Southeast Asia: the frontline of an evolving digital trade landscape


On 1 January 2022, the Regional Comprehensive Economic Partnership (RCEP) came into force, becoming the largest free trade agreement in the world. Covering over a quarter of global trade in goods and services, the agreement has been touted as a gamechanger. As the United Nations Conference on Trade and Development (UNCTAD) noted in December, “the economic size of the emerging bloc and its trade dynamism will make it a center of gravity for global trade.” While the agreement’s implications on global trade are widespread, it is important to take a step back and look at RCEP as just one piece of a much wider landscape – one where dynamics are shifting and standards are still being set, particularly when it comes to digital trade.

From online payments to the provision of digital goods and services, to the logistics of physical trade, emerging technologies such as AI, blockchain, cloud computing and IoT are set to play a fundamental role in global value chains and economic recovery and future growth. While rapid digitalization has been underway for some time now, the Covid-19 pandemic has escalated technological adoption and reinforced the importance of not only addressing the current and potential barriers to trade but ensuring that the opportunities and benefits are delivered in an inclusive, secure, and sustainable way. Perhaps nowhere will this play out more visibly than in Southeast Asia.

Now the world’s fastest-growing digital economy, the region is expected to reach more than $360 billion by 2025, outgrowing earlier projections of $300 billion.1 Underpinning this operation and growth, and arguably the foundational issue for the future of international trade, is the question of data governance. Today, it is almost impossible for trade facilitation to take place without the transfer of data at some point along the global value chain. The rapid increase of data being exchanged within and across borders has led governments worldwide to create or update data governance frameworks. Beyond its commercial investment and growth opportunity therefore, Southeast Asia is emerging as the frontier battleground for the future of digital trade, where the region’s patchwork of rules and regulations broadly follow one of two approaches: a more open flow of data that adheres to best practices and standardized collaboration (e.g. the Digital Economy Partnership Agreement between Singapore, Chile and New Zealand), or a more localized, protectionist system (e.g. China’s ‘digital sovereignty’ push).

Navigating digital trade against shifting geopolitical dynamics

Empowered by the success of its 5G strategy and the vacuum left by US abstention from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), China has expanded its influence on the region’s digital landscape. Through its Digital Silk Road strategy, Beijing is focusing not only on promoting its own digital standards and governance models, but also on providing the infrastructure needed by many countries to adopt and operate digital technologies – for example, Huawei effectively packages its services with investments in hard infrastructure for foreign governments in the region. In the last year, the company has more than doubled its share of the global market for Infrastructure as a Service (IaaS).2 By virtue of this approach, China is laying the groundwork for users to comply with its digital framework and standards.

Conversely, the status quo approach from Western governments and digital service providers has largely relied on promoting the economic and development benefits of cross-border connectivity, coupled with the superior security standards employed by Western tech firms – in other words, warning against Chinese-inspired digital sovereignty efforts that require data to be hosted and stored locally, as well as attempting to dispel the narrative that doing so is safer. While this argument has largely taken root in more developed markets, simply warning about security risks and global connectivity is unlikely to convince lower- and middle-income countries, where the economic constraints brought on by the Covid-19 pandemic will likely lead decision makers to further prioritize the comparative affordability promised by Chinese providers.

Standard Setting: Existing Agreements & Future Initiatives

It is against this geopolitical backdrop, therefore, that RCEP may be most relevant. While the agreement delivers strongly on tariff liberalization and rules of origin harmonization, its provisions on e-commerce and data governance are largely toothless. Critics say this is reflective of China’s influence and approach to digital trade, leaving the door open for data localization, restrictions on cross-border data flows, and policies that favor domestic digital champions. Meanwhile, in looking to leverage the momentum driven by RCEP, China has applied to join the CPTPP as well as the Digital Economy Partnership Agreement (DEPA) between Singapore, New Zealand and Chile, reinforcing the country’s intent to deepen its engagement in the digital economy. The first trade agreement of its kind, DEPA establishes a regulatory framework that ensures data protection while streamlining data flows and the ease of doing business in the digital economy. It also promotes cooperation among members on the development of standards and frameworks for emerging critical technologies, such as fintech, IoT and AI. Compared to RCEP, China’s CPTPP and DEPA applications face a less than certain review process – it is currently ranked as the most data-restrictive country in the world by the Information Technology & Innovation Foundation, which directly contradicts the ethos of the agreements. Furthermore, DEPA requires participants to provide non-discriminatory treatment to digital products created, produced, or published in the territory of another Party, and strictly protects Intellectual Property Rights – issues which have been well documented in China. Nevertheless, the move should serve as a wake-up call to Western governments and multinationals

Thankfully, the last six months have seen the advent of several initiatives that industry can look to leverage and push further. In June 2021, G-7 leaders announced the Build Back Better World Partnership (B3W), which seeks to provide an alternative to China’s Belt and Road Initiative. B3W aims to address the estimated $40 trillion infrastructure investment needed by developing countries. The initiative will encourage private-sector investments in key areas, including digital infrastructure. Officials are currently identifying projects and are expected to announce the first wave of commitments early next year. Meanwhile, the EU announced its ‘Global Gateway’ earlier this month, which aims to mobilize €300 billion ($340 billion) in public and private infrastructure investment, and officials have indicated that the program could work in conjunction with the B3W. More broadly, the Biden administration announced late last year that they intend to launch a comprehensive Indo-Pacific Economic Framework in 2022, but details remain scarce.

A Holistic, Localised Approach

This is not to say that B3W and Global Gateway projects should be viewed as geopolitical chess moves in a zero-sum game – there is of course no way to navigate the future of digital trade without factoring in the importance of China. But simply bemoaning sub-par technical standards and cybersecurity risks won’t stop China from forging ahead, strengthening their influence over the digital development agenda in Southeast Asia in particular. To compete, companies will need to rethink the status quo approach, and present a viable alternative that speaks to the socioeconomic reality that developing countries and their leaders are facing. This will likely require consultation and collaboration with their peers, as well as home and host governments, as well as some serious funding commitments on the interconnecting issues around data governance and cybersecurity frameworks such as infrastructure, education and human resources, and research & development.

Sarah Cavanaugh


Client Services Director, APAC




T: +65 9150 2712


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