Fragmented Digital Regulations are Constraining ASEAN’s Digital Economy

The digital economy — a broad range of economic activities that use digital technologies, digitised information, and processed data in the production process — has the potential to accelerate economic growth and expand markets for ASEAN firms beyond their national boundaries. The value of six digital economies — Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam — was forecast to increase by 78 per cent in three years, from US$109 billion in 2019 to US$194 billion in 2022, and to reach US$330 billion in 2025. E-commerce is the largest sector accounting for 64 per cent of those economies. 

However, the ASEAN digital economy is running sub-optimally due to the lack of coherence in the region’s digital regulatory frameworks. Firms in the region are constrained by fragmented digital regulations at the national level, on top of the varying rules imposed by global trading partners. Being able to supply digital goods and services to consumers both within and outside ASEAN is a desirable feature of the digital economy. Enhanced search capacity, reduced transportation costs, and potentially global advertising allow ASEAN digital entrepreneurs, especially those from micro and small enterprises, to break out of their local markets and raise revenues from the expansion of consumer markets.

In ASEAN, member countries have adopted different cross-border data regimes. Mapping of regulations on cross-border data flows reveals that the Philippines and Singapore allow all data, including personal data, to flow freely across borders with minimal regulatory requirements. In contrast, Indonesia and Vietnam adopt a restrictive regulatory approach, which completely or partially prohibits cross-border data flows for reasons of public security and national security. Malaysia and Thailand allow cross-border data flows conditional on rigorous compliance requirements such as domestic data protection or privacy laws.

Fostering a coherent regulatory framework for the regional digital economy requires ASEAN and its key trading partners to promote transparency in their design and implementation of digital regulations.

Different cross-border data regimes mean that firms in cross-border electronic businesses such as e-commerce and cloud computing have to comply with different regulations, which raise their regulatory compliance costs or even prevent them from engaging in the digital economy and accessing ASEAN markets. Empirical evidence shows that restrictions on cross-border data flows in Indonesia and Vietnam could reduce their gross domestic product (GDP) by 0.5 per cent and 1.7 per cent, respectively. At the firm level, an OECD survey of 77 firms — 79 per cent of which were micro, small and medium-sized enterprises (MSMEs) — reveals that restriction of information flows is the key obstacle to digital trade. Although there is no firm-level data on cross-border data transfers in ASEAN, more than 97 per cent of firms in the region are MSMEs, which could suffer from cross-border data restrictions if they intend to engage in cross-border electronic business.  

Outside ASEAN, the top three export markets of China, United States (US), and European Union (EU) have also adopted different cross-border data regimes, and increasingly applied discriminatory measures against foreign firms engaged in the digital economy. These trading partners accounted for 40 per cent of ASEAN’s total exports in 2021. Mapping of regulations on cross-border data flows shows that the US allows a free flow of data, while China restricts cross-border transfers of data. The EU allows cross-border data flows subject to regulatory requirements.

Recent industrial policy measures by China, US, and EU have increasingly tilted the playing field by favouring local over foreign businesses. An analysis of digital regulations using data from the Digital Policy Alert between 2019 and 2021 reveals that over 80 per cent of policy measures applied by China, US, and EU granted some preference to domestic firms at the expense of firms located abroad. More than 80 per cent of those measures were in the form of corporate subsidies. Such subsidies aim to strengthen local firms’ competitiveness in domestic markets, foreign markets, or both. For example, in 2022 the US signed legislation providing US$52 billion in subsidies to the semiconductor industry to build more factories within its shores. 

Fostering a coherent regulatory framework for the regional digital economy requires ASEAN and its key trading partners to promote transparency in their design and implementation of digital regulations. To do so, the ASEAN Trade Repository (ATR) should be expanded to policy areas that affect business operations in the digital economy such as data governance and content moderation, as well as specific digital economy interventions related to competition, taxation, subsidies and industrial policy. The ATR should also be connected with key trading partners’ national trade repositories. New or amended digital-related laws and regulations should be published on ATR, as early as possible before their entry into force to enable digital entrepreneurs, traders, and investors to provide comments or become acquainted with them. 

In addition, the broader scope of economic integration under the ASEAN digital economy requires a more systematic approach such as the Digital Economy Framework Agreement (DEFA) to consolidate existing frameworks — for instance, the Framework on Digital Data Governance and ASEAN Agreement on E-Commerce. The region should double up efforts in expanding safe cross-border data flows and supporting priority sectors that enhance growth and synergy in the regional digital economy. In this regard, ASEAN should accelerate its ongoing efforts to implement ASEAN DEFA as well as ASEAN-Plus DEFA to enhance open, secure, interoperable, and competitive digital economies within ASEAN and between ASEAN and its key trading partners.

The prospective regional digital economy could modernize ASEAN economies through the use of digital technologies, and promote private sector-led economic growth through open trade and investment. Such regional efforts can be enhanced by greater transparency in the design and implementation of digital regulations, a more coherent regulatory framework of the digital economy within Southeast Asia, and strategic engagement with major trade partners beyond the region. 

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