ASEAN Beat | Economy | Southeast Asia

ASEAN’s Rules of Origin Need a Rethink

ATIGA review and industrial strategy in an age of geopolitical risk

Thailand, Bangkok 20 November 2025 Metalex 2025, the largest machinery trade show in ASEAN.

The ASEAN Economic Community (AEC) has achieved significant formal progress. Tariffs on trade in goods were largely eliminated by 2018, marking a major milestone in regional integration. Yet intra-ASEAN trade still accounts for only around 20 to 30 percent of total trade, far below levels seen in more deeply integrated and internally self-sustaining markets such as the European Union, where intra-regional trade reaches 55 to 60 percent.

This gap between institutional achievement and economic reality points to a structural issue. At its core lies the design of ASEAN’s rules of origin (ROO).

The ASEAN Trade in Goods Agreement (ATIGA), the backbone of the AEC, has expanded its practical usability by adopting the Change in Tariff Classification (CTC) standard alongside the more traditional Regional Value Content (RVC) approach. This flexibility has lowered barriers for firms seeking to qualify for preferential treatment.

However, it has also produced unintended consequences. Under the current system, products can qualify as ASEAN-originating even when most of their components are sourced from outside the region. In extreme cases, goods composed entirely of imported parts – for example, from China – can obtain ASEAN origin status simply through final-stage processing that alters their tariff classification.

This weakens incentives for intra-regional procurement. Since the introduction of these rules, the share of intra-ASEAN trade has declined, rather than increased. Instead, reliance on imported intermediate goods, particularly from China, has increased.

Thailand’s emergence as an electric vehicle manufacturing and export hub illustrates this dynamic. New factories have been established, yet many rely heavily on imported components, generating limited domestic economic spillovers. These so-called “zero-baht factories” contribute little to local value creation and do not significantly deepen regional production networks.

If this pattern continues, it could fuel dissatisfaction that the gains from free trade are not adequately spreading within domestic economies, thereby deepening distrust over distribution and social division, as seen in many advanced economies.

Geopolitical Pressures and the Case for Reform

The need to revisit ASEAN’s rules of origin is no longer purely technical. It is increasingly shaped by geopolitical considerations.

The United States has begun to view ASEAN as embedded within Chinese supply chains and has applied pressure under Section 301 of the Trade Act. From Washington’s perspective, parts of Southeast Asia function as channels for the circumvention of trade restrictions, particularly in relation to excess........

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