ASEAN Roundtable Series: Tackling Non-Tariff Barriers in the new trade order
H.E. Ong Keng Yong
Executive Deputy Chairman, S. Rajaratnam School of International Studies
Director, ASEAN (Trade Division), Ministry of Trade and Industry, Singapore
Alpana was awarded the Public Administration Medal (Bronze) National Day Award in 2018.
Alpana obtained her degree in Political Science (Honours) from the National University of Singapore in 1995 and her Masters in International Public Policy from the Johns Hopkins University Paul H Nitze School of Advanced International Studies in 2013. She is married with one child.
Tan Sri Dr. Rebecca Fatima Sta Maria
Executive Director, APEC Secretariat
She was the Secretary-General of the Malaysian Ministry of International Trade and Investment from 2012 to 2016, where she oversaw the formulation of Malaysia’s international trade policies and positions and often took the lead in their implementation as chief negotiator for bilateral and regional free trade agreements such as the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership.
Dr Sta Maria played an integral role in Malaysia’s participation in multilateral forums such as APEC, where she often represented her economy during the APEC Ministers’ Responsible for Trade Meetings and the Small and Medium Enterprises Ministerial Meetings. In the Association of Southeast Asian Nations (ASEAN), Dr Sta Maria chaired the body that drafted the ASEAN Economic Community 2015 Blueprint as well as the ASEAN Economic Community 2025 Blueprint. An accomplished academic and writer, Dr Sta Maria’s scholarship has been recognized through awards from the American Academy of Human Resource Development and from the University of Georgia. In 2017, she authored a book about her personal slice of Malaysian heritage and cuisine, called The Smell of Home.
Before 2010, the position of executive director of the APEC Secretariat rotated yearly among officials assigned by the incumbent host economy. Starting in 2010, the appointment was opened to applications from highly qualified professionals who will when appointed, lead the Secretariat in fixed three-year terms with an option to renew.
Dr Sta Maria is the first woman executive director of the APEC Secretariat.
Executive Director, EU-ASEAN Business Council
Chris began his varied professional career as a UK civil servant where, amongst other things, he was Assistant Private Secretary to a Minister and an Air Services Trade Negotiator covering the Asia Pacific region. After leaving the civil service, Chris moved to the private sector working initially in the government and external relations teams at two British airlines in the UK, before moving to Shanghai, China with Virgin Atlantic where he headed up the airline’s China operation and oversaw the rapid expansion of their business in China. Whilst in Shanghai, Chris also sat on the Executive Committee of the British Chamber of Commerce. Chris then joined a UK based security and defence group where he led their Asia Pacific team for over five years and was instrumental in them getting contracts with the Japanese and Singapore governments and also with SOEs in China.
More recently Chris has been acting as a consultant assisting start-ups in Asia with their business and corporate development before joining the EU-ASEAN Business Council in June 2014.
With over 20 years of experience of either working for or dealing with governments and regulatory authorities, Chris is available to provide key insights, lead discussions or comment on topics including ASEAN integration, European business presence in SEA, Infrastructure financing, EU-ASEAN trade relations and EU economic and political developments.
Chris is a regular on the ASEAN conference circuit regularly appearing at conferences and seminars covering ASEAN’s integration agenda and trade and investment issues. He has also appeared on the BBC’s Asia Business Report; CNBC’s Asia Street Times; Channel News Asia’s Conversation With; 938Live Radio News; and Channel News Asia news reports.
Dr. Kaewkamol Pitakdumrongkit
Deputy Head and Assistant Professor, Centre for Multilateralism Studies, S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University
Juan Sebastian Cortes-Sanchez
Trade Policy Analyst, Asian Trade Centre
Tan Sri Dr. Munir Majid
Chairman, CIMB ASEAN Research Institute President, ASEAN Business Club
He has an extensive experience and is well known in the Malaysian corporate world. He had been the Group Editor of the New Straits Times, first executive chairman of CIMB and founding chairman of the Malaysian Securities Commission. After stepping down from the Securities Commission, he became Independent Non-Executive Director of Telekom Malaysia Berhad, Chairman of Celcom (Malaysia) Berhad and Non-Executive Chairman of Malaysian Airline System Berhad. He was Founder President of the Kuala Lumpur Business Club, established in 2003 and is a member of the Court of Fellows of the Malaysian Institute of Management.
Tan Sri Dr. Munir obtained a B.Sc (Econ) and Ph.D in International Relations from the London School of Economic and Political Science (LSE) in 1971 and 1978. He is an Honorary Fellow of LSE and continues the long association with his alma mater as Visiting Senior Fellow at the Centre of International Affairs, Diplomacy and Strategy. Tan Sri Dr. Munir is an associate of Southeast Asia Centre (SEAC) at LSE.
Lack of political will and structured approach impede removal of Non-Tariff Barriers in ASEAN
CARI’s ASEAN Roundtable Series on 2 April 2019 brought together a panel of speakers who discussed their views and concerns on Non-Tariff Barriers and its impact on ASEAN trade. Titled “Future of ASEAN Trade: Tackling Non-Tariff Barriers in the New Trade Order,” the speakers concurred that Non-Tariff Barriers pose an obstacle to ASEAN growth and strong political will is needed to fully address NTBs.
The challenges to remove Non-Tariff-Barriers (NTBs) in ASEAN are both technical and political. Despite having committed to the full removal of NTBs by 2015, ASEAN missed the target and is still struggling to tackle the various trade barriers which are on the rise.
In order to provide deeper insight into this issue, the ASEAN Roundtable Series brought together a group of expert speakers, namely, Tan Sri Datuk Rebecca Fatima Sta Maria, Executive Director, APEC Secretariat; Chris Humphrey, Executive Director, EU-ASEAN Business Council; and Dr. Kaewkamol Pitakdumrongkit, Deputy Head and Assistant Professor, Centre for Multilateralism Studies, S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University of Singapore. The session was moderated by Tan Sri Dr. Munir Majid, Chairman of CIMB ASEAN Research Institute (CARI), President of the ASEAN Business Club, and a member of Malaysia’s Economic Action Council chaired by the Prime Minister. Prior to the roundtable, Alpana Roy, Director, ASEAN (Trade Division) of the Ministry of Trade and Industry, Singapore presented a policy update on ASEAN trade and Juan Sebastian Cortes-Sanchez, Asian Trade Centre (ATC) Policy Analyst presented on ATC’s research on NTBs in ASEAN.
Dr. Munir opened the session by stating the importance of effective NTB removal because ASEAN’s collective growth upside is greatly dependent on the success of the ASEAN Economic Community (AEC) implementation. He cited a 2014 study on ASEAN economic integration where it was projected that successful implementation of AEC will lead to GDP growth by 7% in 2025 based on three assumptions: i) the removal of the remaining intra-regional tariffs; ii) the cost of doing trade to go down by 20%; and iii) the phasing out of intra-regional NTBs by 50%.
Yet, ASEAN is far from fulfilling the three assumptions.
KEY THEMES DISCUSSED
1. ASEAN is at risk of not fulfilling its potential due to NTMs/NTBs
- Business outlooks such as the European Union-ASEAN report projects a positive outlook of the region. According to the findings of the EU-ASEAN Business Sentiment Survey 2018 as presented by Chris Humphrey, 99% of the respondents expected to either expand or maintain their levels of trade and investment in the region in the next 5 years while 51% viewed the region as having the best economic opportunity.
- However, 73% of the respondents opined that they are at a disadvantaged position without an EU-Free Trade Agreement (FTA) and only 12% believed that ASEAN has achieved its aim of a single market and production base.
- While the region has done a good job in reducing tariffs, NTBs remain one of the issues that hinder, rather than facilitate trade. Intra-ASEAN trade has moderated since 2008 and is lower now than it was a few years ago. Unless ASEAN acts in a faster and more proactive way with regards to its economic integration programme, including the removal of Non-Tariff Barriers, it is at risk of not being able to fulfil its potential.
- In his opening remarks, H.E. Ambassador Ong Keng Yong, executive deputy chairman of RSIS and director of the Institute of Defence and Strategic Studies, Nanyang Technological University, conveyed similar sentiments. He said although positive assessments like the American Chamber of Commerce in Singapore’s (AmCham Singapore) ASEAN Business Outlook survey augur well for ASEAN trade (whether intra or inter-ASEAN), obstacles such as NTBs would naturally dampen growth.
2. NTBs hurt cross-border trade of MSMEs
- An equally important consequence of NTBs is that it impacts micro, small and medium enterprises (MSMEs) more than large corporations. According to Professor Kaewkamol Pitakdumrongkit, smaller firms are less able to absorb the costs incurred by Non-Tariff Measures (NTMs) and as a result, will have to pass the cost to consumers by raising prices. This price increase could then lead to them losing market share.
- An example of the compliance costs associated with NTMs can be seen through product standardisation requirements. To meet the standards as imposed by an NTM, a company would need to set up a testing facility to ensure it adheres to the product standards. The cost of building this testing facility may not necessarily be something MSMEs can easily afford, said Prof Kaewkamol.
- This impact on MSMEs poses a significant challenge as MSMEs make up a majority share of companies in ASEAN. Depending on the country, MSMEs can account for more than 90% of all enterprises, employ between 52% to 95% of the labour force, and contribute between 30% to 53% of the GDP, she explained. To a less quantifiable aspect, NTMs and NTBs affect markets through inflation and limiting access to affordable quality products.
3. ASEAN NTMs increased as tariffs declined
- While there has been a reduction in tariffs over time, the increase in the number of NTMs have been observed over the same period, said Humphrey.
- Based on the ASEAN-ERIA-UNCTAD database, non-tariff measures in ASEAN have steadily increased from 1,634 in 2000 to 5,975 measures in 2015. Of the total, 43.1% were technical barriers to trade (TBT), 33.2% were in the form of sanitary and phytosanitary (SPS), 12.8% were export measures and the rest were in the form of various measures.
- Humphrey brought to attention the almost 6,000 NTMs in existence in ASEAN, many of which have the potential of being barriers to trade. The number of NTMs continue to grow and to his knowledge, not a single NTB has been removed through the ASEAN process. In a related vein, he noted that it has been 10 years since the ASEAN Trade in Goods Agreement (ATIGA) was signed but not all the provisions under ATIGA have been implemented.
- Based on the research on NTBs in ASEAN conducted by the Asian Trade Centre (ATC) in 2018, ATC Trade Policy Analyst Juan Sebastian Cortes-Sanchez provided examples of NTBs and the respective impact in selected priority sectors.
4. Differentiating NTMs from NTBs and assessing the cost of NTMs
- Tan Sri Dr Rebecca Fatima Sta Maria said NTMs should be a concern when they are trade distorting. Therefore, it is necessary to distinguish between NTMs and NTBs.
- Findings from the ATC study reveal that ASEAN has struggled to identify NTMs and NTBs in spite of the many attempts it has undertaken to eliminate NTBs. Attempts at establishing a common definition have been hampered by conflicting perceptions of an NTM’s justification and enforcement across the member countries.
- One aspect of assessing the impact of NTMs would be to determine the ad-valorem equivalents of the NTMs, said Dr. Rebecca. Ad valorem equivalent (AVE) is a tariff presented as a percentage of the value of goods passed through customs; AVEs have been used by researchers to quantify the compliance costs of NTMs. Dr. Rebecca said there is a lot of work to be done in this area and policymakers should collaborate with researchers and economists to work on AVEs to enhance their understanding of NTMs.
5. What has ASEAN done?
- In her ASEAN Policy update presentation, Alpana Roy shared that more than 90% of ASEAN countries’ tariff lines have a preference margin of zero and over 70% of intra-ASEAN trade is conducted at the zero rate. This means ASEAN rarely uses preferences because there are hardly any preferences to use. The multilateralisation of these preferences accounts for one of the reasons intra-ASEAN trade has remained at around the same level.
Source: Malaysian Ministry of International Trade and Industry, Malaysia’s Free Trade Agreements
Note: ASEAN-6 includes Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, and Thailand. CLMV includes Cambodia, Lao, Myanmar, and Vietnam.
- Alpana spoke about the ASEAN Trade Repository (ATR) which includes a database on NTMs. The ASEAN NTM database is being updated and undergoing re-classification based on international standards. She added that a set of NTM guidelines were recently developed under the ambit of the ASEAN Trade Facilitation Joint Consultative Committee (ATF-JCC) to better manage NTMs and reduce the trade-distorting effects of NTMs.
- According to Alpana, since most NTMs are imposed unilaterally, initiatives to tackle NTMs or NTBs requires solving it at the national level and therefore, requires national will. Nevertheless, Alpana added that ASEAN should not confine itself to intra-ASEAN solutions only but should also engage with its dialogue partners. She cited ASEAN’s plan to conclude the Regional Comprehensive Economic Partnership (RCEP) negotiations by the end of 2019 as one among many other efforts. On the back of securing an upgrade of the ASEAN-China Free Trade Agreement (FTA) in 2015, the regional bloc is looking to upgrade its trade agreements with its other dialogue partners.
- The ASEAN Single Window (ASW) has started its live-operation with five ASEAN member countries (Indonesia, Malaysia, Singapore, Thailand and Vietnam) in January 2018 while the remaining ASEAN member states are scheduled to join by the end of 2019. The ASEAN Self-Certification Scheme, once implemented, will allow certified exporters to make their own declarations in order to qualify for preferential tariffs, she said.
6. Recommendations for addressing NTBs
- Past efforts by ASEAN to eliminate NTBs have not been successful due to broad reasons, including past measures that have not always addressed the right target, said Cortes-Sanchez. The findings from ATC’s research suggest addressing NTBs at the national and regional institutional level.
- At the sectoral level, ASEAN needs to develop institutional capacity to ensure the harmonisation of standards and certification procedures and related commitments are implemented. In addition, there should be an institutional mechanism or body tasked with dealing with NTBs that are not related to technical and conformity assessment standards. At the regional institutional level, it is important for ASEAN to identify and collect information on both NTMs and NTBs. Once this has been achieved, ASEAN needs to effectively manage the identified NTMs; and reduce and eliminate the identified NTBs. To realise the measures recommended at the regional institutional level, there needs to be clear procedures and institutional frameworks for tackling the elimination of NTBs, said Cortes-Sanchez.
- Dr Rebecca cited the ASEAN Solutions for Investments, Services and Trade (ASSIST) initiative as a good regional programme that could help reduce the barriers to trade such as NTBs. The ASSIST initiative is supported by ARISE (ASEAN Regional Integration Support by the EU) Plus. The online solution helps ASEAN-based entities with operational cross-border issues (including NTBs) associated with the implementation of the ASEAN economic agreements.
7. Political will a must to address NTBs
- While there have been measures to address Non-Tariff Barriers through ASEAN processes, Humphrey said that this often meant that the discussions were taken offline and become bilateral discussions between ASEAN member states. As a result, there is no complete removal of NTBs.
- In trade, winners and losers are inevitable. The losers in trade will tend to lobby their governments for the implementation of protectionist measures that includes NTBs, said Prof Kaewkamol. ASEAN members need to understand that the downside of trade on domestic constituencies should be addressed through trade adjustment assistance programmes and not regulations.
- Non-Tariff Barriers tend to be political and as such, will take some time to address the issue, Dr Rebecca opined. She gave an example of Malaysia’s approved permits (APs) in the automotive sector as an example of a trade measure tied to politically driven policies. Once the political will is there, the sharing of information between ASEAN member states will be essential in tackling NTBs.
Cooperation among the member states is required since NTBs need to be addressed at the regional institutional level, national level and sectoral level. ASEAN may have bright prospects but having a rosy outlook is not the same as reality. The future prospect should not overwhelm the current reality, Dr Munir said. Together with the uncertainty caused by the new trade order, NTBs could hold back ASEAN from fulfilling its potential. Therefore, it is in the interest of every ASEAN member state to work together in eliminating NTBs.