At the 47th ASEAN Summit, leaders will address trade fragmentation by enhancing regional integration through strategic investment, leveraging global value chains, and promoting intra-regional investment to strengthen resilience.
Urgent Need for Integration
As global leaders gather in Kuala Lumpur for the 47th ASEAN Summit, escalating tariffs and geopolitical tensions highlight the need for stronger regional integration. Despite years of trade liberalization, ASEAN’s intra-regional trade remains stagnant at just over 20%, well below the ASEAN+3 and EU levels. The focus has primarily been on external markets, exposing vulnerabilities. Although tariffs have nearly vanished, mere trade policies aren’t enough for deeper integration, especially when ASEAN’s economic diversity limits internal complementarities.
Challenges and Opportunities
ASEAN economies vary widely, from advanced hubs to industrializing nations, affecting internal trade dynamics. Intra-ASEAN foreign direct investment (FDI) remains low compared to potentials, crucial for building relationships and transferring technology. The path forward involves complementing liberalization with investment strategies. Leveraging global value chains, especially with China, Japan, and Korea, can enhance domestic capabilities. Emphasizing high-spillover FDI in technology sectors and improving local supplier linkages will be vital.
Path to Transformation
Facilitating intra-regional investments is crucial, promoting ASEAN firms’ internationalization to create production networks. This shift from being investment recipients to regional investors demands targeted policies, including financial integration and regional capital markets. A more integrated ASEAN would benefit Plus-3 economies through increased demand and resilience. With successful efforts, intra-ASEAN trade could reach up to 40% by 2050, reshaping its economic landscape. Leaders must prioritize transformation through industrial upgrades and regional investments to mitigate global disruptions.
Source: ASEAN Needs More Than Trade Deals to Deepen Integration – ASEAN+3 Macroeconomic Research Office
