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The Feasibility of an ASEAN Customs Union Post- 2015

By Institute of South East Asian Studies

4 March 2015

EXECUTIVE SUMMARY

• As ASEAN member economies start their discussion on the ‘deepening’ of economicintegration, an ASEAN Customs Union (CU) may become a possibility.

• Given that Singapore already operates a zero tariff regime on trade in goods there are twooptions for ASEAN in moving towards a CU: either all its members will need to inchcloser to a zero Common External Tariff (CET), or they will have to form a CU with apositive CET minus Singapore. The latter would however mean that the customs unionwould only be a partial one.

• The trend in ASEAN’s intra-regional tariff protection suggests that while member countries haveachieved a free trade agreement, the grouping’s move towards a customs union will requirethem to eventually implement a low positive CET for non-ASEAN members.   

• According to our modelling exercise, the creation of a partial ASEAN CU with a positiveCET of between 2-5 percent demonstrates that while there may be net benefits forASEAN as a whole, some members may not gain from it. A CET of 0 percent shows thatASEAN-9 members overall will gain in terms of GDP, while Singapore will experience anegative GDP growth due to potential intra-regional trade diversion. However, themodelling does not capture Singapore’s entrepot trade characteristics and comprehensivenature of trade agreements that may affect the results positively.

• Promoting deeper regional integration like the ASEAN CU also entails significantchallenges in terms of: tariff peaks and divergence; gaps in beyond-the-border andregulatory measures; a trade diversion risk for Singapore; as well as political economychallenges due to ASEAN’s unique characteristics and differing levels in economicdevelopment.

• Despite the challenges, an ASEAN CU with more unifying and coherent commercialpolicies could be considered by ASEAN leaders post-2015. It could be visualised as aform of deeper integration that will not only help strengthen ASEAN’s single marketobjective, but also further the organisation’s strategic objectives.

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* Sanchita Basu Das is ISEAS Fellow and Lead Researcher (Economic Affairs) at theASEAN Studies Centre of the Institute of Southeast Asian Studies, Singapore; Rahul Sen andSadhana Srivastava are Senior Lecturer and Lecturer respectively at the Department ofEconomics, Faculty of Business and Law, Auckland University of Technology (AUT), NewZealand.