The ASEAN Digital Economy Framework Agreement (DEFA) – Ground-breaking or Ground to a Halt?

The much-anticipated launch of the negotiations on the ASEAN Digital Economy Framework Agreement (DEFA) and the endorsement of the Framework for Negotiating DEFA was considered a significant achievement for Indonesia’s ASEAN chairmanship. This would be the first regional digital economy agreement in the world that could enable and safeguard a digital trade ecosystem. It is projected that the DEFA’s successful implementation could double the value of the regional digital economy to US$2 trillion by 2030, through enhancements to competitiveness in digital trade activities.

The Framework forms an integral part of the negotiations as it sets out the provisions that will be covered, including the negotiation processes and timeline. Thailand will chair the ASEAN DEFA Negotiating Committee (NC), with participation by Lead Negotiators from all ten ASEAN member states (AMS). The first NC meeting is expected to take place before the end of this year and is anticipated to set the level of ambition of the DEFA. The outcomes of the ASEAN DEFA study, endorsed most recently at the 55^th ASEAN Economic Ministers (AEM) Meeting in August, recommended nine core elements to be covered in the agreement. These include digital trade, cross-border e-commerce, cybersecurity, digital identities (IDs), digital payments, cross-border data flows, as well as other emerging topics, such as Artificial Intelligence (AI) governance and ethics concerns.

Negotiations are targeted to conclude within two years, that is, by the end of 2025. Looking at the negotiation durations for selected bilateral digital agreements such as the Singapore-Australia Digital Economy Agreement (SADEA), which took five months to conclude (October 2019 – March 2020), and the Korea-Singapore Digital Partnership Agreement (KSDPA) which took longer at 18 months (June 2020 – December 2021), the DEFA, which would feature negotiations amongst ten negotiating parties, targeting a definitive conclusion in 24 months could be a tall order.

The time required for the successful conclusion in such multilateral negotiations will depend on several factors like 1) the extent of the similarities in existing regulations among the negotiating countries for key provisions on personal data protection and cybersecurity safeguards, 2) the number of provisions included in the negotiations, 3) any red lines that the negotiating parties may have, such as data localisation requirements, and 4) the depth or level of ambition of the Agreement – be it a decision on the harmonisation of standards versus looser or more general agreements on the minimum threshold requirements concerning these issues.

Negotiations are targeted to conclude within two years, that is, by the end of 2025.

Much like how other innovative cross-border initiatives such as the ASEAN QR proposal have been taking shape through bilateral initiatives, the development of DEFA provisions on a regional scale may also take guidance from smaller-scale initiatives such as the bilateral DEAs concluded between Singapore and other countries. In the Economic Research Institute for ASEAN’s (ERIA) comparison of digital-related clauses in major digital economy agreements, provisions included in newer DEAs such as on AI and data innovation (which were not included in older, broader trade agreements like the Regional Comprehensive Economic Partnership, RCEP), are likely to influence some key considerations for DEFA. The dynamic nature of laws and regulations governing these new areas may further add complexity to the negotiations.

One key challenge that is commonly faced when drawing up regional agreements such as these is the parties’ ability to bridge the gaps in technical capacities, institutional capabilities, and regulatory frameworks among the prospective members. The ASEAN Digital Integration Index (ADII) shows a wide disparity in digital readiness among the AMS, with Malaysia and Singapore scoring above the regional average and Cambodia, Lao PDR, and Myanmar attaining scores below this benchmark. Other countries had mixed scores across the six aspects measured in the index, especially evident in performance disparities in areas of “data protection and cybersecurity” and “institutional and infrastructural readiness”. Thus, another overarching component of the negotiations should include capacity-building initiatives for boosting the capabilities of AMS that are falling behind in digital readiness, and a phasing-in period for full compliance with the terms of the Agreement for these countries as well.  

Despite these challenges in the negotiating phase, the DEFA’s progress two years ahead of schedule is a silver lining. As per the original timeline set out in the Bandar Seri Begawan Roadmap, the negotiations were expected to commence only in 2025. This early progress reflects the level of importance the AMS have placed on their vision for an integrated regional digital ecosystem. To add a further note of optimism, these negotiations are not starting from ground zero. There are notable initiatives already in place that will facilitate some of the key provisions in DEFA such as the ASEAN Cybersecurity Cooperation Strategy and a proposed ASEAN Guide on AI Governance and Ethics in the pipeline.

In the final analysis, is the DEFA ground-breaking or will plans for it grind to a halt? Having gained sufficient momentum and commitment from the AMS to move forward is already an accomplishment. There are no indications to suggest that progress is stalling, but in fact, clear there is some optimism regarding the prospect of the DEFA becoming a reality. The realisation of the DEFA would be nothing short of a ground-breaking achievement.

2023/223