output volatility, substantial capital accumulation from both domestic and foreign sources, and financial openness, has been seen—empirically and conceptually—to lead to inclusive growth (Geron et al. 2011; Anand et al. 2013).

1 See Anand et al. (2013) for a well-rounded discussion on the requirements of inclusive growth.


Another important avenue in achieving inclusive growth is education. The capacity of an economy to invest in more and better-quality human capital (Anand et al. 2013), generate knowledge capital (Vaithiyanathan 2012), and provide employment opportunities to all sectors can lead to inclusive growth. As a consequence, structural changes are required (Anand et al. 2013).

Deloitte and AIMA (2011) emphasize the central role of government in achieving inclusive growth. The government itself is crucial in improving the speed and inclusiveness of the delivery of social services, infrastructure, and social institutions. Access to social services, such as microfinancing, is important for people in the lower-income strata to be able to engage in entrepreneurial activities. Health care is also vital, as it complements education in the accumulation of human capital. Infrastructure contributes to a country’s competitiveness; roads, good public transportation systems, seaports, and airports all facilitate business growth and the flow of investment. To some extent, the private sector may also play a role in achieving inclusive growth (Allison 2012).

The private sector’s role in development is primarily to generate wealth and stimulate economic growth. It is also responsible for generating jobs, mobilizing resources, facilitating knowledge transfer by introducing creative and innovative solutions, and fostering skills development and training (Allison 2012). The evolution of core business and inclusive business models also plays a role in how the private sector may contribute to attain inclusive growth (Deloitte and AIMA 2011; Allison 2012). These inclusive business models help reduce poverty through job creation and transmission of skills and training while maintaining the profitability and competitiveness of companies (Allison 2012). Thus, the products that companies manufacture may be able to cater as well to lower-income consumers, giving them access to affordable and quality products (Deloitte and AIMA 2011).

Education and inclusive growthEmpirically, education appears to be a highly significant correlate for inclusive growth (Anand et al. 2013; Barro and Lee 2000), particularly during primary, secondary, and tertiary years of schooling. A strong economy for knowledge has emerged globally, thus, creating incentives for people to invest in their skills, particularly through education (Gurria 2012).

Education provides three linkages to inclusive growth: (1) increases in productivity, (2) greater employment opportunities, and (3) enhanced entrepreneurship. Learning the proper skills, competencies, and abilities


make people more productive, thereby increasing a country’s output per worker. At the same time, education reinforces an employee’s job tenure, especially during periods of economic downturns (Gurria 2012). Education also encourages entrepreneurial development, facilitating investments in all types of business enterprises. It then improves average income, as well as the country’s income distribution, because it acts as an enabler for individuals, most especially those in the lower-income group.

Mismatch, unemployment, and brain drainAs illustrated in the framework of Anand et al. (2013), one way to ensure inclusive growth is to raise the average income for all people. This requires that all people must have a job. But this is not always the case in developing countries where there is a tendency to overproduce certain professions/degree holders or underproduce those that are badly needed in the industry. Thus, to develop human capital, a country must maintain the congruence between the supply and the demand for educated labor (Tullao and Cabuay 2013).

In addition, the country may experience the brain drain phenomenon if it has a weak domestic absorption for particular occupations (e.g., jobs that are not readily available in underdeveloped industries). In such a scenario, individuals with higher levels of education tend to migrate to countries with higher wages or perhaps with more favorable living conditions.

Thus, education per se may be insufficient to attain inclusive growth. It all boils down to the kind of skills and degrees the educational sector is producing, what industries are being developed and their manpower requirements, and all incentives a country has in place to encourage individuals to take higher education and to prevent them from migrating.

State of human capital formation in APEC2

The development of human capital has been associated with the knowledge, education, skills, and abilities of an individual (Garavan et al. 2001). Therefore, this study refers to the state of education and training as indicators of the present and future trends of human capital formation in different countries (Miyamoto 2003).

2 Data here are divided into three sections based on the division set forth by the Organisation for Economic Co-operation and Development (OECD)-Indicators of Education System (2013a), although only some indicators are covered. In the first section, the output of educationalinstitutionsandtheimpactoflearningtothepupilsareused.Nextisthefinancialandhumanresources invested in education. Usually, this includes the expenditures of the government that directly affect the student. The third part focuses on the access to education, participation, and progression. It is important to note, however, that the discussion excludes indicators for a fourth category—the learning environment and organization of schools.


Output of educational institutions and impact of learning

Grossgraduationratio,tertiary(ISCED5A)firstdegreeGross graduation ratio (GGR) is defined as all the graduates in the International Standard Classification of Education (ISCED) 5A programs,3 which is expressed as the percentage of the population that belongs to the age bracket wherein they theoretically finish the most common first degree program (Table 1). Among all the countries included, Australia ranks the highest in terms of the GGR, with rates ranging from 51–60 percent. New Zealand has a GGR average of 48 percent, ranking second in this list.

On the other hand, Brunei Darussalam's graduation ratio of 6.22 percent was the lowest for the year 2000, but it doubled to 13.8 percent in 2005 before slowly stabilizing between 10.7 percent

3 Short-cycle tertiary education programs that prepare individuals for labor market entry.

Table 1. Gross graduation ratio of APEC economies, tertiary (ISCED 5A) first degree program

Country 2000 2005 2009 2010

Australia 50.62 59.3 59.29 60.10

Brunei Darussalam 6.22 13.77 10.80 10.73

Canada … 40.32 … …

Chile 13.16 … 19.74 18.44

China … 10.01 13.03 …

Hong Kong Special Administrative Region (SAR), China … 18.53 … …

Indonesia 6.26 … 11.52 13.41

Japan 32.81 37.54 42.89 42.56

Korea, Republic of 28.11 35.74 50.38 …

Malaysia … 15.63 21.86 20.38

Mexico 14.76 16.37 18.72 19.04

New Zealand 41.48 51.20 50.17 47.66

Philippines … 18.61 … …

Russian Federation … 43.04 51.21 …

Thailand 14.82 25.65 … …

United States 32.46 33.96 37.16 38.40

Viet Nam … … 8.39 10.12

Countries not included: Papua New Guinea, Peru, SingaporeSource: World Bank (WB), various years


and 10.8 percent. Indonesia’s graduation ratio average of 10.39 percent from 2000 to 2010 is also low compared with other APEC economies. Viet Nam, with only two data points available, averaged at a rate of 9.25 percent.

In general, Figure 1 shows that all of the countries experienced an improving graduation ratio for all the years starting from 2000 to 2010. The highest rate of increase is experienced by Korea, from a GGR of 28 percent in 2000 to 50 percent in 2009, with a growth rate of 79 percent.

Research capabilitiesTable 2 shows the rankings and number of documents listed in the SCImago Journal and Country Rank (SJR), as well as the respective share of each APEC economy to the total number of indexed documents of APEC for the years 1996–2012. The United States (US) (SJR rank no. 1) has the highest contribution of around 7 million documents (45.04%). China (SJR rank no.2) has a share less than half of the US at 17.09 percent, with a total of 2,680,395 indexed documents. Japan (SJR rank no. 5) ranks third with a total share of 11.33 percent or around 1.7 million indexed documents.

It is evident from Table 2 that there is a large disparity between the number of documents published by the three most-indexed member-economies and the rest of APEC. In total, the US, China, and Japan account for 73.4 percent of the indexed documents of all APEC economies. On the other end of the spectrum are Thailand, Singapore,

Figure 1. Gross graduation ratios of APEC economies

Source: WB (various years)


the Philippines, Peru, Papua New Guinea, New Zealand, Mexico, Malaysia, Chile, Brunei Darussalam, Indonesia, and Viet Nam, where each accounts for less than 1 percent of the indexed documents.

Resources invested in education

Public expenditure on education as percent of GDPTotal public expenditure on education as a percentage of GDP is defined as the “current and capital expenditure on education by local, regional, and national governments on education, expressed as a percentage of GDP (for a given year)” (UNESCO Institute for Statistics 2014). Those that show high values indicate that their government prioritizes the development of educational institutions and infrastructure.

Table 2. Global SJR ranks and documents and country rank of APEC economies for the period 1996–2012

SJR Rank Country Documents Percent Share*

11 Australia 683,585 4.36

134 Brunei Darussalam 1,345 0.01

7 Canada 993,461 6.33

44 Chile 68,974 0.44

2 China 2,680,395 17.09

30 China, Hong Kong SAR 162,812 1.04

61 Indonesia 20,166 0.13

5 Japan 1,776,473 11.33

40 Malaysia 99,187 0.63

28 Mexico 166,604 1.06

34 New Zealand 129,822 0.83

122 Papua New Guinea 1,719 0.01

77 Peru 8,963 0.06

70 Philippines 13,163 0.08

13 Korea, Republic of 578,625 3.69

12 Russian Federation 586,646 3.74

32 Singapore 149,509 0.95

16 Taiwan 398,720 2.54

43 Thailand 82,209 0.52

1 United States 7,063,329 45.04

67 Viet Nam 16,474 0.11

* Share of each APEC economy to the total APEC number of documentsSource: SCImago Journal & Country Rank (various years)


Table 3 and Figure 2 illustrate that in the last two decades, these countries—except for a few nations, such as Canada, Peru, and the Philippines—have been slowly increasing their expenditure on education. Indonesia’s expenditure increased by 300 percent (from 1% of GDP to 3% by the end of 2010). This is followed by Mexico and Chile, with a growth of 128 percent and 78 percent, respectively. Australia, too, increased its expenditure on education by 19 percent (from 4.67% to 5.58%).

On the other hand, the share of education in the Philippine GDP decreased by 13 percent (from 3.04% to 2.65%). For Peru, the education spending share shrank by 11 percent (from 3.09% to 2.75%). For Canada, the government spending on education dropped by 9 percent (from 6.09% to 5.50%).

Finally, during the period 2000–2005, most countries experienced a slight decline (or no change) in the share of education in the GDP.

Table 3. Public expenditure on education as percent of GDP

Country 1990 1995 2000 2005 2009 2010

Australia 4.67 5.11 4.88 4.92 5.11 5.59

Brunei Darussalam* 3.96 4.29 3.71 … 2.05 3.68

Canada 6.09 6.48 5.56 4.93 5.00 5.50

Chile 2.36 2.64 3.71 3.23 4.23 4.20

China** 1.67 1.86 1.91 … … …

Hong Kong SAR, China ^ 2.47 2.73 3.90 4.13 4.39 3.51

Indonesia^^ … 1.00 2.46 2.87 3.53 3.00

Japan*** 3.48 3.51 3.62 3.48 3.44 3.78

Korea, Republic of ^^^ 3.26 3.22 4.12 4.15 5.05 …

Malaysia^* 5.11 4.34 5.97 4.49 5.97 5.13

Mexico 2.31 4.64 4.86 5.01 5.31 5.27

New Zealand*^ 6.04 5.84 6.69 6.38 6.42 7.24

Peru**** … 3.09 2.93 2.72 2.99 2.75

Philippines ^^^^ … 3.04 3.27 2.43 2.65 2.65

Russian Federation*^* … … 2.94 3.77 4.10 …

Singapore … … 3.38 3.26 3.28 3.49

Thailand **^ 3.09 3.17 5.41 4.23 4.13 3.75

United States ^** 5.01 5.16 5.67 5.28 5.43 5.62

Viet Nam ^^* … … … … 5.32 6.56

*^ 1994, 2001 ; ^ 1996,2001 ; ^^^^ 2009 ; *** 1993, 2008 ; **^ 1991 ; ^* 1992,2006 ; ** 1992,1999 ; **** 1996, 2001 ; ^^ 2001 ; *^* 2008 ; ^^^ 2001 ; ^** 2001 ; ^^* 2008Source: WB (various years)


However, in 2005–2009, majority started to increase their education expenditure—an indication that the countries were starting to prioritize the development of human capital.

Access to education, participation, and progression

Gross enrollment ratio, all levels combinedThe gross enrollment ratio (GER), as defined by the UNESCO Institute for Statistics (2014), refers to the number of students enrolled in all levels of education (except preprimary), expressed as a percentage of the official school-age population. According to the report, it is also used to “indicate the capacity of the education system to enroll students of a particular age group”. However, a limitation of this statistic is that it also includes overaged or underaged students, repeaters, early and late

Figure 2. Public expenditure on education as percent of GDP



entrants in the calculation, which explains why the GER sometimes goes beyond 100 percent. A GER of 100 percent is an indicator that there is a high degree of participation in education, regardless of age.

Generally, the countries collectively exhibited an increasing degree of participation throughout the periods under study, with the yearly GER average growing from 71.26 percent in 1990 to 87.17 percent in 2010 (Table 4). A word of caution though: Since a lot of data points are missing in 2000 and 2010, it is possible that these comparative averages could be higher or lower than what are currently shown.

When observed by country, one finds that Canada experienced a decrease in GER from 97.99 percent in 1990 to 93.47 percent in 2000.

Table 4. Gross enrollment ratio, all levels combined (except preprimary)

Country 1990 1995 2000 2005 2009 2010 Average

Australia … 105.42 114.40 111.55 107.20 109.78 109.67

Brunei Darussalam … … 77.04 83.89 83.85 83.06 81.96

Canada 97.99 99.14 93.47 … … … 96.30

Chile … … 77.68 82.90 84.67 86.22 82.87

China 49.85 56.27 … … 68.88 69.58 64.91

Hong Kong SAR, China … … … 74.14 83.58 82.50 80.07

Indonesia 61.32 60.29 61.00 65.49 74.05 75.56 67.28

Japan 77.79 80.06 83.72 86.45 88.53 89.16 85.58

Korea, Republic of 79.50 84.84 93.36 97.72 101.32 101.50 95.75

Malaysia 57.60 59.95 68.67 71.33 … … 66.65

Mexico 66.88 66.31 72.05 77.00 80.34 80.91 75.32

New Zealand 79.27 93.64 97.21 106.15 110.74 107.91 103.13

Papua New Guinea … 32.53 … … … … 32.53

Peru 78.32 78.56 … 81.77 … 82.92 81.08

Philippines 74.92 … … 78.47 76.39 … 77.43

Russian Federation 85.96 79.23 … 81.84 85.34 … 82.14

Thailand 48.82 55.29 … 72.10 71.92 … 66.44

United States 89.73 93.66 91.64 94.43 97.29 98.31 95.07

Viet Nam 49.70 … 64.11 64.84 64.28 65.77 64.75

Yearly average 71.26 74.66 82.86 83.13 85.23 87.17



However, this study was unable to retrieve data on the GER of Canada after the year 2000. On average, the countries with the highest GER are Australia, New Zealand, South Korea, and the US, with participation rates ranging from 98 percent (US) up to 109 percent (Australia). Viet Nam, Thailand, China, Indonesia, and Malaysia have low participation rates ranging from 64 percent to 67 percent. Papua New Guinea recorded a 32.53 percent participation rate in the year 1995; however, since there are many data points missing, the available information may be too insubstantial to come to some conclusion.

By comparing the deviation of the GER of each country with the mean GER for that year (Table 5), one notices that the level of dispersion converges. This is with the exception of Viet Nam and New Zealand, which, over the years, have actually deviated from the mean GER (i.e., Viet Nam with a lower GER and New Zealand with a GER exceeding the average by at least 21 percent).

Table 5. Gross enrollment ratio, deviation from yearly average

Country 1990 1995 2000 2005 2009 2010

Australia … 30.76 31.53 28.42 21.98 23.54

Brunei Darussalam … … -5.83 0.76 -1.38 -3.18

Canada 26.73 24.48 10.61 … … …

Chile … … -5.18 -0.23 -0.56 …

China -21.41 -18.38 … … -16.34 -16.66

Hong Kong SAR, China … … … -8.99 -1.64 -3.74

Indonesia -9.94 -14.36 -21.86 -17.64 -11.18 -10.68

Japan 6.53 5.40 0.86 3.32 3.31 2.92

Korea, Republic of 8.24 10.18 10.50 14.59 16.10 15.26

Malaysia -13.66 -14.70 -14.19 -11.80 … …

Mexico -4.38 -8.35 -10.82 -6.13 -4.88 -5.33

New Zealand 8.01 18.98 14.35 23.02 25.51 21.67

Papua New Guinea … -42.12 … … … …

Peru 7.06 3.91 … -1.36 … -3.33

Philippines 3.66 … … -4.66 -8.83 …

Russian Federation 14.70 4.57 … -1.29 0.11 …

Singapore … … … … … …

Thailand -22.44 -19.36 … -11.03 -13.30 …

United States 18.47 19.00 8.78 11.30 12.06 …

Viet Nam -21.56 … -18.75 -18.29 -20.94 -20.47



Enrollment in primary educationPrimary education, as defined by the UNESCO Institute for Statistics (2014), provides students with essential skills in writing, reading, and mathematics. It equips pupils with the necessary understanding of the core areas of knowledge and personal development in preparation for lower secondary education. Table 6 shows the total enrollment in primary education in public institutions for selected years.

The table exhibits a downward trend in the total number of students enrolled in primary education in most countries examined here. Among the countries that exhibit a sharp decline in primary enrollment are Papua New Guinea, Viet Nam, Russia, Peru, Hong Kong, and Chile. However, countries such as New Zealand, Indonesia, the Philippines, and the US generally experienced a surge in primary enrollment during the 10-year period.

Table 6. Total enrollment in primary education (public institutions, all programs)

Country 2000 2005 2009 2010 Trend in Enrollment

Australia 1,387,500 1,372,500 1,385,000 1,392,500 Upward

Brunei Darussalam 29,483 29,577 28,280 28,116 Downward

Canada 2,297,314 2,184,000 2,060,859 Downward

Chile 842,048 677,525 649,091 Downward

China 98,813,048 95,989,857 Downward

Hong Kong SAR, China 400,762 314,344 293,617 Downward

Indonesia 23,757,584 24,297,134 25,003,576 25,239,328 Upward

Japan 7,460,870 7,162,439 7,078,991 7,020,545 Downward

Korea, Republic of 3,971,679 3,979,257 3,433,362 3,258,733 Downward

Malaysia 3,175,406 2,972,445 2,918,944 Downward

Mexico 13,674,934 13,517,130 13,630,684 13,678,961 Upward

New Zealand 310,327 304,671 341,228 Upward

Papua New Guinea

Peru 3,773,774 3,408,690 2,988,563 2,932,444 Downward

Philippines 11,786,622 12,087,370 12,574,506 Upward

Russian Federation 6,120,100 5,282,240 4,983,339 Downward

Singapore 272,254 Downward

Thailand 5,304,006 5,030,262 4,384,613 Downward

United States 22,082,367 21,945,254 22,186,703 22,223,358 Upward

Viet Nam 10,032,430 7,744,745 6,704,614 6,882,246 Downward



It is also evident in Table 7 that the sharpest drop in the total number of enrollees happened between 2005 and 2009, where the average change (for all countries) was -6.73. Furthermore, it is also important to note that Viet Nam and Papua New Guinea experienced a sharp drop during the period 2000–2005, with values of -25.88 and -34.09, respectively.

Enrollment in tertiary, public and privateTertiary education (ISCED levels 5 to 8), as defined in the ISCED 2011 Operational Manual (UNESCO 2014), is the education that provides learning in specialized fields of education. It is learning at a high level

Table 7. Growth in enrollment in primary education (public institutions, all programs) (in percent)

Country 2000–2005 2005–2009 2009–2010 Total Change

Australia -1.11 0.82 0.70 0.41

Brunei Darussalam 0.32 -4.48 -0.58 -4.75

Canada -5.06 -5.80 … -10.86

Chile … -21.74 -4.29 -26.03

China … … -2.90 -2.90

Hong Kong SAR, China … -24.29 -6.82 -31.11

Chinese Taipei (elementary students) -5.01 -13.95 -4.73 -23.69

Indonesia 2.25 2.87 0.94 6.05

Japan -4.08 -1.17 -0.83 -6.08

Korea, Republic of 0.19 -14.76 -5.22 -19.79

Malaysia … -6.61 -1.82 -8.42

Mexico -1.16 0.84 0.35 0.03

New Zealand … -1.84 11.33 9.49

Papua New Guinea -34.09 0.15 0.15 -33.79

Peru -10.17 -13.15 -1.90 -25.22

Philippines 2.52 3.95 … 6.47

Russian Federation -14.72 -5.83 … -20.55

Singapore -2.05 -2.55 -3.11 -7.71

Thailand -5.30 -13.74 … -19.04

United States -0.62 1.09 0.17 0.64

Viet Nam -25.88 -14.42 2.61 -37.69

Average change -6.50 -6.73 -0.94 -12.12

Source: WB (various years)Chinese Taipei data source: Council for Economic Planning and Development (2013)Singapore data source: Department of Singapore Statistics (2013)Papua New Guinea data source: Pagelio (2008)


of specialization and complexity. This also includes vocational and professional education. The data in the following tables reflect the total number of those who enrolled for the school year, may it be part-time or full-time students, in both public and private institutions.

Tables 8 and 9 show that all countries, with the exception of Canada, experienced an increase in the total number of enrollees in tertiary education in the past two decades. The number of enrollees in Canada, meanwhile, decreased by 41 percent in 1995–2005, with the sharpest drop occurring in 2000–2005 (-38.63%). However, with the limited data collected about Canada, it could not be proven that this trend continued for the period 2005–2010.

On the other hand, the number of enrollees increased in Viet Nam, Malaysia, and China for a total of over 200 percent in the past 20 years. It is also important to note that Indonesia, Thailand, and Australia had

Table 8. Enrollment in total tertiary education (public and private institutions, full and part time)

Country 2000 2005 2009 2010 Trend in Enrollment

Australia

Brunei Darussalam 3,984 5,023 6,107 5,776 Upward

Canada 1,212,161 Downward

Chile 452,177 663,694 876,243 987,643 Downward

China 7,364,111 20,601,219 29,295,841 31,046,735 Downward

Hong Kong SAR, China 152,294 254,273 264,761 Upward

Indonesia 3,126,307 3,662,234 4,859,409 5,001,048 Downward

Japan 3,982,069 4,038,302 3,874,224 3,836,314 Downward

Korea, Republic of 3,003,498 3,210,184 3,219,216 3,269,509 Downward

Malaysia 549,205 696,760 1,000,694 1,061,421 Downward

Mexico 1,962,763 2,384,858 2,705,190 2,847,376 Downward

New Zealand 171,962 239,983 263,028 266,232 Downward

Papua New Guinea Downward

Peru 909,315 1,206,970 Downward

Philippines 2,402,649 2,625,385 Upward

Russian Federation 6,331,324 9,003,208 9,330,115 Downward

Singapore 198,634 213,446 Upward

Thailand 1,900,272 2,359,127 2,417,262 2,426,577 Downward

United States 13,202,880 17,272,044 19,102,814 20,427,709 Downward

Viet Nam 732,187 1,354,543 1,774,321 2,020,413 Downward



an increase of 116.50 percent, 93.18 percent, and 90.56, respectively. Other countries are not far behind, since for the last two decades, their average change is around 88 percent.

Number of students in tertiary educationTable 10 presents the number of students enrolled in the tertiary level per 100,000 inhabitants. The level of participation in tertiary education was computed by showing the student density in a country’s population. One limitation of this indicator, however, is that it uses the country’s total population rather than the school-age population. This might

Table 9. Enrollment in tertiary education (public and private, full and part time), growth rate (in percent)

1995–2000 2000–2005 2005–2009 2009–2010

Australia 68.78 -13.26 19.26 15.79

Brunei Darussalam … … … 19.54

Canada -3.15 -38.63 … …

Chile … 27.70 38.37 27.78

China 29.65 33.29 102.87 35.21

Hong Kong SAR, China … … … 51.26

Chinese Taipei (enrollment in colleges, universities, and junior colleges)

26.47 37.40 17.16 3.04

Indonesia 38.60 33.79 15.82 28.28

Japan 37.86 1.63 1.40 -4.15

Korea, Republic of 23.66 37.44 6.66 0.28

Malaysia 55.14 95.79 23.80 36.20

Mexico 7.79 32.34 19.48 12.60

New Zealand 38.53 4.79 33.33 9.17

Russian Federation -14.11 33.80 35.21 3.57

Thailand 21.83 47.28 21.63 2.43

United States 5.33 -7.83 26.87 10.07

Viet Nam 9.01 128.14 61.52 27.00

Date 2003–2005 2005–2007 2007–2009 2009–2010

Philippines -1.20 8.08 0.80 5.40

Date 2006–2007 2007–2008 2008–2009 2009–2010

Singapore 5.03 5.36 4.43 2.54

Source: WB (various years)Chinese Taipei data source: Council for Economic Planning and Development (2013)Singapore data source: Department of Singapore Statistics (2013) Papua New Guinea data source: Pagelio (2008) Philippines data source: National Statistical Coordination Board (NSCB) 2011


mask the true degree of participation of the youth in tertiary education (ISCED 2011).

By focusing now on the growth rate, one can see that three countries—China, Malaysia, and Viet Nam—experienced a surge in the number of enrollees in tertiary education. For China, the rate peaked at 99.51 percent in the period 2000–2005. For Malaysia, the surge happened in 1990–1995 and 1995–2000, with growth rates of 42.16 percent and 83.26 percent, respectively, before falling to 12.84 percent in 2000–2005. For Viet Nam, the growth rate jumped from a disappointing -1.10 percent in 1990–1995, to a staggering 120 percent by 1995–2000.

Meanwhile, Canada generally experienced declining numbers in the participation in tertiary education, bottoming at -43 percent in 1995–2000. Other countries such as Thailand, Russia, Mexico, and Chile had a surge in the number of tertiary students between 1995 and 2005, before experiencing a slowdown in growth in 2005–2010. Finally, Indonesia, Korea, and New Zealand experienced the highest growth during the period 1990–2000.

School-age populationSchool-age population, as defined by the UNESCO Institute for Statistics (2014), is the population of the age group that corresponds to a level

Table 10. Growth rate in the number of students in tertiary education (per 100,000 inhabitants)

1990–1995 1995–2000 2000–2005 2005–2009 2009–2010

Brunei Darussalam … … 12.79 11.65 (7.43)

Canada (8.79) (43.54) … … …

Chile … 20.46 32.79 23.76 11.02

China 22.95 29.02 99.51 33.19 5.33

Indonesia 30.61 26.74 9.56 23.65 1.79

Japan 36.02 0.64 0.78 (4.28) (0.97)

Korea, Republic of 20.31 33.83 4.10 (1.37) 1.13

Malaysia 42.16 83.26 12.84 … …

Mexico (1.44) 23.86 13.34 7.23 3.82

New Zealand 30.55 (0.28) 26.46 4.83 0.16

Peru (10.68) … … … …

Russian Federation (15.19) 35.40 37.30 4.20 …

Thailand 17.25 41.28 16.16 (0.70) (0.26)

United States 0.30 (13.92) 22.07 6.42 5.81

Viet Nam (1.10) 120.81 56.61 22.43 11.83



of education, as per the theoretical entrance age and duration. This indicator is usually analyzed along with the total number of enrollees within a given particular level. In Figures 3a, 3b, and 3c, the school-age population for most of the countries exhibited a downward trend from 1991 to 2000. However, during this period, Brunei Darussalam, Hong Kong, Papua New Guinea, and Korea experienced growth in the school-age population of between 2 percent and 4 percent. Moreover, Japan managed to experience a slower rate of decline in the school-age population, from a trough of at least -3 percent between 1993 and 1994 to around -1 percent in the year 2000.

By 2000–2010, most of the countries that experienced a decline during the 1990s managed a rebound. From a growth rate in school-age population of almost 0 percent in 2000, New Zealand reached a peak of at least 3 percent in 2012. Russia experienced a sharp decline in 2000 (-11%), yet managed to recover with a 3.7 percent growth rate by the end of 2012. Viet Nam bottomed at -8.23 percent in the year 2003, but managed to attain a positive growth rate of 1.43 percent by the end of 2011.

Furthermore, China had a negative rate for 12 years (1997–2009), bottoming at -8.42 percent in the year 2000. By the end of 2010, however, it experienced a 0.49-percent growth in its school-age population. Hong Kong’s school-age population shrank between the periods 1991 and 2012. It only exhibited growth between the periods 1997 and 2000, with a peak of 2.75 percent in 1998. Meanwhile, its trough in 2006 was -7.4 percent.

Amid this erratic population changes in most countries, it was Mexico and Thailand that exhibited a rather stable rate throughout the period, fluctuating around the average of 0.31 percent and -1.35 percent.

Outbound mobility ratioThe outbound mobility ratio (OMR) is defined as the number of students studying abroad, given as a percentage of the total tertiary enrollment in a particular country (ISCED 2011). A high outbound mobility ratio indicates that many students go abroad to take up tertiary education, rather than enroll in local institutions.

It may be seen in Table 11 that from 1999 to 2010, two economies—Brunei Darussalam and Hong Kong—exhibited a high OMR. Brunei Darussalam had an OMR of 56 percent in 1999. While this continued to decrease over the years, reaching its lowest at 39 percent in 2003, it started to increase after 2006, almost reaching its 1999 level at 55 percent in 2010. Hong Kong also saw a relatively high number of outbound students, although it started to slow down in the past decade.


Figure 3c. Growth rates of school-age population (official entrance age)


Figure 3b. Growth rates of school-age population (official entrance age)


Figure 3a. Growth rates of school-age population (official entrance age)



In seven years, the OMR of Hong Kong decreased by almost 50 percent, where its ratio of 23 percent in 2003 dipped to 12 percent by 2010.

Most countries such as Australia, Canada, Chile, China, Indonesia, Japan, Mexico, Peru, and Thailand did not experience any drastic changes in OMR, hovering well below the 2-percent level. Upon closer look, though, some countries were seen to exhibit a slight decline in their OMR. Indonesia decreased from 0.9 percent to 0.7 percent; Chile, from 1.01 percent to 0.91 percent; Japan, from 1.48 percent to 1.05 percent; Thailand, from 1.10 percent to 1.08 percent; and China, from 1.92 percent to 1.82 percent.

The OMR of Malaysia was slashed by around 50 percent in the past decade (from 10.44% in 1999 to 5.14% in 2010). New Zealand also experienced a drop in OMR from a peak of 3.5 percent in 2000 to 1.7 percent by the end of 2010. On the other hand, Viet Nam (1% to 2.35%) and Korea (2.4% to 3.9%) experienced an increase in OMR.

Table 11. Outbound mobility ratios

Year 1999 2000 2005 2009 2010

Australia 0.616 0.643 0.921 0.850 0.829

Brunei Darussalam 56.653 51.493 46.665 49.140 55.367

Canada 2.468 2.528 ... ... ...

Chile 1.013 1.093 1.137 0.926 0.911

China 1.924 1.910 1.956 1.764 1.828

Hong Kong SAR, China ... ... 22.294 13.066 12.419

Indonesia 0.891 1.027 0.821 0.695 0.690

Japan 1.482 1.489 1.592 1.172 1.052

Korea, Republic of 2.402 2.364 3.144 3.951 3.886

Malaysia 10.441 7.368 6.108 5.502 5.147

Mexico 0.743 0.733 0.973 0.998 0.921

New Zealand 3.473 3.521 1.586 1.733 1.782

Papua New Guinea 7.996 ... ... ... ...

Peru ... ... 1.093 ... 1.419

Philippines neg ... neg neg ...

Russian Federation neg neg neg 0.508 ...

Singapore ... ... ... 9.909 9.534

Thailand 1.104 1.003 1.004 1.045 1.086

Viet Nam 1.008 1.249 1.535 2.476 2.356

neg - Magnitude is negligible. ... - No data available.Source: WB (various years)


School life expectancySchool life expectancy (SLE) from primary to tertiary schooling is defined as the number of years that a student can expect to spend starting from enrollment in primary education to graduation from tertiary education (UNESCO Institute for Statistics 2014). A high SLE means that there is a greater chance that children will spend more years in educational institutions, and that there is a high rate of retention in the educational system. A word of caution though: The SLE does not give the level of completion because it does not take into account repetition. Furthermore, the number of years in school may be negatively affected by the magnitude of children who do not go to school, since it is based on the level of participation. Another limitation of this indicator is that it is not strictly comparable because the length of schooling and the quality of education differ among nations.

The SLE, as shown in Table 12, was rising from the years 1990 to 2010, indicating that either there was a higher level of participation or an increase in the retention rate of educational systems. Viet Nam’s SLE jumped by four years (from 7.90 years to 11.92 years) within two decades. Thailand also experienced an increase in SLE by 4.7 years (from 8.40 years to 13.08 years). New Zealand had the largest increase of 5.27 years (from 14.48 years to 19.67 years). Among all those observed, Canada is the only country that experienced a decrease in SLE, which dipped from 16.67 years in 1990 to 15.89 years in 2000.

However, of all APEC economies, Australia maintained the highest level of SLE in the past 20 years, increasing from 18.8 years in 1995 to 20 years in 2005, before dipping to 19.5 years in 2010. The US, which showed little change in its SLE, maintained an average of 16 years, while New Zealand had an average of 18 years. Although it only showed two data points, Papua New Guinea, at 5.89 years, had the lowest SLE in 2000, while other nations had an SLE of at least 10 years.

Issues in education and training, and development strategies in the PhilippinesThe educational sector of the Philippines has been expanding in terms of enrollment rates and number of educational institutions at all educational levels. However, the country’s ability to achieve a universal primary education under the Millennium Development Goals (MDGs) has been lagging behind, and the probability of attaining the target by 2015 has remained low. Hence, the targets in the PDP have now been to achieve universal access (100% participation or net enrollment) in basic education, at least 93 percent participation or net enrollment rate in


secondary education, and an increased enrollment and graduation rate in higher education and technical and vocational education and training (TVET), all by 2016 (NEDA 2011).

This section looks at issues that have confronted the Philippine education sector for years—issues that are also the thrusts of the education sector and serve as the bases of motivations toward reform. The development strategies that the Philippine government has crafted will be highlighted to appreciate the various dimensions of the goal for 2016.

Table 12. School life expectancy (years), primary to tertiary

Country 1990 1995 2000 2005 2009 2010

Australia … 18.82 20.29 20.01 19.11 19.49

Brunei Darussalam 12.46(1992)

12.79(1994) 13.77 14.84 15.10 15.03

Canada 16.67 16.75 (1993)

16.85(1995)

16.87(1996)

15.88(1999)

15.89(2000)

Chile 13.05(1991)

11.84(1993) 12.94 14.06 14.72 14.95

China 8.94 9.20 9.35(2001)

10.96 (2006) 11.57 11.70

Hong Kong SAR, China … … … 13.66 15.53 15.50

Indonesia 9.90 9.93 10.30 11.21 12.63 12.86

Japan 13.34 14.23 14.64 14.99 15.21 15.30


Malaysia 9.75 10.23 11.95 12.60 … …

Mexico 10.93 11.06 12.00 12.88 13.61 13.74

New Zealand 14.48 16.85 17.43 19.17 20.18 19.67

Papua New Guinea … 5.18 5.89(1998) … … …

Peru 12.09 12.39 13.91(1991) 12.93 12.95

(2006) 13.21

Philippines 10.75 11.13(1996)

11.39(2001) 11.60 11.30 11.28

(2009)

Russian Federation 12.69 11.70 12.10(1999) 13.69 14.26 13.98

(2009)

Singapore … … … … … …

Thailand 8.40 9.55 11.54(2001) 12.30 12.30 13.08

(2009)

United States 15.31 15.89 15.43 16.07 16.58 16.76

Viet Nam 7.90 10.12(1998) 10.40 11.06 11.58 11.92



In a dynamic environment, the Philippine education sector is forced to deal not just with the domestic concerns but also with the pressures of globalization and the internationalization of education. Institutions at all levels of education are pressured to change the way they respond to their mission of developing the nation’s human resource pool. Tullao (2004) and Johanson (2001) identify four themes that have significantly altered the delivery of educational institutions, particularly higher education institutions (HEIs): quality and excellence (provision of education that meets international standards), relevance and responsiveness (generation and diffusion of knowledge in disciplines that are relevant to both the domestic and international environment), access and equity (broadening the participation in education, particularly for deserving and qualified but underprivileged individuals), and efficiency and effectiveness (optimization of social, institutional, and individual returns to education).

Quality and excellenceThe increasing number of HEIs in the country and their program offerings must be accompanied by the pursuit of quality and excellence if the country aims to reap the benefits of an ASEAN Economic Community. “Quality and excellence” is both a thrust and an end in itself. Given an internationalized labor force and greater opportunities for overseas employment, the Filipino workforce needs to meet international standards to be competitive globally. In addition, the competitiveness of domestic industries will rely on the quality of graduates of secondary and tertiary education.

To gauge the country’s progress in terms of quality and excellence, this section looks at the number of teachers and educational inputs, cohort survival rates, and national achievement tests scores for basic and secondary education. For HEIs, Tullao (2004) identifies the following indicators that measure the development of the Philippine human resource pool: (1) passing rates in licensure examinations and (2) the availability and number of accredited programs offered by HEIs.

As resources of basic and secondary education, the number of schools has increased over the last decade’s school years. Meanwhile, based on the existing spread of teachers (Table 13) and the number of textbooks procured (Table 14), it may be inferred that the resources allocated for basic and secondary education are spread thinly. The 1:36 teacher-pupil ratio (TPR) in basic education and the 1:38 TPR in secondary education show that teachers are handling very large classes, especially in the denser regions of the country. There may be a misallocation of teachers


across regions; there are some regions with less than 30 students per teacher, while others have over 30 pupils. Also, the number of elementary and secondary textbooks procured fluctuated over the previous decade. There were periods where the number of textbooks was sufficient; other years such as 2005 and 2010 had very low numbers of books procured—too low such that these might not have been enough for the number of enrollees during those years.

Number of teachers and textbooks, and cohort survival rateTable 15 shows the cohort survival rate for both elementary and secondary grade levels for school year (SY) 2007–2008 and 2008–2009. For SY 2008–2009, the national survival rate for the elementary level was 75.39 percent while that for the secondary level was 79.73 percent—both are relatively low completion rates. Although this is certainly an improvement from the survival rates of 69.29 percent for elementary and 71.02 percent for secondary in SY 1999–2000, the cohort survival rate has largely fluctuated over the past decade. The average rate in the elementary for the 10-year SY 1999–2009 was estimated at 71.33 percent, with the highest survival rate recorded in SY 2008–2009. For the secondary level, the average survival rate for SY 1999–2000 was 75.43 percent, with the highest rate garnered in SY 2008–2009 as well.

Table 13. Teacher-pupil ratio for basic and secondary education

Education Level

SY 2009–2010 SY 2010–2011

Enrollment Teacher TPR Enrollment Teacher TPR

Basic 12,789,110 358,164 1 : 36 13,003,238 361,567 1 : 36

Secondary 5,416,718 142,994 1 : 38 5,530,420 146,255 1 : 38

Source: NSCB (2011)

Table 14. Number of elementary and secondary textbooks

Year Number of Textbooks Year Number of

Textbooks

2001 9,628,500 2006–2007a 33,648,847

2002 38,521,930 2008 17,182,594

2003 36,015,207 2009 16,313,231

2004 13,339,079 2010 5,732,505

2005 2,527,681a Elementary school textbooks onlySource: NSCB (2011)


National Achievement Test scoresThe country’s National Achievement Test (NAT) is conducted by the Department of Education’s National Educational Testing and Research Center. Table 16 shows alarmingly low mean percentage scores for SY 2009–2010 and 2010–2011. Grade 6 scores are generally higher than fourth year high school scores, and it appears that English has the highest mean percentage score (MPS) for both educational levels, while Science garnered the lowest. Nonetheless, for Grade 6, the MPS in Math, Science, and English did not reach 70 percent for the time period; for 4th year high school, the MPS in the three subject areas did not even exceed 50 percent. These indicate that there might be inefficiencies or shortcomings in the quality of and the way basic and secondary education levels are delivered in the country.

Table 15. Cohort survival rate in public and private elementary and secondary schools

RegionElementary Secondary

2007–08 2008–09 2007–08 2008–09

Philippines 75.26 75.39 79.91 79.73

NCR National Capital Region 87.84 87.51 83.76 84.76

CAR Cordillera Administrative Region 73.62 77.37 78.98 86.17

I Ilocos Region 83.91 86.70 86.53 85.05

II Cagayan Valley 78.68 81.58 81.41 83.05

III Central Luzon 82.81 83.02 81.26 81.24

IV-A CALABARZON 81.38 83.77 85.05 85.41

IV-B MIMAROPA 70.10 73.92 76.90 77.55

V Bicol Region 76.44 76.33 77.77 76.32

VI Western Visayas 74.77 75.47 81.06 80.18

VII Central Visayas 81.02 81.39 76.78 77.55

VIII Eastern Visayas 71.06 73.16 73.68 73.98

IX Western Mindanao 61.98 61.12 73.18 71.73

X Northern Mindanao 70.75 70.80 76.25 73.75

XI Southern Mindanao 67.33 64.55 76.09 76.94

XII Central Mindanao 67.30 67.84 76.01 72.90

XIII Caraga 73.93 73.53 76.06 76.06

ARMM Autonomous Region in Muslim Mindanao 45.47 40.75 73.53 69.80

Source: NSCB (2011)


Passing rate in licensure examinationsResults of the professional licensure examination for all schools (Table 17) and for state universities and colleges (SUCs) only (Table 18) show that the national passing rate for various disciplines has remained low.

Passing rates of 408,456 examinees in 2009 and 418,924 graduates in 2010 from all schools were 36.3 percent and 33.8 percent, respectively. Among SUCs only, the passing rate of 100,264 examinees in 2009 was 35.2 percent. In 2010, the 105,472 test takers garnered a 32.4-percent passing rate. This has been the national rate for all disciplines.

The largest number of examinees for all schools was in the nursing profession, where there were 175,288 examinees but had a low passing rate of 38.4 percent. Elementary and secondary teachers were also popular professions, with 71,342 and 64,509 examinees from all schools, respectively. However, these had alarmingly low passing rates of 17.7 percent and 24.8 percent, respectively, in 2010. Elementary and secondary teachers also accounted for the largest proportion of candidates from SUCs. The 31,300 elementary teacher-examinees and 37,072 for secondary level garnered passing rates slightly higher than the national average, at 22.32 and 24.59 percent, respectively. These low passing rates may indicate that test administrators had set suitable standards for this profession, although it can also hint at institutions’ lack of quality in teacher education.

On the other hand, the 83 percent national certification rate of the 836,131 and 716,220 TVET graduates in 2009 and 2010, respectively, was significantly higher than the national professional licensure examination passing rate (Table 19). The highest numbers of certificate applicants in 2009 and 2010 were in Tourism, where there were 185,390 assessed in 2009 (84% certification rate) and 210,201 in 2010 (85% certification rate). Next were candidates in the Health sector, with 160,586 assessed

Table 16. National Achievement Test mean percentage scores for Grade 6 and 4th year high school students for SY 2009–10 and SY 2010–11

Number of Examinees

Subject Area

Mathematics English Science

SY 2009–10

SY 2010–11

SY 2009–10

SY 2010–11

SY 2009–10

SY 2010–11

SY 2009–10

SY 2010–11

Grade 6 1,856,372 1,608,520 63.26 68.41 67.81 65.11 63.14 60.35

4th year high school 1,509,274 1,544,006 39.64 42.00 46.95 46.45 43.80 39.35

Source: NSCB (2011)


Table 17. Number of examinees and overall passing rate per discipline for all schools

Licensure Examination per Discipline

2009 2010

Examinees Overall Passing Rate Examinees Overall

Passing Rate

Total 408,456 36.3 418,924 33.8

Aeronautical engineers 95 27.4 120 40.0

Agricultural engineers 409 29.8 475 44.8

Agriculturist 2,132 38.3 2,689 36.1

Architects 2,488 37.7 3,096 49.8

Certifiedpublicaccountants 11,502 36.3 12,988 45.1

Chemical engineers 981 49.4 970 54.7

Chemists 544 53.7 603 56.1

Civil engineers 7,620 45.4 8,049 39.0

Criminologists 21,840 34.2 26,832 33.4

Customs brokers 1,124 34.3 1,131 29.7

Dentists 1,384 39.5 939 50.8

Electronics and communication engineers 6,769 25.2 7,055 23.5

Environmental planners 63 54.0 56 62.5

Fisheries technologists 220 23.6 228 29.4

Foresters 383 36.6 359 42.1

Geodetic engineers 468 36.8 400 38.5

Geologists 38 60.5 48 56.3

Guidance and counselors 108 - 180 60.0

Interior designers 234 50.9 259 50.6

Landscape architects 22 50.0 25 60.0

Librarians 947 30.0 699 27.3

Marinedeckofficers-operational level 8,534 48.8 6,923 49.2

Marineengineofficers-operational level 3,619 54.8 3,711 55.1

Mechanical engineers 3,381 56.1 3,426 62.0

Medical technologists 2,273 51.5 2,151 66.2

Metallurgical engineers 31 54.8 49 55.1

Midwifes 9,807 52.6 7,623 46.0

Mining engineers 18 61.1 65 44.6

Naval architecture and marine engineers 41 19.5 58 46.6

Nurses 172,344 40.7 175,288 38.4


Table 17. (Continued)


2009 2010


Passing Rate

Nutritionists dieticians 636 67.5 676 70.4

Occupational therapists 167 52.1 135 41.5

Optometrists 263 62.0 58 86.2

Pharmacists 2,364 57.7 2,352 57.4

Physical therapists 1,347 47.4 1,345 45.2

Physicians 4,041 68.5 3,644 60.9

Radiologic technologists 1,554 47.1 1,695 45.7

Registered electrical engineers 4,103 39.7 4,291 31.9

Sanitary engineers 110 37.3 99 49.5

Social workers 1,280 54.0 1,321 58.3

Teachers - elementary 69,976 23.9 71,342 17.7

Teachers - secondary 62,239 26.8 64,509 24.8

Veterinarians 698 27.5 696 31.0

X-ray technologists 259 24.7 266 25.9

Source: NSCB (2011)

Table 18. Number of examinees and overall passing rate per discipline for SUCs


2009 2010


Passing Rate

Total 100,264 35.20 105,472 32.40

Accountancy 2,406 45.84 2,719 56.31

Aeronautical Engineering 19 47.37 19 63.16

Agricultural Engineering 381 29.40 461 44.90

Agriculture 1,971 38.91 2,490 36.31

Architecture 647 39.41 842 52.61

Chemical Engineering 377 63.66 362 64.64

Chemistry 363 51.79 417 54.92

Civil Engineering 3,054 51.87 3,496 42.11

Criminology 2,508 39.67 3,410 39.68

Customs Administration 29 34.48 21 57.14

Dental Medicine 23 91.30 37 100.00

Electrical Engineering 3,694 37.17 2,112 34.09

Electronics and Communication Engineering

1,752 31.51 1,986 25.98


in 2009 (93% certification rate) and 164,240 in 2010 (91% certification rate), and ICT, with 188,736 assessed in 2009 (72% certification rate) and 60,884 in 2010 (53% certification rate). Other sectors with a large number of assessed applicants are maritime, automotive, metals and engineering, construction, and electronics.

Table 18. (Continued)


2009 2010


Passing Rate

Environmental Planning 32 68.75 36 80.56

Fisheries Technology 215 23.72 220 30.00

Forestry 355 37.75 340 43.53

Geodetic Engineering 157 54.14 113 46.02

Geology 28 64.29 41 58.54

Guidance Counseling 45 73.33 68 55.88

Interior Design 41 63.41 57 57.89

Landscape Architecture 20 55.00 22 59.09

LET - Elementary 29,846 29.23 31,300 22.32

LET - Secondary 35,724 26.91 37,072 24.59

Library Science 299 45.48 202 42.08

Marine Engineering 552 55.25 640 60.63

Marine Transportation 590 47.46 522 54.60

Mechanical Engineering 1,539 64.00 1,729 68.02

Medical Technology 21 76.19 45 84.44

Medicine 379 92.35 341 88.56

Metallurgical Engineering 31 54.84 44 61.36

Midwifery 2,286 55.64 1,977 59.64

Mining Engineering 10 100.00 20 70.00

Nursing 9,261 54.37 10,667 51.54

Nutrition and Dietetics 397 69.52 407 70.02

Occupational Therapy 31 93.55 23 73.91

Pharmacy 135 92.59 146 71.23

Physical Therapy 81 83.95 74 91.89

Radiologic Technology 3 100.00

Sanitary Engineering 34 41.18 37 32.43

Social Work 449 63.92 489 67.48

Veterinary Medicine 479 33.82 468 40.60

Source: NSCB (2011)


In 2011, the number of assessed individuals totaled 835,572, with an average certification rate of 84.21 percent (TESDA-LMID 2014). This number of assessed persons increased to 1,033,681 in 2012 and to 1,055,576 in 2013, with certification rates of 86.15 percent and 88.67 percent, respectively. During these years, TVET experienced higher quality and excellence based on the increase in certification rates.

Accreditation of programs Another measure of the quality of education are the features of educational inputs, particularly qualification of teachers, availability of laboratories and equipment, research infrastructure, and quality of program offerings. The quality of these inputs is summarized by the level of accreditation granted by external agencies on programs offered by HEIs. To date, only 21.54 percent of the more than 2,247 HEIs have some form of accreditation granted by major accrediting agencies. Some 1,393 programs in public

Table 19. Number of persons assessed and certification rate of TVET graduates in priority industries

Sector2009 2010

Assessed Certification Rate Assessed Certification

Rate

Philippines 836,131 83 716,220 83

Agricultureandfishery 11,420 93 13,688 70

Automotive 63,344 78 65,575 76

Construction 45,290 83 36,469 83

Electronics 34,907 70 23,455 67

Footwear and leather goods 25 100 - -

Furniture - - 14 100

Garments 7,792 80 6,921 80

Health 160,586 93 164,240 91

Heat ventilation, air conditioning, and refrigeration

9,162 83 7,228 87

Information and communication technology (ICT)

188,736 72 60,884 53

Maritime 60,024 96 77,124 97

Metals and engineering 58,275 81 41,321 81

Processed foods 11,180 92 9,100 93

Tourism 185,390 84 210,201 85

Source: NSCB (2011)


HEIs have some form of accreditation, while there are 1,392 accredited programs in private HEIs. In addition, of the 130,118 faculty members in these HEIs, only 12.66 percent possess doctoral degrees, while 41.44 percent have master’s degrees and almost half are bachelor degree holders. This indicates that research and graduate education is underdeveloped in many of the country’s HEIs. Only a few professors get published in local and international journals, too (Tullao 2012).

The SUCs are, likewise, plagued with many issues on the quality of delivery, the relevance of their program graduates, and both internal and external efficiency. Manasan (2013) identifies two issues: (1) the program offerings of SUCs vis-à-vis their mandates and (2) the very likely occurrence of program duplication because of the said mandates. Each SUC is assigned a “core mandate” that indicates the specialization that an SUC should have in accordance with its charter. Such core mandate is specified in various republic acts, which also state the integration of an SUC or an SUC’s absorption of a college, as well as the courses/subjects to be offered by each school in the group. The specialization stated in the mandate of each SUC varies with the needs of their region, as well as the nature of the educational institution (university, polytechnic, or technical and vocational).

These core mandates, along with the development of the laws governing the mandates, tend to be very broad. Also, the law allows SUCs to offer programs outside of their mandate; thus, there have been many SUCs with an increasing number of program offerings that are outside their mandate. This would not have posed a problem, but because enrollment in these programs in some SUCs is increasing and tends to be higher than the enrollment in core programs, the quality and the relevance of their graduates could suffer. Because core programs are set based on the needs of the school’s region, producing too many graduates in noncore programs may impair the potential contribution of their graduates and the intended relevance of these SUCs to the region.

There is also a tendency for program duplication because the core mandates of SUCs are broad. Program duplication occurs when an SUC offers programs offered by neighboring SUCs and private higher education institutions (PHEIs). Manasan (2013) finds that the average program duplication rate for SUCs in Regions IV-A, VI, VII, and XI varies between 79 percent and 82 percent in terms of the number of program offerings, and 93 percent and 95 percent based on total enrollment. This incidence of program duplication poses as a problem because it tends to increase the per student cost of SUCs. Also, because the tuition charged by SUCs are lower than PHEIs, they tend to crowd out PHEIs (Manasan 2013).


Relevance and responsivenessHigher education needs to stay relevant and responsive to the human resource requirements of domestic industries (Tullao 2004). Colleges and universities serve as the training centers for a country’s workforce and should offer instructional programs that are flexible and responsive to the changes in the economy. This section now looks at the higher education enrollees and graduates by discipline, as well as TVET scholars in each discipline, and the employability of graduates from both HEIs and TVET.

Enrollees and graduates in priority and nonpriority programsTable 20 shows how total enrollment has been increasing. The largest number of enrollees is in Business Administration and related courses,

Table 20. Number of higher education enrollees by discipline

Discipline Group 2007–2008 2008–2009 2009–2010

Total 2,654,294 2,625,385 2,770,965

Agricultural, Forestry, Fisheries, and Veterinary Medicine 58,168 63,315 59,692

Architectural and Town Planning 19,288 18,004 20,441

Business Administration and related courses 612,481 649,641 727,018

Education and Teacher Training 370,441 325,186 349,634

Engineering and Technology 311,437 319,775 344,662

Fine and Applied Arts 12,931 13,732 16,682

General 35,257 13,750 14,198

Home Economics 4,952 4,847 5,149

Humanities 29,241 28,287 28,089

IT-related discipline 280,596 300,882 348,462

Law and Jurisprudence 18,159 19,293 20,144

Maritime Education 69,033 65,443 88,450

Mass Communication and Documentation 28,385 29,132 30,994

Mathematics and Computer Science 12,688 14,636 12,145

Medical and Allied 547,595 517,250 440,266

Natural Science 25,044 22,641 24,127

Religion and Theology 107,452 108,519 117,299

Service Trades 7,884 7,804 6,943

Social and Behavioral Science 23,951 26,722 36,355

Trade, Craft, and Industrial 73,512 72,196 76,382

Other disciplines 5,799 4,330 3,833

Note: This includes postgraduate enrollees.Source: NSCB (2011)


with about 727,018 enrolled for SY 2009–2010. Other disciplines with a huge number of enrollees are Medical and Allied courses, which decreased from 547,595 in SY 2007–2008 to 440,266 in SY 2009–2010; Education and Teacher Training, where there was a drop in the number of enrollees from 370,441 in SY 2007–2008 to 249,634 in SY 2009–2010; Engineering and Technology, with about 344,662 enrollees in SY 2009–2010; Information Technology (IT)-related disciplines, with about 348,462 enrollees in SY 2009–2010; and Religion and Theology, with about 117,299 enrollees in SY 2009–2010.

Meanwhile, results in Table 21 infer that the number of graduates is significantly lower than the year-on-year number of enrollees. Total enrollees in SY 2009–2010 amounted to 2,770,965, whereas graduates only totaled 469,654. The largest number of graduates comes from Medical and Allied courses (128,050 graduates in SY 2009–2010), followed by Business Administration and related courses (107,272), Education and Teacher Training (56,295), Engineering and Technology (48,448), and IT-related disciplines (45,830).

In Orbeta and Abrigo’s (2013) assessment the Technical Education and Skills Development Authority (TESDA) scholarship programs, the largest percentage of TVET scholars is enrolled in ICT courses, followed by Health and Social courses, Metals and Engineering, and Tourism with Health and Restaurant Management.

There is, thus, an observed concentration of enrollees and graduates in higher education in the fields of Business, Medicine, Education, ICT, and Engineering courses. Likewise, in technical education, there is a large concentration in Tourism, ICT, and medical programs.

National development prioritiesAccording to NEDA’s (2011) PDP, the country’s industrial and services sectors’ prime objective is to enhance their global competitiveness and innovation. These sectors aim for quality employment and higher gross value added. To achieve this goal, these sectors need to improve the business environment, increase productivity, and protect consumer welfare. In particular, they plan to promote investment in job-generating areas, such as Tourism, IT-Business Process Outsourcing, Electronics, Mining, Housing, Agribusiness/Forest-based industries, Logistics, Shipbuilding, and Infrastructure. The plan also identifies nurturing industries with high potential for domestic and export market demand, job generation, use of local talents, and creative, maximized value chain. Such industries include home style products, wearables, motor vehicle parts and components, garments, and construction.


Employability of graduatesAmong the indicators of relevance and responsiveness, the employability of graduates is the hardest to monitor and quantify. This requires the conduct of graduate tracer studies, especially on the part of HEIs. Due to time and resource constraints, there is a need for this study to be updated once more information on the employability of HEI graduates is made available. On the other hand, the employment rates of TVET graduates have been registered in the 2008 Impact Evaluation Survey and documented by Orbeta and Abrigo (2013) in their assessment of the TESDA scholarship programs, Private Education Student Financial Assistance (PESFA), and Training for Work Scholarship Program (TWSP).

Table 21. Number of higher education graduates by discipline

Discipline Group 2006–2007 2007–2008 2008–2009

Total 444,427 444,815 469,654

Agricultural, Forestry, and Fisheries 12,528 11,181 9,842

Architectural and Town Planning 2,401 2,277 2,286

Business Administration and related courses 95,646 93,315 107,272

Education and Teacher Training 70,711 63,682 56,295

Engineering and Technology 49,617 48,464 48,448

Fine and Applied Arts 1,796 2,118 2,137

General 3,411 1,964 1,562

Home Economics 877 942 952

Humanities 4,645 4,429 4,678

IT-related discipline 35,901 38,665 45,830

Law and Jurisprudence 2,792 3,260 2,931

Maritime Education 11,121 10,429 11,768

Mass Communication and Documentation 4,439 4,258 5,454

Mathematics 1,787 2,115 2,098

Medical and Allied 110,312 121,394 128,050

Natural Science 3,768 3,609 4,194

Religion and Theology 1,392 1,403 1,131

Service Trades 2,355 2,392 3,490

Social and Behavioral Science 11,937 11,493 12,469

Trade, Craft, and Industrial 1,528 1,221 946

Other disciplines 15,463 16,204 17,821

Source: NSCB (2011)


Orbeta and Abrigo (2013) find that all TVET graduates’ employment rate, defined as percentage of graduates that has landed a first job after training, was 34.2 percent, which is relatively low. Even the employment rate for their succeeding jobs of 44.9 percent is low. Moreover, the time it takes for a third of the TVET graduates to find a job may be less than one month, but the average number of months it takes for most graduates to find a job is 5.3 months (Orbeta and Abrigo 2013). The authors, thus, conclude that these TESDA scholarship programs are faced with problems of external inefficiency. However, in recent years, TESDA’s Impact Evaluation studies reveal that employment rates of TVET graduates have dramatically increased. This climbed to 60.9 percent in 2011, 62 percent in 2012, and 65.4 percent in 2013. So did the number of TESDA graduates rise over the recent years: 1,332,751 in 2011, 1,600,658 in 2012, and 1,765,757 in 2013 (TESDA-LMID 2014).

Domestic employment or overseas employmentAside from the priority sectors outlined in the PDP, the development of the human resource pool of the country must also be deemed relevant in view of the internationalization of the labor market. As the Philippines becomes known as a major exporter of manpower services, such as production-related workers (e.g., welders), transportation equipment operators, and service workers (e.g., waiters, domestic helpers, caregivers), it is imperative that the training programs must be relevant amid increasing competition from other countries (Tullao et al. 2013).

While there are more domestic workers compared to land-based workers sent abroad, the community of overseas Filipino workers (OFWs) has grown over the years (Table 22). From 662,648 in 2001, the number of OFWs nearly doubled to 1,123,676 in 2010; although, this still accounts for a low proportion of the labor force at 2.89 percent. Overseas employment provides a means for Filipino workers who have the resources to shoulder the cost of transfer, as well as the skills, education, and training necessary to cater to the demands overseas. Above all, wages and salaries in other countries are significantly higher than in the Philippines, allowing the country to fully enjoy the benefits from the remittance-sending behavior of OFWs (e.g., smoothened consumption, improved investment and entrepreneurial behavior, investment in education of migrant beneficiaries). Thus, the education given to Filipino workers must remain relevant and highly responsive to the demands of an internationalizing workplace, as well as a more globally integrated workforce.


Access and equityEducational institutions also have the responsibility to contribute toward a more equitable society, particularly by making sure that every individual has access to education (Tullao 2004), as a key to closing the income gap. Thus, educational institutions must provide the opportunities to those that are competent but underprivileged by giving them scholarships. Also, alternatives must be available to individuals who lack the competency to complete a formal tertiary education.

To gauge the progress on access to and equity of education, this section looks at the gross enrollment and net participation rates at basic and secondary levels of education and the scholarship programs for higher education. It will also discuss TVET as an alternative mode of delivery, particularly the penetration of the two TESDA scholarship programs (i.e., the TWSP and PESFA) reviewed by Orbeta and Abrigo (2013).

Enrollment and net participation rate in public and private schools Table 23 shows that the total enrollment numbers for preschool, elementary, and secondary levels are rising, especially those in public schools. This indicates that there is indeed an improvement in households’ access to education.

However, the net participation rates for elementary and secondary levels in the entire country (Table 24) also signify that despite the increase in the numbers of enrollees, this still does not cover the entire school-age population, as what is called for by the MDG on universal primary

Table 22. Labor force, land-based OFWs from 2001 to 2010

Total Labor Force Total Land-based OFWs

Percent of LB OFWs to Total Labor Force

2001 32,809,000 662,648 2.020

2002 33,936,000 682,315 2.011

2003 34,571,000 651,938 1.886

2004 35,862,000 704,586 1.965

2005a 35,287,000 740,632 2.099

2006 35,465,000 788,070 2.222

2007 36,213,000 811,070 2.240

2008 36,805,000 974,399 2.647

2009 37,892,000 1,092,162 2.882

2010 38,894,000 1,123,676 2.889

Note: LB OFW – land-based overseas foreign worker.Source: NSCB (2011)


education. Net participation rates for elementary and secondary levels were 85.12 percent and 60.74 percent, respectively, for SY 2008–2009. In addition, many regions had net participation rates that were significantly lower than the national average. This result is allied with the issue on quality and excellence, wherein there is a low cohort survival rate for both primary and secondary levels of education (as reported in Table 15).

As may be seen in Table 20, the total enrollment in tertiary level education has risen as well, which is indicative of improved access to education. However, a review of the size of tertiary graduates (Table 21) shows that although the number of graduates is increasing, the gap between enrollees and graduates is still wide.

Financial assistance programsTable 25 summarizes the number of beneficiaries and the amount of funding that goes into financing programs that aim to improve individuals’ access to tertiary education. The total number of beneficiaries increased from 48,705 in SY 2006–2007 to 72,775 in SY 2008–2009, but dropped to 57,551 in SY 2010–2011. This result, however, is highly questionable because the amount of funding has steadily increased over the sample period—from PHP 500,000,000 in SY 2006–2007 to PHP 846,850,000 in SY 2010–2011. The list of Commission on Higher Education (CHED) financial assistance programs may be seen in Appendix A.

Thus, a look at the scholarships offered by CHED shows that the number of beneficiaries declined over the five school years. From 17,341 in SY 2006–2007, the number dropped to 12,622 in SY 2008–2009, but it increased again to 15,098 in SY 2010–2011. Likewise, the funding amount has been rising during these said periods; the value rose from PHP 300,319,560 in SY 2006–2007 to PHP 453,419,073 in SY 2010–2011.

Table 23. Enrollment in government and private schools in preschool, elementary, and secondary levels

SchoolYear

Preschool Elementary Secondary

Total Public Private Total Public Private Total Public Private

2000–01 648,543 339,851 308,692 12,760,243 11,837,582 922,661 5,401,867 4,156,185 1,245,682

2005–06 911,899 524,075 387,824 13,006,647 11,990,686 1,015,961 6,298,612 5,013,577 1,285,035

2006–07 961,397 561,207 400,190 13,145,210 12,096,656 1,048,554 6,363,002 5,072,210 1,290,792

2007–08 1,002,223 591,445 410,778 13,411,286 12,318,505 1,092,781 6,506,176 5,173,330 1,332,846

2008–09 1,175,499 746,443 429,056 13,686,643 12,574,506 1,112,137 6,763,858 5,421,562 1,342,296

2009–10 … … … 13,934,172 12,799,950 1,134,222 6,806,079 5,465,623 1,340,456

Source: NSCB (2011)


Table 24. Net participation rate in public and private elementary and secondary schools

RegionElementary Secondary

2007–08 2008–09 2007–08 2008–09

Philippines 84.84 85.12 60.26 60.74

NCR National Capital Region 94.42 93.69 80.16 80.79

CAR Cordillera Administrative Region 81.50 81.93 57.04 57.14

I Ilocos Region 83.14 82.85 67.62 68.22

II Cagayan Valley 77.53 76.23 59.47 58.34

III Central Luzon 91.37 90.93 70.78 71.24

IV-A CALABARZON 94.02 94.10 73.86 74.89

IV-B MIMAROPA 84.07 85.42 59.28 59.67

V Bicol Region 85.41 85.07 55.97 55.24

VI Western Visayas 75.44 74.93 53.83 53.98

VII Central Visayas 80.28 81.38 54.57 55.49

VIII Eastern Visayas 79.19 80.33 51.49 53.28

IX Western Mindanao 78.99 79.25 50.18 49.28

X Northern Mindanao 80.60 81.23 51.70 50.67

XI Southern Mindanao 77.38 78.00 49.12 48.61

XII Central Mindanao 78.65 80.12 50.62 51.80

XIII Caraga 78.69 76.39 49.85 51.09

ARMM Autonomous Region in Muslim Mindanao 94.01 99.85 34.58 37.98

Source: NSCB (2011)

Table 25. Beneficiaries and funding of CHED financial assistance programs

School Year Scholarship Grant-In-

AidLoan

ProgramsOther

Programs Total

2006–2007

Beneficiaries 17,341 30,453 911 48,705

Funding (in PHP) 300,319,560 186,427,440 13,253,000 500,000,000

2007–2008

Beneficiaries 13,768 25,863 1,011 40,642

Funding 263,000,000 161,000,000 16,000,000 1,000,000 441,000,000

2008–2009

Beneficiaries 12,622 58,553 1,600 72,775

Funding 263,000,000 324,000,000 16,000,000 1,000,000 604,000,000

2009–2010

Beneficiaries 13,806 39,414 4,346 57,566

Funding 369,900,010 307,580,200 73,019,790 750,500,000

2010–2011

Beneficiaries 15,098 35,649 5,348 1,456 57,551

Funding 453,419,073 215,824,435 82,230,090 95,376,402 846,850,000

Source: NSCB (2011)


The grants-in-aid had several fluctuations in both number of beneficiaries and funding. Beneficiaries first increased in number from 30,453 in SY 2006–2007, then declined the next school year, increased to 58,553 in SY 2008–2009, then dropped again in the next two school years to settle at 35,649 in SY 2010–2011. The amount of funding followed the same pattern; from PHP 186,427,440 in SY 2006–2007, it rose to PHP 215,824,435 in SY 2010–2011.

Loan programs, although a smaller form of financial assistance as compared to the former two, has experienced a steady increase over the period—from 911 beneficiaries and PHP 13,253,000 funding in SY 2006–2007 to 5,348 beneficiaries and PHP 82,230,090 funding in SY 2010–2011. Evidence may not suffice, however, if the thrust in financial assistance shifted from scholarships and grants-in-aid to loan programs.

Alternative modes of deliveryShould individuals lack the appropriate skills and competencies, as well as financial resources, to have a tertiary-level education, there are other alternatives open to them. There is the TVET under TESDA, as well as its accredited training centers, whose courses are highly dependent on the needs of their region. Those that avail of TVET are usually high school graduates, secondary school leavers, college undergraduates, and college graduates who wish to learn specific competencies in various occupational fields. Orbeta and Abrigo (2013) provide an assessment of two core scholarships of TESDA: the PESFA and TWSP.

The PESFA extends help to 18-year-old high school graduates who underwent training and have an annual family income of not more than PHP 120,000. It also gives allowances to cover their daily needs and book purchases. The PESFA aims to improve equity and access to TVET, to ensure immediate employment, and to encourage TVET investments, as well as programs that are responsive to labor market demands (Orbeta and Abrigo 2013).

Meanwhile, TWSP is more comprehensive in a sense that the only qualification for an individual to avail of the assistance is to be of working age (15 years old). Displaced workers are offered an income support fund equal to half-daily minimum wage per training day, a tool kit for their selected programs, and a free competency assessment. The TWSP can be availed of more than once. It aims to address structural unemployment and to pump prime the economy by focusing on training skills and competencies needed by existing occupations.

Orbeta and Abrigo (2013) report that the scholarship coverage for the period 2005 and 2008 Impact Evaluation Survey has remained


low; although, it had risen from 4 percent in 2004 to 17 percent in 2008. Enrollees in TWSP had increased significantly from 222,698 in 2006–2007 to 743,465 in 2009, whereas its number of graduates had also climbed from 215,418 in 2006–2007 to 732,656 in 2009. The PESFA, on the other hand, faced decreasing enrollees from 30,725 in 2006–2007 to 17,205 in 2009. The same is true for their number of graduates. From 28,913 in 2006–2007, the number of graduates dropped to 17,046 in 2009 (Orbeta and Abrigo 2013).

Despite the vast discrepancy between the two scholarship programs in terms of enrollment and graduation, the next subsection shows that there is a wholly different story with regard to their efficiency. Overall enrollment in TVET reached 1,572,131 in 2011, 1,804,742 in 2012, and 1,943,589 in 2013 (TESDA-LMID 2014).

EfficiencyandeffectivenessThe issues on efficiency and effectiveness and the mode of financing education are closely tied to the three earlier issues because the outcomes from these themes determine whether the management of SUCs, HEIs, and TVET has been truly efficient, most especially because education is accompanied by large costs. One needs to look at internal efficiency—that is, how the budget for education is appropriated among agencies, projections for the budget of financial assistance programs, and management of resources. The external efficiency of the educational sector must also be assessed by looking at whether or not the targets laid out by the national government have been achieved.

Budgetary appropriationIn Table 26, the summary of the budgetary appropriation for the Philippine education system shows that the total budget has grown from PHP 162 billion in 2008 to nearly PHP 196 billion in 2010. In fact, the largest budget that year went to the Department of Education (DepED)—the department that governs the country’s basic education. This is followed by TESDA and CHED, respectively. As can be seen from the table, the budget of DepED (i.e., for basic education) has grown from the year 2008 to 2010, whereas the budget for both higher education and technical/vocation education has dwindled significantly to a mere portion of their 2008 appropriations.

EfficiencyofbasicandsecondaryeducationIn terms of internal efficiency, enrollment in basic and secondary education reached 13,934,172 and 6,806,079, respectively—the highest


it has gone during the past decade (Table 23). However, this is still way off the full-participation goal, especially in the Mindanao regions (Table 24). As of SY 2008–2009, the national averages consist of 85.12 percent of elementary-age children in school, but only 60 percent of the secondary education-aged ones are school based. On a per-region basis, there are large disparities in the participation, as there are several regions whose participation rates for basic and secondary levels are significantly lower than the national average. This may imply that although access has increased, the extent of penetration (referring to the individuals that are able to enroll) is still shallow.

In terms of external efficiency, the nation’s cohort survival rates in both basic and secondary education have remained low (Table 15). As of SY 2008–2009, the cohort survival rate for secondary education (79.73%) is better than that for basic education (75.39%). Also, note that survival rates for many regions in Luzon and Visayas are well above the national average. Mindanao regions posted the lowest survival rates. In particular, in the Autonomous Region in Muslim Mindanao (ARMM), less than half the starting population of cohorts survived the entire grade level for basic education. The NAT scores in Table 16 also show how noticeably low the performance of both Grade 6 and 4th year high school students was for SY 2010–2011.

EfficiencyofHEIs,particularlySUCsResults of the analysis on the internal efficiency of HEIs, in general, show an increase in the country’s number of enrollees in priority sectors (Table 20), which suggest that access has been efficiently promoted. On the other hand, the CHED’s financial assistance programs (Table 25) have seen a decrease in their number of beneficiaries, which may imply that the increase in enrollees may have been hampered. In her study on SUCs, Manasan (2013) finds a number of SUCs that offered programs outside of

Table 26. Budgetary appropriation for the Philippine education system by level of education and agency (in thousands)

Level of Education –Government Agency Fiscal Year 2008 Fiscal Year 2009 Fiscal Year 2010

Total 162,179,821 181,474,735 195,851,074

Basic education – DepED 155,706,009 171,695,738 191,105,839

Higher education – CHED 2,241,948 1,899,776 1,661,974

Technical/Vocational education – TESDA 4,231,864 7,879,221 3,083,261

Source: NSCB (2011)


their core mandate, which were coupled with an increase in enrollment in these noncore programs. This finding may imply that the regional impact of these SUCs may have been short of expectations because their core mandates—which were supposed to be customized to the needs of their region—should have been the ones prioritized. Manasan (2013) also finds a large rate of program duplication among SUCs and their subsidiaries, thus, posing a problem because this raises the per-student cost of SUCs and can be viewed as a misallocation of resources due to the lack of specialization among the SUC group. A large extent of duplicated courses may inadvertently spread human and professional resources too thinly and possibly compromise the quality of their graduates.

To assess the external efficiency of HEIs, the study centered on the graduates across various disciplines (Table 21). The study showed how the total number of graduates has risen, particularly in disciplines that are highly relevant to the priority sectors identified in the PDP.

Based on the statistics from professional licensure examinations (Tables 17 and 18), the national passing rate was alarmingly low— 33.8 percent of examinees from HEIs in 2010 and 32.4 percent from SUCs. However, occupations that are essential to the priority sectors identified in the PDP (e.g., aeronautical, agricultural, chemical, civil, electronics and communication, and mechanical and mining engineering; marine logistics; and accountancy) garnered higher passing rates in licensure examinations. In these essential occupations, the passing rates for SUCs are significantly higher as compared to those for PHEIs.

A data envelopment analysis on 78 SUCs was performed by Cuenca (2011) to determine their efficiency and found that around 65–85 percent of the SUCs are inefficient. Furthermore, this number of inefficient SUCs grew in number in 2009. By calculating the Malmquist index, Cuenca found out further that these SUCs have minimal productivity gains, although much of the improvement in their total factor productivity was attributed to technological change as opposed to change due to efficiency.

EfficiencyofTVETinstitutionsIn terms of internal efficiency, it may be inferred that the enrollment in TVET institutions has increased, especially in ICT and Tourism (Orbeta and Abrigo 2013)—both of which are priority sectors in the PDP. Furthermore, with the help of PESFA and TWSP, enrollment in TVET has addressed the call for access and equity, especially with increasing enrollment in TWSP albeit decreasing enrollment in PESFA. At the same time, TVET graduates have increased.


On external efficiency, the certification rate of TVET graduates for all disciplines has been relatively high. However, Orbeta and Abrigo (2013) found out that TVET institutions, especially TWSPs that primarily aim to link graduates with employment, had failed to achieve good employment rates. They also discovered that the utilization rate of the training (i.e., how much of what was taught to enrollees was actually of any use in the workplace) appeared to be low. Orbeta and Abrigo (2013) concluded that although TVET institutions have good internal efficiency, they have a hard time achieving their objectives in terms of external efficiency. Meanwhile, TESDA-Labor Market Information Division (TESDA-LMID) revealed that in recent years, certification rates have dramatically improved, and the Impact Evaluation Survey in 2011, 2012, and 2013 employment rates of TVET graduates have increased, implying that TVET is now beginning to exploit niches and improve efficiency.

Development strategiesThe PDP has identified its priority sectors that are key in the development of the country. One of the goals in the Philippine MDGs is to attain universal primary and, eventually, secondary education. This entails full participation rates in all regions. However, progress toward attaining this MDG is, admittedly, lagging behind, and the country is still far from its target. Thus, the following are proposed guidelines and strategies that can help the country move closer to its goals:

To ensure quality and excellence, there must be a bridge between the secondary and tertiary levels of education. Curricular programs need to be updated to fit the growing needs and standards of the international community. The quality and productivity of resources, teachers, classrooms, and textbooks must likewise be upgraded. At the same time, there is a need to maintain the strength and reliability of quality assurance and systems accreditation, monitoring, and evaluation.

To ensure relevance and responsiveness, the focus on curricular programs is again critical. The needed upgrade mentioned earlier is not only meant to keep up with the standards of the international community but to that of local industries as well. This entails focusing scholarship programs on technical education and skills development that support industries identified in the PDP. For higher education, there is a need to further strengthen the research capability of HEIs and promote dialogue and linkages between the academe and the industries. The use of ICT should be


further reinforced in the curriculum to ensure the adaptability of graduates to the changing landscapes of the labor market.

To ensure access and equity, student assistance programs need to be expanded further to include more beneficiaries and should be geared toward the promotion of the country’s priority sectors. Existing financial assistance programs need to be reexamined for their objectives and their market, as well as the quality of the resources used in producing their graduates. Because of differences in competencies and purchasing power among individuals, alternatives to formal higher education through the promotion and expansion of TVET programs are needed. Although it is the national government that should shoulder most of these subsidies, support from local government units (LGUs) are much needed, especially because SUC scholars in the right disciplines are essential to develop regional industries and specializations.

To ensure efficiency and effectiveness, stronger quality assurance is needed, especially on the resources used to produce basic and secondary education graduates. At the tertiary level, program offerings of all HEIs must be rationalized, especially in SUCs and their subsidiaries, to avoid program duplication. SUCs must be encouraged to be innovative in generating revenues and must avoid offering programs that are outside their mandate. Rather, they must coordinate closely with their respective LGU to ensure that resources are not misallocated and that the graduate degrees produced are relevant to their region. Lastly, there is a need to rationalize tuition fees, especially in SUCs, to avoid overspending on individuals whose courses have little social impact or on those who will eventually emigrate; conversely, tuition fees should be subsidized further if the degree has high social impact or is relevant to one of the country’s priority sectors.

Human resource development and inclusive growth: Lessons from APEC economies

Improving quality of education and the government’s role

Lessons from various organizations, pacts, and networksThis section tackles the various organizations and commitments to support cooperation in the development of the educational services sector; free flow of information, technology, and human capital; and liberalization.


AUN-SEED-Net. Because engineers create value by transforming ideas into innovations and inventions, they are able to give value to consumers and are central to the growth and sustainability of profits for an enterprise (Wnek and Williamson 2010). This, in turn, can support economic growth and sustainability through the advancement of technology. Below are some initiatives set by APEC economies to develop their engineering education.

The AUN-Southeast Asia Engineering Education Development Network (SEED-Net) plays a major role in the development of engineering education in the ASEAN. Established in April 2001, the AUN SEED-Net promotes the development of human resource in the region. Its activities include:

1. Providing and strengthening linkages among member-institutions, industry, and communities;

2. Enabling systems to conduct research activities that address regional issues;

3. Enhancing the capacity of member-institutions’ academic staff to perform research and education; and

4. Strengthening the academic network among member institutions and Japanese supporting universities (AUN SEED-Net 2012).

The network collaborates with ASEAN’s 19 leading educational institutions and garners support from 11 leading Japanese universities through the Japan International Cooperation Agency. Within a span of a decade, the network has accomplished numerous achievements that include increasing the number of academic staff with higher educational degrees, improving graduate programs, and internationalizing member-institutions.

It also promotes collaborative research with industries and member-institutions by encouraging a wide number of publications through the launch of the ASEAN Engineering Journal. As of March 2012, 116 papers have been received, 20 percent of which are in environmental engineering, followed by mechanical and applied engineering.

As of 2011, the most popular fields for master’s degree applications are environmental engineering, civil engineering, and geological engineering, garnering at least 160 applications with 45 scholarships. Meanwhile, the most applied-for fields in doctoral programs are environmental engineering, civil engineering, electrical and electronics engineering, ICT, and chemical engineering, with a total of 33 applications (AUN SEED-Net 2012).


Overall, AUN SEED-Net has provided 795 scholarships (496 master’s degrees, 143 PhD sandwich, 128 PhD in Japan, 28 PhD in Singapore); 514 graduates (379 master’s degrees, 135 PhD); 426 collaborative research projects amounting to USD 4,424,172; 63 research grants for alumni; 1,500 research publications; four issues of the ASEAN Engineering Journal, with 33 published papers; and 94 special equipment (Tullao and Cabuay 2013).

Finally, the network encourages collaborative research with the private sector and member-institutions by participating in the Collaborative Research Program and Regional Conference Program. This conference serves as a venue for local companies to voice out their concerns and technological needs while strengthening the linkages between universities and industries (Tullao and Cabuay 2013). To further the agenda of collaborative research, the network also provides short-term research visits to ASEAN member-states and Japan.

SEAMEO. The SEAMEO was established in 1965 by the governments of the Southeast Asian countries as a means to promote regional cooperation in education, science, and culture (SEAMEO, n.d.). Its mission is (as stated in their website):

“…to enhance regional understanding, cooperation, and unity of purpose among member countries for a better quality of life through the establishment of networks and partnerships, the provision of fora among policymakers and experts, and the promotion of sustainable human resource development.” (http://www.seameo.org/index.php?option=com_content&view=article&id=90&Itemid=517)

As an ASEAN partner, SEAMEO counts among its strategic goals those that highlight the development of human capital. These include promoting R&D in education, science, and culture and facilitating the speed of dissemination of R&D, as well as leading the harmonization of education standards to advance education, culture, and science.

The SEAMEO also conducts training programs through its 15 specialist institutions in eight member-states. Trainings are in the following areas:

1. Agriculture and Rural Development; 2. Culture and History, which includes Culture Development,

Archaeology and Fine Arts, and History and Tradition;


3. Education, which includes Higher Education, Language Education, School Management, Innovative Education and ICT for Education, Open and Distance Education, Science and Mathematics Education, Vocational and Technical Education;

4. Tropical Biology and Natural Resources; and 5. Tropical Medicine, Public Health, and Nutrition

Other training centers include:

1. The SEAMEO Regional Centre for Higher Education and Development in Thailand, which offers courses in higher education/university governance and management, harmonization on higher education in Southeast Asia, and quality assurance in higher education.

2. The SEAMEO Regional Centre for Vocational and Technical Education and Training in Brunei Darussalam offers courses in curriculum design and development for TVET, management for vocational and technical education and training (VTET), refresher programs for VTET teachers and instructors, incorporating ICT in education and learning, and research and development for VTET.

Among other projects completed by the SEAMEO are:

1. SEAMEO Sister School Network Project/SEAMEO Regional Schools Internet Project

This project acknowledges the importance of the linkages among schools, especially through the Internet. This is a small-scale pilot project that aims to drive discussions about the issue of transportation within the region. Between December 1997 and March 1998, training was provided to students and teachers in Singapore, Indonesia, Thailand, the Philippines, Malaysia, and Brunei Darussalam.

2. Connecting Southeast Asia and Europe e-Learning Models This project aims to establish the cooperation of Southeast

Asian and European countries in the development of an adaptable and flexible Virtual Learning Model. The project involved five Southeast Asian nations and four European countries.

APEN. The Asia Professional Education Network (APEN) was established to be the core of collaboration initiatives among organizations


through project-based learning. It was founded by the Shanghai Jiao Tong University (China); Advanced Institute of Industrial Technology (Japan); Pohang University of Science and Technology (Korea); and the University of Engineering and Technology, Vietnam National University (Viet Nam) in June 2011. Later, the Institute of Technology of Cambodia (Cambodia), the Institut Teknologi Bandung (Indonesia), Thammasat University (Thailand), Universiti Teknology (Malaysia), and the National University of Laos (Lao PDR) also joined the organization (APEN n.d.).

The network also aims to produce global professionals who can contribute to the enhancement of the Asian society through industrialization (APEN n.d.). The project-based learning programs have particular training projects defined by well-designed education processes, clearly set targets, and proper assessment systems.

Among the current APEN programs are the facilitation of dialogues among policymakers and training entities and education institutions, such as the 2013 Saudi Arabian mission of directors of vocational training entities and the dialogue with the Institute for Small-Scale Industries.

AFAS. The ASEAN Framework Agreement on Services (AFAS) was signed in 1995 with the intent to facilitate the free flow of services in the region within a decade. It intends to abolish discriminatory measures and market access limitations (ASEAN 2012). It further compels all signatories to improve/establish infrastructure and joint production systems, to synchronize R&D, and to encourage the free flow of information. At the same time, member-states need to mutually recognize the education, experience, requirements, licenses, and certifications granted by other member-states (ASEAN 2012).

Cross-border education is one of the targets that AFAS tries to promote. Such can be undertaken through the four modes of supplying services. Mode 1 (or cross-border transactions) can be done through e-learning and distance education. Mode 2 (consumption abroad) is promoting cross-border education through student exchange programs to acquire educational services in territories outside their countries. Mode 3 (commercial presence) is when branches of leading universities are established in a region or when twinning or cooperative programs are arranged among universities in the region. Mode 4 (movement of natural persons) is facilitated through the exchange of professors and researchers.

The AFAS aims to liberalize the education sector. As Dee (2013) notes, the education services sector builds social infrastructure, which


explains why its development is vital to a nation’s progress. Liberalizing this sector will help ensure the quality, availability, and affordability of education for all segments of the society.

Ishido (2011) calculated the Hoekman index for education services, given the ASEAN member-states' commitment to AFAS. Ishido found that adult education is the subsector that has the highest degree of liberalization, followed by higher education and other education. Note, however, that the ASEAN average for higher education (0.39) still indicates that the commitment is not as sound. In the higher education subsector, Cambodia has the deepest commitment in liberalizing the sector (0.75), followed by Indonesia, Myanmar, and Thailand, each with an index of 0.63. In contrast, it also noted that the Philippines, Singapore, and Brunei Darussalam have not made any commitment to liberalize higher education.

On the other hand, the level of liberalization in primary and secondary education is not high, averaging an index of 0.22 and 0.33, respectively. That is, only a few nations committed at all. Thailand leads in the commitment in these two sectors with an index value of 0.63 for primary education and 0.81 for secondary education.

Overall, the countries observed to be most committed are Thailand (0.54), Lao PDR (0.56), and Indonesia (0.48). However, the ASEAN member-states are, in general, still far from fully liberalizing their education sector. They have to hasten up the process if they are to achieve their 2015 goal. As Ishido (2011) has noted, the education sector still needs to be developed and liberalized in the same way as the business, communication, construction and engineering, distribution, and tourism sectors.

Lessons from selected APEC economiesThis section presents the current situation of select APEC economies and highlights the policies that each has undertaken to improve the quality of education.

Improving quality and excellence. In China, under the reforms undertaken by Deng Xiaoping, the quality of education was improved by developing nearly 100 universities and vital disciplines. In 1999, an action plan on “Furthering the Education Reform and Promoting Quality-Oriented Education” was formulated. Its reforms tackled critical areas in educational reform, such as changing the teaching style to encourage independent thinking and stimulate creativity, implementing quality-oriented education in all school levels, expanding university enrollment,


developing private educational institutions, and, most notably, extending the national compulsory education program with increased government assistance to low-income areas.

In the US, one of the most historic policies in basic education is the No Child Left Behind Act of 2001, an act signed in 2002 by President George W. Bush because “too many of our neediest children are being left behind.” This reformed the culture of US schools and improved the performance of students. Along with the passage of this act, the US Congress reauthorized the Elementary and Secondary Education Act. The amendment exchanged federal aid for better systems of accountability to ensure the quality of education for every child of the state (US Department of Education 2003).

In Japan, the reform on improving quality was centered on decentralization. In 1991, the Standards for the Establishment of Universities were revised. The revision contained changes in the curriculum and, at the same time, made the regulations more flexible, thus, giving universities more power to construct their curriculum independently, with a provision that they are obligated to report educational and research activities in a detailed self-evaluation system. With these changes in place, universities began to lessen the teaching of foreign language and most general education requirements.

In Australia, the provision of “high quality public school education” focuses mainly on improving the quality of its teachers. Among the OECD countries, Australia registers one of the highest instruction time and teachers’ teaching time. A typical Australian teacher has a heavy teaching workload of 873 hours per academic year in primary school. Also, teachers’ participation rate in professional development activities is 97 percent, as shown in the Teaching and Learning International Survey. Australia is the only country where the number of days that teachers spend in development programs is significantly correlated with the improvements in the discipline within the classroom (OECD 2013a).

Among Australia’s initiatives to improve the quality of its teachers is to establish the Australian Institute for Teaching and School Leadership in 2010. The country also formulated seven standards in four career stages (i.e., graduate, proficient, highly accomplished, and lead teacher) and three domains (professional knowledge, practice, and engagement). The Australian Professional Standards for Principals, likewise, set these leadership requirements that principals must set the guidelines for five areas of their practice, namely: “leading teaching and learning; developing self and others; leading improvement, innovation,


and change; leading the management of the school; and engaging and working with the community” (OECD 2013b, p.10).

Finally, in 2009, Australia saw the rise of the National Partnership on Improving Teacher Quality, which provided a funding of AUD 550 million to states and territories, so that they can attract the best graduates, both local and foreign, through the development of the university, better teacher training, national consistency in the registration of teachers, better teacher mobility, and retention of the best teachers and staff.

Enhancing relevance and responsiveness. In Japan, the Central Council for Education submitted a report entitled The Model for Japanese Education in the Perspective of the 21st Century in 1996. The report outlines the future of Japan and the problems that the society may encounter. Most importantly, it highlighted the skills that a child must have to handle these problems more effectively.

The Central Council for Education stressed the importance of the phrase Ikiruchikara—meaning, competences for positive living or zest for living. It encouraged the collaboration of the household, school, and community in developing a positive environment for the students. To develop these competencies, the different sectors must have Yutori (latitude or relaxed feeling) so that students will be able to love and embrace both the family and community (NIER n.d.).

Among the recommendations of the Central Council for Education were to reduce learning by rote and memorization, to modify the teaching strategies so that students are able to grasp the fundamentals, to reduce the number of teaching hours so that students are more relaxed and given ample time to discover their own distinct personalities, to cultivate the spirit of humanity by engaging students in community and volunteer work, and to promote cross-curricular comprehensive studies.

Improving access and equity. In Australia, one of the thrusts of the Department of Education is equity in education. Thus, in 1989 the “National Aboriginal and Torres Strait Islander Education Policy” was introduced. Its 21 goals’ main focus is to reduce the gap in education quality, access, and participation of the indigenous and other Australians. In 1999, the Australian Department of Education established the Taskforce on Indigenous Education, a body composed of members of the government, private sector, and representatives from the Aboriginal and Torres Strait Islander Commission. The task force aims to monitor the current progress of indigenous education and to recommend actions on


how the government can improve students’ literacy and mathematical ability (MCEETYA 2000).

Enhancing efficiency and effectiveness. In the US, the Chicago School Reform Amendatory Act of 1995 amended the 1988 Chicago School Reform Act. This decentralized the main function of government, allowing for better checks and balances and stronger central support functions (King and Guerra 2005; Haney 2011). During this time, the organization of Chicago public schools was transformed in a corporate-like structure.

In Japan, the role of the government was defined by the 2003 Law Concerning Reorganization of the National Universities as Corporations, giving universities the legal status of a corporation. In terms of finances, the 2008 Law Concerning the National Treasury’s Share of Compulsory Education Expenditures reduced the central government’s share of compulsory education expenditure from the original 50 percent to 33 percent (NIER n.d.). It is also important to note that there is a close connection between the keiretsu (large firms) and the central government. These keiretsu helped the government implement technological goals (Okimoto 1989) and contributed to Japan’s technological prowess by emphasizing reverse engineering and innovation, thus, leading to improved product quality, better R&D, and a proliferation of patents (Marinova 1999).

In New Zealand, the Education Act of 1989 overhauled the nation’s schooling systems, including the establishment of the policy-focused Ministry of Education, self-managing schools, the Education Review Office, and early childhood education centers. It also made schooling compulsory for both residents and citizens between 6 and 16 years old (in some cases, 19 years old).

The Tomorrow’s Schools Program of 1988 abolished regional education boards, and individual schools were placed under the control of their Board of Trustees. The board is composed of parents, the school principal, a student representative, a staff representative, and trustees appointed by school proprietors. In 1990, the change in the government’s role in education furthered competition among schools, abolishing school enrollment zones, so that parents have more freedom to choose where their kids go to school. With autonomy given to schools, the system allows greater flexibility in terms of constructing the curriculum and enhances innovation in improving the quality of education. Finally, because this system gives teachers a high degree of professional autonomy, teachers can analyze each individual’s ability and adapt the appropriate teaching strategy.


As for accountability, the New Zealand Qualifications Authority, as defined by the Crown Entities Act of 2004, is an independent board appointed by the Ministry of Education to ensure quality in secondary and tertiary schools. Financing, on the other hand, is managed by the Education Review Office. The way it computes funding for schools is peculiar for it uses per-student formulas. That is, the school can calculate the dollar value on each student based on factors, such as year level, socioeconomic state of the community, and school location.

Lessons on the impact of education on equity and inclusive growth

The role of education in inclusive growthInclusive growth, which is economic growth with equal opportunity for each member of society, is one of the main objectives of the Asian Development Bank (2013). In recent decades, education has been found to play a role in improving the quality of life: access to education, equal distribution of income, provision of health and education services, threat of crime, among many others (WB n.d.). The OECD (2013a) has its Well-Being Framework that proposes 11 monetary and nonmonetary dimensions critical to people’s lives. These dimensions include skills and education, which develop the capacity of individuals to contribute to economic growth through work and innovation.

Tullao (2012) states that the next stage of industrial development is the development of heavy manufacturing that can supply inputs to labor-intensive product processes. To be competitive, economies should develop these input industries by developing technology or adapting the technology of foreign economies. The growth of ASEAN member-states to middle-income status is due in part to the development of middle-skilled and technical workers. This includes engineers, technicians, technologists, and other professionals who can efficiently utilize the comparative advantage of a country, including its resource endowments. Table 27 shows the share of exports to GDP and how the economies in the ASEAN+4 slowly become more involved in international trade.

Problems encountered on the equality of educationFactors such as underdevelopment of institutions, high poverty, and high income inequality can also hinder access to public services on education. These affect the relationship between inclusive growth and education.

Take the case of two countries that experienced problems in the equality of education in their society. As the study of King and Guerra


(2005) points out, China’s enrollment rates in basic education have been high, yet the provinces vary greatly in terms of literacy (for ages 10 and above) and enrollment in secondary education. In China, the average literacy rate is 70 percent. However, even with the implementation of compulsory education, there remain provinces, such as Qinghai, Gansu, Yunnan, and Guizhou, that have 20 percent lower rates than the leading provinces of Liaoning, Jilin, and Tianjin. Enrollment rates in secondary education are also unequal among provinces; Shanghai and Beijing have an enrollment rate of 90 percent, while Tibet, Guizhou, Guangxi, and Hainan have enrollment rates that are one-third lower. The problem is more severe in the education of minority ethnic groups in the interior rural regions. As Hannum (2002) reports, enrollment rates are 10–15 percent lower for minority girls and boys than the Han Chinese.

The disparity in the level and access of education among provinces is not limited to China. As King and Guerra (2005) note, the Philippines also has the same issue. From 1989 to 1994, literacy rates increased by a substantial amount, yet in 1994, the literacy rate in the ARMM, an autonomous region that governs its own education system, is 61 percent as compared to the 92 percent in the National Capital Region. Even with the gains from the decentralization of education, enrollment rates in secondary education declined in Northern Mindanao. In 2002, enrollment

Table 27. Goods and service exports of ASEAN+4 countries as percentage of GDP

ASEAN Country 1960 1970 1980 1990 2000 2010

Brunei Darussalam - - 93.36 61.81 67.35 81.44

Cambodia 13.90 5.76 - - 49.85 54.08

Indonesia 15.04 13.45 34.18 25.33 40.98 24.62

Lao PDR - - - 11.33 30.10 35.54

Malaysia 50.60 41.41 56.69 74.54 119.81 93.75

Myanmar 19.69 5.21 9.10 1.94 0.49 -

Philippines 11.95 21.58 23.57 27.52 51.37 34.80

Singapore - 126.10 202.61 177.45 192.34 207.17

Thailand 15.68 14.99 24.11 34.13 66.78 71.29

Viet Nam - - - 36.04 55.03 77.53

China - 2.61 10.65 16.07 23.33 30.61

India 4.39 3.72 6.03 6.93 12.82 21.94

Japan 10.72 10.59 13.42 10.29 10.88 15.19




rates varied from 94 percent in the region of Ilocos to 32 percent in ARMM. In 2001, legislation was passed to outline guidelines on how the region’s schools are to adapt basic courses, including standards for the minimum curriculum, and textbooks that are used by the national government. However, even with this reform, the ARMM was still not able to catch up with other regions. King and Guerra (2005) outline two factors that may have caused this: high poverty and persistent armed conflict.

Role of education in income inequalityIn theoretical studies, the relationship of education and income distribution is not clear. Models, such as those of Schultz, Becker, and Mincer, suggest that the average years of schooling may either have a positive or negative effect on income inequality. However, this finding may be questioned, as suggested by the research of Hanushek and Wößmann (2007). This study states that the average year of schooling is a weak instrument for education, for the level of education received by one student in one year may differ across countries. In development economics, the relationship between income inequality and education has yet to be determined. Studies, such as those of Knight and Sabot (1983), attribute this to the “composition” and “wage compression” present in a dual economy. First, the composition effect increases the size of the educated workforce, which, in turn, builds up income inequality. On the other side of the spectrum, the wage compression effect is used to describe the lowering of the premium for skilled labor as the supply of educated labor goes up.

Empirical studies, such as those of Psacharopoulos and Woodhall (1986) and Ram (1984), relate a negative relationship between the level of education and income inequality. This is supported by the findings of Becker and Chiswick (1986), who show that among the states of America, income inequality is positively correlated with inequality in schooling and is negatively correlated with the level of schooling.

A study by Lee et al. (2013) regressed the income inequalities among China’s provinces by schooling years, age, health, nature of work, organization size, and sector of employment. Results indicated that education is currently the most important factor that can explain (25%) the variation in income, thus, reflecting the growing skills premium. Chinese fiscal spending on public schooling and health increased from 18 percent to 21 percent in recognition of the increasing skills premium and returns on human capital. However, the high degree of fiscal decentralization in China presents complications among provincial governments. For example, more than half of all government expenditure


in China occurs at a subprovincial level. Therefore, poor provinces that lack own-revenue sources cannot afford to provide public education and good services. The China Health and Nutrition Survey shows that there are large differences in per-capita allocation across provinces in terms of public spending on education.

A cross-country study was done by De Gregorio and Lee (2002), which included Africa, Asia, Latin America, and OECD nations. The authors found that inequality among regions differ significantly. Here, high educational attainment and an equal distribution of education both play a role in improving the income distribution because education makes sure that individuals have higher productivity and higher income. However, this quantitative effect is quite small because educational expansion does not necessarily mean equality in the educational attainment of the population. That is, although participation in education may be increased with policies, the effect may not be significant if retention rates are low and dropout rates are high. It is now imperative that policies in educational expansion should focus on reducing the unequal distribution of education and making sure that both participation rates and graduation rates are balanced if the primary target is to reduce income inequality.

In Australia, the inequality in its working-age population has been rising since 2000 (OECD 2011). In 2008, the average income of the top 10 percent is 10 times higher than that of the bottom 10 percent, as compared to the ratio of 8:1 in the 1990s. This has been attributed to the widening disparities of market incomes, such as gross earnings, savings and capital, and a weakening distribution. Whiteford (2013) identifies education inequality as one of the driving forces of growth in income inequality. By 2009, 70 percent of the people with a personal gross income in the highest quintile had attained a Grade 12 education. Thus, those who had attained a Grade 12 education are more likely to work in white-collar jobs. A study conducted by Leigh (2008) concludes that hourly wages increase by roughly 8–11 percent when educational attainment is increased by one year, with the largest gains being experienced by graduates of bachelor’s degree programs and Grade 12.

In Japan, there was an almost equal distribution of income during the 1960s and 1970s. However, since the 1980s and the 1990s, which coincided with the nation’s bubble economy, income inequality became a common issue in public policy (Tachibanaki 1998). As stated in the review of literature prepared by Takanami (2010), there are several causes of the rising inequality. First, with the rapid technological change in Japan, globalization, and skill-based technical change, demand for


labor shifted from unskilled to skilled workers. Therefore, there came a large shift in wage differences between skilled workers and unskilled workers (Sasaki and Sakura 2004). Second is the ageing of a large part of the population. Third is the prevalence of nonregular employees. Young part-timers are commonly called freeters—those aged 15–34 years who seek part-time work after graduating or dropping out of schools (Kosugi 2004). These people have difficulty finding a stable employment for they are less educated, while demand in Japan is primarily attracted to graduates in higher education. This growing number of freeters in Japan leads to a wider gap in income among workers (Kosugi 2005). Fourth is the weakness in social security systems.

From these, it can be inferred that the rising income inequality in Japan is due to the differences in the population’s educational attainment. Because the country is moving to become a technologically advanced society, labor demand is now focused on the highly skilled and technical labor.

Lessons on addressing labor and education mismatch, unemployment, and brain drainThe 2012 Talent Shortage Survey of the Manpower Group (2012) reveals that around 45 percent of employers in Asia and the Pacific have talent shortages in 2011. This is higher than the 28-percent talent shortage in 2006. Countries such as Japan (81%), Australia (50%), New Zealand (48%), and India (48%) experienced severe talent shortage. According to employers, these shortages were caused by the lack of available applicants (35%), lack of technical competencies (29%), lack of employability (soft) skills (28%), lack of experience (17%), mismatch between the expected pay and what is offered (13%), undesirable geographic locations (6%), and poor image of the business sector (5%) (Manpower Group 2012).

Table 28 shows a decreasing trend in unemployment in APEC economies from 2001 to 2010, with most nations reaching peak unemployment in 2005. This is an indication of a strong demand for labor; although, it is not indicative of the unemployment rate of educated workers. Table 29 breaks down unemployment by educational attainment.

Table 29 shows that the largest proportion of the unemployed in 2004 are those with secondary education. This indicates that a significant portion of the unemployed is underqualified. This is most evident in Canada, Hong Kong, Korea, Malaysia, New Zealand, the Philippines, and Singapore. In contrast, the US has the highest unemployment among its tertiary graduates, which may be indicative of the high supply of technical and skilled workers in the country.


A noteworthy case on labor market distortions caused by the international migration of Filipino nurses was featured in a study by Tullao et al. (2010). In the past decade, there had been a high demand from developed countries for nursing graduates, increasing the rate of return to nursing. However, because of the nursing graduates’ low passing rate in both national and international licensure examinations, only a few were able to migrate and reap the high rates of return on their investment. The rest were forced to seek jobs in the Philippines, most of whom remained unemployed because of the weak domestic absorption. If employed, most nurses used this stint as a training ground to gain sufficient qualification to migrate. Lastly, those who failed the examinations take numerous attempts until they pass, or they will resort to being employed in nonnursing jobs. This may account for the high level of tertiary unemployment in the Philippines.

In Australia, the share of 15- to 29-year olds not in school or unemployed is 11.5 percent—well below the OECD average—but the government is increasing their capacity to respond by developing

Table 28. Total unemployment in the APEC as percentage of labor force

Unemployment, Total (% of total labor force)

ASEAN Country 2000 2004 2008 2009 2012

Australia 6.30 5.40 4.20 5.60 5.20

Brunei Darussalam … … … … …

Cambodia 2.50 1.70 0.10 0.20

Canada 6.80 7.20 6.10 8.30 7.20

China 3.10 4.20 … … …

Hong Kong SAR, China 4.90 6.70 3.60 5.20 3.30

Indonesia 6.10 9.90 8.40 7.90

Japan 4.80 4.70 4.00 5.00 4.30

Korea, Republic of 4.40 3.70 3.20 3.60 3.20

Lao PDR … … … … …

Malaysia 3.00 3.50 3.30 3.70 3.00

Myanmar … … … … …

New Zealand 6.20 4.00 4.20 6.10 6.90

Papua New Guinea 2.86 … … … …

Philippines 11.20 11.90 7.30 7.50 7.00

Singapore 3.70 4.40 3.20 4.30 2.80

United States 4.00 5.50 5.80 9.30 8.10

Viet Nam 2.30 2.10 2.40 … 1.80



vocational training programs (OECD 2013b). Australia’s vocational education and training (VET) is being provided at both tertiary and secondary education levels, with employers playing a large role in the system. For example, the Australian Apprenticeship Centre provides the information and support for employers and apprentices. Meanwhile, the Australian Apprenticeships Access Program provides prevocational training that is linked to securing an apprenticeship. This mostly targets vulnerable job seekers.

The VET facilitates easy entry into the labor market by providing work-study programs. Current reforms in the VET system aim to shape it into a more demand-driven program. This may be accomplished by making the system more flexible in terms of the length of apprenticeship and by providing more support and more common means of assessment.

The Council of Australian Governments set VET 2020 targets, such as doubling the number of diploma and advanced diploma completions, and increasing the proportion of the working population with Certificate Level III qualifications. In addition, the government aims to improve apprenticeships by providing more incentives to employers and students (OECD 2013b).

To further address the problem of a growing secondary education unemployment in Australia, the government has also introduced programs such as the “The National Partnership on Youth Attainment

Table 29. Unemployment by educational attainment, selected APEC economies

Primary Unemployment

Secondary Unemployment

Tertiary Unemployment

Country 2000 2004 2008 2000 2004 2008 2000 2004 2008

Australia 44.4 48.3 47.4 40.8 32.7 33.6 14.9 19 19

Canada 33 28.3 26.3 42.3 41.9 41 24.6 29.9 32.7

Hong Kong, SAR 47.9 48.3 38 41.9 39.7 43.8 8.4 10.3 17.1

Indonesia 44.5 48.4 43.4 43.8 36 40.6 7.9 5.7 10.2

Japan 23.8 70.4 66.8 52 … … 24.2 29.3 33.2

Korea, Republic of 24.9 17.3 15.3 62.5 65.7 63.7 12.6 17.1 21.1

Malaysia 15.3 13.3 10.4 66 62.8 60.9 15.2 20.9 24.9

New Zealand 0.9 31.4 30.6 49.3 37.8 39.2 11.9 26.3 25.7

Philippines 21.8 20.7 14 42.3 43 45.5 32.9 34 40

Singapore 33.6 27 47.8 48.1 18.6 24.6

United States 21.8 19.3 17.9 36.3 34.3 35.5 41.9 46.5 46.5



and Transitions (2009)”, which aims to retain the youth in education and to assist them in terms of higher education programs, further training, and employment. Another policy such as the “Advancing Quality in Higher Education Plan (2012–2014)” aspires to improve teaching and learning in higher education by providing additional funding to universities to attract, support, and retain students with disadvantaged backgrounds.

There is also the issue of brain drain, which usually occurs when demand for educated manpower in a given country is not enough to match the large supply of skilled labor. For example, when the available local jobs are not able to accommodate or attract graduates to the high wage differential as compared to other nations, such skilled labor may seek alternative employment in foreign soil. Also, because of the mismatch in skill and qualifications, overqualified workers tend to be underpaid and, as a result, have very high mobility (Quintini 2011). Table 30 presents the percentage of tertiary graduates who migrate to other nations for employment opportunities.

As can be seen from Table 30, the proportion of tertiary-level migrants from APEC economies had fluctuated from 1990 to 2000. Countries, such as Brunei Darussalam, Cambodia, Indonesia, Korea, and Malaysia,

Table 30. Emigration rate of tertiary educated graduates

Country Name 1990 2000

Australia 2.09 2.72

Brunei Darussalam 22.12 15.05

Cambodia 22.51 21.47

Canada 4.87 4.69

Chile 6.86 6.02

China 3.01 3.79

Indonesia 5.56 2.92

Japan 1.32 1.24

Korea, Republic of 9.82 7.51

Malaysia 26.27 10.54


Papua New Guinea 37.25 27.78

Peru 5.96 5.83



Thailand 2.39 2.21




experienced a downward trend, which is indicative of the better capacity of the economy to absorb graduates. However, other countries, such as Russia, the Philippines, Australia, and New Zealand, have an increasing migration rate. This may be the result of a higher population availing of higher education, as noted in previous sections, or as a result of high enrollment rates of foreigners in the country.

Policy recommendations: Cooperative measures in human resource development for APEC economiesInvesting in education can shape the stock and structure of the human capital of a country. Greater and intensive investment in education, particularly in higher education and research, can build the higher level of human resource, which is knowledge capital. Both human capital and knowledge capital are essential in shaping the trajectory of an economy.

From the Philippine perspective, it is imperative to invest in education. The PDP aims to enhance knowledge and skills as a major strategy in improving human capabilities, which, in turn, will contribute to creating massive quality employment and reducing poverty.

From the APEC perspective, human resource development is an important element of the goals of the organization and is seen as a means to narrow income gaps among APEC economies. It requires access to education and skills training for economic opportunities for women and vulnerable groups to be improved. In addition, expanding the connectivity among APEC economies can translate into better connectivity in trade in services, including cross-border education. Thus, education is important not only in narrowing gaps internally and externally but also in expanding trade in services as well.

It is in this light that human capital development is being proposed as a major thrust and theme in the 2015 APEC Meeting in Manila. A high-level discussion on how to develop the 21st century workforce is key to the strengthening of competitive industries and the promotion of inclusive growth. There is a need to discuss cooperative measures on developing science and technology in the region to narrow existing gaps in knowledge capital. There is also a need to recommend specific ways to increase the productivity of small and medium enterprise through skills training. Lastly, to foster connectivity, there is a need to enhance cross-border education, movement of workers, and development of an APEC-wide qualification referencing framework.

The following specific proposals are recommended to address the requirements of the PDP, as well to recognize the eminent role of education in promoting economic technical assistance, achieving the


Bogor goals, and implementing cross-border education—all of which are major APEC thrusts.

Because professors and students in APEC economies have only a limited appreciation of other economies’ educational systems, particularly higher educational institutions, there is a need to establish and maintain academic exchange activities. There are currently only a few cooperative programs among educational institutions in the region. Interuniversity cooperation can only proceed after a sense of community among professors and students in APEC economies has developed.

The relevant academic exchanges are those that respond to the needs of the Philippine education, particularly those that address the quality of the nation’s HEIs. For one, the Philippines lags behind in terms of research productivity and graduate education. Visiting professorship programs should be geared toward nurturing long-term professional and academic relationships between researchers in the country and those from other APEC economies. Specifically, visiting professors from APEC economies can team teach with local professors in graduate programs. Another possible academic exchange activity is the doctoral enrichment programs or research internship with distinguished professors in APEC economies’ research universities.

Academic exchanges can also be enhanced by liberalizing trade in higher education. In the movement of natural persons, for example, the Philippines may relax the economic needs test, as well as the restriction on the practice of profession by foreign professors, especially if the terms of engagement is not more than a year. This is being recommended not for the sake of liberalizing education but for local students and professors to benefit from their interaction with foreign professors.

Each member-economy should direct at least two of its leading universities to establish cooperative programs with leading universities in other APEC economies and require an exchange of professors and students.

Also, each APEC economy should send at least 5 percent of its students enrolled in its leading universities to HEIs in other APEC economies as part of their cross-border education by 2020. Relatedly, these key universities should host students from other APEC economies of up to 5 percent of its student population by 2020.

Aside from these targets, academic exchange can also be facilitated by synchronizing academic calendars and standardizing course offerings, measures of accreditation, and recognition.


APEC economies may also consider establishing academic exchange visas for students and professors similar to the APEC business visa.

For the APEC’s Economic and Technical Assistance pillar, specific measures of cooperation in the area of education and human resource development should be identified. The economic and technological gaps across APEC economies should be seen as opportunities for cooperation and technical assistance. The example set by Chinese Taipei and South Korea when they trained technical workers to support their labor-intensive industries in the past can help other APEC developing economies improve their own technical and vocational education. Cooperation can be in the form of sharing of modern equipment and technologies, teacher training in technical and vocational skills, and accreditation and qualification measures in technical competency.

To make this proposal more meaningful, there should be an evaluation of the recipients of technical assistance in teacher training abroad. Because of the dearth of teachers with advanced training in the country, many of these recipients are later promoted to administrative positions and, as a consequence, the training received are not applied for the intended technical purpose. One way of addressing this issue is to form regional training centers where recipients of advanced training abroad can, upon their return to the country, train other teachers and write instructional materials on the subject of their expertise.

As part of their target, APEC’s developed economies should have at least one technical assistance program that offers technical and vocational education trainings to instructors from at least two APEC developing economies. The technical assistance should also prepare recipient economies for accreditation and assessment of skills competency.

There is a need to further enhance existing cooperative programs and initiatives under the AUN, SEAMEO, Association of Southeast Asian Institutions of Higher Learning, and other regional groupings in education, human resource development, and science and technology. Existing cooperative programs should aim to grow by increasing their membership and expanding their coverage of cooperation by least 20 percent by 2020. Another target is to establish an APEC Network of Universities patterned after the structure and modes of cooperation of the AUN and the APEC Study Centers Network.

Although there are differences in the structure of higher education among APEC economies, this should not prevent universities from


establishing cooperative arrangements within the region. Currently, there is a consortium of APEC Study Centers that are mainly university based. This mode of cooperation among research institutions can be expanded to generate more research and publications and enhance R&D in the APEC region.

Given that APEC economies have common problems regarding labor and talent mismatch, it makes sense for member-economies to share best practices on how they address educated unemployment and talent mismatch, as well as the migration of human resources. Officials and researchers from APEC economies should be regularly discussing their talent mismatch problems. Equity in employment is, likewise, a legitimate topic that should also be included in these discussions.

These member-economies should also aim to establish a mechanism where the exchange of best practices can be facilitated either through a website, joint research projects, or regular conferences.

The wide gap between educational indicators and human resource development in APEC economies needs to be narrowed down through various means of cooperation and technical assistance. Aside from offering exchange programs for professors, the twinning of academic programs among universities in the region should be expanded. Universities in developed economies may partner with schools in developing economies in activities, such as faculty development, program cooperation, and joint research undertakings. Such cooperative measures, in turn, can strengthen R&D capacity of research and academic institutions, and improve graduate education in APEC economies.

Universities’ targets should include the following: (1) the number of academic linkages of universities in developed APEC economies with HEIs in developing economies should be increased by at least 15 percent by 2020; (2) the number of graduate students coming from developing APEC economies and enrolled in key universities in developed APEC economies should be expanded by at least 15 percent by 2020; and (3) the number of cooperative research projects and joint publications among professors in APEC economies should grow by at least 20 percent by 2020.


Appendix

Appendix A. CHED financial assistance programs

Scholarship Grant-in-Aid Loan Program

Half Merit National Integration Study Grant Program

Student Loan Fund for Centers of Excellence (SLF for COE)

One Town, One Scholar

Selected Ethnic Group Educational Assistance Program

Students’ Assistance Fund for Education for a Strong Republic (SAFE 4SR)

National Scholarship Program

Scholarship Program for Indigenous and Ethnic Peoples

President Gloria Macapagal-Arroyo-Higher Education Loan Program (PGMA HELP)

Private Education Student Financial Assistance Program

OfficeofthePresidentialAdviser on Peace Process-CHED Study Grant Program for Rebel Returnees

Regional Scholarship Program

Department of National Defense-CHED-Philippine Association of State Universities and Colleges (DND-CHED-PASUC) Study Grant Program

Program for Persons with Disabilities

Study Grant Program for Solo Parents and their Dependents

Higher Education development Program

Student Scholarship Program in Bachelor of Science in Engineering for Selected State University and College

Study Grant Program for Senior Citizens or Elder Persons

Iskolar ng Mahirap na Pamilya

CHED Senate Study Grant Program

CHED Special Study Grant Program for Congressional Districts

Study Grant Program for the Dependents of Tobacco Growers

Project Enrich

VP Noli De Castro Study Grant Program

Philippine National Police Study Grant Program

Source: CHED


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About the Authors

Christopher James R. Cabuay is project coordinator and databank administrator at the De La Salle University (DLSU)-Angelo King Institute for Economic and Business Studies. He is also assistant professorial lecturer at the DLSU-School of Economics. He has a master’s degree in economics from the DLSU and has conducted research on human capital accumulation and human resource development, labor markets, economic development, international finance in the ASEAN, and international migration and remittances.

Nina Ashley O. Dela Cruz is research analyst at the Philippine Institute for Development Studies (PIDS). She has participated in research projects on health financing, health market innovations, and impact evaluation. She has a master’s degree in applied economics and a bachelor’s degree in political science from DLSU-Manila.

Fatima Lourdes E. del Prado is senior research specialist at PIDS and has worked on a number of research projects, such as on population and demography, banking and finance, and public budgeting. Her current research interests include trade and industrial policy, free trade areas, global production networks and innovation clusters, and macroeconomic policy. She has a master’s degree in public policy from the International University of Japan and a bachelor’s degree in public administration from the University of the Philippines (UP) Diliman.

Stephanie Rose E. Flores is research associate for the Research Project APEC 2015. She is a masteral candidate in development economics at UP Diliman. She obtained her economics degree from UP Los Banos.

Kathrina G. Gonzales is supervising research specialist at PIDS. Her research interests include migration, education, and agricultural economics. She has a master’s degree in applied economics from Western Michigan University and a bachelor’s degree in agricultural economics from UP Los Banos.

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Daniel S. Hofileña is lecturer at the DLSU-School of Economics where he is teaching financial econometrics, time-series analysis, macroeconomics, and microeconomics. Previously, he worked at the Angelo King Institute for Economic and Business Studies and conducted research on Philippine monetary policy, financial market volatility, and human capital growth. He has a master’s degree in applied economics and a bachelor’s degree in business management from DLSU-Manila. He is currently a sophomore at the Ateneo De Manila-College of Law.

Angelica B. Maddawin is research analyst at PIDS. She has been involved in trade-related studies, including regional economic integration and economic partnership agreements. She is a masteral candidate in development economics at the UP School of Economics. She obtained her bachelor’s degree in economics from UP Los Banos.

Erlinda M. Medalla is senior research fellow at PIDS and project director of the Philippine APEC Study Center Network. She has been a project director/project leader of various research projects since joining the Institute in 1981. Her areas of expertise are trade, competition policy, and industrial policy. She has written a number of papers and book chapters on trade and investment, competition policy, and regional economic integration, among other topics. She has a Ph.D. in Economics from the UP School of Economics and was a postdoctoral fellow at Yale University.

Adoracion M. Navarro is senior research fellow at PIDS. Her areas of specialization are infrastructure, electricity markets, and public-private partnerships. DevEx, an organization that helps make international development aid efficient, recognized her in 2013 as one of the 40 Under 40 Leaders in International Development in Manila. She has a Ph.D. in Economics from the UP School of Economics and a Master of Public Administration-Economic Policy Management degree from Columbia University.

Aniceto C. Orbeta Jr. is senior research fellow at PIDS. He is also professorial lecturer on program evaluation at the UP School of Economics. His research interests include applied economic modelling, social sector issues (education, labor market, and demography), impact evaluation, and information and communication technologies. He obtained his Ph.D. in Economics from the UP School of Economics and did postdoctoral studies at Harvard University.

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Epictetus E. Patalinghug is professor emeritus of economics and finance at the Cesar Virata School of Business, UP Diliman. He teaches macroeconomics and financial system, managerial economics, international finance, financial regulation, financial research, competitive and industry analysis, industrial organization, and government regulation and public policy. He served as editor of the Philippine Review of Business and Economics and the Philippine Management Review. He sits in the editorial boards of several local and foreign journals. He obtained his Ph.D in Agricultural Economics from the University of Hawaii.

Oscar F. Picazo is senior research consultant at PIDS, working on health financing, medical tourism, and health market innovations. He was senior health economist at the World Bank in Washington, D.C. and in Pretoria, South Africa. He also served as health financing specialist at the United States Agency for International Development offices in Manila and Nairobi. He teaches health economics for managers in an MBA in Health course at the Ateneo Graduate School of Business in Makati City. He has a master’s degree in economics from the UP School of Economics and a bachelor’s degree in economics from the University of Santo Tomas. He was a Humphrey fellow in health policy at the Johns Hopkins Bloomberg School of Public Health.

Ramonette B. Serafica is senior research fellow at PIDS. Her research interests include services and trade in services. Previously, she was trade in services adviser at the Australia-Indonesia Partnership for Economic Governance in Jakarta, senior analyst at the APEC Policy Support Unit in Singapore, and team leader/research manager of the Regional Economic Policy Support Facility at the ASEAN Secretariat in Jakarta. She also taught at DLSU-Manila as associate professor, and was also industry economist and technical staff at SMART Communications and SGV Consulting, respectively. She obtained her Ph.D. in Economics from the University of Hawaii.

Tereso S. Tullao Jr. is director of the DLSU-Angelo King Institute for Economic and Business Studies. He is also professor of economics and university fellow, former director of the Center for Business and Economic Research and Development, and former dean of the College of Business and Economics, DLSU-Manila. He was visiting professor and scholar at various academic institutions in Japan, United States, China, Thailand, France, and Lao PDR. He has published articles,

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monographs, and books in Filipino and English on various topics, including globalization, trade in services, movement of natural persons, regional integration, economics of education, and the intellectualization of Filipinos.

Soraya Patria G. Ututalum is consultant at PIDS for the Health Research Fellowship program. She was connected with the Embassy of Afghanistan in Washington, D.C. and with the United Nations Development Programme in the Philippines. She is currently involved in peace and development work in the Bangsamoro. She obtained her bachelor’s degree from Silliman University and is due to complete her master’s degree in Asian studies at UP Diliman.