Two-Tiered DEFA Needs A Coherent Strategy For Implementation

The Digital Economy Framework Agreement (DEFA) negotiations were launched in September 2023, a ground-breaking initiative to better integrate the digital economies of the 10 ASEAN countries to boost digital economy prospects and growth. Negotiations were touted to conclude by the end of 2025 but progress has been slower than anticipated. As such, expectations are for the DEFA to reach a slightly less ambitious, substantial conclusion by the end of this year as opposed to a definitive one.

According to key stakeholders, the DEFA is also expected to be implemented “in stages and phases, as practised by ASEAN in the formation of the Economic Community”. This is likely to follow a two-tiered structure whereby ASEAN Member States (AMS) will accede to the agreement with differentiated accession schedules according to their levels of digital readiness. Tier 1 is for those who are more digitally developed, and Tier 2 is for the remaining AMS. This could mirror the approach of the ASEAN Trade in Goods Agreement (ATIGA) and the treatment of the Cambodia-Laos-Myanmar-Vietnam countries.  

This differentiated approach is a go-between solution to account for the disparities in digital capabilities between countries, which can be quite wide in certain aspects such as data protection and cybersecurity. Not only is this seen as a more realistic approach but it may also lessen the risk of the DEFA being modest in ambition and merely a “lowest common denominator” type of agreement. Moreover, it may be a better strategy than the ASEAN minus X formula, where Tier 2 countries in this context could miss out on accession to the agreement at the same time as Tier 1 members. This scenario could risk further exacerbating digital development gaps in the region.

One possible approach to bucketing the AMS into the different tiers could employ the results from the ASEAN Digital Integration Indices (ADII). The ADII assigns index values to the AMS across six main assessment categories where countries can be ranked from highest to lowest in each sub-index component (Table 1). From this analysis, it can be seen that different countries have strengths and weaknesses in different aspects, and countries do not always score well consistently across the board. Thailand is a good example. This could be attributed to differing levels of regulatory and developmental digital focus areas within a country.

ASEAN Digital Integration: Leads and Laggards

Table 1: ASEAN Digital Integration Sub-Indices

The total ADII scores can provide an indicative overall ranking of the AMS across all components (Table 2). Singapore and Malaysia perform strongly, while Laos and Myanmar are the weakest. That said, even if this ranking were to provide a sense of how countries should be allocated to the different tiers, where would the cut-off point be? One possible approach could be to assign Tier 2 status to Cambodia, Laos, and Myanmar, which have aggregate scores which lag those of the others.

Though there are some key considerations for the DEFA to take heed, the two-tier solution may still stand as the most optimal approach to establishing the DEFA in a timely manner.

However, this calculation assumes that all components in this composite index hold the same weight in importance. Digital enablers (for example, institutional and infrastructural readiness) and digital safeguards (such as data protection and cybersecurity) are important aspects of facilitating digital economy activities, but the discussion of the balance in their relative importance could be largely a point of contention across the different AMS. Moreover, softer aspects such as societal digital readiness and literacy are not included in the ADII; they are just as important in this assessment. Hence, some sort of consensus on this would be important to determine the methodology to assess digital readiness in a holistic way.

Yawning Gaps

Table 2. Total ADII Scores across the AMS

One important aspect that should be given higher weight in this assessment is the institutional and infrastructural readiness component. Without this fundamental aspect, digital activities would be difficult to carry out at the most basic level. On this point, the DEFA would also need to take note of the impending full membership of Timor-Leste into ASEAN. In the United Nations Trade and Development’s eTrade Readiness Assessment for Timor-Leste, Internet speed and affordability are the main barriers to using digital tools, including those for business applications. Moreover, Internet usage is also lower than the Asia-Pacific average (41 per cent and 64 per cent respectively).

One key lesson that can be gleaned from the establishment of ASEAN Economic Community mechanisms, such as the ATIGA, is that the fundamental effectiveness of these sorts of agreements also lies in the trade facilitation aspect. Thus, even with the means to boost cross-border e-commerce trade through greater payment systems interoperability or liberalised regulations in this area, higher e-commerce volumes could be impeded by inadequate trade logistics and customs facilitation services. Thus, there is also some impetus to move towards alleviating existing trade frictions with more urgency to provide the DEFA the space to achieve its fullest potential.    

Though there are some key considerations for the DEFA to take heed, the two-tier solution may still stand as the most optimal approach to establishing the framework in a timely manner. That said, continuous capacity-building initiatives should be at its core. This element could enhance the viability of this structure by lessening the potential of widening gaps in digital capabilities between the two tiers. This is particularly true when the digital landscape remains highly dynamic; this would require an agreement to be equally as dynamic. A two-tiered DEFA may be an ideal grand plan, but to make this structure workable, one will need some serious thinking about the practicalities.

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