Executive Summary

As ASEAN continues to make progress toward the goals of the Blueprint 2025, the dream of creating a highly integrated and cohesive economy with enhanced connectivity and sectoral cooperation is potentially at risk.
One important source of risk comes from ASEAN’s difficulties in effectively tackling the proliferation of non-tariff barriers to trade. As tariffs have fallen, member states have responded by placing an increasing number of new obstacles in place. Not all trade actions taken by ASEAN member states are an automatic trade barrier. States have legitimate policy objectives to achieve in protecting public health and safety, for example. But it is possible for such actions to cross over and become barriers to trade or for governments to design measures from the beginning to obstruct foreign firms from participating fully in domestic marketplaces.

In spite of repeated commitments to eliminate such barriers to trade, ASEAN has struggled to identify non-tariff measures (NTMs) and non-tariff barriers (NTBs), much less assess the impact of these challenges, nor to stop the continued rise in obstacles of all sorts across the region. Failure to effectively address the increase of unjustified, difficult and costly trade issues undermines the progress towards the ASEAN Economic Community’s Blueprint goals and objectives.

This report is designed to assist ASEAN members in achieving deeper integration in the region. It examines barriers to trade in three sectors: automotive, agri-food (alcoholic drinks, biscuits and seafood) and healthcare (pharmaceuticals and medical devices). The study complements existing NTM and NTB literature by identifying and assessing specific barriers to trade faced by businesses trading today across the ASEAN region. The results give policymakers a better understanding of the range of company concerns and helps officials devise and implement appropriate strategies to assess and reduce NTBs.

Automotive Sector

Under the AEC and the emergence of tariff-free trade, ASEAN’s automotive industry is poised to experience stronger economies of scale and further growth. However, the automotive industry is still affected by a broad suite of challenges that prevent the development of a truly integrated automotive industry. Interviews with firms across the sector revealed challenges in the automotive market due to controls in the form of quotas and licensing, complex conformity assessment procedures, unique national standards, high taxation regimes, and discriminatory policies favouring local manufacturers.

Agri-Food

The Agri-Food sector is essential for the ASEAN economy as a driver of food security and a source of export earnings. However, agri-food companies face many regulatory and technical constraints. This study examined three areas (alcohol, seafood and biscuits) that operate in heavily to more lightly regulated environments.

A rising middle class and recent growth in alcoholic sales and consumption across ASEAN provide significant opportunities for alcoholic drinks manufacturers selling their products across the region. However, the study’s assessment shows that those opportunities continue to be undermined by high levels of taxation, often associated with counterfeit trade, complex licensing procedures, increasingly burdensome labelling requirements, and marketing restrictions.

Rising income levels across the world provide both the boon of higher seafood demand as well as the challenge for greater food safety standards. While firms interviewed in the project did not highlight many major obstacles to trade, seafood exporters still face inconsistencies during customs procedures, and strict conformity assessment and product registration procedures.

The ASEAN biscuits sector is rapidly expanding as consumption around the world increases. Even in an area of relatively lighter regulation, biscuit makers still struggle with inconsistencies in customs clearance, complicated product registration processes and national halal certification standards.

Healthcare Products

Fueled by an expanding middle class, a rise in personal income and a surge in private insurance coverage, ASEAN’s healthcare sector is instrumental in meeting the needs of growing middle income and often ageing populations. According to interviews, ASEAN’s pharmaceuticals sector—one of the fastest growing in the world—is affected by: an underdeveloped IP regime, inconsistent, discriminatory and opaque government procurement processes, and limited access to the public pharmaceuticals market. ASEAN’s relatively new medical devices sector faces fewer obstacles, such as new product registration requirements, a lack of access and transparency in public procurement procedures, and issues around halal laws, particularly when some devices cannot meet halal requirements (because they deal with blood products, for instance).

ASEAN-Level Recommendations

ASEAN has made repeated commitments over the past decade to tackle the rising tide of non-tariff obstacles to trade. Starting well before the ASEAN Trade in Goods Agreement (ATIGA) came into force in 2008, ASEAN member states recognized the harm that could be done by allowing non-tariff measures to be used as disguised barriers to cross-border trade. The most recent formal attempt to tackle the problem, the NTM Guidelines, came out in August 2018.

Despite years of effort, the firms interviewed in this report continue to note a wide and increasing array of challenges in the three sectors under examination. This suggests that ASEAN’s past efforts to tackle NTMs and NTBs have not been successful. There are two broad reasons for this disconnect between repeated pledges and failure to deliver results on the ground: 1) the commitments have not always addressed the right target and 2) timely and effective implementation has hamstrung efforts to tackle existing commitments.

As an illustration, ASEAN has focused much effort on addressing obstacles to trade related to standards. While these clearly matter and should continue to stay in the mix of policies reviewed by ASEAN officials, the firm-level interviews show that companies face challenges that go beyond just problems with inconsistent product standards. Even the best, most effectively implemented Mutual Recognition Agreement (MRA) cannot address topics that are not included in the remit of an MRA.

This report therefore provides a range of recommendations to improve the scope of ASEAN’s work on NTMs and NTBs and significantly strengthen the institutional capacity of the organization to address the former and eliminate the latter. The final section of the report provides additional details, but in brief, these recommendations include the following:

1: Create improved systems to effectively identify and collect information on both NTMs and NTBs

1.1: Promote transparency in NTMs through an open database system

1.2: Quickly follow and implement ASEAN’s 2018 NTM Guidelines

1.3: Allow for ASEAN member state response to NTMs

1.4: Streamline NTMs

1.5: Ensure appropriate and effective mechanisms to allow firms to notify ASEAN about probable NTBs

2: Effectively manage identified NTMs and reduce NTBs

2.1: Ensure that ASEAN has appropriate institutional body in place to address NTM and NTB issues

2.2: Craft targeted, time-bound NTB reduction commitments

2.3: Set principles for regulatory reform based on international best practices

3: Develop clear procedures and institutional frameworks for tracking the elimination of NTBs

3.1: Ensure that the review body has the capacity to track the elimination of NTBs

3.2: Ensure that the review body has the mandate and resources to develop work plans and support the elimination of identified NTBs

4: Continue to ensure the harmonization of standards and build capacity of ASEAN member states and firms to meet those standards

4.1: Continue to effectively implement programs using international standards; MRAs especially for conformity assessment; and accreditation of testing facilities

4.2: Include appropriate follow-up mechanisms to ensure compliance

4.3: Ensure process in place to engage and hold accountable non-compliant members

5: Strengthen work with the private sector to identify, eliminate and conduct compliance reviews of NTBs across the region

5.1: Invite the private sector to participate in ASEAN working committees

5.2: Work with the private sector to identify areas of most significant cost to help prioritize efforts

Note that these recommendations need not be followed sequentially. In other words, it is not necessary to have identified every single NTM or NTB before taking steps to remove unnecessary NTMs or eliminate NTBs. Instead, ASEAN must proceed in parallel—identifying existing arrangements, limiting new obstacles, while working to streamline and remove barriers that impede trade.

Absent a much clearer, more sustained and tighter focus on reducing the number and scope of existing NTMs and eliminating NTBs, ASEAN will not accomplish the objectives of the AEC and it will fail to meet the targets contained in the Blueprint 2025. Growth will not be as high as ASEAN member states could have achieved and much of the promise embedded in the ASEAN exercise will have been lost.