ERIA's Chief Economist Prof Fukunari Kimura gave a presentation on inter-regional trade integration during the second session of the High-level Symposium on Intra-ASEAN Trade and Investment: Enhancing Intra-ASEAN Trade and Investment for a Cohesive and Responsive ASEAN held in Hanoi on 10 January 2020. Prof Kimura showed how intra-ASEAN trade flows are at good and stable level but nevertheless there is room for expanding these flows. He also explained how trade is changing in ASEAN and at global level: from more traditional forms of trade to trade linkages enabled by international economic networks and driven by digital technologies.

1. Promotion of
intra-trade and investment
for a cohesive and responsive
ASEAN Community
Fukunari Kimura
Chief Economist, Economic Research Institute for ASEAN and East Asia (ERIA)
Professor, Faculty of Economics, Keio University
1

2. 1. Overview of intra-reg. trade and FDI
• Intra-regional trade (exports + imports) ratios in 2010-2018
– Intra-ASEAN: 23-25%
• Some variation across AMS
– Intra-East Asia (ASEAN+6): 40-45%
• Figures for each AMS are higher.
• Intra-regional FDI (inflows, flow data) ratios in 2010-2018
– Intra-ASEAN: 15-21%
– Intra-East Asia (ASEAN+6): 40-50%
• So far, “East Asia” is a de facto regionalization area.
• However, along the path of economic development, intra-
regional trade/FDI ratios among AMS may become higher if
deeper economic integration proceeds.
2

3. 3
Note: 1. East Asia consists of 10 ASEAN Member States, Japan, China, Republic of Korea, India, Australia, and New Zealand. It excludes Hong Kong,
Macau, and Taiwan.
Source: ASEAN Secretariat and WITS.
Intra-ASEANand Intra-East AsiaTrade byASEANMember States(Share to Total Member State Trade, in %)
Country 2010 2018
Intra-ASEAN Intra-East Asia1
Intra-ASEAN Intra-East Asia1
Brunei Darussalam 20,7 93,8 29,8 87,8
Cambodia 23,1 44,1 26,5 59,4
Indonesia 27,4 67,2 23,9 66,6
Lao PDR 70,5 91,0 64,7 93,0
Malaysia 26,2 60,5 27,2 61,6
Myanmar 52,0 79,5 35,8 81,5
Philippines 25,4 57,0 21,9 60,8
Singapore 27,4 55,2 25,6 52,8
Thailand 20,5 57,3 23,6 59,8
Viet Nam 17,0 58,0 11,7 59,6
0
10
20
30
40
50
2010 2011 2012 2013 2014 2015 2016 2017 2018
Intra ASEAN and Intra East Asia1 Trade
Share of Intra ASEAN Trade
in Total ASEAN Trade (%)
Share of Intra East Asia Trade
in Total East Asia Trade (%)

4. 4
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 2017 2018
Intra ASEAN and Intra East Asia1 FDI Inflow
Share of Intra ASEAN FDI Inflows
in total ASEAN Inflows (%)
Share of Intra East Asia FDI Inflows
in total East Asia Inflows (%)
Intra-ASEAN and Intra-East AsiaFDI Inflowsby ASEAN Member States(Share to Total Member State FDI Inflows, in %)
Country 2010 2018
Intra-ASEAN Intra-East Asia1,2
Intra-ASEAN Intra-East Asia1,2
Brunei Darussalam -7,30 19,8 -12,36 22,2
Cambodia 1,22 41,5 1,36 26,2
Indonesia 8,6 41,6 5,7 40,1
Lao PDR 12,36 95,1 2,23 26,0
Malaysia 35,4 62,1 19,7 65,9
Myanmar 7,8 79,7 -3,10 65,2
Philippines 27,0 72,9 12,6 33,1
Singapore 16,2 49,3 19,5 49,7
Thailand 12,0 28,9 19,2 44,8
Viet Nam 5,2 40,8 3,3 28,3
Note: 1. East Asia consists of 10 ASEAN Member States, Japan, China, Republic of Korea, India, Australia, and New Zealand. It excludes Kong, Macau, and Taiwan.
2. Bilateral FDI Inflows between AMS and Plus-Six Countries for the calculation here is estimated by weighting FDI inflows from Plus-Six countries with the share
of FDI inflows to AMS from World. Thus, for FDI inflows to an AMS (x) from a Plus-Six country (y):
Source: ASEAN Secretariat and WDI.

5. 2. Evolution of intra-reg. trade-FDI nexus
• Three kinds of trade-FDI nexus
– Traditional
• Industry-wise division of labor
• In AMSs, small in nature
– Network trade
• Production process/task-wise division of labor
• In AMSs, expanded since the 1990s
– Horizontal Intra-ind. Trade + digital trade
• Product differentiation; person-wise division of labor
• In AMSs, new frontier
5

6. Traditional trade
(b/w DCs and LDCs)
Network trade
(b/w DCs and NDCs and
b/w ind. agg. In NDCs)
Horizontal intra-ind. Trade + digital
trade (among DCs/NDCs with the
help of digital tech.)
International
division of labor
Industry-wise Production process/task-
wise
Horizontal with prod. diff./services;
digital, person-wise
What is traded?
How?
Natural resources;
final goods
Parts and components;
containers
Hor. intra-ind. trade; parcels;
services trade (mode 1); data flows
FDI nexus Resource-seeking
(natural res., labor);
import-substituting
Export-oriented;
manu. network FDI with
ind. agg.
FDI in services (mode 3); digital
Trade policy Goods: Tariffs, GSP Goods: Tariffs (overall),
NTMs (TBT), trade fac. For
repeated cargo (B2B)
Services: GVC-supporting
FDI: manu., greenfield
Goods: trade fac. (B2C, C2C)
NTMs (SPS), standard and
conformance
Services: consumer-oriented, digital
FDI: small scale, M&A
Other related
policies
Time-sensitive logistics
(B2B); ind. estates and
econ. infrastructure
Mobility of skilled labor (mode 4);
free flow of data with backup
policies
Years and
initiatives
1970s-
Forming ASEAN
1990s-
AFTA and forming AEC
2015-
ASEAN Community
Evolution of intra-regional trade-FDI nexus in ASEAN
Source: ERIA.
6

7. 3. Highlight 1: trade facilitation
• E.g., logistics performance index by the World Bank
– Stakeholders’ perception (possibly biased)
– AMSs show relatively good performance; still room for
improvement.
• Doing well in facilitating trade, reflecting mostly clearance and
delivery (including the performance of logistics sector) of exported
or imported goods.
• Improvement or reforms in customs and border procedure would
create significant impact on trade.
• Direction to go
– Further effort for e-customs for efficiency and
transparency
– Shift some weight from containers to parcels
7

8. The Challenge of Trade Facilitation in ASEAN
Source: World Bank Logistic Performance Index. (Data are retrieved from https://lpi.worldbank.org/sites/default/files/International_LPI_from_2007_to_2018.xlsx)
8
63
68
58
80
47
71
95
76
6767
63
64
44
76
58
62
100
74
6668
58
65 64
71
53
62
95
77
72
0
10
20
30
40
50
60
70
80
90
100
Brunei
Darussalam
Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam
Percentage
Customs LPI (Ratio to Frontier)
2014 2016 2018
69
58
100 100
83
75
64
0
50
45
0
60
100
46
100
34
100
63
56
88
100
70
0
10
20
30
40
50
60
70
80
90
100
Brunei Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam
Percentage
Efficiency of Clearance and Delivery
2014 2016 2018
Source: World Bank Logistic Performance Index, Domestic – Performance (Data are retrieved from https://lpi.worldbank.org/domestic/environment_institutions)

9. 70
40
47
77
48
67
49
75
57
65 68
82
53 52
100
63 5764
47
67
60
81
48 47
63 58
0
20
40
60
80
100
Brunei
Darussalam
Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam
Percentage
Burden of Customs Procedures
(Ratio to Frontier)
2007-2008 2013-2014 2017-2018
84
36
48 43
67
33
42
98
46
35
71
36
51 47
70
0
41
99
49
42
0
20
40
60
80
100
Brunei
Darussalam
Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam
Percentage
Irregular Payment in exports and imports
(Ratio To Frontier)
2014 2016
Sources: World Economic Forum. Global Competitiveness Report; Global Enabling Trade Index; Data are retrieved from (http://www3.weforum.org/docs/GCR2017-2018/GCI_Dataset_2007-
2017.xlsx)
The Challenge of Trade Facilitation in ASEAN
9

10. Impact of Improved Trade Facilitation on economic
growth and intra-ASEAN trade
10
Additional cumulative GDP growth rate
from 20% faster clearance
of imports and exports
customs
clearance and
logistics
competence
10
%
intra-ASEAN
trade
15
%
domestic
competition
and
government
efficiency
10
%
intra-ASEAN
trade24
%
Source: Itakura, 2012 Source: Dee, Narjoko, and Fukunaga, 2013
Impact on Intra- ASEAN trade
%

11. 4. Highlight 2: NTMs
• Although being generally legitimate, poor design and
implementation of NTMs could incur significant trade costs for
firms.
– This trade cost affects small firms disproportionately, who often lack
resources to comply with regulations.
• In the context of GVC, prevalence of NTMs imply that the trade-
restrictiveness impact could accumulate along the chain.
• ERIA-UNCTAD NTMs in ASEAN database shows a 15% increase in
total number of NTMs from 2015 to 2018.
– In addition to legitimate technical NTMs (e.g., SPS and TBT), export-
related measures and hard measures (particularly non-automatic
licensing) also account for non-trivial ratios of total NTMs.
• Therefore, NTM is an essential component in the discussion on
policy barriers towards intra-ASEAN trade
11

12. Source: Doan & Rosenow (2019)
Note: Numbers are not comparable across countries.
0
500
1000
1500
2000
2500
3000
3500
2015 2018 2015 2018 2015 2018 2015 2018 2015 2018 2015 2018 2015 2018 2015 2018 2015 2018 2015 2018
Brunei
Darussalam
Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam
,NumberofNTMs
NTMs by Type and Country, 2015 vs 2018
Others
Export-related measure
TBT
SPS
12

13. Incidence and Prevalence of Import NTMs in ASEAN by Sector, 2018
Source: Doan and Rosenow (2019)
Note: Trade data are retrieved from the UNCOMTRADE database at HS 2017 6-digit level. NTMs with partial coverage
are excluded. Frequency index represents the ratio of 6-digit HS products affected by at least 1 NTM. Coverage ratio
represents the share of trade value affected by at least 1 NTM. Prevalence Score shows the average number of NTMs
per traded product. 13

14. Incidence and Prevalence of Export NTMs in ASEAN by Sector, 2018
Source: Doan and Rosenow (2019)
Note: Trade data retrieved from UNCOMTRADE database at HS 2017 6-digit level. NTMs with partial coverage are
excluded. Frequency index represents the ratio of 6-digit HS products affected by at least 1 NTM. Coverage ratio
represents the share of trade value affected by at least 1 NTM. Prevalence Score shows the average number of NTMs
per traded product. 14

15. 0 5 10 15 20 25 30
BRN-SGP
BRN-MYS
LAO-MMR
BRN-THA
MYS-THA
MYS-SGP
SGP-THA
BRN-LAO
KHM-VNM
IDN-KHM
Similarity index, in %
Countrypair
Similarity in NTM structure in ASEAN-
Top 10 country pairs
Note: Similarity index represents the ratio of overlapping NTMs between two countries, following Cadot et al (2015). IDN, KHM, VNM, BRN,
LAO, SGP, THA, MYS, MMR represents Indonesia, Cambodia, Vietnam, Brunei, Laos PDR, Singapore, Thailand, Malaysia and Myanmar,
respectively.
Source: Authors' calculation based on ERIA-UNCTAD raw NTMs in ASEAN database. Data is for year 2018.
15

16. 5. Highlight 3: FDI restrictiveness
• FDI regulatory restrictiveness index by OECD
– It reflects (to some extent) the institutional or policy
barriers for investment.
• Key observations
– Investment regime in ASEAN countries (in general) is
still more restricted relative to that in OECD countries.
– However, the restrictiveness for manufacturing is
already quite low.
• Restrictiveness is still quite high for services and primary
sectors.
16

17. The OECD FDI Regulatory Restrictiveness Index, 2016
Source: OECD FDI Index database, www.oecd.org/investment/fdiindex.htm
Note: OECD FDI Regulatory Restrictiveness Index (Open=0; closed=1)
0,00
0,05
0,10
0,15
0,20
0,25
0,30
0,35
0,40
0,45
0,50
Philippines Myanmar Indonesia Thailand Malaysia Lao PDR Brunei Viet Nam Cambodia Singapore
ASEAN Average
OECD Average
17

18. The OECD FDI Regulatory Restrictiveness Index:
by Sectors, Average AMS, 2016
Source: OECD Statistics.
Note: OECD FDI Regulatory Restrictiveness Index (Open=0; closed=1)
0
0,1
0,2
0,3
0,4
0,5
0,6
Agriculture
&
Forestry
Fisheries
M
ining
&
Quarrying(incl.Oilextr.)
M
anufacturing
Electricity
Construction
Distribution
Transport
Hotels&
restaurants
M
edia
Com
m
unications
Financial services
Business services
Real estate
investm
ent
Source: OECD FDI Index database, www.oecd.org/investment/fdiindex.htm
*Brunei, Singapore and Thailand data are not available 18

19. 6. Services-Inv. with digital technology
• Information technology (IT) and communication
technology (CT)
• New role of services for economic development
– Services to upgrade old industries with IT/CT
– Services to facilitate individuals/small firms to participate
in the market
– Services to extend own GVCs
• Mode 1 and mode 3, go together.
• A number of policy issues
– Liberalization in services/investment; consumer-oriented
– Movement of skilled labor/educated people
– Data-related policies to back up “free flow of data”
19

20. 7. Conclusion
• We may not need to worry about low intra-ASEAN
trade/FDI ratios themselves.
– However, this suggests the direction to go.
• Evolving the nature of intra-ASEAN trade
– From traditional trade to network trade
• More room for expanding and deepening networks.
– To horizontal IIT + digital trade
• Different policy needs
• Policy modes to work on
– Trade facilitation, NTMs, services/FDI liberalization,
movement of skilled labor, response to digital economy
20