inSights

Policy Briefing
ISSUE 5, JULY 2009 Manila, Philippines

The Philippine Labor Market Test in a Global Working World

The Philippine interest in services trade agreements can be understood in various visible gains. The country stands to gain from freer movement of people because of the Filipino human resource competitiveness. To maximize gains, a strategic Mode 4 negotiating stance must be adopted. But what constitutes a strategy that works in the context of services trade?
On January 1, 1995, the Philippines acceded to the World Trade Organization marking its intention to be bound by the General Agreement on Trade in Services (GATS) objectives and principles. The GATS is a multilateral framework providing rules for the negotiations of movement of people across borders. Following GATS, the country has entered into regional agreements, namely, ASEAN Framework on Services (AFAS), ASEAN-Australia-New Zealand FTA (AANZFTA), ASEAN-Korea FTA (AKFTA), ASEAN-China FTA (ACFTA), ASEAN-India FTA, ASEAN-EU FTA, and bilateral agreement, the Japan-Philippines Economic Partnership Agreement (JPEPA). Gains From Mode 4 Services Trade Some of the beneficial results of Mode 4 or movement of natural persons within the GATS framework include growing contribution of remittances to the Philippine economy, enhanced skills circulation or brain gain, and guaranteed channel for legal migration. Remittances. Remittances have proved to be a major, relatively stable, source of capital inflows for the Philippines. In 2008, remittances from overseas Filipinos reached a record high of US$ 16.4 billion, constituting about 10 percent of the countrys GDP. The importance of remittances to the Philippine economy is ever increasing, as it exceeds the flow of Official Development Assistance (ODA) and Foreign Direct Investment (FDI) as sources of external financing. Enhanced Skills Circulation or Brain Gain. Another beneficial effect of Mode 4 to the Philippine economy is enhanced skills circu-

POLICY PRESCRIPTIONS
Effective safeguard measure. The Philippine LMT provision should be retained as safeguard measure in protecting local talents. This is in consonance with the Filipino first policy wherein Filipinos get the job first. Knowledge transfer. At the core of the Philippine policy of employing foreign nationals should always be knowledge, skills and technology transfers. Hence, an amendatory DO on the Guidelines in the Issuance of Alien Employment Permit (AEP) is needed to include understudy training program as part of the requirements in the issuance of AEP. Positive Listing. The Phil. LMT should be supported by a positive list of occupations open for foreign nationals. This will enable the Philippines to identify and offer sectors and professions that are ready for liberalization, instead of opening the entire services sector and listing the exemptions. Hence, a technical committee of tripartite representation can be tasked to come up with a list of mission-critical skills or skills in shortage. Complementary policies on mode 4 workers protection. The Philippines should also establish clear-cut rules governing the temporary stay and employment of foreign nationals in the country. The enactment of an Act Governing the Employment of Foreign Nationals in the Philippines is, therefore, proposed. lation. Because of the temporariness of Mode 4 as envisaged in the GATS, the issue becomes one of gain, and circulation, as opposed to drain of the brain, and skills. Return of migrants is not the only mode of brain gain. The entry of foreign nationals into the country to fill-in skills supply shortages can be another method to learning advanced technologies, knowledge and skills.

This paper was written by Stephanie B. Tabladillo, research specialist at the Institute for Labor Studies. ISSUE 5 The Philippine Labor Market Test in a Global Working World

INSTITUTE FOR LABOR STUDIES An Avenue for Legal Migration. GATS Mode 4 provides an additional legal labor migration for people to move. This assertion is based on the nature of FTA as an agreement between and among governments, hence, requirements and procedures relating to the movement of people are explicitly set forth and facilitated. Moreover, temporary movement and stay of natural persons as service providers are within regulations on visas and work permits. A major challenge, therefore, for Philippine negotiators is how to maximize these gains. A key to capitalizing on these benefits is the existence of a consistent, forward-looking and developmental approach or strategy in Mode 4 negotiations. Hence, the overall Mode 4 negotiating strategy should be toward reducing market access barriers, and this requires an effective Philippine labor market test. The Philippine Labor Market Test The Philippine labor market test is considered as one of the countrys horizontal limitations on the movement of natural persons cutting across all sectors. It is enshrined in the Philippine Constitution and national legislations. Legal Framework. The primary legal basis of the Philippine labor market test is the Philippine Constitution, wherein it is provided that the State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive. This preference for Filipino labor is further substantiated by the provision promoting sustained development of national talents and limiting the practice of all professions in the Philippines to Filipino citizens, save in cases prescribed by law. This rule on practice of profession, however, is not absolute as the PRC Modernization Act of 2000 provides for exceptions by allowing foreign professionals to work in the Philippines pursuant to foreign reciprocity provisions. Further, Article 40 of the Labor Code of the Philippines requires that before a non-resident alien be issued an employment permit, there must first be a determination of the nonavailability of a person in the Philippines who is competent, able and willing at the time of application to perform the services for which the alien is desired. This provision of the Labor Code is essentially the Philippine labor market test. Characteristics of a Coherent, Strategic Mode 4 Negotiating Stance that Works Within GATS Framework. The essential features of a coherent, strategic, forward-looking Mode 4 negotiating position include a standpoint pushing for the separation of mode 4 from mode 3 negotiations, that which leads to mutual recognition of qualifications, effective labor market ISSUE 5 The Philippine Labor Market Test in a Global Working World

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test, and extended mode 4 coverage. An effective Philippine labor market test, on the other hand, requires the enactment of Employment of Foreign Nationals Act, positive list of occupations, serves as a safeguard measure, encourages investments flows, and knowledge, skills and technology transfers. Making the Philippine LMT effective requires certain initiatives for change in the procedure and for the establishment of clearcut rules governing the employment of foreign nationals. For instance, in order to take advantage of the advanced knowledge and technology of foreign nationals coming into the country, the understudy training program should form part of the requirements in the issuance of AEP. Moreover, in order to address issues like (1) increasing disparity of salaries between local workers vis-vis expats, (2) entry of unqualified foreign nationals/technical experts, among others, an Act Governing the Employment of Foreign Nationals in the Philippines must be enacted to provide for rules of foreigners rights, obligations as well as sanctions in case of violations of employment terms and conditions. There is also a need to come up with a positive list of occupations where foreign nationals can come in so as to protect sectors not ready for liberalization as well as to open up sectors/industries that are ready to compete in the global economy. INSTITUTE FOR LABOR STUDIES 5/F DOLE Bldg., Gen. Luna St. Intramuros, Manila Phone: 632-5273490 Fax: 632-5273448 Email: ilsinsights@ilsdole.gov.ph Website: www.ilsdole.gov.ph