The ASEAN Non-Tariff Measures, Services and Investment Restrictiveness Tracker

Project Lead and Research Director: Hong Jukhee | Authors: Marisha Naz, Imran Said Shamsunahar & Hong Jukhee
Research Editors: Eleen Ooi Yi Ling, Aznita Ahmad Pharmy
Webmaster: Nor Amirah Mohd Aminuddin
A special thanks to Dr. Sufian Jusoh, Director of IKMAS UKM and team (Muhammad Faliq Abd Razak, and Dr. Norlin Rashid)
for providing input for parts of services trade section and data support for FI, TCRs, STRI.

Notes:

PART I: NTMs in ASEAN Goods Sector

Non-tariff measures (NTMs) are policy measures, other than ordinary customs tariffs, that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices or both¹.

• NTMs function to protect public health or the environment, but they also directly affect trade through information, compliance and procedural costs. In some instances, NTMs can also be used to act as barriers to trade and are put in place for protectionist purposes² and thus often referred to loosely as non-tariff barriers (NTBs).

In the goods sector, the United Nations Conference on Trade and Development (UNCTAD) is the primary source of NTM data worldwide. UNCTAD collects NTM data from 190 countries affecting the import and export of goods. Within import measures, classification of data is divided into technical and non-technical classifications (Table 1).

Table 1: Import NTM Classification by UNCTAD³

• The definition and distinctive use of non-tariff barriers (NTB) and non-tariff measures (NTMs) are not clear.
  • From a function perspective, there is a debate on what constitutes a “barrier” vs a “measure” (NTB vs NTM) where NTM is in principle meant to be actions that do not restrict trade but protect the consumers from health and safety issues. However, in practice, many NTMs are justified on the basis of health or safety standards but can also be used to act as barriers to trade and are put in place for protectionist purpose⁴.
• NTMs only refer to government policy measures and do not take into account standards by the private sector.⁵
  • Current measures of NTMs as measured by UNCTAD are derived from the respective legislation of a country. However, private standards developed by companies and not described in legal texts also exist and are not captured in UNCTAD data. While some standards set by the private sector are considered voluntary, in some instances some measures have in effect become mandatory due to compliance being a prerequisite for one’s products being sold (e.g., due to consumer demands or market power of retailers).

a) NTMs in ASEAN have more than doubled since 2008

The total number of NTMs implemented by ASEAN Member States between 2008 and May 2020 jumped by 118% from 4,356 measures to 9,494 respectively (Diagram 1).

b) Thailand and The Philippines make up almost half of ASEAN NTMs

Breaking down the total number of ASEAN NTMs by Member States in 2020, we see that Thailand imposed the largest share of NTMs at 34.5%. The Philippines came second at 12.9%. The NTMs of both countries collectively make up 47.4% of total ASEAN NTMs in 2020 (Diagram 2).

c) TBTs and SPSs make up 70% of overall NTMs in ASEAN

Amongst the categories of NTMs implemented in 2020, technical barriers to Trade (TBTs) ranked as the most commonly utilised measure at 36.3%, followed by Sanitary and Phytosanitary (SPS) at 29.5%. Both collectively compose 65.8% of total ASEAN NTMs applied to all partners (Diagram 3).

d) The high TBT figures in ASEAN are driven by Thailand, followed by The Philippines, Indonesia, and Malaysia

Breaking down the number of NTMs used in 2020 by country, the high TBT figures were driven by Thailand, followed by The Philippines, Indonesia, and Malaysia respectively. As a share of total enforced NTMs, however, Singapore’s total number of enforced TBT measures constituted 49% of their total measures (Diagram 4).

e) Thailand overwhelmingly has largest number of TBT and SPS measures

(I) By aggregate, Thailand overwhelmingly had the largest number of TBT measures compared to other ASEAN countries, at 1,099. The following country, Indonesia, only had 431 measures (Diagram 5).

(II) Likewise, Thailand also had the largest number of SPS measures in 2020 at 1,258, with The Philippines coming in second with only 364 measures (Diagram 6).

f) NTMs grew in tandem with economic development

While Viet Nam had a smaller number of cumulative NTMs compared to other ASEAN countries as of May 2020, it saw a larger rate of increase between 2010 and 2020, at 609.17%. In comparison, Thailand only saw a 67.81% increase within the same period.

In understanding the degree of usage of NTMs by countries, there is no perfect measure, however, the following two key metrics are typically used:

• The Frequency Index (FI) accounts only for the presence or absence of an NTM and summarises the percentage of products to which one or more NTMs are applied. This informs how much of the volume of imports are subjected to NTMs.
• The Trade Coverage Ratio (TCR), which refers to the value of imports subject to NTMs divided by the total weighted value of imports. This informs how much, from a monetary value, perspective is subjected to NTMs.

a) Lao PDR had the highest FI and TCR in ASEAN (2017)

Amongst the ASEAN countries, Lao PDR has the highest FI & TCR in ASEAN (Diagram 8). Lao PDR had a 0.98 FI score and a 0.85TCR score in 2015 which was the highest amongst ASEAN in terms of both measures (Diagram 8).

b) Thailand’s FI and TCR are almost consistently below the ASEAN average

Although Thailand has the highest number of NTMs, its FI (overall score of 0.32) & TCR (overall score of 0.39) are consistently below the ASEAN average across almost all NTM categories save for the Trade Coverage Ratio for their SPS measures (Table 1 & 2).

Table 1: Frequency Index by NTM type (2017)

Source: UNCTAD, internal calculations
Note: Blue highlight indicates above ASEAN average

Table 2: Trade Coverage Ratio by NTM type (2017)

Source: UNCTAD, internal calculations
Note: Blue highlight indicates above ASEAN average

c) TBT’s had the highest FI, while Export Measures had the highest TCR

In terms of NTM categories implemented by ASEAN, TBTs had the highest FI scoring at 0.37 while Export Measures had the highest TCR scoring at 0.42 (Diagram 9).

d) Varying degrees of NTM FIs in agriculture, manufacturing and natural resources sectors: all ASEAN countries imposing NTMs on more than 80% of all their agricultural exports

• Agriculture – When breaking down the FI by sectors (Diagram 10) for the whole of ASEAN, it should be noted that agriculture had the highest percentage of FI with all ASEAN countries imposing NTMs on more than 80% of all their agricultural exports (Diagram 10).
• Manufacturing – Lao PDR recorded the highest FI on manufacturing exports and is the only country that imposes NTMs on more than 90% of their manufacturing imports (Diagram 10).
• Natural Resources – Lao PDR, Myanmar and The Philippines have relatively high NTMs on more than 90% of their natural resources products (Diagram 10).
• Overall, Lao PDR imposes the highest percentage of NTMs for all sectors, while for other ASEAN countries, the use of NTMs varies greatly across economic sectors (Diagram 10).

Despite the usages of FI and TCR, both do not adequately capture the actual trade protection policies as a result of NTM imposition⁶. In attempts to define and measure the unseen cost of NTMs, Kee et al. (2009) utilises quantitative based measures and estimated the ad valorem equivalents (AVEs) of the NTMs for each country at the tariff line level⁷.

a) Defining Ad Valorem Equivalents

AVE uses a common metric for alternative trade policy instruments, thus enabling direct comparison with tariffs and measurements of the combined or overall level of trade protection.

b) Overview of AVEs of NTMs in ASEAN

A study on AVEs by Lili Yan Ing and Olivier Cadot (2017)¹¹ found:

• The AVEs for TBT measures on manufactured products, for ASEAN countries and the whole sample (including non-ASEAN countries) were at 4.5% and 5%, respectively.
• The AVEs for SPS measures on agricultural and food products for ASEAN countries and the whole sample (including non-ASEAN countries) were 6.5% and 6.7%, respectively.

a) Transparent NTMs may lead to increased export volume

The assumption that a country which imposes extensive NTMs will suffer from lower trade volumes, while a country which imposes lower NTMs will enjoy higher trade volume, does not necessarily always play out.

Chen, Otsuki and Wilson in a 2008 study examined the importance of various types of standards for the export decisions of developing-country firms.¹²

Using information from the World Bank TBT survey database, they found that different types of standards exhibit sharply distinct relations with the intensive and extensive margins of exports of firms.

• Quality standards are found to be positively correlated not only with the average export volume of firms, but also with export scope: i.e the number of markets and the number of products exported by the firms.
• A similar relationship is found with regards to labelling requirements, with results again pointing to a positive correlation to export volumes and export scope.
• On the other hand, they find that certification procedures are associated with a significant decline in the number of export markets and products.
• By increasing consumer confidence about the quality of products, quality standards and labelling requirements, the imposition of standards can significantly increase consumer willingness to buy certain products and increase the profits of firms.¹³

b) Harmonisation of standards may reduce costs of compliance

In a separate 2009 study, Czubala, Shepherd and Wilson investigated the impact of harmonised standards on African exports. They examined the African export dynamics of products like textile and clothing regulated by standards specific to the European Union (bilateral NTMs) versus those regulated by international standards adopted by the European Union (multilateral NTMs).¹⁴

They suggest that while country-specific standards increase the marginal and fixed costs of exporting for African firms, the use of international standards as the basis for harmonisation may reduce their costs of compliance.¹⁵

More generally, the results suggest that efforts to promote African manufacturing exports in high-income countries should include the international harmonisation of standards.¹⁶

a) Combined NTMs of ASEAN outnumbered its dialogue partners

ASEAN’s total number of NTMs in 2019 outnumber the number of NTMs imposed by each of its eight major Dialogue Partners, with the closest being China with 7,255 NTMs (Diagram 11). However, it is important to note that a more meaningful comparison should be made between individual countries as opposed to comparing a mixture of countries and economic blocs.

b) Almost all DPs impose more NTMs than individual ASEAN countries

However, when ASEAN is divided into individual countries, the NTMs of almost all Dialogue Partners surpass the majority of ASEAN countries (save Thailand) in terms of total NTMs. Only the European Union has less NTMs than all ASEAN countries save for Cambodia and Myanmar (Diagram 12).

c) US imposes more bilateral NTMs on ASEAN

While ASEAN had a higher total of NTMs, in terms of bilateral measures, the NTMs of the US outnumbered the bilateral NTMs of the ASEAN bloc by 2,651 to 1,629 respectively (Diagram 13).

PART II: NTMs in the ASEAN Services Sector

a) The nature of the services industry is not as tangible as the goods industry and thus the measures being used are less standardised, granular and readily available. The typical measure of non-tariff trade barriers (NTBs) in the service sector is the OECD Services Trade Restrictiveness Index (STRI).

• The STRI is a unique, evidence-based diagnostic tool that provides an up-to-date snapshot of services trade barriers in 22 sectors across 46 countries, representing over 80% of global services trade¹⁷.
• The STRI uses a scoring methodology with binary scores in several categories of measures (Table 3). The STRI is a combination of horizontal measures which are universally applied and sector specific measures.

Table 3: OECD STRI Measures

Source: OECD¹⁸

b) There are several limitations with the STRI measure which are unavoidable but should be noted when interpreting STRI data. As the STRI is a binary indicator, it requires the judgement of experts to determine if a country meets the measure threshold, which will inadvertently lead to subjective judgement. Furthermore, the STRI is not a numerical-based indicator and thus does not provide information on price or cost impacts for the specific services being traded.

c) It should be noted that for analysis on ASEAN, data on Singapore is not included in the OECD STRI database. As Singapore makes up roughly 51% of ASEAN service trade, a holistic view of ASEAN NTMs using STRI data will be handicapped.

a) ASEAN STRI average is higher than OECD countries and India and China

• The ASEAN STRI average (excluding Singapore and Myanmar) is 43.8 (Diagram 14), which is significantly higher than the major OECD countries (range: 15.3 – 30.3).
• There has been no major change in STRI values in these ASEAN countries since 2008-2015 – this trend is similar in other ASEAN Dialogue Partners (DPs) and OECD countries (Diagram 15).
• Cambodia had the lowest STRI in 2015 at 23.7 (Diagram 14). If Cambodia is excluded, ASEAN’s average STRI jumps to 48. However, compared to other major Asian countries (India, China) this STRI is still relatively high (Diagram 15).

Notes:

1. The above are the latest available data
2. Brunei Darussalam and Lao PDR not covered in time series. Certain years for Myanmar and Singapore not covered.

The composition of ASEAN services trade has remained unchanged from 2000, it is concentrated in 3 countries – Singapore (47.09%), Thailand (17.53%), and Malaysia (10.88%) accounting close to 80% of ASEAN’s services exports. The imbalance of the services trade in ASEAN is also reflective of the different levels of development across ASEAN.²⁰

PART III: FDI Regulatory Restrictiveness In ASEAN

a) The FDI Regulatory Restrictiveness Index (FDI Index) is used to measure the ease of investment. The FDI Index measures statutory restrictions on foreign direct investment in 68 countries, and covers 22 sectors. It gauges the restrictiveness of a country’s FDI rules by looking at the four main types of restrictions on FDI (Table 4)²¹.

Table 4: FDI Index measurement

Source: OECD²²

a) Cambodia has the least regulatory restrictiveness in FDI in ASEAN

Between 1997 and 2018, there has been a marked decline in many ASEAN countries FDI Restrictiveness Index scoring. By 2018 results vary across significantly ASEAN, ranging from as high as 0.37 (The Philippines) to as low as 0.05 (Cambodia) (Diagram 16). During this period only Cambodia’s index score was lower than the OECD average of 0.065.

Notes:

1. Brunei Darussalam and Singapore are not included in OECD’s FDI Restrictiveness Index.
2. Data for Cambodia and Myanmar between 1997 and 2018 are incomplete.

In 2018 the average FDI restrictiveness in the select ASEAN economies featured in the index was higher than most of ASEAN’s Dialogue Partners with the exception of China, New Zealand, and India (Diagram 17).

• In 2018 almost all of ASEAN’s Dialogue Partners with the exception of Japan have FDI indices above the OECD average (0.065) (Diagram 17).

According to the OECD Investment Policy Reviews Southeast Asia published in March 2018²³, five ASEAN countries (The Philippines, Myanmar, Thailand, Malaysia, and Lao PDR) are now among the top ten most restrictive countries for FDI among the over 60 economies covered by the FDI Restrictiveness Index at the time (Diagram 18).

• Many of these restrictions concern the services sector, holding back potential productivity gains throughout the economy.
• The report notes that the FDI regimes of manufacture-oriented export economies (which characterizes most of ASEAN), while often more liberal when it comes to overall foreign investments, are sometimes not fully captured in the OECD’s FDI Index. Putting another way, outside of manufacturing FDI liberalization remains an unfinished agenda, particularly when it comes to the services sector and primary industries. The OECD Investment Policy Reviews for Southeast Asia published in March 2018 suggests that ASEAN’s continued success in attracting manufacturing FDI may have meant that individual Member States were less pressured to liberalise their other sectors.

Although many ASEAN countries have among the most restrictive FDI regimes worldwide, especially in primary and service sectors, certain countries such as Malaysia and Viet Nam have also been among the most active FDI reformers between 1997 and 2016 (Diagram 19).²⁴

• A complete time series for all ASEAN countries is not available. From the data available, Malaysia and Viet Nam, in particular, have more than halved their FDI restrictiveness between 1997 and 2016 (Diagram 19).

PART IV: Conclusion

The findings show that combined NTMs in ASEAN have been increasing over time, with the total number of NTMs having jumped by 118% from 4,356 measures in 2008 to 9,495 in 2019.

It should be noted, however, that although collectively ASEAN imposes a larger number of NTMs as compared to its major Dialogue Partners, when broken down into individual countries the NTMs of almost all Dialogue Partners surpass the majority of ASEAN countries (save Thailand) in terms of total NTMs. Only the European Union has less NTMs than all ASEAN countries save for Cambodia and Myanmar.

To truly understand the impact of NTMs it is also necessary to look at the Frequency Index and Trade Coverage Ratio, which measure a country’s usage of measures on total imports by volume and value.

CARI’s internal calculations found that while Thailand had the largest number of NTMs, its FI and TCR scores in 2017 were below the ASEAN average across almost all NTM categories. On the other hand, Lao PDR, despite only composing 5.5% of ASEAN’s total 2020 measures, had the highest FI and TCR score among all ASEAN countries in 2017.

A 2017 study on ad valorem equivalents (AVE) – the additional costs equivalent that NTMs have on imports – in ASEAN found that AVEs for TBT measures imposed on manufactured products for ASEAN countries and the whole sample (the latter of which includes non-ASEAN countries) was 4.5% and 5% respectively. It was also found that AVEs for SPS measures on agricultural and food products for ASEAN countries and the whole sample was 6.5% and 6.7% respectively.

The assumption that all NTMs hinder trade volumes is not necessarily consistent.

• In some instances, standards were found to be positively correlated with the average export volume of firms and its export scope. Such measures can significantly increase consumer willingness to buy certain products.
• Despite the increase of marginal and fixed costs in bilateral measures, the use of international standards in effect reduced the costs of compliance.

When looking at NTMs affecting the trade of services, the OECD Services Trade Restrictiveness Index (STRI) found that the STRI average in ASEAN was significantly higher than both the major OECD economies as well as non-OECD economies such as China and India.

The average FDI restrictiveness in ASEAN (latest available data 2018) was higher than most of ASEAN’s Dialogue Partners with the exception of China, New Zealand, and India respectively. However, between 1997 and 2018 most ASEAN countries saw a decline in their respective OECD FDI Restrictiveness Index scoring.

The high FDI Restrictiveness Index scores for many ASEAN countries are often due to the relatively closed nature of these countries’ services and primary industries sectors, in comparison to their relatively open manufacturing sectors. The relative success of attracting foreign investments in their manufacturing sectors may put less pressure on ASEAN governments to open up other sectors.