[OPINION] DEFA & ASEAN’s Digital Economies: A Strong Foundation, But Practicality Is Key

Against the backdrop of global uncertainty and heightened geopolitical tensions, the highly anticipated 46th ASEAN Summit in Kuala Lumpur has finally concluded. The summit's discussion focused on "inclusivity and sustainability" with digital transformation mentioned as one of the key themes at the heart of initiatives aimed to drive greater regional integration. These ambitions should be collectively welcomed, but assessments of potential roadblocks and complexities must also be warranted.

A historic moment: Prime Minister Datuk Seri Anwar Ibrahim (fifth from left) at the signing ceremony of the Kuala Lumpur Declaration on Asean 2045: Our Shared Future at the Plenary Hall, KLCC. With him are (from left) Laos Prime Minister Sonexay Siphandone, Singaporean Prime Minister Lawrence Wong, Thai Prime Minister Paetongtarn Shinawatra, Vietnamese Prime Minister Pham Minh Chinh, Philippine President Ferdinand Marcos Jr, Sultan of Brunei Sultan Hassanal Bolkiah, Cambodian Prime Minister Hun Manet, Indonesian President Prabowo Subianto, Myanmar’s Permanent Secretary of Foreign Affairs Ministry Aung Kyaw Moe and Timor-Leste Prime Minister Kay Rala Xanana Gusmao.— Photo by Bernama

In the context of regional digital initiatives, the ASEAN Digital Economy Framework Agreement (DEFA) is particularly pivotal. DEFA should not be viewed merely as "just another trade agreement" but as a potential game changer and a strong foundation for greater regional competitiveness and resilience in the digital economy space. DEFA is said to represent the critical institutional framework needed to unlock seamless cross-border data flows, e-commerce, digital payments, and innovation. Such a regional agreement is timely as we move towards a new era of technology.

Official DEFA negotiations among member states is expected to conclude by the end of this year, has immense potential on paper to catalyze digital economic growth, with projections estimating the region’s digital economy to double to $2 trillion by 2030, up from the projected $1 trillion without DEFA. Each ASEAN member state's digital economy could also potentially experience multiplication in value by 4-7 times, according to a 2024 joint-study by Aus4ASEAN Futures and Boston Consulting Group (BCG). However, such success - be it ASEAN as a whole or for each member states will hinge on the navigation of various challenges.

Edwin Oh Chun Kit - Founder and Analyst of the Strategic Youth Foreign Policy Community of Malaysia (SYFCOM), a newly established youth-led center in 2025 which focuses on foreign affairs, has flagged in late 2024 that regulatory harmonization under DEFA remains as one of the most formidable obstacles. As such, SYFCOM resonates with industry-wide analyses - such as Singapore’s Tech for Good Institute (TFGI), where they highlighted that "Standardizing diverse national regulations on data, cybersecurity, digital taxation, and platform liability across ten relatively different jurisdictions could be immensely complex".

"In the areas of data protection frameworks, approaches among member states vary widely. Challenges also extend beyond regulatory frameworks, into profound disparities in digital infrastructure, capabilities, and readiness. For instance, countries in the Mekong region like Cambodia, Laos and Myanmar grapple with relatively low levels of digital literacy and fairly underdeveloped digital infrastructure, compared to their ASEAN counterparts. This disparity poses a significant implication for DEFA’s implementation and effectiveness. Without addressing these foundational gaps, the harmonization of digital economy standards under DEFA risks becoming a fragmented, benefiting more technologically advanced member states while leaving others behind" said Edwin Oh in a Business Today Malaysia publication in 2024. 

The launch of the ASEAN Digital Economy Framework Agreement (DEFA) Negotiations along with other AEC Council Ministers in 2023, on the sidelines of the 23rd ASEAN Economic Community Council (AECC) meeting - Photo by ASEAN Secretariat.

As such, a “one-size-fits-all” DEFA might be impractical and potentially exclusionary, undermining the very inclusivity ASEAN champions. Bridging this divide requires targeted capacity building and investment, which DEFA must facilitate. In this context, SYFCOM strongly endorses the perspective articulated by ISEAS–Yusof Ishak Institute’s Kristina Fong in her recent commentary on Fulcrum SG where she mentioned "a two-tier approach is likely the most viable path to a timely and effective DEFA, contingent on practicality”. Such pragmatism should be embraced not as a compromise of ambition, but as its enabler within ASEAN’s unique context.

While DEFA is still under negotiation, SYFCOM believes that the following, if yet to be considered, could be contemplated by involved stakeholders:

1. A Core Baseline and Variable Annexes Approach. The Tiered Method can incorporate a core baseline where an ASEAN binding minimum set of principles (e.g., non-discrimination, core consumer protection) is agreed. There may then be variable annexes on individual regulatory modules (cross-border flows of e-commerce data with adequacy recognition and data protection, interoperability of digital ID, harmonization of e-invoicing) where AMS will opt-in to the modules according to readiness, forming "coalitions of the willing and able". This recognizes sovereignty but enables deeper integration. Governance and peer reviews in this context are also extremely important to avoid the risk of further exacerbating disparity.

2. Tiered Implementation & Capacity Building. Acknowledge diverse implementation timelines for both tiers. Here, DEFA could incorporate robust, funded capacity-building and technical support structures with particular care given to the least developed members.

3. Prioritizing Enablers beyond Trade. DEFA must explicitly incorporate support for digitalization of MSMEs, the backbone of most AMS' digital economies. Provisions for the development of digital skills and regional mobility of talent must also be expedited.

As ASEAN Chair in 2025, Malaysia holds significant responsibility in steering DEFA toward a successful, pragmatic conclusion. The Strategic Youth Foreign Policy Community of Malaysia (SYFCOM) urges the Malaysian administration to continue championing inclusivity and the prioritization of greater regional integration and shared prosperity.

SYFCOM believes the timely finalization of a functional DEFA is also crucial for asserting ASEAN centrality in the face of competing digital governance models (e.g., from the U.S., EU, and China). A coherent regional framework will not only strengthen ASEAN’s collective bargaining power and pave the way for mutual economic growth, but also safeguard its digital sovereignty. In this context, ASEAN should also exercise strategic caution in its engagement with external major powers, ensuring that any collaboration strengthens regional capacity and autonomy, rather than creating new dependencies or fragmenting ASEAN unity.

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Analyst: Edwin Oh Chun Kit