Asean’s biggest trade problem is no longer tariffs. It is friction

FOR years, Asean’s economic proposition has been compelling: fast-growing consumer markets, manufacturing depth, strategic geography and increasingly, an alternative production and investment base in a more fragmented global economy.

European businesses still believe in that story. The EU-Asean Business Sentiment Survey published in September 2026 revealed 73 per cent of respondents said Asean has become more important to their worldwide revenues over the past two years.

Some 61 per cent saw South-east Asia as offering the best economic opportunities over the next five years, while 78 per cent expected to increase trade and investment in the region.

There is another opportunity emerging. Among companies that have recalibrated – or plan to recalibrate – supply chains amid geopolitical uncertainty, 67 per cent were considering Asean, more than twice the proportion considering South Asia.

Yet, the same survey exposes Asean’s longstanding weakness. The region is becoming more important to business, faster than trade and investment conditions can catch up.

The barriers have changed

Asean has made considerable progress in reducing conventional tariffs, but companies increasingly encounter barriers in other forms: differing product standards, licensing requirements, local content rules, import and export restrictions, complex customs procedures and inconsistent implementation.

These matter, because modern supply chains do not operate in just one country at a time. A company might source components in Malaysia, manufacture in Vietnam, manage regional operations from Singapore, and sell into Indonesia and the Philippines.

Asean’s economic value therefore depends partly on whether companies can treat these markets as parts of an integrated whole. All too often, they cannot.

Growing non-tariff barriers ranked as the biggest challenge to trade and investment in Asean in the survey, followed by regulatory unpredictability. Lack of harmonised standards and complex customs procedures also featured prominently.

Among companies already using regional supply chains, 67 per cent identified regulatory complexity and the absence of harmonised standards as major pain points. Another 55 per cent cited non-tariff barriers, customs requirements and cross-border delays.

Customs procedures have improved compared with two years ago, yet only 12 per cent of respondents moving goods within Asean regarded them as speedy and efficient. Just 6 per cent believed non-tariff barriers are decreasing.

That is not yet a seamless regional market. Why does the problem persist?

Part of the answer lies in Asean’s structure. Integration is negotiated regionally, but largely implemented nationally. Governments retain responsibility for regulation, customs, industrial policy and domestic economic priorities.

Regional commitments can consequently be interpreted differently, or implemented at different speeds.

There is also a political economy problem. Tariffs are obvious barriers; non-tariff measures are more complicated. Technical standards, licensing requirements or localisation rules may have legitimate policy objectives. But accumulated in industries and countries, they can recreate much of the friction tariff liberalisation was supposed to remove.

National and regional interests can also collide. Governments want Asean integration, but they simultaneously want investment, jobs and production at home. Local content requirements, ownership restrictions and other protections can therefore remain attractive domestically, even when collectively they make Asean less competitive.

The consequence is a gap between Asean’s ambitions and companies’ experience.

Nearly three-quarters of respondents believed there are too many barriers to using regional supply chains efficiently. Among businesses without a strategy aligned with Asean’s latest economic integration plan, the most common explanation given was that regional integration simply has not progressed sufficiently.

In effect, businesses are saying: We believe in Asean, but we do not yet experience it as one market.

Friction has an economic cost

Regulatory uncertainty is not merely an inconvenience for compliance departments. It also influences where investment goes.

Adequate laws and regulations are the second-most frequently identified reason for expansion in Asean. Regulatory unpredictability, meanwhile, is the second-biggest challenge to trade and investment.

When capital is mobile, companies do not simply ask where growth is fastest. They also ask whether rules are predictable, how easily goods can cross borders and how much management time will be consumed navigating multiple regulatory regimes.

Asean will continue attracting investment despite these problems. But attracting capital is only part of the prize.

The survey suggests there is substantial untapped demand for deeper regional operations: 83 per cent of respondents said removing existing barriers would cause their companies to establish or increase their use of Asean regional supply chains.

Regulatory reform is therefore not simply bureaucratic housekeeping. It is also economic policy.

Implementation now matters more than ambition

Asean does not lack frameworks. The Asean Economic Community Strategic Plan 2026-2030 provides the next road map for integration, while the Digital Economy Framework Agreement (Defa) offers an opportunity for greater consistency in areas including e-commerce, data and digital trade.

The danger is accumulating agreements faster than businesses experience change.

Companies’ priorities are remarkably practical. Some 87 per cent wanted greater harmonisation of standards and regulations; 74 per cent prioritised removing market-access restrictions; 71 per cent removing non-tariff barriers; and 67 per cent simplifying and automating customs procedures.

Asean should therefore judge the next phase of integration through tangible outcomes: more aligned standards, less duplicative testing, faster customs clearance, greater mutual recognition of requirements and more consistent implementation between member states.

Business should also have a stronger voice during implementation. Only 11 per cent of respondents regarded private-sector consultation during Defa negotiations as adequate, compared with 41 per cent who considered it inadequate.

The implementation of the upgraded Asean Trade in Goods Agreement has been brought forward to end-2026 instead of June 2027. That is a welcome move, and progress should not stop there.

Asean has a window – it should use it

Global uncertainty is working in Asean’s favour. Companies want to diversify supply chains, gain exposure to South-east Asian growth and reduce concentration risk. Asean possesses many of the attributes they want, but opportunity is not inevitability.

Investment can still concentrate in the handful of markets where regulation is clearer. Supply chains can be designed around individual countries rather than Asean. Capital can go elsewhere if cross-border complexity outweighs the benefits of regional scale.

Asean does not need to convince companies that South-east Asia matters. They already know that. The challenge is to make Asean work more like the single economic market it has spent decades promising to become.

And while certainly welcome, Asean’s next move cannot be merely negotiating agreement after agreement, but also finally removing the barriers businesses have been pointing to all along.

The writer is executive director, EU-Asean Business Council.

This essay is part of New Global Order, a series which explores how the changing world landscape is reshaping business, politics and beyond.