The AEC

Is it time to reap the benefits yet?An update

Andrew DurieuxAndrew Durieux

Founder, Director, Principal ConsultantFounder, Director, Principal Consultant

Coverage Ltd Coverage Ltd

Chairman, JFCCT AEC CommitteeChairman, JFCCT AEC Committee

JFCCTJFCCT 31 Members Advocacy for

JFCCT Members Presidents Council Committees

• ICT• Tourism• Education and

Training• AEC• SME

• Meet with Thai Government Departments– MOC– BOI– Revenue– Customs– Labour– Immigration– Land

• Wins:– Tax laws changing– Customs laws– Foreign Dominance– 90 Day Reporting– Residency Permits– Views are heard

AEC - What is the expectation of Thais?What is the expectation of Business People in Thailand?

What is the expectation of Farangs?

The Messenger’s Rights and Obligations

Throughout history there has been an unwritten agreement between enemies and across many cultures

This was passed on once the use of town criers became common

Further expanded on once news services were established

And I know the various members of the United States of Europe are an opinionated lot!

That means ….

The messenger should not be shot or even blamed for the message

The messenger should provide the message as accurately as he or she can

I am going to upset everyone at least once today!

Treaty

An agreement under international law entered into by Sovereign states.

Agreement, protocol, covenant, convention, pact, or exchange of letters are all the same.

Can be loosely compared to contracts. A party that fails to live up to their obligations can be held liable.

In some cases the Treaties need to be “ratified” by a national government before being implemented

Treaties themselves are normally not the law for business operators purposes – local laws and procedures (or exemptions) are developed to allow the aims of the Treaty to be achieved

ASEAN

5 sections covered under different agreementsFreer flow of capital (ACMF)Free flow of goods (ATIGA)Free flow of investment (ACIA)Free flow of skilled labor (MRA’s – AFAS)Free flow of services (AFAS)

ASEAN v Europe?ASEAN v Europe?

Key Differences with EuropeKey Differences with Europe ASEAN Est. 1967 (BKK Treaty of Amity &

Cooperation) Stop Communism, put an end to

Confrontations Message: “Leave me alone to run

my country” Provide forum to deal with territorial

and political disputes between SEA nations

Allow leaders to build their own country model without outside interference

Hope that shared economic interest erase old animosities

Bigger clout and footprint with the West, China and India

EEC Est. 1957 (Treaty of Rome) To make sure there would never be

another war Message: “Make sure no one is

ever left alone again” Governments gave up some of their

authority to Brussels (agriculture, transport, trade, etc)

Meant to foster economic cooperation & secure lasting democratic peace

Ensure free movement of people, capital, goods and services

Leading eventually to Customs-, Monetary- and Political Union

Aim of ASEAN was to ensure non-interference, aim of EU was close integration to ensure inter-dependence

Europe in HarmonyEurope in Harmony Europeans are closer to each

other than Asians have ever been Common History:

• Greek/Roman beginnings• Christianity• Royal families and patronage• Democracy with Socialist services• End of WW2 all Christian Democracies

using Capitalist ideas Mainly common geography forcing

planning for long winters and periods without food or energy supplies

Common thinking:• Equality and Education for all• Football is more important than life and

death• All love the Eurovision song contest - but

never vote for the country that you hate the most (ie Germany if you are Dutch)

ASEAN Contrast Ethnic variations are large No common language base No common religion No common history

• Some influenced by India, others by China

• Colonisations were different in effect

No common view on the preferred Economic model

Massive variation in education levels and wealth

EU has been a success in its primary aim – bring peace to Europe! EU’s current problems are due to lack of further integration and

demographic forces

The AEC – Quick RecapThe AEC – Quick Recap

Free Flow of CapitalFree Flow of Capital Strengthening ASEAN Capital Market Development and

Integration.• Achieve greater harmonisation in capital market standards

in the areas of offering rules for debt securities, disclosure requirements and distribution rules;

• Facilitate mutual recognition arrangement or agreement for the cross recognition of qualification and education and experience of market professionals;

• Achieve greater flexibility in language and governing law requirements for securities issuance;

• Enhance withholding tax structure, where possible, to promote the broadening of investor base in ASEAN debt issuance; and

• Facilitate market driven efforts to establish exchange and debt market linkages, including cross border capital raising activities.

Free Flow of CapitalFree Flow of CapitalWhat will it mean for Thailand and ASEAN?What will it mean for Thailand and ASEAN?

•Facilitation of intra-ASEAN investments•Help protect investors•Improve corporate governance in ASEAN countries•Improve competitiveness•Present an investment alternative for international investors outside of US, Europe and China

Retirement funds Mutual funds

•A joint Stock Market – maybe•Common currency – not planned

Free Flow of GoodsFree Flow of GoodsThe ASEAN Free Trade Area (AFTA)The ASEAN Free Trade Area (AFTA)

ASEAN Trade in Goods Agreement (ATIGA)

governs the ASEAN Free Trade Area for intra-

ASEAN trade in Goods

Elimination of tariff barrier under tariff reduction program

Elimination of quantity restrictions and non-tariff barriers

Only ASEAN’s products that are directly consigned within

the region will qualify for benefits of AFTA

The ASEAN Free Trade Area (AFTA) has now been virtually

established.

-ASEAN-6 : more than 99% of tariff lines have 0% tariff in

2010

-CLMV will reduce tariff to 0% by 2015

Free Flow of GoodsFree Flow of GoodsWhat does it mean for Thailand and ASEAN?What does it mean for Thailand and ASEAN?

• Should drive significant intra-region trade growth

• Less reliance of exports to US, EU and China

• Lower Exchange Rate risks• Increase employment for

manufacturing and logistics• Lower costs goods for Thais =

Improved living standards

Free Flow of Investment Free Flow of Investment Intra-ASEAN investment governed by ASEAN

Comprehensive Investment Agreement (ACIA) 4 main pillars Liberalization, protection, facilitation

and promotion.

Objectives enhancing ASEAN’s competitiveness attracting foreign direct investment (FDI) increasing intra-ASEAN investment.

ActionsExtend non-discriminatory treatments - National Treatment to investors from other members- Most-Favored nation treatment must be respectedReduce and eliminate restrictions to entry for investmentsReduce and eliminate restrictive investment measures and other impediments including performance requirements

Free Flow of Investment Free Flow of Investment What will it mean for Thailand and What will it mean for Thailand and

ASEAN?ASEAN?

•Make it easier for ASEAN citizens and companies to investment in other ASEAN countries•Protection for investors and ensuring returns can be obtained•100% ownership of some business will be allowed:

• Manufacturing• Mining• Agriculture• Fishery

Free Flow of Free Flow of SkilledSkilled Labor Labor Assists Greater mobility of services Greater mobility of qualified service professionals in

the region by accepting common standards of some professionals

First mutual recognition arrangements are for:1. Medical practitioners2. Dental practitioners3. Accountancy services4. Engineering services5. Nursing services6. Architectural services7. Surveying qualifications 8. Tourism (32 sub categories)

TourismTourism

Free Flow of Free Flow of SkilledSkilled Labor Labor What does it mean for Thailand and ASEAN?

Improved employment opportunities for skilled Thai’s (and others)More flexibility for employers in ASEAN

• Improved competitiveness• Lower (?) costs• Better product and service quality

Free Flow of Services Free Flow of Services No restrictions on ASEAN services suppliers in providing services and

in establishing companies across national borders in the region, subject to domestic regulations.

Eliminates restrictions to trade in services among ASEAN countries to improve the efficiency and competitiveness of ASEAN services suppliers.

Liberalization of services has been carried out through rounds of negotiation mainly under the Coordinating Committee on Services.

Recognition of professional qualifications by recognizing mutual recognition arrangements (MRAs)

Substantial removal of all restrictions on trade in services (Priority sectors are air transport, e-ASEAN, healthcare, tourism and logistic)

Negotiation of some specific services sectors such as financial services and air transport are carried out by their respective Ministerial bodies.

The AEC – Problems The AEC – Problems ImplementingImplementing

Negotiations ProcessNegotiations Process Foreign Affairs Negotiated ASEAN for Thailand Handed Internal changes to Ministry of Commerce

Department of Trade Negotiations DTN responsible to get changes made DTN have no authority within other ministries …. FTA and other negotiations ongoing

Slow progress Compensation/Adjustment for local business?

Free Flow of GoodsFree Flow of GoodsProblems in Implementation

• A number of Non-Tariff Barriers have not been addressed at this time

• Labelling• Transport/Logistics• Standards• Taxation• Quotas

• More NTB’s being put in place in some countries

Customs duties v Excise taxes

Free Flow of Investment Free Flow of Investment Problems with ImplementationProblems with Implementation

•FBA has not been changed with no current plans (or government) to do so

• Manufacturing (OK under BOI)• Mining (FBA protected)• Agriculture (FBA protected)• Fishery (FBA protected)

•Many complications remain unsolved• Taxation• Definitions• Quotas

•Perm Sec of MOC didn’t even know!!

Free Flow of Free Flow of SkilledSkilled Labor Labor Problems with Implementation

Definitions of ASEAN citizen will be “ASEAN Passport Holder”Not free movement of people!No factory workers or current ability to request new categoriesLabor Act has not been changed

• Work Permits/VISAs and Company requirements (eg 4 Thais and 2m baht capital) likely to still be needed

• Thai language tests for some categories (Doctors, Dentists, Nurses and maybe others)

• Details not as it seems (Nurses = Training only, Engineers and Architects = can’t register)

Qualifications process for Labor MovementsQualifications process for Labor Movements

Regional Regional

National License from Professional Regulatory Authority

ASEAN certified

Architect or Engineer

Registered License from

Host National

Government

NationalNational

Engineering Association MembersEngineering Association Members

There is only one registered ASEAN professional group

ACPE’s (engineers) Only 4 countries

have registered Thailand has not…

Country Numbers of ACPEs

Malaysia 149

Singapore 183

Indonesia 99

Vietnam 9

Total 440

Data from ACPECC website,

http://www.acpecc.org/modules/acpes.php

Free Flow of Skilled Labor Free Flow of Skilled Labor BKK Post 19/8/2102 - By Surachet Kongcheep

A TALE OF TWO CITIES — BANGKOK AND YANGON FACE OFF AS AEC 2015 NEARS

ZoomBookmarkSharePrintranslateThe coming formation of the Asean Economic Community will see a major influx of foreign

workers and while the Thai capital’s market is thriving, Myanmar’s economic hub wins in affordability, if not quality.

Southeast Asian countries will become a single economic community in 2015. As people in each of these countries will be able to move around freely and work or live in any other member nation, there will be a direct impact on the property market in the industrial, office, retail and especially residential sectors.

Residential demand is expected to be particularly strong to accommodate an influx of

workers, particularly in condominium units.

The Nation 20/8/2012BEAUTY OBSESSION - oomBookmarkSharePrintListenTranslateAS THE STIGMA FADES, COSMETIC SURGERY BECOMES BT20-

BILLION BUSINESS                                                                                                                                        

         A recent survey shows that the market value of the cosmetic surgery

business has increased from Bt15 billion in 2010 to Bt20 billion in 2011 .“The world has changed,” Dr Supot Sumritvanitcha, a director of Yanhee

International Hospital…“Every girl wants to be a super-star like Patchrapa Aum Chaichua”

According to the hospital’s records, the number of foreign patients increased from 25,611 cases in 2008 to 34,440 cases in 2010.

To prepare for the Asean Economic Community in 2015, Yanhee has invested over Bt1 billion…

The hospital plans to increase the number of its full-time surgeons from 130 to 150 and increase the part-time surgeons from 120 to 125.

It will increase the number of professional nurses from 500 to 700 and import nurses from the Philippines to work as assistants as they can communicate well in English with foreign patients.

The Wuttisak Clinic group also plans to join in the competition by increasing the number of its skincare clinics in local and foreign markets.

The company now has 109 skincare clinics across the country with more planned. The company will also expand into Laos, Cambodia, Vietnam, Myanmar, Malaysia and Indonesia.

At least 20 skincare clinics are marked for Vietnam next year, with four clinics located in Cambodia and four more to be set up in Laos, he added.

Architects angle for Asean impactKANANA KATHARANGSIPORN Bangkok Post 19 November 2013

About 500 Thai architects are ready to register as Asean Architects (AA), which allows a permit for Asean architects to work in the region under the Asean mutual recognition arrangement on architectural services… Association of Siamese Architects (ASA)…..All Malaysian architects, some 2,000, as well as 1,800 Singaporean architects are ready to register for AA permits.‘‘If Thai architects are not ready for Asean economic integration, we may lose a huge opportunity,’’ he said. ‘‘More American architects are setting up offices in Singapore to tap this region, as there are very few jobs in their home country.’’The AA permit will take effect in late 2015 when the Asean Economic Community starts.

Free Flow of Services Free Flow of Services Problems with Implementation

Not on track as per Roadmap:• Releasing “packs” of services to move towards implementing

the agreement• Up to pack 10 now• Recent packs included allowing some services businesses to be

owned by ASEAN citizens or companies such as “Space travel and research”

Need to change FBA or create another mechanism (no government to do this)No process for application in place or planned

Timeline for Services LiberalizationTimeline for Services Liberalization

SECTORS TARGETS2008 2010 2013 2015

e-ASEAN, healthcare tourism services 51% 70%

Logistics 51% 70%

Construction 51% 70%

Others 51% 70%

Foreign (ASEAN Citizens) Equity LimitsForeign (ASEAN Citizens) Equity Limits

Overall Current StatusOverall Current Status A lot of work still needed in terms of standards and

harmonizing in most countries Thailand is well behind in implementing agreed changes Neighbors moving ahead and looking to take advantage of

changes Legal changes are required – new government able to make

change? Many Thais have protectionist mindset at this time Other powers trying to entice Thai negotiators

• Trans Pacific Partnership• RCEP• EU FTA• Many other

No chance of full implementation by Jan 1st or even Dec 31st

FTA’sFTA’sAEC Becomes RCEPAEC is a step towards further FTA’s.RCEP is AEC + 6 (China, Japan, India, Korea, Australia and New Zealand)RCEP maybe completed 2020ishP4 Becomes TPPTPP started as P4 (SG, BR, NZ, Chile) in 2005Became TPP when US joined in 2008Another 8 or 9 countries negotiating now – Not Thailand at this timeMore onerous in many areas including IPMany issues to resolve – likely to take until 2020RCEP and TCPP become FTAAPIn 2020 ASEAN likely to negotiate as a groupMay discuss merging RCEP and TPP agreementsBecome Free Trade Area of the Asia Pacific47% of world tradeWell over half of the worlds population

NCPO Moves?NCPO Moves?Formation of an AEC CommitteeNo 2 General in charge38 membersAim is to speed up implementationDon’t know who is on the committee yet, but likely to be Perm Secs from various ministries and we hope some business groupsNot aware of any meetings having been held yetAre they really focused on AEC Implementation or other areas?Recent discussion with senior staff of DTN – Thailand have done enough to comply with the AEC commitments, so we don’t expect any further changes to be needed

Example – The Tourism Effect Example – The Tourism Effect 1. No net increase in tourist numbers due to AEC (but

other initiatives may lead to this)2. No easy way to get access to ASEAN employees3. No change to employees from non-Asean countries4. Currently no opportunity to own or control more than

49% of a company for non-Thais (BOI approved companies are the exception as usual)

5. No change to list of protected professions under the labour laws and regulations

6. No expected change in currency valuation or international banking for payments

7. No further changes in Goods prices (reductions) as these have all been completed for some time

8. Other countries in ASEAN are changing rules:1. Thai companies may be able to take advantage of larger

ownership control2. Sending skilled Thai workers to ASEAN countries should be

easier3. VISA needs for non-ASEANS citizens (business people) not

likely to change 9. Companies supporting tourist operators such as web

design or on-line booking services may find opportunities either in-country or delivering the services from Thailand to clients elsewhere in ASEAN

Example – The Services Example – The Services Company Company

1. No change to ownership rules (49% of a company for non-Thais remains)

2. No change to employees from non-Asean countries 1. work permit requirements remain as they are today2. 4 to 1 Thai/Foreign ratio remains3. 2m baht capital requirement remains

3. No easy way to get access to ASEAN employees despite MRA’s

4. No change to list of protected professions under the labour laws and regulations

5. No expected change in currency valuation or international banking for payments

6. Other countries in ASEAN are changing rules:1. Thai companies may be able to take advantage of larger ownership

control2. Sending skilled Thai workers to ASEAN countries should be easier3. VISA needs for non-ASEANS citizens (business people) not likely to

change

Example – The Factory Owner Example – The Factory Owner

1. Decrease in customs duties when importing or exporting goods made in ASEAN (already implemented)

2. Transportation services should improve and get cheaper – but no significant short term changes likely

3. No change in access to low costs ASEAN employees due to AEC (but BOI has made some changes)

4. BOI exemptions still supported – but no other opportunity to own or control more than 49% of a company for non-Thais

5. No change to employees from non-Asean countries, and no change to list of protected professions under the labour laws and regulations

6. No expected change in currency valuation or international banking for payments

QuestionsQuestions

Thailand Position – a geopolitical thought?Thailand Position – a geopolitical thought?

Flood/Drought cycle due to nature and poor planning

Surrounded by less stable countries and poorer, less educated populations •“invasion” by groups of people or worse•may need to support neighbors•disease control for food and people•water supply interruptions

Insufficient Energy•Oil usage > local supply (60+%)•Gas usage > local supply (30+%)•Coal usage > local supply (50+%)(Risk of price increases, lack of suppliers, supply interruptions)

Basic Economic model is:•Sell Food and Labour (Tourism and Factories) •Buy Energy

Thailand’s Strategic Problems …Thailand’s Strategic Problems …

Create and lead ASEAN = AEC 2015

•Secures favorable trade status with energy rich neighbors•Assists neighbors improve living standards and creates political stability•Creates regional disaster systems and assistance, and natural resource planning agreements

Thailand’s Strategic Solution Thailand’s Strategic Solution (Risk Minimisation strategy) …(Risk Minimisation strategy) …

What is the Risk?What is the Risk?If the AEC is not implemented in Thailand, the result is likely to be:•Brain drain of smart people•Factory employment will move to neighbors (already started)•Foreign Investment will trend to neighbors (already started due to other factors)•Less innovation•Energy supplies are not secured with strong likelihood of price increases•Agriculture remains main source of income – subject to weather, price variations and strong competition with ASEAN and from other places•Balance of trade will limit wealth of the nation•Thailand goes backwards relative to ASEAN

A better option may be to look at investing in other ASEAN countries

What should you do about it?What should you do about it?

ASEAN Businessman’s StrategyASEAN Businessman’s Strategy1. 1. Look to establish entities in other ASEAN countries

• No need for partners or JV’s• No need to send profits back to Thailand if

Thailand don’t assist or tax agreements are not updated

2. Deliver services across borders and establish service centres of excellence in best ASEAN locations3. Establish Supply chains across region

• Focus on efficiencies that will eventually come through customs, standards and logistics agreements

4. Attract the best talent at the lowest price from the region asap!5. Don’t wait for the government to implement

Non-ASEAN StrategyNon-ASEAN Strategy

1. Establish entities in appropriate ASEAN country• Promotion/Benefits• Ease of doing business

2. Establish subsidiaries in other ASEAN countries from first base as needed (may not even need!)3. Attract the best talent at the lowest price from the region asap!

• MRA’s4. Take advantage of AEC agreements to deliver products and services across borders

• AFAS• ATIGA• ACIA

5. Take advantage of FTA’s and other agreements from within ASEAN

• Rules of Origin

Non-ASEAN Key PointsNon-ASEAN Key Points1. Supply chains across the region will

improve through customs, standards and logistics agreements

2. Don’t wait for the government to implement

3. Market size = 600m people4. India and China right next door =

2bn ++5. Younger Average age = growth and

workers6. Growing middle class = expectation

increase

Additional NotesAdditional Notes

AFAS provides opportunities:• Cross border delivery now possible• Consumption abroad easier (tourism especially)• Easier physical presence• Movement of natural persons supported

More service suppliers creates benefits for economies:• More jobs• Lower costs• Improved quality• Forces improved competitiveness• Forces innovation

AFTA and AFAS Role

Problems in Thailand:• Most Thai SME’s don’t understand the opportunities,

real threats (not the imagined ones) and details of how to take advantage of the AEC

• Many Thai SME’s can’t access assistance from Thai government to expand

• Thais have more cultural aversion to travelling and expanding

• Roadmap has not been followed FBA and Labor Act have not yet been changed Government department processes have not been

planned Standards and Definitions etc have not been harmonised Taxes have not been determined

• Content of “Packs” create impression that Thailand does not agree with AFAS

AFTA and AFAS Role

Some examples for SME’s with some foreign ownership or ASEAN based SME’s operating in Thailand:• Limitations of the FBA on company ownership for “all others” • Limitations of the FBA • 4 Thai employees, 2m baht capital requirement per foreign

worker (regardless of country)• Visa and Work Permits and 90 Day reporting• Lack of easy to access Business Visa coupled with definition of

“Work” • Extreme use of paperwork and signatures• Monthly reporting for many business activities in Thai language

only• “Certificate of Guarantee” MOC (DBD) document called หนั�งสื�อ

รั�บรัอง (NangsiLapLong) • When establishing a business, the Company Objectives is still

used (limits flexibility of SME’s)• Poor Access to Banking and Finance (BOT and Bank policies)• Reliance on “National Security” as a defence for Thai

government need to retain these NTM’s and NTB’s

NTM’s and NTBs Impact

Many ASEAN governments collect large % (30%+) of revenue from Customs Duties

Under ATIGA (Free movement of Goods) large amounts of this revenue will disappear – some governments will have significant budget issues

Excise (SIN) Taxes are likely to increase Wide range of implementation differences

across ASEAN:• Ex Factory value• Last Warehouse point value• Retail value• Volume differences

SME’s cannot avoid these• larger companies using various “tricks” can• Hard to maintain the list!

NTM’s and NTBs Impact

Contact TCC or BOT or CoC:• Push Thai govt to explain, implement• Tell Thai govt NTBs are a problem for all• Push Thai govt for assistance to expand • Push Thai govt to reduce compliance and paperwork

Make use of online media to market into other ASEAN countries

Improve innovation and competitiveness by:• Adopting best practice, • Being innovative• Learning at all times• Risk Management• Language skills• Cultural knowledge and exposure

Pay Taxes – and then complain and ask for better services!

SME Strategies

The “Oil” that makes the wheel go round easier and faster

Trading and Logistics companies have big opportunities due to Free Movement of Goods (ATIGA) and Services (AFAS)• Increased demand for services• Easier ability to enter new markets• Easier to have people travelling to perform

services, sell or make deals• Can grow and create lower per transaction

costs• Therefore can decrease prices and win greater

market share May be tax opportunities also

Trading and Logistics

Problems:• Border Controls and processes are still a

problem• Standards and labelling are still issues• Taxation issues still unresolved• Language, Cultural and Licensing barriers • NTB’s likely to get worse

Actions:• Tell TCC, BOT and CoC to put pressure on govts

to resolve these issues fast• Advertise services to SME’s better• Lower prices to get bigger piece of the pie• Innovative use of networking and partnerships

Trading and Logistics

ASEAN – is it united?ASEAN – is it united?

Big Differences :Democratic Capitalism v CommunismBuddhist, Islamic and ChristianStages of Development

• Education• Health• Corruption• Technology