“`html

ASEAN at a Crossroads: Strengthening Regional Integration Amidst Global Fragmentation

This article was first published in The Edge Malaysia on October 24, 2025.

As global leaders convene in Kuala ‌Lumpur next week for the 47th ASEAN Summit, they will ‍gather at a potentially pivotal moment in the bloc’s history.Escalating tariffs and geopolitical competition are fragmenting global trade, exposing the vulnerabilities of the region’s reliance on external markets.‌ For ASEAN, positioned at the intersection of deepening global fragmentation, the imperative to strengthen ⁤regional integration has never been more urgent.

However, ⁤a paradox exists. Despite decades of trade liberalization,‍ ASEAN’s intra-regional trade has stagnated at slightly above 20 percent of total ‍trade-a figure unchanged since the early 2000s and considerably ​lower than the⁢ 43 percent achieved‌ by the broader ASEAN+3 grouping or the european‍ Union’s 61 percent. This plateau persists‌ despite near-zero tariffs within ‍ASEAN and the establishment of one of the world’s most extensive networks of free trade agreements. Clearly,⁢ trade policies and liberalization alone are insufficient to unlock ⁣deeper integration.

Research by AMRO staff sheds light on this issue. ASEAN’s ‌current integration levels align‍ closely with‍ what economic fundamentals would predict: modest market sizes,diverse development ⁣stages,and limited​ production sophistication. ‍Unlike the ‍EU, where convergence toward high ​incomes created overlapping demand structures, ASEAN economies⁣ are at vrey varied stages of ⁣development,‌ ranging from advanced service hubs⁢ to ⁤rapidly industrializing manufacturing bases.

This diversity facilitates global integration but hinders internal complementarities:‍ higher-income members demand goods that lower-income partners cannot yet supply, while lower-income members lack the purchasing power to absorb higher-value regional exports.

Perhaps most significantly,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 ‍is crucial because 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