ASEAN’s market remains divided among national tariff regimes, and many member economies still focus on assembly while relying on outside suppliers for key components, advanced materials, and research and development. The value added retained within the region hasn’t risen in proportion to the value of its exports, writes The Diplomat’s Sukegawa Seiya, as the bloc considers whether a common tariff system could strengthen its bargaining power.
Who Retains the Value
ASEAN’s economic integration rests on the ASEAN Free Trade Area, agreed in 1992, and the Common Effective Preferential Tariff scheme, implemented in 1993. That system lowered tariffs on goods originating within the region but allowed each member to set its own tariffs on imports from outside ASEAN.
The arrangement encouraged open regionalism, welcomed foreign investment and imported intermediate inputs, and helped expand regional production networks. But under this model, many members handled assembly rather than retaining a greater share of value through advanced production, components, and research and development.
Sukegawa argues that a customs union could change how companies organize production across the region. Under a fully functioning union, goods imported from outside ASEAN could circulate freely after entry tariffs had been paid. In principle, companies wouldn’t need certificates of origin or customs clearance procedures for preferential trade within ASEAN.
Companies could source parts and materials across ASEAN and allocate production stages among member states. Lower border costs could encourage regional sourcing, consolidated production, and investment in higher-value activities. Such a change could help the region retain more value added and create more high-quality jobs. But a common tariff alone wouldn’t deliver an industrial upgrade.
Tariffs and Bargaining Power
The customs union proposal dates to August 1986, when the Philippines, then ASEAN chair, presented it at the ASEAN Economic Ministers’ Meeting. It called for gradual cuts to intra-regional tariffs within a fixed time frame, alongside a common tariff on imports from outside the bloc.
Members didn’t reach consensus. Indonesia opposed the deadline, while Singapore objected that the plan could lead to higher external tariffs. Intra-ASEAN trade then accounted for about 20 percent of member states’ total trade. Reliance on external markets made a common external tariff difficult to accept.
Today’s pressure comes from intensifying geoeconomic competition. Tariffs, export controls, subsidies, and scrutiny of circumvention increasingly connect to economic security, according to the article. Individual members risk accepting different terms in separate negotiations with major powers. That fragmentation could make it harder for companies to treat ASEAN as a single production base, weakening regional supply chains and ASEAN centrality.
A unified negotiating authority and common external tariff could give ASEAN greater collective bargaining power and help shield members against tariff coercion. The proposal would shift some authority over trade with third countries from individual members to the bloc.
The Limits of a Common Tariff
The ASEAN Geoeconomics Report 2025 recommended pursuing a common external tariff alongside a compatible regional industrial policy. The proposed policy would connect member states’ strengths and promote technology adoption, skills development, research and development, and intra-regional sourcing. The report’s prescription makes the limit clear: tariff coordination provides a market foundation, not an industrial policy on its own.
A customs union would also require agreement on customs revenue, trade-remedy measures, and negotiating authority with third countries. ASEAN would need to reconcile free trade agreements that members concluded separately. It could consolidate them into bloc-wide agreements or harmonize preferential rates and rules of origin across trading partners and products.
If members kept different national tariffs, customs officials would still need to check origins and collect tariff differences at internal borders to prevent imports from being diverted through lower-tariff members. That arrangement would fall short of a full customs union.
As an initial step, the article proposes harmonizing low tariffs on critical inputs that the region can’t adequately source itself, including semiconductor manufacturing equipment and critical minerals. It also proposes integrating customs procedures, standards, conformity assessment, investment policy, skills development, and research and development support. The stated aim is to link components and materials to more advanced production stages.
The proposed union isn’t meant to become a “tariff fortress” against the rest of the world. Its stated purpose is to move ASEAN beyond a “collection of assembly hubs” dependent on cheap labor and toward an integrated region with deeper capabilities in technology, components, and research and development.