09/09/2021 - Bandar Seri Begawan - ASEAN and the OECD launched the OECD Competition Assessment Reviews: Logistics Sector in ASEAN and the OECD Competitive Neutrality Reviews: Small-Package Delivery Services in ASEAN reports at the ASEAN Economic Ministers Meeting today.
The reports identified legislative and regulatory issues in the bloc’s logistics services sector that would hinder it from reaching its full potential. The reports provided robust, pragmatic, non-binding policy recommendations to ASEAN governments to help the industry boost overall growth and expedite its recovery from the negative economic impact of the COVID-19 pandemic.
The GDP of ASEAN has almost doubled since 2005. Its growing middle class now forms a large potential group of consumers. Yet further growth and greater prosperity are constrained by regulatory obstacles that impede competition in its logistics industry, reducing efficiency, driving up costs for businesses and not maximising consumers’ welfare, and hampering regional and international trade.
OECD’s research and analysis, supported by the UK Government’s ASEAN Economic Reform Programme, concluded that practical, low-cost policies recommended to improve the regulation of ASEAN’s logistics industry will empower existing industry participants and encourage new entrants to identify and take advantage of fresh opportunities and the resulting market efficiencies. In turn, this would benefit businesses and consumers, and ultimately accelerate growth and development across the bloc’s economies.
Engine of growth
Thanks to globalisation and free trade, ASEAN’s prosperity has grown substantially, in which its logistics sector played a major role. The sector now accounts for approximately 5% of the bloc’s GDP and employment, providing jobs for around 17 million people.
In noting the importance of the logistics services sector to the economies of the ASEAN Member States (AMS) and the wider region, the Secretary-General of ASEAN Dato Lim Jock Hoi, said in his opening remarks, "ASEAN’s commitment towards a seamlessly integrated ASEAN, remains as strong as ever. The service industries are the main driver of growth, accounting for approximately 50% of ASEAN’s GDP in 2019. The logistics sector was the second-biggest contributor to services output, accounting for approximately 24% of all such trade in ASEAN. It is therefore hard, not to overemphasize, the importance of the logistics sector to ASEAN Member States, and to the wider regional economy.”
In some ASEAN Member States, logistics costs account for up to 20% of the price of finished goods, almost double the global average. This is a de facto levy on consumers and businesses alike that could be reduced by addressing obstacles to competition in supply chains.
Rethinking regulations governing foreign direct investment in the logistics sector would help member states grow their economies. It has been estimated that reducing barriers to trade and FDI restrictions to the global average could deliver a boost to GDP of up to 17% over the medium to long term.
Additionally, pro-competitive policies have a gender dimension. Some studies estimated that the removal of gender bias in the economy, including logistics, may increase GDP in the region by up to 30%.
If a number of the competition restrictions identified by the OECD in ASEAN’s logistics industry were lifted, the bloc’s economies could be better off by more than USD 4.5 billion annually. This is a very conservative estimate as it does not take into account spill-over effects such as increased employment, lower barriers to market entry for small and medium-sized enterprises and improved cross-border trade.
OECD Competition Assessment Reviews: Logistics Sector in ASEAN and OECD Competitive Neutrality Reviews: Small-Package Delivery Services in ASEAN are the culmination of three years of independent research by OECD on regulatory and legislative obstacles to competition in the logistics industries of all 10 ASEAN Member States which was facilitated by the ASEAN Secretariat.
In the course of its research, the OECD analysed more than 700 pieces of legislation across the bloc, met with more than 280 ASEAN stakeholders, and cooperated closely with many public stakeholders in the region. The reports propose hundreds of recommendations to remove obstacles to competition in the logistics business, level the industry playing field to drive growth and employment, and expedite ASEAN’s exit from the economic hardship brought upon it by the COVID crisis.
Mathias Cormann, Secretary-General of the OECD, said, “As we seek to optimise the strength and the quality of the recovery, greater openness and pro-competitive reforms will be a crucial element to stimulate the growth of new businesses and jobs, especially small and medium-sized enterprises, which account for almost 90% of all enterprises across the whole bloc and nearly half of all employment.”
The OECD Competition Assessment Reviews: Logistics Sector in ASEAN report assessed the impact of regulation on competition in the sector. It covers five main subsectors of the logistics market: freight transportation, including transport by road, inland waterway and maritime; freight forwarding; warehousing; small-package delivery services; and value-added services.
Meanwhile, the OECD Competitive Neutrality Reviews: Small-Package Delivery Services in ASEAN report examined the effects of state-owned enterprises on competition in the bloc’s small-package delivery market. This market segment is a critical part of the logistics industry due to its role in the rapid expansion of e-commerce, whose growth has been dramatically accelerated by COVID-19.
Dato Dr. Amin Liew Abdullah, Chair of the AEM Meeting and Minister at the Prime Minister’s Office and Minister of Finance and Economy II, Brunei Darussalam said, “While the project started in 2018, the policy recommendations have taken into account the COVID-crisis to remain relevant to contribute to structural and regulatory shortcomings, which can help ASEAN economies resume sustainable growth and job creation by enhancing competitiveness, encouraging investment and stimulating productivity in the logistics sector, with economy-wide effects and consumer benefits.
He further added that the current economic and pandemic crisis confronting ASEAN and the world has brought on the need to reset competition policy and its implementation to suit the current economic and social context. Competition policy and law cannot work in isolation from other public policies and must be complemented by other related industrial policies, with robust implementation to support a competitive business environment.”
The two reports are part of the OECD’s Fostering Competition in ASEAN project. The project, a partnership between the OECD and ASEAN, supported by the UK Government’s ASEAN Economic Reform Programme. It reviewed regulatory constraints on competition in all 10 ASEAN Member States to identify regulations that hinder the efficient functioning of markets and may unlevel the playing field to the disadvantage of businesses and consumers.
Greg Hands, Minister for Trade and Policy, represented the UK Government in the meeting.
He said, “Total trade between the UK and ASEAN nations was worth £33.8 billion in 2020, making ASEAN equivalent to the 4th largest non-EU trading partner for the UK. Now, with our new ASEAN Dialogue Partner Status, we are even more committed to deepening ties with member countries, supporting jobs and promoting inclusive economic growth. Enhancing competition and promoting a level playing field for businesses is a priority for the UK government, and the reports launched today will make a valuable contribution towards supporting fairer competition and boosting international trade.”
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