This article first appeared in Forum, The Edge Malaysia Weekly on January 15, 2018 - January 21, 2018

Economic integration and trade liberalisation have transformed Asean member countries. Today, Asean is a haven with virtually tariff-free exchange, visa-free travel and healthy trade relationships among its members. However, with the onset of globalisation, many people have begun to look deeper into the set-up and see how trade has truly evolved since the inception of the grouping.

Many economists believe that the region’s success can be attributed to the reduction in tariffs. Ninety-six per cent of tariff lines are now at 0%, and the grouping is aiming for 98.67% this year.

Despite the reduction in tariffs, has intra-Asean trade volume really improved? Has Asean truly evolved as a trade bloc? Are we moving towards protectionism?

While tariffs have somewhat been obliterated in the region, other factors are inhibiting the attainment of free trade. These are non-tariff barriers (NTBs) and non-tariff measures (NTMs), which have multiplied five times in the last 15 years. NTBs and NTMs are any obstacles not related to trade. They usually comprise regulatory procedures, health and safety measures, standards and price controls.

Data collected by one group shows that technical barriers to trade (TBTs) make up 47% of NTMs in Malaysia, which is significantly higher than the average of 43%. In addition to TBTs, other deterrents to trade are government procurement restrictions and sanitary and phytosanitary restrictions.

NTMs are characteristic of government policies intended to increase political influence or promote the general welfare of people within Asean member nations. However, they often have a greater impact on trade than the reduction in tariffs does. A report by the World Bank (Kee et al 2009) suggests that NTMs add 87% to the effect of traditional tariffs, making their impact greater than the restrictiveness brought on by tariffs.

It may be instructive to see how intra-Asean trade has evolved along with a rise in NTBs and an increase in total Asean trade, that is, including its trade with the outside world.

The following figures reveal an interesting fact:

Total Asean trade volume doubled over last 12 years, from roughly US$800 billion to US$1,700 billion. Intra-Asean trade also doubled from US$260 billion to US$520 billion (in 2016). However, the ratio of intra-Asean trade remained static at around 25%. Given the “stickiness” of this ratio over a long period that also witnessed the global financial crisis, we conclude that intra-Asean trade, in proportionate terms, has plateaued.

Coming back to Malaysia, we have 713 NTMs, of which 502 belong to the Ministry of Health. Malaysia’s food industry is heavily regulated by the Food Regulations 1985 and Food Act 1983.

These regulations — which contributed to the large number of NTMs — have been steadily increasing since 2000. It seems that the Malaysian leadership has caught wind of the issue and has started fostering the momentum for change within Asean. Prime Minister Datuk Seri Najib Razak has raised the matter with Asean member nations several times.

Asean is aware of the obstacles to trade liberalisation and has come to a consensus on moving towards true trade liberalisation. It has agreed to reduce NTMs by 10% by 2020. To achieve this, two things will be operationalised — the Asean Trade Repository to enable the listing of regulations by trade regulatory agencies and the implementation of an online platform that allows complaints regarding NTMs and NTBs to be lodged. Such a platform will be made available on the Asean Solutions for Investments, Services and Trade.

The target of a 10% reduction in NTMs by 2020 is not going to make a dent even if achieved. The fact that intra-Asean trade as a proportion of total trade has remained sticky may be due to the dramatic rise in the number of NTMs.

Member states will have to drastically reduce the NTMs to remove this stickiness and deepen economic integration. This will certainly help Asean and improve integration with the outside world. Asean is a poster child for economic integration. It must continue to take measures to sustain this success.

Ali Salman and Aryudin Proehoeman are affiliated with the Kuala Lumpur-based Institute for Democracy and Economic Affairs

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