This article is a theoretical analysis attempting to investigate the impacts of tariffreduction under the ASEAN Industrial Cooperation (AICO) program for enhancingcompetitiveness of industrial sectors of the ASEAN member countries via theadvantages on economies of scale and economies of scope. The results of the studyreveal that as for Thailand, most of the domestic industries which benefit from thisprogram are primarily operating in the downstream of the value chain. Besides creatingemployment, society will benefit as the prices of finished products decline due to areduction of tariffs on their raw materials and parts. However, in social welfare analysis,there are two factors that determine the level of social welfare, namely the pass-througheffect of tariff reduction on finished product prices and price elasticity of all relatedmaterials in the supply chain, especially the finished product. In the case of theautomotive industry, which has the largest number of projects participating in the AICOprogram, its pass-through effect is relatively close to unity, whereas its demand is foundto be elastic. This could assist consumers to gain a large consumersû surplus whenthe finished productsû prices decrease as a result of tariff reduction on raw materials.The implementation of AICO could have an effect by a reduction of the governmentûstariff revenues from the industrial sector on which it depends for the difference in tariffrates under CEPT and AICO, as well as the degree of dependency of the domesticindustry on the particular products specified under the AICO scheme.