Aspiring High: Unlocking Southeast Asia’s Potential through the ASEAN Digital Economy Framework Agreement

Guided by the 2021 ASEAN Bandar Seri Begawan Roadmap, the ASEAN Digital Economy Framework Agreement (DEFA) — slated to be the first regional digital economy agreement in the world — is timely.  Just like existing traditional free trade agreements and other digital economy agreements, DEFA will be legally binding.  DEFA aims to unlock an additional USD1 trillion to the region’s digital economy by 2030, compared to the business-as-usual trajectory. Nine areas of digital economy, from cross-border data flows to digital ID to talent mobility, will be up for negotiations, which kicked off on 1 December 2023 and are expected to conclude in 2025. Coupled with ASEAN’s diversity across the legal, socio-economic and political spheres, DEFA is an opportunity to demonstrate to global stakeholders how digital integration is possible through cooperation.

Negotiators face at least three challenges to unlocking Southeast Asia’s digital potential.  The first is to strike a balance between respecting the national policy objectives and regulatory systems of sovereign member states while enabling digital interoperability across the region through alignments, standardisation and harmonization of regulations and infrastructure (“horizontal integration”). The second challenge is to keep in view the ultimate goal of global competitiveness by developing standards, frameworks and systems to suit the region while enabling global interoperability (“vertical integration”). The third challenge is to narrow the significant digital divide across ASEAN member states (AMS) by giving time and space for AMS to adopt and implement the newly agreed standards, frameworks and systems, and to secure commitments for capacity building so that the benefits of DEFA are inclusive and equitable. 

How might DEFA address these challenges? Drawing on insights of experts working in government, business and civil society at the 10^th ASEAN Economic Community Dialogue in Jakarta on 30 November 2023, we identify three key policy recommendations for advancing ASEAN’s digital economy.

DEFA’s success rides on ambition and commitment to solve fundamental elements of the digital economy, especially regarding seamless data flow and talent development.

First, rather than a prescriptive treaty, DEFA should strive to be a principle-based and impact-focused agreement forming the basis for a framework on cooperation, with ample policy space for AMS to determine the governance approaches that best fit their respective local contexts. However, it is crucial for AMS to ensure that local laws and regulations support interoperability across borders within and beyond ASEAN, underpinned by clear principles, a common taxonomy and standard definitions. Vision alignment and an agreement on baseline rules can also help set the policy floor for the desired outcomes.

The elements mooted for DEFA negotiations such as harmonising standards, frameworks and systems — especially those requiring legal compliance — are not “all-or-nothing.” Areas in DEFA that are more developed and have the greatest impact can be prioritised for implementation. A progressive alignment of regulations through a modular approach can be pursued, with nascent areas subject to principle-based collaboration. Digital trade and cross-border e-commerce have advanced, since most AMS have already adopted paperless trade and the UNCITRAL Model Law on Electronic Commerce into their domestic law. DEFA negotiations can build on these existing country-level achievements and also agreements such as the ASEAN Agreement on E-Commerce. While further conversation will be needed to enable cross-border recognition and cooperation in digital identity initiatives and governance of emerging technologies, AMS can agree on common values and guiding principles such as responsible AI practices. 

Second, to ensure interoperability and integration to the global market, DEFA should learn and adopt existing digital provisions in free trade agreements and plurilateral trade agreements, digital economy agreements, and country-level and region-level initiatives. Notable references include the Regional Comprehensive Economic Partnership, the Singapore-Australia Digital Economy Agreement and Digital Economy Partnership Agreement, the e-commerce chapter of the agreement establishing the ASEAN-Australia-New Zealand Free Trade Area, and APEC’s Cross-Border Privacy Rules. However, ASEAN should advance its own unique and pragmatic approach to DEFA that is fit for purpose and best suited for the region’s diverse society and culture.

Third, it is important for DEFA to be ‘future-proof’ and not become obsolete as new technologies emerge. Hence, DEFA should be technology-neutral, not favouring or discriminating against any types of technology. This protects DEFA against obsolescence even when ​​technological breakthroughs, new digital solutions or innovative business models disrupt the current landscape. Nurturing continued digital and technology innovation through a fair level playing field between large and small companies, and between incumbent and incoming players, should be prioritised.

Continued cooperation among governments and among the public and private sectors as well as civil society on emerging topics is vital given the pace of technological innovation. While the ubiquity of artificial intelligence, for example, might be the current subject of debate, new technologies and business models could quickly render existing governance and market structures obsolete. Emerging topics may require ongoing learning as companies test innovative solutions and scale across the region safely. Regulatory sandboxes promoting regulatory learning while encouraging innovation to serve the needs of the region is a good start; even more ambitious would be a regional approach to regulatory sandboxes, such as sandbox corridors across several countries to encourage growth and alignment at scale.

Beyond these specific recommendations, DEFA’s success rides on ambition and commitment to solve fundamental elements of the digital economy, especially regarding seamless data flow and talent development. Trusted free flow of data is fundamental to DEFA’s goal of digital integration, but data localisation laws and disparities in data governance regulations dampen the potential. Common frameworks, standards and principles for online safety, cybersecurity and personal data protection can address many of the concerns surrounding cross-border data flows. DEFA should promote talent development and mobility across the technical, business and governance domains, through capacity building and knowledge exchanges, and mobility across countries as well as the private and public sectors. Such progress would lay the foundations for fruitful public-private partnerships for technical assistance, governance initiatives and standards alignment.  DEFA can set a new pathway as global trade and technology governance evolve in the digital age.  For a start, it can be the basis for meaningful cooperation and coordination for an empowered, safe and integrated ASEAN that is innovative, interoperable and investable.

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