A PARTIAL ASEAN CUSTOMS UNION POST 2015?

Abstract

This paper explores the feasibility of the ASEAN Economic Community (AEC) moving forward to the next step of economic integration, i.e., towards an ASEAN Customs Union (ACU) post-2015. Effectively, the way to progress towards an ACU is by forming it among ASEAN-9 members with Singapore maintaining its existing zero tariffs against non-members, thereby creating a Partial ACU. Using applied general equilibrium modeling exercise based on GTAP, the findings suggest that there are potential net positive welfare gains to be collectively reaped by ASEAN if it moves from an AFTA to a partial ACU post-2015. However, not all ASEAN members will individually gain from such an ACU and members may need to devise a feasible mechanism wherein some member country welfare losses in an ACU can be compensated by the members who gain. The paper argues that in spite of political economy challenges due to ASEAN’s unique characteristics and diversity in the levels of economic development among members, such a Partial ACU could be considered by ASEAN leaders due to its strategic imperatives.