January 1, 2018 promises to be an unhappy New Year for many Thai companies. The date marks the end of a six-month amnesty for thousands of illegal migrant workers in the kingdom to come above ground with labor authorities.
The Management of Foreign Workers Employment Act, Thailand’s response to being downgraded to ‘Tier 3’ status on the United States’ government’s annual Trafficking in Persons (TIP) report in 2014, will impose steep fines of up to $24,000 and jail terms on job agencies or Thai companies that hire illegal migrant workers beginning next year.
“If the law is strictly enforced and if the number of migrant workers after the registration deadline turns out to be much smaller than what used to be in the system, it will certainly be a nightmare for many businesses, especially [small and medium sized enterprises],” predicted Charl Kengchon, managing director of the Bangkok-based Kasikorn Research Center.
There were some 1,434,275 legally registered migrant workers in Thailand as of August this year, of whom 1,410,470 were classified as “unskilled” laborers. They come chiefly from neighboring countries, including Myanmar (1,044,325) Cambodia (263,736) and Laos (107,244,) according to Thailand’s Employment Department.
Between June 24 and August 7, an additional 797,685 previously illegal workers were registered at Foreign Workers Employment Notification Centers nationwide under an amnesty pushed through by Thai Prime Minister Prayuth Chan-ocha after widespread protests by local businesses against the enforcement of the onerous legislation.
The registration deadline was August 7, with four months allowed for the verification and visa-granting process.
That process brings about 2.2 million migrant workers into the legal fold, still far below the estimated 3-4 million working in the country. Undocumented workers can still get registered through other means but the process is more expensive.
Labor shortages could soon hit crucial industries, including the rice trade. “December, January and February are the busy months for rice exports so this could be a problem,” said Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, a trade group which aims to ship 11 million tons of the commodity this year.
Rice shipments are still labor intensive. Sixty kilogram bags of grain need to be hefted on to cranes that lift and drop them into vessels that are packed by hand, a job that has been monopolized by hardy Cambodian stevedores for decades.
If insufficient numbers of Cambodian workers are registered by January 1, there may be insufficient stevedores to fill the ships with rice.
The official charge for a Cambodian migrant worker to become legal is about 4,410 baht ($134). However, if a worker goes through brokers who assure them three-year visas then it can cost up to US$600 per worker. And there is no guarantee they won’t shift to a less back-breaking job once documented. “We don’t know what the situation will be,” Chookiat acknowledged.
Thailand first suffered labor shortages in the early 1990s, a period when the economy was recording double-digit growth. The booming kingdom benefitted from cheap migrant labor from neighboring communist and socialist countries whose economies have only recently started to take off. Yet even now they offer far fewer well-paid job opportunities for their younger populations.
Successive Thai governments have tried to set up recruitment and job placement systems for migrant labor, but the systems were lax and prone to abuse. Thailand’s Tier 3 status under TIP – upgraded to Tier 2 in June this year after a crackdown on human trafficking rings – was due to reports of atrocities committed against Cambodian and Myanmar workers in the fisheries sector.
The new regulation seeks to remedy the situation.
“Thailand needs foreign workers, which are one of the crucial factors for the country’s economic growth,” said Waranon Pitiwon, director general of the Employment Department. “Thailand would just like to manage and legitimize illegal foreign workers. This law will cause no troubles to those employers who do things right, but [will] to those who employ the illegals.”
Thai Union Group, the world’s leading exporter of canned tuna, says it should have no problem meeting the new stricter regulations on migrant workers despite the fisheries industry’s deep-rooted problems. But it will be tougher for its smaller suppliers.
“Thai Union does not anticipate an impact to our operations because we employ migrant workers with legal documentation and rights to work in Thailand,” said Darian McBain, the company’s global director of sustainability.
Thai Union Group employs 34,600 people in Thailand, many of whom are migrants. “Suppliers that fail to meet these standards will be unable to remain suppliers to Thai Union,” she added.
The public sector will also face challenges. Thailand’s migrant-reliant construction business, now driven by government-led infrastructure projects in rail, road and airport expansions, has been one of Thailand’s main growth engines for the past two to three years. Kasikorn Reseach Center estimates 26.9% of the sector’s labor is filled by migrants.
The lack of skilled and unskilled labor is the weak link in the military government’s grand economic schemes for the future, including the Eastern Economic Corridor (EEC), which plans to attract high-tech industries to Thailand’s industrial Eastern Seaboard, and Thailand 4.0, a state-led bid to lift the economy into high-tech, value-added industries.
“The big issue is the shortage of labor,” said Somkiat Tangkitvanich, president of the Thailand Development Research Institute (TDRI), a Bangkok-based think tank. “This is becoming a chronic problem for Thailand, not only on the EEC but everywhere.”
The EEC and Thailand 4.0 will require the recruitment of thousands of engineers, scientists and researchers, while the vast majority of Thai university graduates hail from the social sciences. Yet nationalistic policies aimed at protecting local employment stymie the recruitment of skilled foreign labor.
But protectionism may prove self-destructive in view of a fast-aging population. “Together with China, Thailand already has the highest share of elderly people of any developing country in East Asia and the Pacific, and it is expected to have the highest elderly share by 2040,” according to a 2016 World Bank report.
Thailand’s working age population, defined as people aged 15-64, is expected to shrink by 11% between now and 2040, or from about 49 million working age people to 40.5 million. Analysts say that’s bad news for Thailand’s economic growth prospects.
“From a growth perspective, it’s pretty hard to have a positive view of medium term growth or potential growth if your working age population is in decline,” said Andrew Fennell, a director at Fitch Ratings. “Politicians will have their own views on it, but from an economist’s perspective having your country open up to immigration is supportive of medium-term growth.”
That’s borne out by the World Bank’s “Migrating to Opportunity” report published in October, which estimates that if Thailand suddenly removed migrants from its labor force gross domestic product would fall by 0.75%.
While the new migrant labor legislation may keep Thailand off America’s TIP black list and promises to provide better protection for migrant laborers, it is also likely to reduce Thailand’s working age population next year and in the long run.
“It is going to very difficult to have an optimistic medium-term growth forecast for Thailand when it faces such demographic headwinds,” Fennell said. “Growth of about 3.5% is probably as good as it gets.”