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ASEAN’s splintering digital economy governance

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Thailand Cryptocurrency Expo, Bangkok, Thailand, 12 May 2022 (Photo: Reuters/Adirach Toumlamoon).

In Brief

ASEAN’s digital economy is projected to leapfrog into the world’s top five by 2025. Despite its promising future, ASEAN’s digital economy faces major hurdles that threaten to undercut the region’s economic efficiency.


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ASEAN’s digital economy is forecast to grow by 6 per cent annually, reaching as high as US$1 trillion by 2030. ASEAN has more than 400 million digital consumers, a burgeoning tech-savvy population and an e-commerce sector which generated more than US$130 billion in revenue in 2022. ASEAN is home to more than 30 ‘unicorns’ — startups worth US$1 billion or more — and this number is growing. ASEAN is set on becoming one of the fastest growing regional digital economies.

Despite ASEAN’s impressive progress, tough challenges remain. ASEAN’s digital divide persists while member states’ data regulation regimes have become increasingly divergent. These hurdles can undermine ASEAN’s economic dynamism.

There is a pronounced digital divide in ASEAN. According to the ASEAN Digital Integration Index report, member countries’ digital economies vary widely. Singapore and Malaysia perform highly on all six indicators, while Brunei, Indonesia, Philippines, Thailand and Vietnam lacked in one or more indices. Cambodia, Laos and Myanmar scored significantly below average across all indicators and have the least developed digital economies. The state of ASEAN’s digital economy will curtail intra-ASEAN investments for its less-developed members. As digitalisation is one of the key drivers of intra-ASEAN investments, their comparative advantage in attracting investment is weak.

Intra-ASEAN investment may further decline if ASEAN does not transform itself into a digitally competitive region. Mega-regional trade pacts, such as the Regional Comprehensive Economic Partnership (RCEP), ease foreign investment barriers between parties. This means ASEAN’s micro, small and medium enterprises have less incentive to invest in ASEAN markets with unmatured digital economies when they have better alternatives in some non-ASEAN RCEP countries.

Since 2000, ASEAN has been aiding less-developed member states in developing digital economies through frameworks such as the Initiative for ASEAN Integration. While these initiatives are generally useful, there is room for improvement. Their scope can be extended to strengthen least-focused areas pertaining to digitalising payment systems and upgrading processing capacities.

Narrowing ASEAN’s digital divide may improve the environment for intra-ASEAN investments. But an important caveat is in order. Intra-ASEAN investment might never reach its peak potential given the rise of economic nationalism and the increasing tendencies of ASEAN member states governments to strategically employ protectionist measures to bolster domestic support.

During the ASEAN Foreign Ministers’ Retreat between 1–4 February 2023 in Jakarta, members reaffirmed the need for concrete advancement of the ASEAN Digital Economy Framework Agreement (DEFA). DEFA will serve as ASEAN’s overarching framework for a seamless digital trade ecosystem across Southeast Asia. But there are questions around whether this framework can bring about an integrated digital economy.

ASEAN member states have increasingly voiced commitments to an integrated digital economy. Yet member states have unilaterally strengthened their data regulation frameworks. Members with liberal data regimes have further liberalised data flows, whereas others have moved towards tightening cross-border data flows.

In 2022, Singapore concluded comprehensive digital partnerships, notably with South Korea and the United Kingdom. The Philippines has declared support for the establishment of a cross-border privacy rules forum to improve cross-border data flows.

On the other hand, Indonesia and Vietnam have been actively strengthening their data localisation laws. In Jakarta, the personal data protection bill retains data localisation rules imposed on all public electronic system operators. Hanoi issued cybersecurity-related Decree 53/2022 on 15 August 2022, which imposes forced data localisation restrictions on private service providers. Cambodia, which plans to implement a highly repressive form of data surveillance governance, is reported to be enacting data localisation laws soon.

The intra-regional data regulation schism is becoming wider. It will be much tougher for ASEAN to conclude DEFA and produce an integrated digital economy that collectively benefits the region. Failure to conclude DEFA bears negative implications on ASEAN’s growth trajectory. Foreign businesses, such as e-commerce and cloud computing firms, might be deterred from investing. Existing foreign firms might find it difficult to expand throughout the region.

Smooth and coherent cross-border data regulation is the lifeblood of a functional digital economy. While it is impossible to micromanage how ASEAN member states regulate data, the option of harmonising member states’ cross-border data regulation has not yet been mooted.

ASEAN’s commissioned study groups on DEFA should analyse creating a regulatory body, similar to the ASEAN Consultative Committee on Standards and Quality, to oversee harmonisation of data regulation standards among member states. These study groups should discern which relevant principles can be re-applied to cross-border data regulation. Alternative ways to harmonise regulation and measures to ensure harmonisation will not be too costly must be analysed.

ASEAN cannot afford to allow a digital divide nor divergent data regulation policies to jeopardise its goal to create an integrated digital economy. ASEAN must remain steadfast in ensuring growth dynamism to preserve centrality and relevance in an increasingly uncertain world.

Anthony Toh Han Yang is a Research Analyst at the Centre for Multilateralism Studies at the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore.

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