With the implementation of the ASEAN Economic Community (AEC) per 1 January 2016 – i.e. the community that is designed to allow the free flow of goods, services, investment, and skilled labor as well as the freer flow of capital among its ten member countries – there has been concern among part of the Indonesian population whether there could occur a massive inflow of foreign workers into Indonesia hence giving rise to more competition on the domestic labor market. This column zooms in on the free flow of labor under the AEC.

The people of Indonesia need to prepare to face rising competition in the labor market. “However, there is still time for preparations as the target of ‘free flow of skilled workers’ under the AEC will not be fully implemented yet,” Sumarna F. Abudurahman, Head of the National Profession Standardization Agency (BNSP), said. As such, ASEAN member nations continue to uphold national regulations and laws that protect their domestic workers. For example, laws that ban the use of foreign workers in specific sectors are still in place. Or, if not banned, they are subject to additional levies in order to discourage the hiring foreign workers. This means that in practice progress towards the target of freer mobility of skilled workers within the ASEAN region is slow due to member nations’ rigid immigration policies. In other words, it will require the speeding up of reforms in order to realize this target.

However, several agreements have already been made between the ASEAN member nations. Three important agreements are (1) the mutual recognition arrangements (abbreviated MRAs), which recognize education, experience, licenses, or certifications obtained in one of the ASEAN member countries for engineering, nursing, surveying, architecture, medicine, dentistry, tourism, and accounting; (2) streamlined visa and employment regulations for professionals and skilled laborers engaged in cross-border trade and investment; and (3) enhanced cooperation among universities in the ASEAN region in order to increase the mobility of students and staff.

It is important to emphasize that the target of having the free flow of labor in the ASEAN region only applies to skilled labor. Indonesians do not need to worry that Southeast Asia’s largest economy will become flooded with cheap unskilled or uneducated workers from other ASEAN countries thus pushing the tens of millions of Indonesians who are active in the country’s huge informal sector out of their jobs. However, there could be a relatively large inflow of workers at the management level or workers with great competence in, for example, the oil & gas sector. However, this should also have a positive effect as skilled foreigners can transfer knowledge and skills to the Indonesian workers.

It remains unknown when the ASEAN community will fully allow the free flow of skilled labor under the AEC but it is known that this free flow will only be allowed in certain sectors, dubbed ‘priority sectors’. These 12 sectors are tourism, healthcare, logistics, aviation, communication & information, agriculture, wood, rubber, automotive, textile & garment, electronics, and fishery.

Heri Sudarmanto, Director General for Workers’ Training at Indonesia’s Manpower Ministry, stated that before ASEAN member nations can start to loosen their regulations regarding the employment of foreign citizens, the nations need to harmonize standards and rules (including reciprocal rules) in the 12 priority sectors through MRAs. Currently, the ASEAN member nations have only managed to reach a MRA in eight of the 12 priority sectors. However, only in the tourism sector the free flow of skilled workers has been implemented. The other seven sectors still need more debate and research.

All in all, it will require some real effort and reforms before the ASEAN region will see the free flow of skilled labor. – 20 January 2016

This column is the second installment in a series devoted to the topic of Indonesia & the ASEAN Economic Community

(1) Indonesia & Asean Economic Community (AEC) – Introduction

Expatriates Working in Indonesia:

   2012    2013    2014
Number of Expatriates
Working in Indonesia
  77,307   72,427   68,957   68,792

Number of Foreign Workers in Indonesia per Country of Origin:

Country of Origin       2013       2014
China      14,371      16,382
Japan      11,081      10,838
South Korea       9,075       8,172
India       6,047       4,981
Malaysia       4,962       4,022
Philippines       2,601       2,670
Australia       3,376       2,664
USA       2,197       2,658
Great Britain       2,631       2,227
Thailand       1,841       1,002
Other Countries      10,775      13,200
Total      68,957      68,792

Source: Ministry of Manpower & Transmigration

Source: http://www.indonesia-investments.com/news/todays-headlines/indonesia-asean-economic-community-free-flow-of-skilled-labor/item6405