Business leaders operating in Southeast Asia have expressed mounting concerns about the increase in non-tariff barriers (NTBs) in the region, saying they are keeping the region from reaching its full potential.
Although 98% of intra-Asean tariffs have been eliminated among the six largest economies in the 10-country bloc, a recent survey of businesses across the region found that NTBs have increased significantly. For example, the number of sanitary and phytosanitary measures, which are considered non-tariff measures, rose by 305% between 2000 and 2016.
The survey, conducted between September 2018 and February 2019, also found that businesses are frustrated and disappointed that Asean governments have failed to address the issue of growing NTBs. Companies participating the survey were from the automotive, agri-food and healthcare sectors.
Dr Mohd Munir bin Abdul Majid, the chairman of the Asean Business Advisory Council Malaysia, said member countries agreed to eliminate non-tariff barriers in the 2009 Asean Trade in Goods Agreement (Atiga), the 2015 Asean Economic Blueprint and the 2025 Blueprint. Yet, "from just under 2,000 non-tariff barriers in 2015, we now have 9,000", he said.
"Asean requires greater commitment to achieving its goals (of eliminating NTBs)," he told a conference hosted by the EU-Asean Business Council and the Asean Business Advisory Council recently. "Asean has a very bad habit of stating an objective and target, leaving it behind, and then stating another objective and target."
Countries need to do a better job of identifying NTBs, says Deborah Elms of the Asian Trade Centre. "You cannot fix what you don't know." (Photo by Pornprom Satrabhaya)
Arin Jira, chairman of the Asean Business Advisory Council, saw no sign that there would be any progress during the Asean Summit held in Bangkok late last month. He said he was very disappointed that "something this important will be not be on the agenda".
Chris Humphrey, executive director of the EU-Asean Business Council, said Asean consistently made the "classic salesman mistake of overpromising and under delivering".
"[Businesses] know about the high rates of growth and young population". But action needs to be taken or Asean is at risk of not fulfilling its full potential," Mr Humphrey said. He further emphasised that this is not impossible: "The mechanisms are there. The goals are there. But we lack implementation."
This frustration about weak implementation and apparent indifference is widespread, said Deborah Elms, executive director of the Asian Trade Centre, who presented the EU-Asean Business Council report.
Interviews with firms across the region in the automotive, agri-food and healthcare sectors revealed that the proliferation of NTBs hindered their ability to conduct business, she said.
She chose not to distinguish between non-tariff measures (NTM), which are seen as legitimate, and non-tariff barriers which are seen as protectionist. "Companies don't care whether it's an NTM or an NTB, they see an obstacle and they want it gone."
Dr Elms provided specific examples of NTBs that EU businesses faced when attempting to export to Asean.
Firms seeking to market goods in the region must "manufacture to unique domestic standards that are really hard for firms to handle". In Indonesia, she said, "inspection procedures are very lengthy and costly, and it can take months in order to get products tested against local standards." This is repeated across multiple industries, she noted.
Mr Humphrey concurred on this point, saying: "You are not going to get economies of scale because it's nonsensical for different countries in the region to have different domestic standards." He added that this essentially "negates the zero tariff advantage".
Another example is in the alcohol industry. "Taxes are determined by alcohol percentages in the bottle. You don't even know from day to day what the tax that you will be charged with are," Dr Elms said. "What you thought was a viable profit margin can change dramatically."
Although these are examples of EU imports into Asean, intra-Asean trade faces many of the same barriers, she added.
Some panelists cautioned against an excessively pessimistic outlook. Kejpiroon Kohsuwan, deputy director-general of the Department of Trade Negotiations at the Thai Ministry of Commerce, explained that progress has been necessarily slow.
"Fifty years ago, Asean wasn't developed. There were no standards … no consumer protection laws, no competition laws at the time," she said. "As countries advance, they adopt and adapt global standards to their environment."
The diverse nature of Asean makes the work of harmonising standards challenging. "Governments have been trying their best to facilitate the private sector, but this takes a long time compared to the EU where standards are done by the EU Commission and not individual member states," she explained.
Yet action has been taken to facilitate ease of doing business. "The Asean Trade Repository links you to each Asean member's trade repository website," she said. "It serves as a database of non-tariff measures -- a compilation of laws and regulations to assist small and medium enterprises in Asean that don't have the resources to look them all up."
A first step, Dr Elms recommended, is to create improved systems to effectively identify and collect information about NTMs, and then to effectively manage them. "You cannot fix what you don't know," she said.
She also emphasised the need for new institutional frameworks that can tackle NTBs. The report recommended the creation of a monitoring institution that reports "directly to ministers and leaders … on a regular basis."
One helpful but relatively easy step, Dr Elms said, would be to continue harmonising Asean standards and to use international standards wherever possible.
However, implementing these recommendations will not be easy. In particular, panelists noted that there may be a lack of political will. "To get the political will moving, leaders need to see the urgency," said Ms Kejpiroon. "But how many leaders actually come from business backgrounds? If they don't have a perspective on trade, it will be difficult for them to see the urgency."
These recommendations also come at a time of increased protectionism in the global economic sphere. "At a time of growing economic turbulence, Asean needs to show leadership", she pointed out. "Let's do it and do it now."
NTM COVERAGE
Percentage of trade affected by one or more non-tariff measures (NTM) in Asean
- Brunei 65
- Cambodia 100
- Indonesia 75
- Laos 100
- Malaysia 71
- Myanmar 42
- Philippines 100
- Singapore 100
- Thailand 100
- Vietnam 100
Source: EReadi Report: "Non-Tariff Barriers in Asean and their Elimination from a Business Perspective"