Deepening intra-ASEAN trade

Executive summary

Background

• In 2025, the pursuit of intraregional trade became a core priority to fulfil ASEAN’s vision of a single integrated market and production base by 2045. While ASEAN has focused on integration for years with mixed results, boosting intra-ASEAN trade became an explicit imperative only in 2025.
• To date, intra-ASEAN trade has fallen short of expectations and targets. The share of intraregional trade to ASEAN’s total trade has declined steadily in the last 15 years, falling from 24% in 2010 to 20% in 2024. Absolute intra-ASEAN trade was US$375 billion in 2024, below earlier targets.
• Recent geopolitical developments have made deepening intra-ASEAN trade more critical to build resilience. As small open economies, ASEAN member states are highly exposed to disruptions in external demand and global supply chains. Rising global protectionism and geoeconomic fragmentation threaten to upend ASEAN’s longstanding growth strategy centred on global value chains and foreign direct investment (FDI). Regional integration is ASEAN’s most pragmatic option to diversify and build resilience, thanks to proximity, potential market size and an established institutional structure.

Challenges

• First, trade within ASEAN is heavily concentrated in a few nations and existing initiatives to address gaps are inadequate. Malaysia-Singapore trade alone accounts for a quarter of all intra-ASEAN trade while the contributions of Brunei, Cambodia, Laos and Myanmar are negligible, despite the existence of subregional corridors to stimulate trade.
• Second, ASEAN countries exhibit limited trade and economic complementarities. In ASEAN, there is weak alignment between what one country exports and what another nation imports. ASEAN member states have large developmental disparities that create a mismatch in import demand and export supply, particularly in manufacturing trade.
• Third, there is inadequate domestic and intraregional value addition in ASEAN, making the regional sourcing of inputs difficult. ASEAN’s integration into global value chains has not translated into substantial regionalisation because member states participate mainly as assembly bases for global markets. Intraregional FDI is low and less than 15% of ASEAN’s foreign value-added in exports has inputs sourced from elsewhere in the region.
• Fourth, ASEAN has persistent and pervasive non-tariff measures (NTMs). Prevalence of NTMs in ASEAN exceeds global averages, increasing uncertainty and raising the cost of doing business.

Policy recommendations

• In the short term, ASEAN should review and implement its existing frameworks, strengthen the utilisation and scope of its free trade agreements (FTAs) and reduce gaps in trade facilitation. ASEAN should finalise the official end-term review of the Economic Community Blueprint 2025 to evaluate progress towards the implementation of the bloc’s 150-odd legal instruments already in force. ASEAN should lead the review and enforcement of FTAs like RCEP to ensure they fulfil critical but neglected provisions around NTM management and economic cooperation. ASEAN should aim to establish a harmonised customs environment through participation of all members in existing arrangements and expanding the scope of cooperation in digital trade.
• In the medium term, ASEAN should prioritise specialisation in sectors with high intra-industry trade, reinvigorate subregional growth triangles and bridge regional developmental gaps. ASEAN should encourage vertical integration in machinery and electronics through targeted joint industrial programmes to expand intraregional trade in intermediate goods. This is because these sectors have the highest intensities of intra-industry trade in ASEAN with the best potential for regional specialisation, the driving force of trade. ASEAN should create an enabling environment for subregional value chains by improving trade routes, harmonising regulations and linking cross-border businesses, reviving its 90s-era growth triangles or subregional economic corridors. ASEAN should intensify capacity building for its economically lagging members through trade facilitation and industrial upgrading, led by its more developed states.
• In the long term, ASEAN should strengthen indigenous investment, consider upgrading to a customs union and shape the next generation global trading order. ASEAN could introduce a new and improved industrial coordination scheme to promote intra-ASEAN FDI and facilitate regional joint ventures in strategic industries, correcting past failures in implementation and private sector engagement. ASEAN should consider transitioning to a customs union with a common external tariff, as an economic community will struggle to succeed in the distant future if it remains a loose coalition without binding regulations and enforceable formal agreements. Finally, the pursuit of intraregional trade does not imply a more insular and inward-looking ASEAN. Instead, ASEAN should drive collaboration on emerging issues that the old multilateral system is not equipped to handle, such as climate and trade or digital commerce, using plurilateral coalitions to reach consensus and set standards.