The Digital Economy Framework Agreement (DEFA) isn’t just a trade pact—it’s key to ASEAN’s economic security, stability, and growth in an era of global volatility.
The 10 member states in the Association of Southeast Asian Nations (ASEAN) are home to 677 million people and together comprise the fifth largest economy in the world, making this region a prime market for investment and talent. The Digital Economy Framework Agreement (DEFA) is a landmark initiative currently under negotiation by ASEAN member states to create the world’s first region-wide digital economy agreement. It aims to harmonize digital trade rules, integrate digital markets, and unlock the region’s digital economic potential. DEFA negotiations began in November 2023, and the bloc aims to conclude at least a portion of the agreement by the end of 2025. , covering areas such as digital trade, e-commerce, emerging technologies, and cross-border data flows.
In the face of a fast-approaching year-end deadline, economies may be tempted to scale back on ambition or even put the deal on the back burner, as each manages its ongoing individual trade negotiations with the United States. This would be a mistake – threatening not only ASEAN’s economic growth, but also its economic security. DEFA negotiations provide an opportunity to reinforce ASEAN’s importance and arm the region with a shared digital trade approach to strengthen countries’ ability to engage collectively beyond the region.
Geopolitics is unpredictable and will remain so for some time. And based on a growing number of governments’ fluctuating approaches to international commerce – using trade as a tool for national security, protectionism, or leverage – the relative stability that global trade rules once offered should not be taken for granted. ASEAN is uniquely positioned to cultivate its own stability and economic security by maximizing the outcomes of DEFA negotiations.
Strengthening ASEAN Resilience through Unified Trade Rules
Divergent digital regulations $15–20 billion annually in compliance overhead. DEFA aims to eliminate this by harmonizing standards for data flows, e-payments, and digital product classification. And though governments are eager to support their small and medium-sized enterprises, to navigate conflicting national rules. DEFA’s unified digital customs system and interoperable e-invoicing would cut cross-border transaction costs by , enabling small businesses to compete regionally and expand globally.
Binding DEFA commitments (e.g., banning data localization) would attract $30–50 billion in annual by signaling regulatory stability and aligning regional policies with global digital trade best practices. These outcomes are critical because companies must make difficult investment choices given the global economic and political environment.
ASEAN’s alignment under DEFA will also help insulate the region from global trade instability and increase its resilience. For example, DEFA includes protocols for coordinated cyber defense that could help secure the region’s data centers, which are increasingly important to attracting AI investment and cannot afford to be paralyzed.
Opportunity Costs in Question
Although the trend toward greater Southeast Asian regional economic growth may appear inevitable, it is not guaranteed. ASEAN policymakers must take proactive steps to secure it, rather than relying on past momentum or predicting favorable global conditions. So, what type of opportunity-cost is at stake?
Without completing and implementing , the digital share of GDP in the region is expected to hover around 8.5 percent, with 3.2 percent annual SME growth and the addition of 1.7 million digital jobs. Certainly respectable, but not optimal.
However, with DEFA adoption, projections rise to 14 percent growth of digital GDP share, 8.9 percent SME export growth, and 3.5 million digital jobs added. In total, DEFA stands to unlock $2 trillion in regional digital trade by 2030.
Countries Cannot Reap the Benefits by Going it Alone
Some policymakers may believe that creating country-unique rules garner advantages, for example, by forcing companies to store data locally or build data centers in-country. This is short-sighted and has proven false more often than not. The rare exception is China, which used its economic power, large domestic market, and controlled economy to make demands of investors – though this too had negative consequences as evidenced by ongoing trade tensions with the United States.
More often, bespoke national rules yield vulnerability. For example, experiment saw $2.1 billion in diverted tech investment to Singapore and Malaysia. And Vietnam’s cause significant financial and administrative burdens, deterring some firms from investing in Vietnam. If implemented, DEFA would align such divergent regulations under common rules -- providing regulatory certainty and stability -- while allowing economies to tailor regulations to local circumstances or security concerns.
As Malaysia's Prime Minister Anwar Ibrahim made clear during his July 9 remarks before at the ASEAN Foreign Ministers’ Meeting, “as global conditions remain uncertain, there is no overstressing the need to act with purpose in [the ASEAN] region” and “advance integration across sectors with resolve.” Unifying AEAN’s digital economy under DEFA presents a concrete and actionable opportunity to do just that. As this year’s ASEAN Chair, Malaysia has the opportunity to ensure that DEFA maximizes the region’s potential to increase investment, growth, and economic security.
While the global trade environment remains unpredictable, ASEAN is uniquely positioned to leverage DEFA as an integral component to its ability to weather mercurial trade winds. The time is now, and the tools are available. ASEAN must act before external forces fracture its digital potential.