ITC Reports on Export Competitiveness of Six ASEAN Industrial Sectors

The report was requested by the Office of the U.S. Trade Representative.

(The ASEAN Economic Community (AEC) Blueprint defines the goal of economic integration as the free movement of goods, services, investment, and skilled labor, and freer flow of capital among member countries by 2015. According to the Blueprint, AEC economic integration will create “(a) a single market and production base, (b) a highly competitive economic region, (c) a region of equitable economic development, and (d) a region fully integrated into the global economy.”)

ITC Reports on Textile, Electronic, Auto, Wood, Ag and Other Sectors

The report provides an overview of the following priority sectors: (1) textiles and apparel, (2) electronics, (3) wood-based products, (4) automotives, (5) agro-based products, and (6) healthcare. ASEAN members created a regional “Roadmap for Integration” for each priority sector.

Highlights of selected industries within each sector are as follows:

Cotton woven apparel. Tariff reductions have helped facilitate a small but growing amount of integrated production of cotton woven apparel among ASEAN countries. However, trade programs such as free trade agreements (FTAs) have more heavily influenced regional integration.

Computer components. While the ASEAN region is the world’s second largest exporter of computer components, it faces a major challenge from China. Competition between ASEAN countries hampers efforts to create a more integrated regional computer components production base.

Hardwood plywood and flooring. Access to legally sourced and sustainable wood supplies is an important competitive factor affecting integration, export competitiveness, and inbound investment in the ASEAN hardwood plywood and flooring industry. Despite tariff reductions, the region’s competitive focus remains on exporting to major industrialized countries.

Motor vehicle parts. ASEAN has been successful at meeting critical Roadmap targets and facilitating regional integration within the automotive sector. Despite these achievements, the regional automotive industry and market have yet to fully integrate. ASEAN has eliminated duties or reduced non-tariff measures for six members (Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand) and implemented the ASEAN Industrial Cooperation Scheme (AICO). Further regional integration is key to improving the competitiveness of the regional motor vehicle parts industry by providing economies of scale.

Palm oil. The Roadmap for Integration of agro-based products has had far less impact on the structure of the ASEAN palm oil industry than have multinational corporations and international groups. In addition, ASEAN palm oil cultivation and initial processing can take place on a large scale in only two countries: Indonesia and Malaysia.

Healthcare services. Growth of private healthcare firms in the ASEAN market has generated increased trade and investment in healthcare services. In response to rising regional trade and investment in the healthcare services industry, member governments and the ASEAN Secretariat have launched efforts to support continued growth.

ITC Found Poor Infrastructure, Skilled Labor Shortage in ASEAN

The following are highlights of the ITC’s findings that are included in the report:

Low wages, FTAs benefit exports. Low wages, high productivity growth, diverse production conditions, proximity to large Asian markets, and the region's trade policy environment, including FTAs, benefit ASEAN's manufacturing exports.

Shortage of skilled labor, other challenges. A shortage of skilled labor and professionals, the lack of an efficient system for setting product standards and conformity assessment procedures, and inadequate physical and institutional infrastructure are challenges ASEAN still faces.

China is a major competitor. China is a major competitor to ASEAN countries in attracting foreign investment and integrating regional production chains. However, ASEAN recently concluded an FTA with China. Because China has become an important hub in Asian supply chains, ASEAN countries hope the FTA will offer better opportunities to participate in these networks. ASEAN offers an alternative production location to China for multinational firms wanting to diversify their operations to reduce business and political risks.

ASEAN single window. The ASEAN Single Window is ASEAN's most visible effort to facilitate trade among members, enabling the rapid exchange of standardized data among countries' customs agencies. Currently, the ease of importing and exporting varies widely among ASEAN members; procedural requirements are relatively easy to complete in Singapore, Thailand, and Malaysia but very difficult in Laos and Cambodia.

Trade and investment in logistics services. ASEAN countries have committed to liberalize trade and investment in logistics services by 2013. While some members have made reforms, others (notably Indonesia) have introduced restrictive regulations that contradict their commitments. The quality of logistics services such as customs brokerage, freight forwarding, and express delivery varies substantially across members. Logistics services are world-class in Singapore but poor in Laos, Cambodia, and Burma

Adoption of e-commerce. Technical infrastructure (such as plentiful broadband connections), a sound legal framework for electronic transactions, and individuals' skills in using computers are prerequisites for the expansion of e-commerce. The ASEAN Secretariat is committed to supporting wider adoption of e-commerce in the region. It has helped members adopt new e-commerce laws but has contributed less significantly to infrastructure development.

Roadmaps. While ASEAN Industry Roadmaps for Integration have promoted tariff reductions and streamlined certain administrative procedures, they have achieved mixed success in promoting regional integration. Economic factors and national government policies have more influence over regional industrial structures. ASEAN members often still view each other as competitors for inbound investment and jobs, and the six Roadmaps include no legally binding means to enforce member compliance with their objectives.

(See ITT’s Online Archives or 12/03/09 news, 09120330, for BP summary announcing the ITC would study the economy and exports of the six ASEAN industrial sectors.)

ITC report, ASEAN: Regional Trends in Economic Integration, Export Competitiveness, and Inbound Investment for Selected Industries, (Publication 4176, August 2010) available here.