Why Asean needs to pay more attention to supply chain integrity

ASEAN’S green ambitions are rising but so are the risks that could quietly undermine them.

The region has committed to ambitious climate and sustainability goals, while attracting US$226 billion in foreign direct investment in 2024 alone. Much of this investment supports supply chain-intensive industries that position Asean as a major global production hub.

But this billion-dollar opportunity is under threat. Illicit trade continues to beset Asean’s supply chains, bringing with it a host of problems – draining government revenues, damaging the environment, fuelling organised crime and jeopardising national security.

The sustainability implications are significant. Governments lose funds that could be used for green development, investors are driven away by weakened rule of law, while communities face severe health and safety risks from illicit product use and heightened criminal activity.

For Asean to achieve its strategic goals, it cannot treat supply chain integrity as a peripheral issue. Robust, transparent supply chains must be recognised as the foundation of long-term sustainable growth.

The fiscal impact of illicit trade

When people hear “illicit trade”, they often think of fake luxury goods. In reality, it is a far bigger problem that drains public finances and distorts fair competition.

Across South-east Asia, illicit trade flows bypass tax and excise systems. It includes counterfeit electrical goods, substandard car parts, illegal chemicals, undeclared cigarettes and products that evade safety or environmental checks.

This erosion of public revenue has direct implications for long-term development.

Across Asean, governments lose an estimated US$3.7 billion in tobacco excise revenue each year due to illicit trade.

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Left unaddressed, these losses could exceed US$11 billion over the next three years, placing sustained pressure on already stretched public finances.

In several member states, this leakage is equivalent to nearly 8 per cent of annual health budgets, undermining critical investments in healthcare, education and climate resilience.

Beyond tobacco, the broader scale of illicit trade is equally concerning.

The counterfeit goods market in South-east Asia alone is estimated at about US$35 billion annually, representing a vast volume of products moving through supply chains outside regulatory oversight.

These goods do not follow the standards that legitimate businesses must meet.

They avoid environmental safeguards, ignore safety rules and undercut legitimate businesses on price. They are cheaper precisely because corners are cut.

Investors are increasingly sensitive to these risks.

Capital follows not just opportunity but predictability. Where enforcement is inconsistent and supply chains lack transparency, regulatory and reputational risks arise.

Conversely, systems that ensure traceability and accountability reduce uncertainty and strengthen Asean’s attractiveness as a destination for long-term, sustainability-linked investment.

A growing national security threat

Illicit trade is part of a broader transnational, networked criminal ecosystem with real human consequences.

Globally, 27.6 million people are trapped in forced labour, generating an estimated US$150 billion in illicit profits each year – money that could finance more criminal activity.

Networks involved in smuggling and counterfeiting often overlap with those engaged in human trafficking, money laundering and other forms of organised crime, relying on shared routes, exploited labour and similar financial channels.

These actors exploit gaps across maritime and land borders, free trade zones and express cargo channels, adapting quickly to uneven enforcement across jurisdictions.

This is no longer simply a customs or trade issue – it is a frontline national security threat.

Border systems designed primarily to facilitate trade are increasingly tested by actors that undermine national resilience.

Ensuring border integrity must therefore be viewed as central to managing national security threats, far beyond the traditional role of processing trade flows.

A transnational challenge requiring Asean action

No single country can address these risks alone.

Asean’s supply chains are deeply interconnected, and enforcement gaps in one jurisdiction can be exploited across the region. Syndicates operate across borders, and responses need to follow suit.

Addressing this requires a step change in coordination.

Joint risk targeting, intelligence sharing and more aligned enforcement frameworks are essential to close cross-border loopholes.

Stronger collaboration between governments, alongside structured engagement with industry, will also be critical.

Businesses hold valuable data and operational insights that can strengthen risk detection and enforcement outcomes, and formalising these partnerships can improve policy design and implementation.

As Asean deepens its economic integration, the next frontier is to ensure that national systems work seamlessly together.

This means moving beyond cooperation towards true interoperability – with aligned regulatory frameworks, real-time information sharing and coordinated action across customs and enforcement agencies. Without this, gaps will persist and be exploited.

Technology will play an enabling role. Increasingly, Asean countries are investing in digital tools to strengthen enforcement, particularly in high-risk sectors such as tobacco.

Thailand implemented its Excise Department’s digital stamp and track-and-trace system in 2024, while Malaysia is advancing broader digitalisation efforts through artificial intelligence-driven risk profiling, real-time data sharing and enhanced trade surveillance.

However, without cross-border integration, these efforts risk remaining fragmented.

Embedding sustainability into enforcement systems

Supply chain integrity is central to ensuring that goods meet quality, safety and environmental standards from origin to market. Sustainability commitments lose credibility when illicit or substandard products move through supply chains unchecked.

For Asean, embedding sustainability into supply chains requires a more targeted and practical approach:

• Traceability. Digital track-and-trace systems can verify the origin and movement of goods, ensuring they meet regulatory and environmental standards at every stage. This strengthens accountability across supply chains and helps prevent substandard or environmentally harmful products from entering the market.
• Market surveillance. Targeted enforcement in high-risk sectors enables the authorities to detect and disrupt illicit trade flows that undermine sustainability goals. By focusing resources where risks are greatest, governments can better protect consumers, legitimate businesses and the environment.
• Trusted green lanes. Establishing fast-track channels for verified and compliant businesses creates strong incentives for companies to meet sustainability and regulatory standards. These mechanisms can facilitate trade while reinforcing high levels of compliance and transparency.

Together, these measures align trade facilitation with environmental protection, ensuring that the region’s growth is both sustainable and resilient.

A shared priority for the next phase of growth

As Asean moves through the Philippines’ 2026 chairmanship, there is an opportunity to elevate supply chain integrity as a regional priority that cuts across economic policy, security strategy and sustainability commitments.

This requires action on several fronts.

On a national level, finance ministries must prioritise closing tax gaps and protecting fiscal revenues. Defence and security agencies must strengthen border resilience against transnational criminal networks.

On a regional level, Asean mechanisms must accelerate interoperable systems, joint targeting and coordinated enforcement frameworks.

Industry, alongside Asean committees, should be formally integrated into this architecture as active partners.

South-east Asia’s green transition and broader economic future depend on this. A competitive, resilient and sustainable region cannot be built on supply chains that are vulnerable to exploitation.

Integrity is not a constraint on growth. It is the foundation.

The writer is the executive director of the EU-Asean Business Council