Report Draft of the NEAT Working Group Meeting on Strengthening
the Connectivity of Supply Chains in East Asia
Sponsored by NEAT China
14 August 2024
I

Overview

1. The global supply chains are dramatically changing, characterized byregionalization, localization, digitalization and greenization. For East Asia, a close
network of industrial connectivity has been developed, and its connected supply chainsare essential for global economic prosperity and stability.
2. It is more than necessary to strengthen supply chain connectivity among APT
countries. According to IMF Direction of Statistics, the total volume of merchandise
trade for APT countries reached 100.8 trillion US dollars in 2022, while 49.4% ofexports and imports happened among APT countries themselves. Such closeinterdependence in East Asia indicates the significance of regional supply chain
connectivity. In emerging fields, East Asia countries have built the core supply chainsof global semi-conductors and NEVs manufacturing.
3. There is broad consensus for supply chain connectivity in East Asia, including
Hanoi Plan of Action on Strengthening ASEAN Economic Cooperation and Supply
Chain Connectivity in Response to the COVID-19 Pandemic in 2021, Joint Study on
10+3 Cooperation for Improvement of Supply Chain Connectivity in 2020, ASEANChina Joint Statement on Mutually Beneficial Cooperation on the ASEAN Outlook on
the Indo-Pacific in 2023, etc. However, there still exist several challenges, such as
climate change, geopolitical uncertainty, and technological and digital transformation.
Based on regional consensus and in order to handle such challenges, collective efforts
and practical actions are needed.
4. Given the importance of supply chain connectivity among APT countries, the onsite NEAT Working Group Meeting on Strengthening the Connectivity of Supply
Chains in East Asia was held on 18 July 2024 in Shenzhen, China, to provide a platform
for NEAT members to share knowledge and experience on supply chain connectivity,
to conduct joint research on the status quo and future development in the areas related
to intraregional trade, FDI, industrial cooperation and infrastructure, particularly andmost importantly, to pool wisdom to propose a professional supply chain mechanismwith all APT parties involved and for multi-win outcomes.
5. The list of NEAT participants is at Annex.

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IICountries Perspectives

6. Cambodia views that enhancing the resilience of regional supply chains is aparamount priority. And therefore, three major areas should be highlighted for the future
direction of East Asia cooperation. Firstly, it is crucial to strengthen trade facilitation
measures, including simplifying customs procedures, reducing trade barriers, andharmonizing standards. Many regional agreements or mechanisms can be utilized, suchas Chiang Mai Initiative Multilateralization (CMIM), ASEAN+3 Macroeconomic
Research Office (AMRO) and especially Regional Comprehensive Economic
Partnership (RCEP). Secondly, digitalization and the digital economy bring more
opportunities for regional cooperation, and ASEAN Digital Economy Framework
Agreement (DEFA) is a good impetus for East Asia. In practice, ASEAN+3 economies
should seize the opportunities presented by the electric vehicle (EV) revolution. Last
but not least, engagement with the stakeholders or private sectors is also important in
the process of strengthening connectivity of supply chains. ASEAN Economic
Community Blueprint 2025 has recognized the importance of greater involvement ofprivate sector and more structured participation.
7. Indonesia discusses the choices of concentration and diversification in supply
chains, and emphasizes the significance of supply chain stability. In pursuing supply
chain resilience, there are prospects of reshoring, regionalization, and thediversification of supply chain. ASEAN's exports rely on imported inputs, and showshigh involvement in backward participation of global value chain. Take machineryindustry for example, the results generally support the argument for closer cooperationand the need for stability of imports in parts and components trade. For the most part,degree of diversification of import sources among RCEP member countries is classified
as moderately concentrated to unconcentrated. Import sources diversity is not a key
determinant in the exports of both the general electronic and precision machineryindustries. However, import value of parts and components are found to be significant
and positive in both industries with higher effects on general and electronic industries.
The implication strengthens the argument for governments to maintain stability ofimport in parts and components with major trade partners, and highlights the need forbusinesses to maintain a more comprehensive cooperation with suppliers.
8. Lao PDR analyses supply chain connectivity from the perspective of driving forces
and challenges ahead. Infrastructure connectivity development projects play a criticalrole in enhancing supply chain. These include the Lao-China Railway, Bangkok–Nong
Khai high-speed rail line, roads linked to bordering countries, and three dry ports.
Besides, industrial parks and Special Economic Zones (SEZs) together withgovernment’s supportive industrial development policies can further boost supply chain,and the government of Lao PDR has multiple relevant and supportive policies,
including tax reduction, long-term land lease, exemption from import duties, etc. In
practice for Lao PDR, major potential industries for cooperation include agriculture andforestry, processing industry, and electricity and mining. As to challenges ahead, there2are both internal challenges and external challenges. Internal challenges include
efficiency of resources utilization, limited production capacity, capacity building in
local industrial clusters, technology transfer and adoption, utilization of comparativeadvantages, and the role of industrial park and investment inflows. In addition, Lao
PDR’s supply chain is also impacted by the external challenges, which include politicalunrest and geopolitical instability, global trade uncertainty, labor shortages, andenvironmental and sustainability pressures.
9. Malaysia reviews the impact of RCEP. For trade in goods, most RCEP countries
already trade in a low-tariff environment, and there are limited prospects for further
tariff cuts through RCEP alone. However, in terms of rules of origin, RCEP adds
considerable value, serving as a harmonized, single rule book for trade in the region.
RCEP has the potential to promote greater regionalization in value chains, but this iscontingent on effective utilization, which remains lacking in some member states. For
Non-Tariff Measures (NTMs), RCEP does not move the needle much in NTM reduction,
and NTMs remain a notable barrier to regional trade. For trade facilitation, higher
benchmarks are needed for more advanced member states. To sum up, by consolidating
ASEAN’s existing FTAs in Asia-Pacific, RCEP represents the first step towards moretransparent and integrated regional trade, but more efforts, both nationally andregionally, are needed to streamline NTMs and promote utilization. Finally, the timely
operationalization of the RCEP Support Unit and Subsidiary Body is needed tostrengthen RCEP’s effectiveness.
10. Myanmar analyses the prospect for supply chain connectivity. The 26th ASEAN
Plus Three (APT) Summit put forward five strategic areas, which are indispensable forsupply chain connectivity, while the “APT Cooperation Work Plan 2023-2027” serves
as principal guidelines. Within MoU of China-Myanmar Economic Corridor (CMEC),
many projects are planned, such as Kyaukphyu deep sea ports and Muse-Mandalay
railway. Besides, Greater Mekong Sub-region (GMS) and Laos-China Railway canraise opportunities in transportation and tourism. However, there still exist challenges,
including incomplete infrastructure network, high costs and less efficiency due toNTMs, and tightly regulated transportation routes. Therefore, regional agreements andmechanisms need to be further implemented and coordinated. In the context oftechnology-driven “new economy”, technical assistance and experience sharing arenecessary, and technological value chain and supporting services are also needed. The
value-added and manufacturing-for-exports strategy remains relevant for APT
developing economies. Finally, other issues should also be considered, such as safe
maritime passage, efficient shipping canals, and policies to develop human resources.
11. The Philippines discusses the supply chain connectivity from the perspective of
tourism. Based on the comparison of supply chain and value chain, tourism is a value
chain. Tourism in APT has great potentials, due to liberalized mobility and increased
connectivity. Regional agreements and mechanisms (such as ASEAN, APT, APEC,
RCEP) are effective to facilitate tourism flows, allowing for tourism enterprises to3

evolve, and allow member economies to make commitments in enhancing production,
distribution, and value propositions. Together with digitization, digitalization, anddigital transformation, APT enjoys digital integration, which makes supply chain more
flexible and efficient, and there are some facilitation schemes, including transportation
convenience and ease mobility, digital payments, and APEC Safe Passage Framework.
Lessons from the ASEAN experience include on one hand enhancing competitivenessof ASEAN as single tourism destination, and on the other hand ensuring that ASEAN
tourism is sustainable and inclusive. To conclude, it’s crucial to create an efficient
supply chain with data integration, and supply chain management remains a people’sbusiness. Finally, seamless integration is a key to differentiation.
12. Singapore recognizes the phenomenon of supply chain shifts and significance ofindustrial policies. For the past several years, relocation of FDI is common, and projects
are relocated to ASEAN. The projects are more capital and labor intensive inmanufacturing or manufacturing services. In the globe, more industrial policies are
introduced, and the most frequent users are developed economies with higher incomes.
Major drivers of the supply chain shift contain pandemic-induced disruptions,geopolitical tensions, technological advancements, and sustainability andenvironmental concerns. Pursuing more resilient supply chains, it's urgent to diversify
supply sources and increase self-production capacities, strengthen regional cooperation
through ACFTA and RCEP, and implement coordinated industrial policies.
Infrastructure investments and advanced technologies are also indispensable. Besides,
consumer-centric supply chains should be considered. As to challenges, regulatory
harmonization and logistics upgrading need more efforts. For opportunities, advantages
lie in cooperation mechanisms such as industrial parks and PPP, regional supply chain
hubs, emerging industries, and capacity building and workforce development.
13. Thailand studies the case of Eastern Economic Corridor (EEC). EEC has evergrowing potentials, due to access to large and growing market, and a strategic location
as a gateway to Asia. Targeted industries emphasize the role of advanced technology
and innovation, and include decarbonization, health and wellbeing, logistics, humanresource development and digital economy. Within EEC, key infrastructure projects
consist of Laem Chabang deep seaport phase 3, U-Tapao international airport, highspeed rail, and Map Ta Phut industrial port phase 3. EEC’s infrastructure iscomprehensive, including not only logistics, but also digital and R&D infrastructure.
EEC has demand-driven approach for human capital & skill development, providing
both long-term courses on vocational levels, and module short courses. From theperspective of SEZs, EEC’s advantages include advanced industries such as EVs,
infrastructure readiness, market expansion opportunities, labor & technology readiness,government policies and regulatory standards. To cope with challenges, it's necessary
to enhance regional cooperation and infrastructure investment, promote multimodaltransportation, harmonize customs procedures, and promote digital adoption.

414. Viet Nam discusses the opportunities and challenges. East Asia is the world’s
biggest manufacturing economies and trade hub. One of the key driving factors is theBelt and Road Initiative (BRI). However, the region faces challenges which may disrupt
supply chains, including geopolitical tensions, trade disputes, and non-traditional
security issues. For Vietnam there are many opportunities, including boosted economic
growth by improving infrastructure and logistics capabilities, fostered regional
collaboration in promoting sustainable development standards, improved innovation to
boost technological capabilities, and bolstered position as an attractive connecting point
in regional supply chains. Meanwhile, Vietnam still faces several challenges, such asheightened competitive pressure from more established and technologically advanced
players, adverse environmental and social impacts as well as competitive pressure forthe supporting industry, and vulnerability to global economic fluctuations andgeopolitical tensions. Therefore, Vietnam takes concrete measures, including more
infrastructure investment, promotion of technological adoption and digitaltransformation, and diversification of supply sources and robust regulatory frameworks.
15. Republic of Korea underlines the significance of regional cooperation. There areseveral factors which lead to uncertainty and unpredictability, including geopolitical
rivalry, technological transformation, and geo-economic fragmentation. Under thiscircumstance, international trade is indispensable. Many Asian countries heavily reply
on China in supply chains. Diversified supply chains are resilient and indeed happening.
ASEAN is an important partner for Korea. Major trade partners of Korea shifted from
US and Japan in the 1990s to China and ASEAN in the 2000s, and the value chain has
been established between Korea and ASEAN. To further utilize these opportunities,
new agenda for policy cooperation for economic prosperity should be developed, andthe potential agenda include public health, pharmaceuticals, digital economy, and trade,etc. Bilateral cooperation needs to be customized for mutual interests, in accordancewith respective circumstances. Besides, technology development and transfer,knowledge sharing of economic development are also necessary. However, there arestill several challenges in the ASEAN market that need to be addressed, including
intense competition with foreign invested companies and a shortage of qualified
workers.
16. Japan analyses the prospect for regional cooperation under RCEP framework.
There is strong economic interdependence among APT, and APT has played a vital rolein the formation and development of the supply chain connectivity in East Asia. Since
Japan has an EPA with ASEAN, RCEP could be regarded as FTAs with China andKorea for Japan. RCEP has eliminated tariff in many exports among CJK countries, but
yet CJK should pursue "RCEP plus" further upgrading for higher standards withelimination of more tariff and non-tariff measurement by achieving CJK FTA. Japan's
outward direct investment in manufacturing sector is increasing and Japan has many
overseas subsidiaries locating in ASEAN and China. While the concept of "economic
security" is highly significant to each country, it must not be used as a cover forprotectionism. In that regard, in order to strengthen resilient regional supply chain
5

connectivity, APT should establish a higher level of economic partnership frameworks
through upgrading RCEP and concluding CJK FTA, deregulate regulation on FDI andsimplify administration procedures which ensure transparency and predictability,
advance digital trade facilitation with simplified customs procedures, pursue Data Free
Flow with Trust (DFFT), and simplify travel procedures for increased traffic.
17. China focuses New Energy Vehicle (NEV) industry for regional supply chain
connectivity. Since it’s more value-added and environmental-friendly, NEV industry
adopting ICT/data/AI has more potentials. When the supply chain integration among
APT is on the way, the East Asia region is more likely to lead this spear-headed NEV
industry. China is leading the global NEV revolution, while Japan’s high-end
manufacturing and technological innovation, and Korea's expertise in battery
technology and electronic systems are great impetus. The sustained development of
NEV industry in the region relies on a healthy and adaptive industrial ecosystem
together with resilient supply chain networks. “Statement on Developing of Electric
Vehicle Ecosystem” issued by APT leaders in 2023 set up a grand blueprint of strategic
industrial cooperation. it is necessary to have a neutral platform working equally withall stakeholders to clear hurdles of developing regional NEV ecosystem and promoting
robust supply chain network in the industry. As such, an industrial alliance of NEV
manufacturing is suggested, which should be a third-party and not-for-profit entity.
Besides, sustainability imperative, collaborative frameworks, and trade reciprocity andknowledge exchange are needed.
III

Consensus Reached

18. The following issues are mentioned and recognized by many experts:
19. Diversification to be fully considered. Based on respective national conditions
and local demands, there are many options for cooperation. Therefore, diversification
should be fully considered, not only to enhance regional supply chain connectivity inthe entire region, but also to care about individual countries with differentiated demands.
20. More opportunities than challenges. Although confronted with internal andexternal challenges, APT countries have more chances and great potentials in regional
supply chain connectivity. The next step is to make full use of our advantages, further
integrate in regional chains, and cope with several weaknesses.
21. Collective and coordinated efforts. Based on deeper integration in East Asia,
regional supply chain connectivity needs further collaboration. To cope with regionalbottlenecks and pursue shared prosperity, it is prerequisite for APT countries to pull
together for a resilient and fruitful regional supply chains.
IV

Policy Recommendations

622. The participants to the NEAT Working Group Meeting noted that it is essential for
APT countries to enhance intraregional cooperation and supply chain connectivity
provides a good solution, which is suitable for diversified local conditions. In order tomaximize benefits for all APT countries in both economic and social areas, the Working
Group on “Strengthening the Connectivity of Supply Chains in East Asia” puts forward
policy recommendations based on all the presentations and discussions at the meetingas follows:(a) Long-term cooperation mechanism and rule-based business environment

APT Supply Chain Working Group may be a good idea. Throughnegotiation and coordination, it is good to promote inter-dependence, reduce
uncertainties and enhance resilience. Regional supply chain connectivity is acomprehensive and systematic project, and therefore a specific mechanism isgreatly needed to promote experience and good practices, share finance andtechnology, and to satisfy specific local demands. Moreover, multiparty
engagement involving governments, businesses and NGOs for all APT
countries is a necessity for future’s effective cooperation.

Transparent governance for sound business environment can provide
basic guarantee for supply chain connectivity. In order to achieve open andinclusive supply chain connectivity, transparent governance in each country
and within the region is essential to ensure equal and fair treatment for every
single market player. Besides, the sound business environment should be rulebased and market-oriented, where the importance of lawful regulations andmarket mechanism should be emphasized and implemented. In practice,
localized and coordinated industrial policies, simplified administration
procedures, trade facilitation, and FDI deregulation are good practices.



Industrial parks and special economic zones are efficient platforms for
supply chain connectivity. These two typical examples of industrial
agglomeration can not only pool funds, but also cluster good firms, andmoreover have a positive spillover effect along the supply chain. The next stepis to enhance respective industrial parks or SEZs in integrated East Asia, toencourage localized and diversified development in a regionally coordinatedway.

(b) Intraregional policy coordination, synchronization of rules and regulations,and development convergenceCentrality of ASEAN should be upheld. As to cooperation among APT
countries, supply chain connectivity can learn experiences from ASEAN in thefield of good practices and harmonious collaboration. Furthermore, ASEAN
centrality is indispensable for satisfying diversified demands based on local
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conditions. Only with ASEAN centrality, can supply chain connectivity be
differentiated in appropriate forms, which is more suitable for diversified local
needs.


RCEP should be a guiding instrument to promote supply chain
connectivity. RCEP’s provisions can serve as a guide to facilitate intraregional
business operations and supply chain connectivity. Where applicable andappropriate, RCEP member states should work towards upgrading theirdomestic regulations in line with RCEP’s standards in the interest oftransparency and cooperation. In the future, RCEP needs further upgrading forhigher standards and greater compliance through the streamlining of NTMs andformalization of the RCEP Support Unit under effective regulation.

Convergence programs should be implemented together for shareddevelopment. For APT countries, we share the same goals of economic growthand sustainable development, and therefore many regional and nationalarrangements can be utilized and combined, such as CMIM, AMRO, DEFA,
CMEC, GMS, EEC, BRI, DFFT, etc.

(c) Driving forces of connected infrastructure and shared technology
Infrastructure connectivity is a necessity. Domestic infrastructuredevelopment and logistics performance are fundamental for enhancing supply
chain connectivity. What’s more, regional infrastructure connectivity is highly
essential to facilitate flows of products, services, capital, and people. The LaoChina Railway, Kyaukphyu deep sea ports, and Laem Chabang deep seaportare good examples, but many more are needed.

A community with shared technology would be a great impetus. In the eraof technology-driven economy, East Asia countries should closely work
together, so that we can fully utilize new technologies such as digitalization and
AI to strengthen regional supply chain connectivity. Joint research, personnel
training, technical assistance, and technology transfer should be encouraged fortechnological flows in East Asia.

(d) NEV industry as a pilot project for supply chain cooperation


NEV supply chain has great potentials in East Asia. Based on our traditional
advantage in manufacturing, with huge population for low production costs andbig consumer market, together with R&D capability and productive capacity,
NEV supply chain is promising. More importantly, we have a top-level
consensus, ASEAN Plus Three Leaders Statement on Developing of Electric
Vehicle Ecosystem in 2023. It is agreed that an Action Plan for Developing
New Energy Vehicles (NEV) Ecosystem should be formulated as
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recommendations at the NEAT level and submitted to Track I, contributing to
the implementation of the initiative launched by the APT Leaders’ Meeting lastyear as mentioned above.
V

Tourism value chain is another good option. Based on abundant sceneries,
liberalized mobility, increased connectivity, and digital integration, tourism
cooperation is also viable. Moreover, tourism value chain is sustainable andinclusive in East Asia. In the future, seamless integration with a unified large
market is the key for common prosperity and differentiated development.
Conclusion

23. Although confronted with some difficulties and challenges, yet undoubtedly supply
chain connectivity is more suitable for APT countries, and it will definitely witness
promising development in the future. Within the region, traditional advantage inmanufacturing and emerging advantage in technology are good impetus, but more workneeds to be done. During the cooperation, multi-party engagement is fundamental,
concerted actions are necessary, and connectivity in infrastructure and technology is
helpful. With consensus and policies for coordination, with major areas as cooperation
priority, with qualified businesses as market players, and with social demands as
ultimate goal, supply chain connectivity will bring overall development effects for
specific countries and among the entire region.

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Appendix: List of Participants of the NEAT Working Group Meeting on Strengthening
the Connectivity of Supply Chains in East Asia
LIST OF PARTICIPANTS

CAMBODIA
Neth Thida Vichhuna
Director of ASEAN Plus Three and East Asia Summit Department
Ministry of Foreign Affairs and International Cooperation
Khen Seaklay
Deputy Chief of Bureau ASEAN Plus Three and East Asia Department
Ministry of Foreign Affairs and International Cooperation
Him Rotha
Deputy Director
Cambodian Center for Regional Studies
INDONESIAEvi Fitriani
Professor
Universitas Indonesia
Mohammad Dian Revindo
Lecturer and Researcher
Universitas Indonesia
LAO PDR
Kinon Khounvisith
Deputy Director General of Department of Industry
Ministry of Industry and Commerce
Bounphieng Pheauphetlangsy
Deputy Director of Strategic and International Studies
Senior Research Follow
Institute of Foreign Affairs
MALAYSIA
Jaideep Singh Sokhdave Singh
Analyst10

Institute of Strategic and International Studies (ISIS) Malaysia
MYANMAR
Naing Swe Oo
Senior Adviser
Myanmar Institute of Strategic and International Studies
Kyaw Nyunt Lwin
Senior Adviser
Myanmar Institute of Strategic and International Studies
PHILIPPINES
Eylla Laire Maranan Gutierrez
Program and Research Manager
Asian Institute of Management
John Paolo Rosales Rivera
Senior Research Fellow
Philippine Institute for Development Studies
SINGAPORE
Lam Peng Er
Principal Research Fellow of East Asian InstituteNational University of Singapore
Li YaoSenior Research Fellow of East Asian InstituteNational University of Singapore
THAILAND
Saran Vajraphai
Director of Global Human Capital Development Group
Ministry of Higher Education, Science, Research and Innovation
Sunida Piriyapada
Assistant Dean of Academic
Panyapiwat Institute of Management
VIETNAM
Tran Thanh Hai
Deputy Director-General of Institute for Foreign Policy and Strategic Studies
Diplomatic Academy of Viet Nam
11

Nguyen Thanh Xuan
Research Fellow of Institute for Foreign Policy and Strategic Studies
Diplomatic Academy of Vietnam
REPUBLIC OF KOREA
Chun Sun Eae
Dean and Professor of Graduate School of International Studies
Chung Ang University
JAPAN
Kikuchi Yona
Executive Director
The Japan Forum on International Relations
Miura Hideyuki
Associate Professor
Kyorin University
CHINA
Guo Yanjun
Professor and Director of Institute of Asian Studies
China Foreign Affairs University
Yang Yue
Professor and Deputy Director of Institute of Asian Studies
China Foreign Affairs University
Deng Xin
Professor
Hunan University of Technology and BusinessYu Qiao
Professor
Tsinghua University
Li Feng
Associate Professor of School of International Economics
China Foreign Affairs University
Zhao Xiao
12

Lecturer of Institute of Asian Studies
China Foreign Affairs University
Ma Fangsi
Graduate Student of Institute of Asian Studies
China Foreign Affairs University

13