An ASEAN Customs Union? A customs union (CU) with a common commercial policy
would ensure a single market as goods would not be subject to certification of rules of
origin and non-tariff barriers. There are good reasons why there are very few CUs in the
global economy, as compared to the proliferation of FTAs. First, countries have to pool
sovereignty over their commercial policies, thus reducing the national policy space.
Second, it is difficult to reach agreement on a common external tariff (CET) for ASEAN
in view of the wide dispersion of tariff rates across ASEAN countries, with Singapore–
Brunei Darussalam having essentially zero MFN applied tariffs and CLMV having
relatively higher tariffs. With its role as an entrepôt and its heavy dependence on imports
for consumption and inputs into production, a positive CET would undermine Singapore’s
cost competitiveness and cost of living, as well as subjecting it to WTO sanctions. A
customs union would become more feasible if overall ASEAN’s MFN applied tariffs are
reduced to zero or near zero. However, as commercial policy covers not only tariffs but
also the removal and harmonization of NTBs (including natural resource subsidies, and
preferential treatment of state-owned enterprises), many ASEAN countries would find it
difficult to surrender national sovereignty for a CU. Businesses surveyed are not so much
concerned with tariffs inhibiting trade and investment, as with obstacles posed by various
NTBs and institutional practices.