Liberalization of Services

The development of the services sector in ASEAN is gaining significant momentum. Efforts are being taken by ASEAN countries collectively as well as unilaterally to strengthen and enhance the competitiveness of the services sector in their respective countries. The development of a vibrant services sector in ASEAN will be an important aspect for ASEAN to sustain its economic growth. The services sector has been growing at a very rapid rate over recent years. ASEAN's trade in services exceeds US$530 billion per annum. Services accounts for between 40-60% of the GDP of ASEAN countries. In 2011, the services sector in ASEAN received 58% of total ASEAN FDI flows amounting to US$51.4 billion.

To promote the development of the services sector in ASEAN, the ASEAN countries agreed under the ASEAN Member States signed the ASEAN Framework Agreement on Services (AFAS) signed in December 1995 to progressively liberalize the services sector over a period of 20 years ending in 2015. The AFAS aims to enhance cooperation in services amongst ASEAN Members in order to:

1. improve the efficiency and competitiveness of the services sector; and
2. diversify production capacity, supply  and distribution of services within and outside ASEAN.

 

ASEAN hopes to achieve these objectives by eliminating substantially restrictions to trade in services amongst Member States. The integration of services sector in the region is one of the important elements in building the ASEAN Economic Community (AEC).

The services sector as covers a wide range of activities that include: electricity, gas, and water supply; wholesale and retail trade; hotels and restaurants; transport, storage, and communication; financial intermediation; real estate, professional business services; tourism, education and health. It also includes services rendered solely by the government for public interest purposes.

The services liberalisation covers 4 Modes of Supply as follows:

Mode 1	Cross-Border Supply	Services flow from the territory of one Member into the territory of another Member (e.g. banking or architectural services transmitted via telecommunications or mail);
Mode 2	Consumption Abroad	Refers to situations where a service consumer (e.g. tourist or patient) moves into another Member's territory to obtain a service;
Mode 3	Commercial Presence	Implies that a service supplier of one Member establishes a territorial presence, including through ownership or lease of premises, in another Member's territory to provide a service (e.g. domestic subsidiaries of foreign insurance companies or hotel chains
Mode 4	Movement of Natural Persons	Mobility of People - Consists of persons of one Member entering the territory of another Member to supply a service (e.g. accountants, doctors or teachers)

 

The ASEAN Economic Ministers (AEM) agreed that 2015 will be the end-date for the liberalization of all services sectors with some limited flexibilities. The liberalization is to be based on the 12 broad sectors covering 128 sub-sectors identified in the WTO Services Sectoral Classification List (W/120) as a guide.

The 12 broad sectors covered for liberalization in ASEAN are: Business Services; Communication Services; Construction and Related Engineering Services; Distribution Services; Educational Services; Environmental Services; Financial Services; Health Related and Social Services; Tourism and Travel related Services; Recreational, Cultural and Sporting Services; Transport Services; and other Services not included elsewhere.

Given the potential to expand intra-ASEAN trade in services, ASEAN Member Countries have agreed to draw up a concrete plan to liberalise the services sector within ASEAN by 2015 to complement the goods sector. ASEAN has agreed to specific equity liberalisation thresholds:

i) Eliminate restrictive regulations and barriers for Cross-Border Supply (Mode 1) and Consumption Abroad (Mode 2)

ii) Increase the foreign (ASEAN) equity participation under Commercial Presence (Mode 3)

iii) Improve the offer for Movement of Natural Persons

 

To date, all ASEAN Member States, including Malaysia has committed nine Packages of Services Liberalization commitments under AFAS:

Round 1 1996-1998	1st  Package	Implementation Protocol signed on 15 December 1997 in Kuala Lumpur, Malaysia
Round 2 1999-2001	2nd  Package	Implementation Protocol signed on 16 December 1998 in Ha Noi, Viet Nam
Round 3 2002-2004	3rd Package	Implementation Protocol signed by 31 December 2001 (Ad-Referendum Signing)
Round 4 2005-2006	4th Package	Implementation Protocol signed on 3 September 2004 in Jakarta, Indonesia
Round 5	5th Package	Implementation Protocol signed  on 8 December 2006 in Cebu, the Philippines
Round 6	6th Package	Implementation Protocol signed  on 19 November 2007 in Singapore
Round 7	7th Package	Implementation Protocol signed on 26 February 2009 in Cha-am, Thailand
Round 8	8th Package	Implementation Protocol signed on 28 October 2010 in Ha Noi, Viet Nam
Round 9	9th Package	Implementation Protocol signed on November 2014
Round 10	10th Package	Implementation Protocol to be signed in 2015

 

Malaysia's offers in the 9 Packages covers cumulatively 101 services sub-sectors, involving the following services sectors/sub-sectors: healthcare, tourism and travel related services, computer and related services, telecommunication, business and professional services, distribution services, construction and related services, maritime transport and education.

The liberalization involves allowing ASEAN investors to own majority equity ownership (70%-100%) in investments in the services sector in the region and removal of non-equity restrictions (requirement for joint ventures, local board of directors etc). There is enhanced transparency in rules and regulations governing these sectors to facilitate the business community.