ASEAN Needs More Than Trade Deals to Deepen Integration

Despite decades of trade liberalization, ASEAN’s intra-regional trade has stagnated at slightly above 20 percent of total trade—unchanged since the early 2000s and far below the 43 percent achieved by the broader ASEAN+3 grouping or the European Union’s 61 percent. This plateau persists even as tariffs within ASEAN have fallen to near zero and the region has established one of the world’s most extensive networks of free trade agreements. Clearly, trade policies and liberalization alone cannot unlock deeper integration.

Perhaps most tellingly, intra-ASEAN foreign direct investment (FDI) remains just above 10 percent of total FDI stock—less than half what fundamentals predict and far below the roughly 50 percent in ASEAN+3 or the EU. This matters significantly. FDI builds production networks, transfers technology, and creates the supplier relationships that sustain deeper trade. Without stronger cross-border investment within ASEAN, efforts to enhance complementarity or reduce policy frictions will struggle to gain traction.