Kuala Lumpur, 20 November 2024 – The Institute for Democracy and Economic Affairs (IDEAS) Malaysia has released its latest ASEAN Integration Report, “Inclusive Trade: Perspectives on Regulatory Challenges for MSMEs in ASEAN.” The report examines the barriers micro, small, and medium-sized enterprises (MSMEs) face in expanding internationally—particularly the disproportionate impact of non-tariff measures (NTMs)—despite their vital role in the ASEAN economy.

MSMEs make up 97% of businesses and account for 85% of ASEAN’s workforce, yet their participation in cross-border trade remains at just 18%—a figure that falls far short of their potential. Structural challenges such as limited access to financing, inadequate digital infrastructure, and insufficient workforce capabilities are compounded by external hurdles like weak business networks and inaccessible trade information.

Geopolitical shifts, including the US-China trade war and the pandemic, have reshaped global supply chains, with more businesses diversifying into Southeast Asia. ASEAN exports are projected to grow by 90% by 2031, presenting enormous opportunities for MSMEs to integrate into global markets. However, the rise of NTMs such as packaging and certification requirements, particularly in the food sector, has become a significant obstacle. These measures, while essential for public safety, create cost burdens that deter smaller businesses from engaging in trade.

“NTMs can safeguard public health and safety, but poorly implemented regulations disproportionately hinder MSMEs, which operate with limited resources and narrow profit margins,” said Sharmila Suntherasegarun, co-author of the report and Assistant Manager of the Economics & Business Unit at IDEAS. “Harmonising trade regulations and ensuring consistent enforcement is crucial to reducing compliance costs, streamlining processes, and levelling the playing field, ” added Sharmila.

While ASEAN has made commendable progress in reducing tariffs and aligning regulations in sectors like electronics, sectors dominated by MSMEs, such as agriculture and food, face slower and uneven progress due to regulatory fragmentation and competing national interests. Larger firms, equipped with better resources, continue to benefit from the status quo, leaving MSMEs at a disadvantage.

As Malaysia prepares to chair ASEAN in 2025, the report urges policymakers to prioritise harmonising trade regulations and adopting inclusive policies that empower ASEAN MSMEs. Supporting these enterprises is essential to unlocking sustainable growth, fostering equitable development, and driving deeper economic integration across the region.

For more information, please download the full report here

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Ryan Panicker
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T: 03 – 2070 8881/8882 | E: ryannesh@ideas.org.my