Integration, interoperability, inclusion: igniting the e-commerce boom in Asia

 Asia is in the midst of a historic e-commerce boom. Online transactions of goods and services grew rapidly during COVID-19 lockdowns and continue to grow. Record numbers of Asian businesses are now selling online, reaching customers across borders. Perhaps unsurprisingly, China remains the region’s largest business-to-consumer e-commerce market, making up about a third of global online retail sales in goods. But Southeast Asian e-commerce has been growing at a blistering 24% year on year in 2020-23 and, in 2022, the Philippines, Indonesia, and Vietnam ranked among the fastest-growing e-commerce markets in the world.  

Despite these impressive growth rates, Asian governments still have much work ahead of them to translate the region’s swift adoption of e-commerce into inclusive digital trade opportunities for more local firms, especially small businesses. This will require a deeper integration of markets, the implementation of international commitments on trade and data, and the improved cross-border interoperability of digital payments and platforms.  

Integration through trade agreements 

Governments in the region have long sought to facilitate regional e-commerce through broad-brush arrangements such as the Asia-Pacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN), alongside more advanced free trade agreements that unite regional economies with international partners to promote digital trade – for example, the US-Japan Digital Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The adoption of the policies and practices in these agreements are conducive to digital trade infrastructural needs, from e-payment laws and export promotion programs to financing for online small and medium-sized enterprises. They have, therefore, all bolstered the e-commerce surge. 

Yet despite the many digital trade agreements in force, Asian businesses continue to struggle with diverse national digital trade policy frameworks. According to Nextrade Group research for the US Agency for International Development, (USAID), more than one-third of Southeast Asian sellers say they are struggling with the region’s fragmented digital regulatory landscape. The complexity of overlapping or contradictory national data privacy laws, consumer protection rules, and other regulations can be daunting enough in one market, let alone across multiple markets. Firms also worry about potential data localization – where local authorities require data to be stored in the country – undermining cross-border e-commerce. This practice hampers the hundreds of thousands of small online seller-exporters that use data about their foreign customers and operations to improve their products and services and want to leverage global cloud providers to store and process their data where most affordable and convenient. 

These obstacles and concerns point to the clear need for an alignment of the regional policy agenda to promote digital trade. In short, there needs to be further interoperability across national digital regulations in particular to facilitate greater compliance among smaller firms. More regional signatories to the CPTPP and other trade agreements with binding e-commerce rules, for example, could help to foster this convergence and lock each participating economy into standardized rules for digital trade. The intention of ASEAN economies to negotiate a Digital Economy Framework Agreement (DEFA) is a potential positive step towards more robust and binding rules that promote e-commerce, promote digital interoperability, and create a more level playing field.