The Association of Southeast Asian Nations (ASEAN) digital economy and trade have expanded in the past decade. Digitally deliverable services trade has emerged as a growth driver of ASEAN economies’ trade, significantly outpacing the growth of commercial services trade in most ASEAN economies. In August 2023, ASEAN Economic Ministers took a step toward cementing and expanding these gains by endorsing the study on the ASEAN Digital Economy Framework Agreement (DEFA).

 

The study identified nine core elements that would be pertinent to the agreement: digital trade, crossborder ecommerce, cybersecurity, digital ID, digital payments, cross-border data flows, competition policy, digital skills development, and other emerging topics that will be discovered through the DEFA negotiations. In a milestone, talks toward the DEFA were launched during the 10th ASEAN Economic Community dialogue at the end of November 2023.

 

The purpose of this paper, part of a series of papers, is to support ASEAN Members and other key stakeholders in considering the design of the DEFA to ensure it is an agreement that would safeguard and amplify trade and digital trade in the ASEAN, especially among the region’s small and medium enterprises (SMEs), and promote broader synergies with the many other digital trade agreements in the Asia-Pacific.

 

This paper focuses on discussing and assessing the impacts of the DEFA of widely adopted digital trade provisions: open data transfer rules to enable firms to move data across borders, a permanent moratorium on duties on electronic transmissions, and nondiscriminatory treatment of digital products.

 

Today, the ASEAN region’s hard-won digital trade gains are at risk in the absence of digital trade rules that lock in an enabling regulatory environment. New restrictions on cross-border transfer of data, duties on electronic transmissions, and discriminatory treatment against foreign digital products would all significantly increase ASEAN firms’ production trade costs, weigh on export competitiveness, reduce trade, and undermine consumption. However, DEFA could pre-empt these outcomes: the various pro-digital trade provisions, if adopted in the DEFA, would lock in good policies and promote regulatory certainty for regional businesses, thereby both safeguarding existing growth in digital trade and unlocking further digital trade and investment in the region. The paper applies econometric work and MSME surveys with 800 ASEAN firms to estimate the DEFA’s gains from the DEFA and the three key provisions.

 

 

The main findings of this paper are as follows:

 

• The DEFA is critically timed to lock in good policies conducive to the region’s digital services exports, digital ecosystems, and digital value chains. ASEAN economies have a keen offensive interest in digital trade, which is the fastest-growing component of the region’s exports. ASEAN firms are also highly integrated in regional and global digital value chains: some 90 percent of digital product and services exporters also import digital products and services in order to add value to their production processes, and subsequently export digital products and services containing this imported value-added. Thus, digital trade policies on both the import and export sides shape ASEAN firms’ competitiveness in export markets. The DEFA is a critical instrument to protect the expansion of ASEAN economies’ digital products and services exports and ensure regional supply chains remain a source of strength for ASEAN exporters.

 

• The DEFA would impart important trade and economic growth gains in the ASEAN economies. Based on estimates of the gains from prior digital trade agreements, the DEFA could promote ASEAN services and digital services exports by $77 billion, equivalent to 2 percent of the region’s GDP and about 5.8 million jobs. The DEFA would, however, have a much broader impact, as it would also support the supply chains and export operations of today’s highly digitized manufacturing companies. Based on prior econometric work on the impacts of digital trade chapters in trade agreements, the DEFA could promote trade in goods in the ASEAN in a more conservative estimate by $75 billion, and even as much as $326 billion.

 

• Access to data from their foreign markets is vital to ASEAN firms’ value creation and competitiveness. ASEAN region firms daily use digital data from their own and other markets to make decisions, improve their services, and deliver their services. By ensuring ASEAN SMEs can continue using data for value-creation, the DEFA could safeguard some $65-$87 billion in annual value-creation based on data among ASEAN SMEs, or about 1.7-2.2 percent of the region’s GDP (Figure 1). By enabling SMEs to keep turning data into value, the DEFA would also promote these firms’ export competitiveness in extra-regional markets.

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Figure 1: Annual Gains for ASEAN MSME Exporters from Access to Data from Foreign Markets, by Economy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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• The various DEFA provisions would have further benefits. For example, by pre-empting the imposition of barriers to the transfer of data among the members, DEFA could, per econometric evidence, conservatively yield a five percent trade boost across the ASEAN, equivalent to $9.2 billion in intra-regional services exports.

 

• Using the DEFA to create a permanent moratorium on duties on electronic transmissions would provide ASEAN exporters with certainty that their own or regional governments will not impose arbitrary barriers to digital products and digital services trade. This certainty could conservatively, depending on methodology, be worth $130 million-$160 million in regional digital products and services exports.

 

• ASEAN total exports of digital products are some $31 billion, of which $5.2 billion are destined for the intra-regional market. The DEFA could pre-empt discriminatory treatment on these digital product exports and promote intra-regional trade by about $1.5 billion. By ensuring a level playing field between domestic and foreign digital products, DEFA provisions against discrimination of foreign digital products would also encourage innovation and investment in digital product industries, such as in creative industries, app development, and audiovisual industries.

 

• By locking in good policies across the region, the ASEAN DEFA could also promote foreign direct investment (FDI) by regional and global technology companies, which could propel further digital exports. In a rough estimate, the DEFA could promote ASEAN FDI by $448 million-$896 million. This FDI would also bring to the regional market new sophisticated services to promote local businesses and foster ecommerce ecosystems, transfer knowledge and skills to local economies, and promote digital services exports. Further research is warranted on the potential of the DEFA to promote FDI in technology and other sectors.​​​​​​​​​​​​​​​​​