ASEAN Services Liberalisation: Big Promises, Modest Progress

Services play an increasingly important role in development especially for modern economies which are embracing digitalisation. The export of services has outpaced the export of goods from 2015-2024, for the world and especially for developing economies. More broadly, services can enhance manufacturing, diversify production, facilitate export, and raise productivity.

In ASEAN, the services sector is a crucial economic engine, accounting for 38 per cent to 77 per cent of member states’ GDP, and attracting over 67 per cent of foreign direct investment (FDI) inflows in 2024. Yet, ASEAN’s exports comprise mainly of goods; the total trade in goods (USD3844.3 billion) approximately tripled the total trade in services (USD1286.4 billion) in 2024. The share of intra-ASEAN trade in total trade is around 14 per cent for services, compared to 21 per cent for goods.

The relatively lower share of trade in services is not surprising since the liberalisation of services in ASEAN has taken a pedestrian and protracted journey, starting from the ASEAN Framework Agreement on Services (AFAS), conceived in December 1995, after the General Agreement on Trade in Services (GATS) by the World Trade Organisation entered into force in January 1995. AFAS aimed to expand services liberalisation in ASEAN, beyond the commitments made at GATS.

ASEAN used a positive list approach under AFAS, whereby members listed the specific sectors and sub-sectors that are opened up for liberalisation. Restrictions in services trade were gradually removed over ten packages of commitments, with the 10th AFAS Package signed in 2018.

The commitments made over these ten AFAS packages have increased in scope and coverage, indicating an improvement in policy certainty in ASEAN’s services sector. Commitments to liberalise almost all of the services sectors and subsectors ranged from 111 to 122 subsectors out of a total 128, typically only leaving out sensitive and/or commercially insignificant subsectors.

The positive list approach under AFAS has two main limitations: selective liberalisation, or the tendency to retain some trade restrictions despite commitments to liberalise; and limited transparency, which causes uncertainty among investors about long-term conditions.

Thus, liberalisation under AFAS was deemed to be slow, uneven, and relatively shallow. External evaluations have noted that commitments under AFAS have not been “significantly bolder” than member states’ GATS commitments, partly due to regulatory complexity and capacity constraints.

Mindful of the limitations of the AFAS positive list model, ASEAN negotiated and signed the ASEAN Trade in Services Agreement (ATISA) in October 2020, which came into force in 2021. ATISA represents a structural shift by adopting a negative list approach, whereby all service sectors covered by the agreement are considered liberalised by default unless explicitly reserved as non-conforming measures (i.e., sectors or restrictions a member state wishes to exclude). This stands in direct contrast with positive listing, where liberalisation only applies to those subsectors listed in members’ commitments. Liberalisation under ATISA is therefore more transparent as all sectors are presumed open unless they are reserved, which in principle binds liberalisation over a broader range of services, making it more predictable for investors.

While ATISA’s shift to negative listing holds promise, the pace of liberalisation remains slow due to long transition periods, while reservations continually dilute liberalisation in practice. Timelines for converting AFAS positive list commitments into negative list Schedules of Non-Conforming Measures (NCMs) vary across countries. For most ASEAN members, the negative list will take effect five years from the date of ATISA’s entry into force , while Vietnam has extended this compliance period to seven years, and Cambodia, Lao PDR and Myanmar have 13 years. This extended phase means that liberalisation under ATISA will not fully materialise for many years thereby attenuating the impact of the negative list shift. For countries with more restrictive service regimes, the negative list can simply formalise existing barriers instead of opening up markets.

For ASEAN to realise its vision of a truly integrated services market, member states must move beyond formal commitments and accelerate substantive domestic reform.

Thus, despite nearly three decades of commitments under AFAS and now ATISA, the state of services trade in ASEAN today scarcely differs from the assessment of a 2015 World Bank/ASEAN report which highlighted that intra-ASEAN services trade remained low relative to economic size, complementarity, and geographical proximity, significantly due to regulatory and technical barriers.

The insufficiency of scheduled commitments prompted ASEAN to move toward a services facilitation framework (or ASEAN Services Facilitation Framework (ASFF) in 2025, under Malaysia’s Chairmanship. ASFF aims to increase cross-border trade and investment in the services sectors, reduce domestic barriers to trade and investment in services, and establish a favourable and predictable business environment for international trade and investment in the services sectors. It aims to achieve the above by promoting good Regulatory Practices, Stakeholders Engagement, Integrated Digital Facilitation, and Facilitation of Talents Mobility, and by fostering Circular Economy.

Such facilitation initiatives are important because they target behind-the-border regulatory barriers, which are the most persistent impediments to services trade. While ATISA provides a rules-based framework for deeper commitments, services facilitation offers a more pragmatic approach by focusing on voluntary domestic reforms of service sectorsthat can benefit both domestic and foreign service providers, while enhancing the contribution of services to growth and development.

Despite the importance of services facilitation as exemplified by ASFF, it continues to be a voluntary mechanism. The Philippines, as the 2026 Chair of ASEAN, is also using a sectoral approach for developing services, as reflected in the use of prosperity corridors, focusing on digital and capital market developments.

For ASEAN to realise its vision of a truly integrated services market, member states must move beyond formal commitments and accelerate substantive domestic reform. Completing ATISA’s transition to a negative list framework is necessary but not sufficient. Without decisive efforts to dismantle entrenched regulatory barriers and actively pursue services facilitation as shown by the ASFF, integration will remain more aspirational than real. Thus, the next Chair of ASEAN in 2027 will need to review the use of ASFF and press towards greater removal of regulatory barriers for services integration to advance.

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