Forty years after the Philippines first proposed a customs union, ASEAN is facing fresh pressure to make the idea real. Ten separate national tariff regimes still divide the region, leaving it exposed as major powers weaponize trade and smaller members negotiate alone with competing economic blocs.
ASEAN's current system, the ASEAN Free Trade Area, was agreed in 1992 and implemented through the Common Effective Preferential Tariff scheme from 1993. It has delivered growth, but at a cost: members removed most tariffs on trade among themselves while keeping control of external tariffs. That flexibility helped ASEAN attract foreign investment by remaining open to the world. Today, it's turning into a weakness.
The Assembly Problem
ASEAN's economy still depends heavily on assembly work. Workers across the region handle labor-intensive manufacturing, including semiconductors, electronics, and automotive parts, while the most valuable work takes place elsewhere. Suppliers outside ASEAN provide most key components and advanced materials, and they retain research and development. When intra-ASEAN trade made up just 20 percent of members' total trade as AFTA took shape, individual nations couldn't risk losing access to cheaper suppliers by adopting common tariffs. Many governments still follow that logic, but the world has changed.
The value ASEAN retains from its exports hasn't increased in proportion to their value. Workers earn assembly wages. Companies collect assembly profits. Wealthier nations keep much of the knowledge and innovation. This structural inequality within the region reflects global inequality, and it's preventable.
Why a Customs Union Matters Now
With a functioning customs union and a Common External Tariff, goods entering ASEAN would pay tariffs once and then move freely across the region. Certificates of origin would no longer be needed. Nor would customs checkpoints between member states. Companies could source parts and materials across the bloc and organize production accordingly. A semiconductor manufacturer in Thailand could source equipment from Vietnam, assemble components in Indonesia, and ship finished products through Singapore—treating ASEAN as one market, not ten.
Tariff policy alone, though, won't change the region. The ASEAN Geoeconomics Report 2025 made clear that a customs union must work alongside industrial policy. Members need coordinated investment in technology adoption, skills development, research and development, and deliberate plans to keep production networks within ASEAN. The goal is higher-wage jobs, not just more jobs. Regional companies must build regional capabilities, rather than leave foreign companies to extract regional labor.
The Geopolitical Squeeze
Washington, Beijing, and others now apply relentless pressure on individual ASEAN members. Each country negotiates its own trade terms with major powers. Tariffs serve as bargaining chips. Export controls multiply. Subsidies distort markets. Without collective leverage, smaller nations accept worse terms. When Vietnam negotiates one way, Thailand another, and Indonesia a third, companies can't treat ASEAN as a unified production base. Supply chains break apart. Investment confidence erodes. ASEAN's centrality—its ability to shape regional diplomacy through economic weight—weakens.
A unified negotiating authority would change the balance. ASEAN wouldn't become a "tariff fortress." It could bargain from strength, resist coercion, and shape its economic future rather than simply absorb the choices of others.
The Technical Challenge
Building a customs union will take hard work. Members must decide how to distribute customs revenue, align trade remedies, and negotiate as one with external partners. ASEAN nations would also need to consolidate or harmonize the bilateral and multilateral trade agreements they concluded separately. If Indonesia keeps lower tariffs than the Philippines on certain goods, imports could enter through Indonesia instead, forcing internal border checks that undermine the union. The article proposes a narrower start: align tariffs on critical inputs ASEAN can't adequately source internally, including semiconductor manufacturing equipment and critical minerals, and integrate customs procedures, standards, investment policy, and skills development.
This isn't protectionism dressed in regional language. It responds to structural inequality with a structural change. ASEAN nations share borders, histories, and interests. Their workers compete for the same assembly jobs, while their governments compete for the same foreign investment. Collective action could break that cycle.
Why This Matters:
ASEAN's fragmentation denies its workers and economies real opportunity. Forty years after the Philippines first proposed a customs union, the region still operates as "a collection of assembly hubs"—a description that reveals the problem. Higher-value economic activity happens elsewhere, and wages reflect that. Without regional integration focused on retaining value and coordinating industrial development, individual ASEAN nations will keep negotiating separately with major powers and accepting the terms they offer. A customs union paired with coordinated industrial policy provides another path: genuine regional integration that keeps wealth and capability development within ASEAN, creates room for higher-wage employment, and gives the bloc collective bargaining power. The technical barriers are real, but surmountable. Political will remains the constraint.