Preparing for DEFA: A European strategy for ASEAN’s digital market

Key takeaways:

Introduction

Digital transformation is reshaping international trade by changing not only its speed and scale, but also how firms and individuals can participate in cross-border economic activity. The Association of Southeast Asian Nations (ASEAN) is particularly well-positioned to benefit from this shift. The region combines high trade openness with rapid digital uptake. Over the past decade, the share of individuals connected to the internet has doubled, creating a robust mobile-first consumer base. At a company level, Southeast Asia shows a strong momentum in the adoption of artificial intelligence. According to McKinsey, a consultancy, 46% of surveyed companies in Southeast Asia are in the process of scaling or have fully scaled AI adoption into their operations, compared to the global average of 35%. This provides a strong foundation for ASEAN members to expand participation in digital trade and capture its economic benefits.

To build momentum, ASEAN members have been negotiating the upcoming Digital Economy Framework Agreement (DEFA) since September 2023. On May 30, 2026, the Philippines’ presidency of ASEAN announced that negotiations had successfully been concluded. After the treaty’s text is finalized through legal scrubbing, it is expected to be signed at the upcoming ASEAN Summit in November 2026.

The DEFA promises to “play a transformative role in unlocking the full potential of ASEAN’s digital economy, which studies indicate could reach as much as US$2 trillion by 2030 with its successful implementation.” While the treaty should not be seen through the lens of EU-style legal unification, it is still expected to harmonize the regulatory space among the ASEAN member states.

In the EU, trade with ASEAN is typically discussed through the prism of goods trade with economic de-risking from China as the key driver of the debate. However, as the DEFA will shape the regulatory environment in one of the world’s fastest-growing digital markets, the EU and its member states need to pay close attention to its implementation. This is important for three main reasons:

• At the EU level, the DEFA creates an opportunity to promote regulatory compatibility with Europe’s rights-based digital model and to avoid ceding standard-setting influence to other actors with potential impacts on ASEAN’s and the EU’s economic security.
• At the member-state level, it affects national trade promotion, digital partnerships, and development cooperation strategies towards ASEAN and its member states.
• At the business level, it will influence market access, compliance costs, data governance, supply-chain digitalization, and the ability of European firms, especially start-ups, to scale across ASEAN’s fragmented but rapidly integrating digital economy.

ASEAN DEFA at a glance

The DEFA is ASEAN’s first region-wide dedicated digital economy agreement. Once signed and ratified, it will harmonize rules across nine areas of the digital economy:

• digital trade;
• cross-border e-commerce;
• data governance and privacy;
• digital identity;
• electronic payments;
• online safety and cybersecurity cooperation;
• competition policy;
• emerging technologies, such as artificial intelligence;
• digital talent mobility.

ASEAN and its individual members have signed multilateral, plurilateral, and bilateral trade agreements with digital provisions—such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—and digital economy agreements, such as the WTO Interim Agreement on Electronic Commerce and the EU-Singapore Digital Trade Agreement. Building on this, ASEAN’s DEFA aims to create a high-quality, forward-looking digital rulebook that covers broad areas of the digital economy, some of which are rarely or only lightly addressed in pre-existing treaties, such as digital talent mobility, competition policy, AI, cryptography, data-driven innovation, and submarine cable systems.

Compared with the RCEP and CPTPP, the two most comprehensive plurilateral trade regimes covering ASEAN (four ASEAN countries in the case of the CPTPP) to date, the DEFA is expected to surpass them in regulatory comprehensiveness. Based on the authors’ preliminary analysis, the DEFA is more detailed, elaborative, and even restrictive than the RCEP across nine key provisions of digital trade regulation analyzed, including custom duties prohibition on e-transmissions, online consumer protection, personal data protection, cross-border data flows, data localization prohibition, non-discrimination of digital products, cybersecurity cooperation, and emerging technology (incl. AI) governance.^[1] Compared with the CPTPP, notably known as a gold standard FTA which includes high-standard rules for 21^st century trade, the DEFA provides an even more comprehensive and even higher-standard approach in six of the nine provisions analyzed.

Nevertheless, despite the ambitious approach, it is expected that, to finalize the deal, several ASEAN members, especially Cambodia, Laos, Myanmar, and to a lesser extent Vietnam, will negotiate a longer time frame to meet the legally binding commitments of certain provisions. As for Timor-Leste, ASEAN’s newest member since 2025 and its smallest economy, it is expected to be fully opted out of the DEFA for the time being, as it did not participate in the earlier negotiation processes and it needs to achieve foundational integration with the rest of ASEAN before acceding to the DEFA.

This, in turn, will impact regulatory convergence across ASEAN. Nevertheless, from the perspective of EU actors, the key trade partners (except Vietnam) are expected to be more comprehensively covered by the DEFA regime.

The DEFA’s success in creating a sufficiently robust, harmonized, and predictable legal regime will also rest on individual ASEAN members’ ability to adopt the treaty into domestic regulatory frameworks, upgrade local institutions to ensure sufficient enforcement capacity, and establish appropriate information-sharing and capacity-building mechanisms to ensure consistent interpretation and application of the DEFA’s norms.

ASEAN’s digital trade with the EU

Digital trade holds high economic potential for ASEAN. Its transformative impacts are already visible. ASEAN’s digital trade exports grew by almost 10% per year between 2005 and 2022, outpacing the global average by nearly four percentage points. By 2022, they had reached US$387 billion, representing almost 20% of ASEAN’s total exports and around 6% of global digital trade. Digitally deliverable services have been a particularly important driver, growing by 11% annually between 2005 and 2023, well ahead of non-digitally deliverable services and goods exports.^[2]

This growth and ASEAN’s position in global digital trade are largely driven by Singapore, which accounted for 63.9% of ASEAN’s digital exports as of 2022. The Philippines, Malaysia, Indonesia, Thailand, and Vietnam together accounted for just over an additional one-third of ASEAN digital trade, with the remaining member states making only negligible contributions.[3]

At the same time, ASEAN remains deeply embedded in the physical infrastructure of the digital economy: it is the world’s second-largest exporter of ICT goods, with Vietnam more than doubling its global share over the past decade. The region is also the third-largest importer of ICT goods (chiefly Singapore, Vietnam, and Malaysia) and accounts for a significant share of global imports of digitally deliverable services, reflecting its reliance on foreign inputs to power continued digital transformation.

While intra-ASEAN digital trade remains the most important contributor to overall digital trade, the EU is increasingly important as ASEAN’s trade partner, in both digital exports and imports. This is especially evident in the market for digitally deliverable services, which accounts for three-quarters of ASEAN’s overall digital trade. Between 2015 and 2024, ASEAN’s exports of digitally deliverable services to the EU increased more than 3.5-fold, while imports from the EU increased 2.3-fold.

Currently, ASEAN imports from the EU approximately 19% of all digitally deliverable services, making the EU the second-largest market for ASEAN after the US. Meanwhile, the EU is the largest export market for digitally deliverable services from ASEAN, accounting for 21% of ASEAN’s exports in this segment.

As the DEFA is expected to contribute to the growth of the digital economy in ASEAN up to US$2 trillion by 2030, up from around US$389 billion as of 2022, we can also expect its growing importance for the EU economy writ large and individual European companies.

Besides narrowly understood trade in digitally deliverable services, EU companies producing ICT hardware, like semiconductors, are also poised to benefit from the overall growth of ASEAN’s digital economy. As ASEAN expands e-commerce, digital payments, cloud services, smart manufacturing, logistics platforms, health tech, fintech, and AI-enabled services, demand for semiconductors, sensors, power chips, ICT components, and related technologies will also rise. European semiconductor firms already active in ASEAN can benefit from this expansion not only through existing assembly, testing, and production activities, but also by supplying the components needed for ASEAN’s wider digital transformation.^[4]

 Preparing for EU-ASEAN digital trade post-DEFA

The EU’s approach to the DEFA should be pragmatic. Europe should not assume that ASEAN will automatically converge toward the EU digital model. Instead, EU institutions, member states, and companies should work to make the DEFA interoperable with European rules and business practices, while supporting ASEAN’s own goals of openness, security, competitiveness, and inclusion.

For EU institutions, this means sustained regulatory engagement and capacity-building; for member states, including those in Central Europe, it means translating the DEFA into concrete export and investment strategies; and for European companies, it means preparing early for new rules on digital trade.

Recommendations for the EU institutions

• Building on the momentum generated by the EU-Singapore Digital Trade Agreement, the EU should pursue similar agreements with ASEAN as a whole or, at a minimum, with major digital markets (Philippines, Malaysia, Indonesia, Thailand) to strengthen regulatory interoperability.
• The EU should pursue inclusion of digital trade provisions in the individual free trade agreements (FTAs) with Southeast Asian states. For the already concluded FTAs (with Singapore, Vietnam, and Indonesia), this should also be an objective for FTA upgrading.
• Following the agreement at the 18th AEM-EU Trade Commissioner Consultation in 2022, explore concrete ASEAN-EU joint initiatives in the area of digital trade as building blocks towards a potential long-term objective of an ASEAN-EU Digital Economy Agreement and ASEAN-EU FTA.
• Support the development and implementation of national legislation in key areas, including digital platforms, artificial intelligence, and digital payments, to improve compatibility with relevant EU frameworks, such as the Digital Markets Act (DMA), Digital Services Act (DSA), AI Act, Markets in Crypto-Assets Regulation (MiCA), e-Commerce Directive, Payment Services Directive (PSD3), GDPR, and ePrivacy
• Provide technical assistance for establishing and strengthening national regulatory bodies in ASEAN member states, such as personal data protection authorities, with the aim of promoting comparable enforcement standards.
• Building on existing dialogues, such as a joint EU-ASEAN study mapping convergence of digital trade frameworks, establish regular exchanges with ASEAN counterparts on regulatory and enforcement practices to foster greater interoperability and more predictable interpretation and application of rules impacting EU-ASEAN digital trade.

Recommendations for the Central European governments

• For Central European governments, the immediate priority should be to identify the areas of ASEAN’s digital economy in which their firms can compete effectively. These may include cybersecurity, e-government solutions, digital identity, fintech, industrial automation, smart manufacturing, logistics software, health technology, AI services, and ICT components linked to broader supply chains.
• Central European states should also coordinate more actively through EU channels rather than engaging ASEAN in a fragmented manner. Individually, most Central European countries have limited influence over digital rule-making in ASEAN. Nevertheless, due to pre-existing strong relations with Vietnam, Central European countries are well-positioned to play a leading voice for the EU in the country, in providing technical assistance aimed at the DEFA’s implementation. By acting collectively through the EU, they can help shape standards in areas such as data governance, cybersecurity, digital trade facilitation, and trusted digital infrastructure.

Recommendations for businesses

• Once the DEFA is signed, European companies should begin preparing for its implementation immediately, aligning their operations with emerging regulatory requirements to facilitate faster and more predictable market entry.
• European SMEs and start-ups can strengthen their ability to enter and scale in ASEAN markets by engaging with ASEAN-based venture capital and private equity funds, particularly those in Singapore. Partnerships with major investors, including sovereign wealth funds such as Temasek and GIC, can provide not only financing but also valuable knowledge of local markets, regulations, and business networks.
• Through European and national business chambers, EU companies should also engage actively with ASEAN governments during the DEFA’s implementation. Their aim should be to promote predictable, transparent, and interoperable regulations that reduce compliance costs across the region.

Funded by the EU NextGenerationEU through the Recovery and Resilience Plan for Slovakia under project No. 09I03-03-V04-00462.

Notes:

^[1] While the final text of the DEFA is not yet public, one of the authors had access to the preliminary version of the treaty text, on which this comparison is based. Compared to the analyzed preliminary text, deviations may occur in the final version of the DEFA, potentially impacting this comparative analysis.

^[2] Digitally deliverable services are defined as Publishing, audiovisual and broadcasting (ISIC 58-60); ICT services (ISIC 61–63); Financial and insurance services (ISIC 64–66); Professional, scientific, technical, administrative and support services (ISIC 69–82).

^[3] For a further overview of recommendations how the EU and Central Europe should engage the mentioned Southeast Asian partners, see the CEIAS paper 2027 and beyond: Advancing EU and Slovak relations with Southeast Asia by Alfred Gerstl.

^[4] For more information on EU-ASEAN semiconductors cooperation, see the CEIAS paper Chips that connect: EU-ASEAN cooperation in a fragmented world by Filip Šebok.