A World Bank and OEVD research says GVC-driven policies have been shown to drive productivity growth, create jobs and improve living standards. Under its new 10-year ASEAN Economic Community (AEC) roadmap, ASEAN is on the lookout for ways to accelerate trade facilitation and eliminate trade barriers by 2025. Extensive research has demonstrated the vital role of global value chains (GVCs) in enhancing economic integration and liberalising trade.
GVCs are essentially the practice of vertical integration in which the various stages of a production process are located across multiple countries to minimise marginal costs. This process is dependent on efficient and inexpensive transportation of raw materials and intermediate inputs. From a GVC perspective, this also means that imports are just as important as exports and that a product may undertake multiple ‘value-adding’ journeys across borders before reaching the market. This reality naturally rewards countries with open borders. As firms generally want to maximise their cost advantages, GVCs do not work well with discriminatory trade policies and non-tariff barriers.
ASEAN’s trade policymakers need to shift away from conventional product or sector-specific approaches and move towards GVC-oriented policies, which measure success in terms of increased trade efficiency and reduced transaction costs. While ASEAN deserves credit for discarding sector-specific approaches from the AEC Blueprint 2015, it can take even greater steps towards embracing GVCs as its core policy focus. Complementary policies’ right package can help ASEAN maximise their participation in GVCs, but implementing them in a concerted manner requires extensive cooperation among governments.
ASEAN also needs to operationalise the ASEAN Single Window, which would allow firms to submit all required import, export and transit documentation via a single electronic gateway. At the same time, ASEAN should finalise and rollout the regional self-certification scheme that would enable exporters to self-certify the compliance of their exports with ATIGA’s rules of origin. Implementation of both these items would mark a major step towards reducing customs delays and would facilitate the movement of goods within ASEAN.
Elimination of unnecessary restrictions on product standards and certification requirements is another key step forward. While human health and safety standards should not be overlooked, overly burdensome procedural requirements and domestic standards are unnecessary obstacles to participation in GVCs. ASEAN needs to expedite its efforts towards harmonising ASEAN standards with international standards and developing more mutual recognition agreements, which currently only cover 11 priority integration sectors.
Such measures often reflect a knee-jerk reaction to short-term adjustment costs of ASEAN economic integration. And while policymakers can defend these measures as securing certain segments of the economy, they put the overall competitiveness of their country and the region at risk. Policymakers should also avoid becoming overly fixated on the progress of one element of enabling participation in GVCs. Instead they should consider how pursuing each element of the AEC agenda is supporting the big GVC picture. In this regard, the focus on GVCs under the AEC Blueprint 2025 warrants more attention because it could fundamentally change ASEAN’s thinking around trade policy.
All ASEAN member states must jointly eliminate distortions to trade to enable the ASEAN region to shine as a participant in GVCs. ASEAN can also leverage off existing regional value chains as a way to enhance GVC participation. GVCs provide ASEAN with the opportunity to take on a more ambitious policy agenda and become a more integral part of global trade. By committing to GVCs, ASEAN would send a strong signal to the international community that it is open for business.
