As tariffs once again become bargaining tools for major powers, one of ASEAN’s key weaknesses is the fragmentation of its market across national tariff regimes. The revival of the Common External Tariff (CET) proposal, rejected four decades ago, raises a fundamental question: can ASEAN move beyond a mere “collection of assembly hubs” to become a higher-value-added economic region and a negotiating actor in its own right?
A Customs Union Proposal Rejected 40 Years Ago
ASEAN’s economic integration has been built on the ASEAN Free Trade Area (AFTA), agreed in 1992 and implemented through the Common Effective Preferential Tariff (CEPT) scheme from 1993. The CEPT lowered intra-ASEAN tariffs on goods originating in the region. A CET, by contrast, would require member states to apply a common external tariff schedule to imports from outside ASEAN. Its adoption would take ASEAN beyond a free trade area and towards a customs union.
The CET is not a new idea. In August 1986, exactly 40 years ago, the Philippines, then ASEAN chair, proposed a customs union at the ASEAN Economic Ministers’ Meeting. The proposal called for intra-regional tariffs to be reduced gradually within a fixed time frame and for a common tariff to be imposed on imports from outside ASEAN. No consensus emerged: Indonesia opposed the deadline, while Singapore objected that the proposal could result in higher external tariffs. Intra-ASEAN trade then accounted for only about 20 percent of member states’ total trade, and their heavy dependence on external markets made a CET difficult to accept.
AFTA’s Success—and the Borders That Remain
ASEAN instead chose AFTA. This flexible form of integration eliminated most intra-regional tariffs while preserving each member state’s discretion over external tariffs. It supported ASEAN’s model of open regionalism – welcoming foreign investment and imported intermediate inputs while producing for global markets – and helped expand regional production networks. Yet many member states remained concentrated in assembly operations and dependent on external suppliers for key components, advanced materials and research and development. As a result, the value added retained within ASEAN did not rise commensurately with the value of its exports.
Under a fully functioning customs union, goods imported from outside the region could, after paying the common external tariff upon entering ASEAN, circulate freely within the bloc in principle. Certificates of origin and customs clearance procedures currently required for preferential intra-ASEAN trade would, in principle, no longer be necessary. With national tariff borders and rules of origin removed, companies could source the most suitable mix of parts and materials from across ASEAN and allocate production stages accordingly. Lower border costs would encourage intra-regional sourcing, the consolidation of production, and investment in higher-value activities.
Yet the flexibility that was once ASEAN’s strength is becoming a weakness amid intensifying geoeconomic competition. As tariffs, export controls, subsidies, and scrutiny of circumvention become increasingly intertwined with economic security, individual ASEAN members risk accepting different terms in separate negotiations with major powers. If this continues, companies may find it increasingly difficult to treat ASEAN as a single production base. More importantly, if member states continue to bargain separately on critical trade issues, not only regional supply chains but ASEAN centrality itself could be hollowed out.
A CET as a Platform for an Industrial Upgrade
In response to these concerns, the ASEAN Geoeconomics Report 2025 recommended that ASEAN pursue a CET alongside a compatible regional industrial policy. A common tariff alone, however, will not deliver an industrial upgrade; it must be combined with policies that connect the complementary strengths of member states and promote technology adoption, skills development, R&D and intra-regional sourcing. Only then can ASEAN retain more value added and create more high-quality jobs within the region. A CET alone is not sufficient, but it can provide the market foundation for such upgrading.
Realizing this vision will not be easy. ASEAN would have to agree on the treatment of customs revenue, trade-remedy measures and negotiating authority vis-à-vis third countries. It would also have to reconcile the FTAs concluded separately by individual member states. Existing agreements would need either to be consolidated into ASEAN-wide trade agreements or to have their preferential tariff rates and rules of origin harmonized across trading partners and product categories. If national tariff differentials remained, ASEAN would still need origin checks and the collection of tariff differences at internal borders to prevent imports from being diverted through lower-tariff members. The result would fall short of a full customs union.
Even so, ASEAN should not bury the idea once again. As a first step, member states should harmonize tariffs at low levels on critical inputs that cannot be adequately sourced within the region, including semiconductor manufacturing equipment and critical minerals. This would not constitute a customs union, but would provide a practical test of whether a transition towards a CET is workable. In parallel, ASEAN should more closely integrate customs procedures, standards and conformity assessment, investment policy, skills development and R&D support. The objective should be to build a regional industrial base linking components and materials with more advanced stages of production.
ASEAN should aim for a customs union that preserves openness to critical inputs, reduces fragmentation within its regional market and encourages companies to invest on an ASEAN-wide basis. It should not become a “tariff fortress” that erects high barriers against the rest of the world. Rather, it should provide the institutional foundation for transforming ASEAN from a “collection of assembly hubs” dependent on cheap labor into an integrated economic region that builds deeper capabilities in technology, components and R&D—and retains more value added at home.
At a time when major powers are once again weaponizing tariffs, a common external tariff and unified negotiating authority would give ASEAN greater collective bargaining power as a single economic bloc. A customs union would be more than a foundation for industrial upgrading; it could also become a powerful shield for ASEAN against tariff coercion.