Expert Opinion

The ASEAN Digital Economy Framework Agreement: A Philippine Perspective

In this article, Monchito Ibrahim, the Lead Convenor of the Alliance of Tech Innovators for the Nation (ATIN) in the Philippines, discusses the implications of the ASEAN Digital Economy Framework Agreement (DEFA) for the country and outlines the challenges and steps needed for its full potential.

By Monchito Ibrahim, Lead Convenor of the Alliance of Tech Innovators for the Nation (ATIN)

The journey of ASEAN integration reaches new heights with its intent to construct an open, rules-based, and dynamic digital economy through the ASEAN Digital Economy Framework Agreement (DEFA), currently under negotiation by the ASEAN member states. Until now, the focus has predominantly been on physical integration. However, with ASEAN DEFA, the regional bloc aims to expedite its evolution into a leading global digital economy by leveraging digital transformation to foster greater digital integration and inclusive growth and development.

The drive for digital integration in the region commenced earlier. In early 2020, when the COVID-19 crisis struck the economy, ASEAN Member States established the Digital Masterplan 2025, aiming to propel ASEAN into a leading digital community and economic bloc, hastening its recovery from COVID-19. In 2022, ASEAN leaders signed the Bandar Seri Begawan Roadmap, directing members to commence negotiations for the ASEAN DEFA, with an expectation for completion by 2025.

A study conducted by the Boston Consulting Group (BCG), endorsed by the ASEAN Economic Ministers (AEM) meeting, offered a comprehensive roadmap to accelerate the region’s digital economy. The roadmap delineates a forward-looking and aspirational ASEAN DEFA (North DEFA) that could accelerate the region’s digital economy growth to US$2 trillion by 2030 from its current trajectory of US$1 trillion (Baseline DEFA).

The Philippines and the ASEAN DEFA Growth Targets

The ASEAN DEFA presents a pivotal moment for the Philippines, a nation brimming with digital potential. Examining the ASEAN DEFA through a Philippine lens reveals exciting opportunities and challenges for the country’s digital landscape. The Philippine digital economy is poised to sustain its robust growth trajectory, reaching US$35 billion by 2025, positioning it among the fastest-growing digital economies in the region. This growth momentum primarily stems from increased reliance on digital technologies prompted by pandemic restrictions.

From a Philippine standpoint, achieving the baseline ASEAN DEFA would involve prioritising the establishment of common ground for digital trade. This would encompass setting up harmonsied standards for electronic products and services, mutual recognition of electronic certifications, and streamlining customs procedures for e-commerce. Attaining a North Star ASEAN DEFA would necessitate deeper regional integration in areas such as interoperability of digital payment systems, robust data privacy standards allowing a more unrestricted flow of data across borders, and collaboration on developing a future-ready digital infrastructure and adopting emerging technologies.

Primary Considerations for the Philippines in the Negotiations

The growth impact of the DEFA among ASEAN member states (AMS) is anticipated to be uneven, considering the differing states of digital transformation and governance approaches across the region. The Philippine government acknowledges this and realises that a strong focus on the nine (9) core elements of the ASEAN DEFA would be beneficial in maximising the benefits of a North Star ASEAN DEFA. Among these elements, digital talent, adoption of emerging technologies, and a robust data privacy regime are considered areas where the Philippines holds an advantage.

However, entering into the ASEAN DEFA negotiations will pose challenges for the Philippines. Their main challenges relate to gaps in their national digital infrastructure and their capacity to develop policies and regulations consistent with business model innovations. The ASEAN DEFA covers contentious and complex topics, requiring regulations focused on creating an enabling environment for digital trade, promoting innovation, protecting consumer rights, and addressing regulatory challenges posed by innovations. Another concern is issues arising from talent mobility, particularly related to labor rights and migration, which can be politically sensitive. Lastly, the lack of joint agreements regarding boundaries and approaches to data privacy poses difficulties in setting harmonised regulations across the region.

The Ratification Process

Once ASEAN DEFA is signed, the ratification process for the Philippines will resemble that of other international trade agreements, following the provisions of Presidential Executive Order 459. The processing time will depend on whether the Department of Foreign Affairs deems the ASEAN DEFA an Executive Agreement or Treaty, which would necessitate ratification by the Philippine Senate. The process could take as little as six months to two years.

Factors Affecting Domestic Implementation

The ASEAN DEFA aligns well with the Philippine government’s drive for digitalisation. A priority goal of the current administration of President Ferdinand R. Marcos, Jr. is the digitalisation of the country’s Micro, Small, and Medium Enterprises (MSME) sector. To achieve this goal, the Department of Trade and Industry developed its MSME Digitalisation Agenda and Work Plan to enable MSMEs to thrive in the digitally-driven economic environment and enjoy seamless cross-border trade with electronic documents and interoperable processes. This opens doors to new markets and fosters competition, potentially leading to a wider variety of products and better prices for Filipino consumers.

Given the Philippines’ current digital landscape, such as its 73.1% internet penetration rate, high usage of social media and e-commerce platforms, and a growing number of tech-savvy entrepreneurs, the country is well positioned to harness the benefits provided by the ASEAN DEFA. It perfectly aligns with the national agenda for digital transformation aimed at enhancing the Philippines’ standing in the digital global market.

A couple of landmark pieces of legislation were recently signed into law, and they are expected to improve the Philippines’ ability to maximise the ASEAN DEFA. The Internet Transaction Act of 2023 aims to boost and safeguard e-commerce transactions in the country and ensure the development and promotion of e-commerce. On the other hand, the Tatak Pinoy Act of 2024 aims to enhance the Philippine industrialisation strategy by improving the productivity and competitiveness of local industries in the global market.

Key Recommendations

The Philippines must address various challenges to implement and fully take advantage of the ASEAN DEFA.

Enhance the national digital infrastructure to enable greater participation in the digital economy and comply with ASEAN DEFA’s interoperability requirements. A significant digital divide still exists in the country, especially in rural areas where connectivity is often weak or non-existent. Address the knowledge gap among the population.
Enhanced educational initiatives and widespread digital literacy programs are necessary to equip citizens with the skills to thrive in a digital economy. By fostering a digitally literate workforce, the Philippines can maximise the opportunities presented by ASEAN DEFA and ensure inclusive participation across all segments of society.
Harmonise its legal and regulatory frameworks with international best practices. Since the ASEAN DEFA aims to establish a unified digital market across ASEAN, it is imperative that the Philippines aligns its legal and regulatory frameworks with it to position itself as a secure and reliable partner.
The digital readiness of MSMEs is critical to realising the benefits of the ASEAN DEFA, which aims to make digital technologies accessible to businesses of all sizes. By supporting MSMEs in their digital transition, the Philippines contributes to more inclusive economic growth as envisioned by the ASEAN DEFA and ensures that its small and medium enterprises can compete effectively in the integrated digital ASEAN market.
Engaging with multiple stakeholders is critical to ensuring that the Philippines’ approach to ASEAN DEFA implementation is comprehensive and inclusive.
The government must expedite the adoption of new business practices, such as e-invoicing and electronic transferable records.

In summary, the ASEAN DEFA represents both a transformative opportunity and a challenge for the Philippines. By embracing the agreement’s provisions, addressing the existing challenges, and aiming for the North Star ASEAN DEFA aspirations, the country can position itself as a leader in the region’s digital economy. However, this will require careful planning, robust negotiation strategies, and a commitment to domestic capacity building. With the right approach, the ASEAN DEFA can unlock significant economic growth and innovation for the Philippines, propelling it towards a digitally empowered future.

About the writer

Monchito Ibrahim is the Lead Convenor of the Alliance of Tech Innovators for the Nation (ATIN) and an Executive Member of the National Innovation Council of the Philippines. He previously served as Undersecretary of the Department of Information and Communications Technology (DICT).

The views and recommendations expressed in this article are solely of the author/s and do not necessarily reflect the views and position of the Tech for Good Institute.