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Digitalizing trade in ASEAN: Opportunities and challenges
Digitalization can help firms reduce trade costs by connecting supply and demand, reducing the need for intermediaries and relaxing informational constraints related to trading in different markets.
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nlocking digital trade potential is essential to boost regional trade in the Association of Southeast Asian Nations (ASEAN) during and post COVID-19 pandemic. In March 2021, the World Trade Organization (WTO) predicted that merchandise trade volume in Asia is expected to increase from 0.3 percent in 2020 to 8.4 percent in 2021 and 3.5 percent in 2022. The positive short-term outlook of trade recovery suggests the need for ASEAN to reduce the risks of COVID-19 outbreak, while enhancing regional value chains.
Digital trade refers to digitally-enabled transactions of trade in goods and services that can either be digitally or physically delivered. While all goods or services can be digitally ordered, not all of them can be digitally delivered. Trade in services such as insurance and financial services are examples of digitally ordered and delivered trade. Trade in goods such as purchases of computers and books through on-line marketplace are examples of digital trade that are digitally ordered but physically delivered.
Digitalization can help firms reduce trade costs by connecting supply and demand, reducing the need for intermediaries and relaxing informational constraints related to trading in different markets. By reducing trade costs and increasing productivity, digital technologies such as the Internet of Things, Artificial Intelligent, and 3D printing could increase the growth rate of trade in developing countries, including ASEAN, by 2.5 percentage points per annum or 22.5 percentage points from 2021 to 2030.
Over the past one and half years, the pandemic has accelerated the trend of digital trade in ASEAN. While economic activities in ASEAN have substantially declined during the pandemic, businesses with an established online presence or those that could quickly shift from offline to online presence have been better equipped to take advantage of online shopping, online conferencing, gaming and entertainment due to movement restrictions and consumer anxieties about social interaction.
In Singapore, for example, the share of online retail sales in total retail sales last year doubled its pre-pandemic level, rising from only 5.9 percent in 2019 to 11.7 percent in 2020. This is an encouraging result, which should be scaled up for cross-border digital trade in goods and services across sectors and all firm sizes (i.e., large, medium, and small-sized enterprises) in ASEAN countries.
While the surge of e-commerce during the pandemic has reinforced the importance of digital trade in strengthening regional trade recovery, the benefits of digitalisation for firms, especially SMEs, are not automatic. They require firms to invest in adopting digital technologies and acquiring new skills to leverage data-driven innovation. At the same time, they also require that ASEAN governments provide a supportive domestic and international operating environment.
At the national level, conducive business environment is essential to thrive the e-commerce sector. Lessons from Singapore reveal that the key factors for promoting e-commerce development are high internet penetration and smartphone adoption, strong financial infrastructure, good logistical facilities, and effective e-commerce legislation such as electronic-transaction laws, data protection and privacy laws, cybercrime laws and consumer protection laws.
Other ASEAN countries such as Indonesia and Vietnam have much to gain from further development of their e-commerce sectors, but they face key challenges such as lack or uncertainties of e-commerce related policy and regulation, relatively low internet penetration, poor logistics infrastructure, low quality in human resources, and shallow digital payment penetration.
At the regional level, ASEAN’s collective actions are needed to establish and implement a greater consistent legal framework that enhances digital trade in the region. Some key issues that deserve particular attention include managing a sharp rise in digital services, applying taxes to cross-border deliveries of digital goods and services, effectively tackling concerns over cybersecurity and data protection, and managing digital or data sovereignty.
Without regional efforts, individual countries tend to develop complex and different digital trade legislations that meet their levels of automation (e.g. order processing, order tracking, digital payment), financial and logistical infrastructure, and human resources. This could lead to different digital trade legislations and requirements in ASEAN markets, which increase risks and uncertainties in selling or buying goods across borders through digital platforms.
The end result is that ASEAN as a group will not be able to unlock the potential benefits of digital trade as firms are unlikely to participate or increase their digital trade transactions.
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The writer is lead researcher, ASEAN Studies Centre, ISEAS – Yusof Ishak Institute. These views expressed are personal.
