In November 2020, the ASEAN Secretariat published the ASEAN Comprehensive Recovery Framework (ACRF) and its implementation plan, which set out broad strategies for recovery in line with sectoral and regional priorities. The ACRF can be regarded as ASEAN’s consolidated exit strategy from the COVID-19 crisis. The trade facilitation measures in the ACRF implementation plan includes the harmonization of standards for essential goods and the expansion of the ASEAN Single Window to ASEAN dialogue partners, which aim to reduce regulatory compliance costs and procedural obstacles for those trading with the region.
Before the pandemic, the strong increase in production and income growth in ASEAN member states had led to an equally strong increase in both agri-food exports and imports. In 2019, ASEAN’s agri-food exports totaled $141 billion, a third of which comprised intra-ASEAN trade. Key agri-food exports include palm oil, fish products, forest products, rubbers and gums, fruits, and rice. The same year, ASEAN’s total agri-food imports came to $103 billion, which included soybean products, fish products, wheat products, dairy products, and fruits. Again, around a third of this comprised of intra-ASEAN trade.
Since the beginning of the pandemic, food production was negatively impacted by increased worker morbidity, disruption in supply chains, and COVID-19 containment measures. Governments’ attempts to restrict food exports to meet domestic needs could make things much worse.
On the demand side, agri-food imports have been impeded by trade costs associated with non-tariff measures (NTMs). NTMs are policy measures other than ordinary customs tariffs that affect producers, importers, and exporters of goods by increasing information, compliance, and procedural costs. For instance, complying with a food product standard imposed by an importing country involves one-time costs of product redesign and the creation of a system for administrating such changes. Such compliance costs can be increased by both the differing requirements of the varying exporting markets, and the different standards and technical regulations imposed by importing countries.
In ASEAN, the need to reduce NTM-related trade costs has been recognized for more than a decade. Under the ASEAN Framework Agreement for the Integration of Priority Sectors, signed in 2004, member states have been working to reduce the trade-distorting effects of NTMs on agri-food trade. The agreement had three goals: to establish a database of ASEAN NTMs by June 30, 2004; to lay out criteria for identifying NTMs that are barriers to trade by June 30, 2005; and to establish a definitive work program for the removal of NTMs that are barriers to trade by the end of 2005. The commitment of the member states to streamline NTMs has been strengthened by the implementation of the ASEAN Trade in Goods (ATIGA) since 2010, whereby member states are required to identify non-tariff barriers for elimination.
However, regulatory reforms on NTMs in ASEAN have progressed slowly. The global NTM database reveals that despite ASEAN’s best efforts, NTMs on agri-food trade in ASEAN’s priority sectors rose from 434 measures in 2000 to 1,192 measures in 2010 and to 2,181 measures in 2019. On the import side, sanitary and phytosanitary (SPS) measures make up the largest component of NTMs, accounting for about half of total measures. These measures have largely been driven by non-trade policy considerations such as consumer concern for product quality and safety. The remaining measures include diverse market access conditions such as import licenses, inspection requirements, testing and certification requirements, and labeling and packaging requirements. The largest number of SPS measures is found in Thailand (282), followed by the Philippines (150), Indonesia (144), Malaysia (88), and Vietnam (83). Two food import-dependent member states – Singapore and Brunei – have a moderate number of SPS measures. Cambodia, Laos, and Myanmar have the lowest number of SPS measures in ASEAN.
In order to gauge the extent to which SPS is restricting member states’ agri-food exports to other ASEAN markets, we have calculated each nation’s degree of exposure to SPS measures. Our research reveals three salient features of the agri-food trade in ASEAN.
First, the price-raising effects of total SPS measures on agri-food imports vary across member states. The nation that was most severely affected by SPS measures was Vietnam, where these requirements pushed prices of imported agri-food products upward by 116.4 percent, followed by Brunei (94.5 percent), Myanmar (61.9 percent), the Philippines (60.3 percent), and Thailand (48.7 percent). In contrast, the impact of SPS measures on agri-food imports was relatively low in Singapore (14.5 percent), Malaysia (20.4 percent), and Laos (22.6 percent). Higher prices of imported agri-food products would logically reduce demand for those products from other member states.
Second, five member states export at least 20 percent of their total agri-food exports to other ASEAN countries. These are Cambodia (70.3 percent of total exports), Laos (68.7 percent), Singapore (40.6 percent), Brunei (33.9 percent), and Myanmar (22.7 percent). The remaining member states export most of their agri-food products to countries outside the region. Regardless of the intra-ASEAN export share of their total exports, all member states’ agri-food exports are concentrated in a few markets. For instance, 63.9 percent of Cambodia’s agri-food exports went to Malaysia, while Indonesia’s mainly went to Malaysia, Singapore, and Vietnam. The concentration of agri-food exports to markets with burdensome SPS measures has the potential to substantially reduce agri-food trade in the region.
Third, agri-food exports from five member states have very high potential exposures to SPS measures imposed on agri-food imports by the governments of other member states. These are Singapore, Indonesia, Cambodia, Malaysia, and Thailand, all of which have high exposures in at least four ASEAN markets. This is the consequence of the high export concentration of SPS measures in the intra-ASEAN market. For example, Singapore exported about 16.3 percent of its total agri-food exports to Malaysia, which has considerable SPS measures in place for these types of imports. At the same time, Singapore’s agri-food exports to other markets with more stringent SPS measures, such as Vietnam or the Philippines, suffer an even higher exposure score, which results in reduced exports on its part.
The results suggest a need to accelerate NTM reforms on agri-food trade at both the regional and domestic levels. Cross-border trade costs tend to increase with the proliferation of NTMs. The rise of SPS measures and other market access conditions reflect differences in development levels, diverse procedural traditions in issuing and enacting regulations, and dissimilar protection levels. Divergent regulatory requirements can lead to costly duplication in product development, manufacturing, and testing – obstacles that affect small and medium-sized enterprises (SMEs) the most. Such fixed costs can be a key deterrent in their decision of whether to export or invest.
Further reforms for the agri-food sector should target groups of products based on the severity of the NTMs that are currently in place. In the short term, ASEAN as a group should focus on the group of products that has a high degree of exposure to the trade-distorting effects of technical and non-technical measures. The sequence of streamlining NTMs should start with the most burdensome non-technical measures (i.e. quantity control measures, contingent trade protective measures), followed by technical measures (i.e. SPS measures and product standards). In the medium term, ASEAN should focus on the group of products with less impactful non-technical and technical measures.
Non-technical measures such as quantity control measures and contingent trade protective measures should be eliminated or replaced with other measures that have less trade-distorting effects. For instance, tariff quotas and import licensing requirements should be replaced with tariffs and the ex-post reporting of imports based on customs entries, respectively. Technical measures such as SPS and product standards should be simplified or harmonized with international standards to reduce their trade-distorting effects, while maintaining their non-trade policy objectives such as protecting human, animal, and plant health.