Digging Deeper with DEFA

The launch of the ASEAN Digital Economy Framework Agreement (DEFA) negotiations at the 43^rd ASEAN Summit in September was a key highlight of the Indonesian Chairmanship of ASEAN this year. The much-anticipated first round of negotiations is scheduled for 1^st December where the zero draft is expected to lay the foundation for the subsequent negotiating rounds. At this juncture, ASEAN Member States (AMS) will get a glimpse of the level of ambition embedded in the negotiating mandates of fellow members. With a targeted two-year runway to negotiation closure, the compact timeline for the ten AMS to negotiate terms for nine broad areas of focus runs the risk of racing to the finish line without a deep and substantive outcome that goes beyond a ‘lowest common denominator’ type of Agreement. While the DEFA aims to move the needle on regional digital integration, it needs to proactively narrow the digital divide within the region to achieve better digital interoperability and ultimately, integration.

Establishing this well-balanced level of ambition can be challenging on several fronts. For one, the differing levels of digital capabilities and hence the overall maturity of the digital ecosystems of the respective AMS can impede the harmonisation of standards, the level of digital integration, and the speed at which it can be achieved. A summary of ASEAN Digital Integration Index (ADII) scores, which measure the level of readiness for digital economy integration as defined under the ASEAN Digital Integration Framework, is shown in Table 1 with some notable observations.  

Table 1: ASEAN Digital Integration Index (ADII) Scores (2021)

First, the countries scoring the highest and lowest respectively across the six measurement pillars vary and their scores do not necessarily correspond to relative levels of economic development, especially in the case of AMS that perform well. For instance, Thailand and Malaysia hold the highest scores in ‘Digital Trade & Logistics’ and ‘Data Protection & Cybersecurity’ respectively despite being upper-middle income countries, edging out Singapore and Brunei, both high-income countries in the region. In contrast, the lowest scorers are huddled in the lower-middle income bucket. Second, the disparity between the highest and lowest scores in each pillar is wide, with the largest gap reaching over 70 points in ‘Data Protection & Cybersecurity’. Additionally, when comparing the best performers amongst the AMS across the pillars against international benchmarks, the high scorers are very close to the said benchmarks or even significantly supersede them, in the case of Singapore’s lead in the ‘Institutional & Infrastructural Readiness’ pillar by 26.46 points. Thus, a key starting point for facilitating greater digital integration would be to bridge these digital integration divides among the AMS.

The Leaders’ Statement on the Development of the ASEAN Digital Economy Framework Agreement (DEFA) recognised the need to pursue “broader and deeper” cooperation to narrow these digital gaps. As such, an integral component of the DEFA would be a strategic plan of action aimed at articulating how these intentions can be achieved. An effective capacity-building strategy could include key action areas with targets, activities required to achieve targets with a clear timeline for benchmarking milestones, as well as some discussion on funding mechanisms to support these activities spanning across AMS. Ideally, monitoring and evaluation of these capacity-building efforts should also be included in the strategy, although that would increase ASEAN’s required budget for this initiative.

Certainly, an ASEAN-X or staggered approach to achieving targets for standards harmonisation and regulatory liberalisation could be adopted to effectively provide a longer timeline for less digitally ready AMS to accede to the agreed DEFA terms. However, this approach may ironically counter all good intentions of narrowing the digital divide altogether, with countries potentially becoming more polarised as the digitally-developed economies gain a head start in reaping the benefits of integration. That said, another permutation that could be considered is a hybrid approach – capacity-building for digitally-lagging AMS subject to a phase-out period, whilst they are afforded some concessions in the timeline to accede to the Agreement’s full terms.

To note, some AMS already have existing bilateral arrangements with one another aimed at strengthening digital capabilities. In January 2023, Singapore and Malaysia concluded a Framework of Cooperation (FoC) on the digital economy. In this partnership arrangement, both sides agreed to cooperate on the areas of personal data protection and cybersecurity – two of the fundamental safeguards for digital trade flows. Apart from that, projects on national and corporate digital identities were mooted, reinforcing the importance of digital trust in the bigger picture of digital integration. Singapore and Indonesia signed a Memorandum of Understanding in March this year on the digital economy which saw the establishment of the Tech:X Programme, a cross-border work programme for young tech professionals to deepen digital capabilities through knowledge exchanges. Targeting digital skills development is a key aspect of digital integration, as it is the area that scores the lowest amongst the six ADII pillars in the region. These bilateral agreements could perhaps serve as pilot projects or future models for ASEAN-wide agreements that can be incorporated into the DEFA.

Apart from their respective digital capabilities and digital ecosystem maturity, individual countries’ prerogatives surrounding the importance placed on aspects such as data sovereignty may also hinder intentions for deeper digital integration within the region. Indonesia, Thailand, and Vietnam have data localisation regulations of varying degrees. Just recently, talks on digital trade aspects under the US-led Indo-Pacific Economic Framework for Prosperity (IPEF) initiative were suspended after a change in the proposed treatment of cross-border data flows which would prohibit national requirements for data localisation. On top of more conventional capacity-building approaches, some obstacles to integration may be overcome only with a change in government mindsets, especially the degree of risk aversion regarding sensitive issues, as well as political will.

One important driver that can help to alleviate risk aversion to facilitate more seamless digital trade would be to build a digital trust environment. The broadening in scope of an initiative such as Singapore’s Digital Trust Centre into a regional endeavour to further the development of trust technologies to secure digital information and systems through targeted research and sandboxing activities could be considered. In certain instances where the gaps in capabilities and sovereign stances on certain sensitive issues are too challenging to bridge, it may be pragmatic to pursue a looser approach. Under the Digital Trade Principles of the European Union’s (EU) Digital Partnerships initiative which aims to facilitate trade with partner countries, the EU adopts an approach of a ‘common understanding’ on pertinent digital trade issues rather than the use of binding instruments such as harmonised data protection standards to promote digital integration. This could include a ‘whitelist’ approach to data transfers where countries would have common underlying standards establishing a level of trust that the transfer of data would be protected in a cross-border setting.

Striking a balance between meaningful progress towards greater convergence whilst ensuring that no AMS is left behind in this endeavour remains the ideal scenario. Achieving this may require a degree of pragmatism. That said, any endeavour such as the DEFA should aim for something more progressive than the status quo. The most important factors to consider when entering the negotiations are the diversity of the ASEAN region and the importance of narrowing the digital divide using traditional capacity-building means, as well as strengthening digital trust as both a digital safeguard and an enabler.

Editor’s Note:
ASEANFocus+ articles are timely critical insight pieces published by the ASEAN Studies Centre.