Will ASEAN Be Successful in Transforming Southeast Asia’s Digital Political Economy?
Talks of implementation of the Association of Southeast Asian Nations’ (ASEAN) Digital Economic Framework Agreement (DEFA) by the end of 2024 once again sparked conversations on the rise of Industrial 4.0 in Southeast Asia. Also called the fourth wave of the Industrial Revolution, the development of digital economy refers to the use of modern informational networks as a primary economic activity space to promote productivity growth through rapid digitalisation. In short, the integration of ICT infrastructures and technologies to traditional economic spaces. In particular for Asia, the “manufacturing hub” of the global production chain, it necessitated increased automation of the manufacturing operations, digitisation of commerce and rigorous application of Artificial Intelligence (AI) in Small and Midsized Enterprises (SMEs), creating fundamental structural changes to the manufacturing process. As such, Southeast Asia became the fastest growing digital economy, emerging as a “global digital hub”.
Benefits of the digital economy comes in twofold- first, it massively increases Foreign Direct Investment (FDI) in Southeast Asia. Application of disruptive technology such as AI and cloud computing in the manufacturing sector significantly reduces the cost of data analysis and increases production cost-effectiveness. This notably expands production capacity of the manufacturing sector, bringing in FDI to the “global manufacturing hub”. Second, integration of technology in businesses and manufacturing necessitates spillover effects on its population. Countries such as Singapore, Malaysia and the Philippines enacted policies facilitating education and growth of the ICT sector, e-commerce, digital healthcare, digital citizenship etc. However, the issue of technological disparity remains as foundations of trade rely on efficient digital logistics networks and transport infrastructures that countries such as Cambodia, Vietnam, Thailand and Indonesia do not yet have the capacity to develop when compared with neighbouring countries like Malaysia and Singapore (especially the early success of their Northeastern counterparts such as China, Japan and South Korea). Though disparity sustains, digital industrialisation still allowed countries in Emerging Asia to develop and popularise advanced broadband circuits and operating systems, as well as the promotion of modernisation of SMEs.
Drafted in 2023, ASEAN’s DEFA is the world’s first region-wide digital economic framework agreement that aims to “empower businesses and stakeholders across ASEAN, through accelerating trade growth, enhancing interoperability, creating a safe online environment, and increasing participation of Medium and Small and Midsized Enterprises (MSMEs)” (ASEAN). Especially considering regional technological disparity, DEFA could potentially engage the diaspora in facilitating cross-border data flow, technological skill transfer, cybersecurity coordination etc., which mitigates issues of inefficient digital logistics networks and facilitates trust in the regional digital economy. There are hopes that this coordination will lead to massive increases in FDI. However, as does most ASEAN projects, the primary purpose of DEFA is to solidify their independence from external reliance and re-enforce their acting as an independent body. The most common challenge ASEAN faced in implementing past agreements is its structural inability to reach an agreement through negotiations due to conflicting state interests, state capacity and especially fluctuating regional relations with China. The nine-clauses stated in DEFA covered most technological aspects with its decision-making structure based on conversations and universal agreement. It is unclear why its implementation would be particularly successful facing the same challenges. Continuous conflicts in South China Sea (SCS) also meant relations with China is likely a contibuting factor to conflicting state interests. Given China’s historical record of using asymmetric economic relations to interfere in ASEAN affairs, China is likely to either use bilateral relations to interfere with decisions from DEFA to facilitate its own economy at the expense of ASEAN’s or threaten interference in DEFA to achieve its interests in SCS. Additionally, although Singapore and Malaysia are currently likely to lead the initative, Thailand’s ambitions to become Southeast Asia’s digital gateway and Vietnam’s rapid development creates potential competing interests in ASEAN. Especially with inate regional technological disparity, the success of DEFA is limited and the goal of supporting a $2 trillion (£1.53 trillion) regional digital economy by 2030 is unrealistic. However, implementation of DEFA also provides some common groundwork for conversations, connectivity, infrastructures and technological spillover, which is especially important for rising developing economies such as Vietnam and the Philippines. At the very least, it creates a lowest common denominator for cooperation and attracting external trust in the region. For example, historical ASEAN partner Australia has already taken initiative to collaborate with Thailand through business exchanges and looks to cyberspace investment opportunities in Vietnam. South Korea’s president Yoon-suk Yeol also visited Singapore in October and signed four pacts regarding strategic partnership in combating cybercrime, supply chains, start-up cooperation, AI and technology cooperation. Although the economic partnership between South Korea and Singapore is not exactly international headliners, there is a significant shift to a digital strategic partnership per the most recent visit.
Recent developments also show indications of digital economy potentially becoming the new global strategic space in the region. Most notably, conflicts in the South China Sea region involved competitions of underwater digital logistics network space. Both the US and China displayed efforts thwarting the development of the other’s multimillion dollar undersea internet cable network projects. To bypass Chinese control, American tech giants are developing the first intra-asian subsea cable network without Hong Kong due to China’s extensive political control after the passing of national security law in 2023. However, the project also excluded Malaysia despite its influential economic role in ASEAN. In response, Malaysia joined the China-backed Southeast Asia Hainan Hong Kong Express Cable system, which might prove particularly problematic for ASEAN in the future, considering Malaysia’s significant role in the region. Although some members of ASEAN, including the Philippines and Singapore, are connected to both networks, Malaysia and Thailand are only connected to the China-backed system. This further increases potential conflicts regarding digital cooperation within ASEAN, in particular, with the digital economy being so strongly tied to SCS conflicts.
We continue to see global competition over dominance in the digital space, however, the nature of strategic conflicts remains unchanged, with hedging powers fuelling and balancing bipolar competition. However, the interconnectivity of the digital network from military to commercial means international conflicts are potentially far more proximate to our lives in the digital strategic space. Control and leakage of data for “national security” reasons, especially when it concerns financial information and control, could be a different type of cost we are facing, hence why transnational cybersecurity could be the key for cooperation and balancing of power in the era of Industrial 4.0.
Image courtesy of ASEAN Economic Ministers (AEM) meeting via ASEAN, ©2023. Some rights reserved.
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of the wider St. Andrews Foreign Affairs Review team.
