Investors and policymakers alike are watching Malaysia’s leadership of regional trade initiatives as pivotal measures are set to reshape intra-ASEAN commerce. Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz emphasized that the Digital Economy Framework Agreement (DEFA) and several upgraded trade accords slated for sealing at the upcoming ASEAN Summit will bolster economic activity within the region. He highlighted that these deals—together with the upgraded ASEAN Trade in Goods Agreement (ATIGA), the ASEAN-China Free Trade Agreement, and the ASEAN-India Trade Inclusion Agreement—are designed to drive higher volumes of intra-ASEAN trade, strengthening supply chains and creating a more resilient, digitally integrated regional economy. Speaking to reporters after chairing the 57th ASEAN Economic Ministers’ Meeting, Zafrul underscored that these initiatives are not merely economic aims but strategic imperatives for a region seeking greater self-reliance and global competitiveness in the face of a volatile global marketplace.
Key deals poised to boost intra-regional trade
The suite of forthcoming trade arrangements signals a concerted push to modernize ASEAN’s trade architecture and to align it with the digital age, while also addressing practical bottlenecks that have historically constrained intra-regional commerce. Among the most consequential elements is the Digital Economy Framework Agreement (DEFA), a pact designed to harness the rapid expansion of digital services, cross-border data flows, and digital-enabled trade across ASEAN member states. The DEFA is expected to enshrine common rules and standards that reduce friction for digital transactions, promote trust and security in cross-border digital activities, and lay the foundation for a more open and robust digital ecosystem within the region. The administration and logistics of digital trade—ranging from digital payments and fintech services to data governance and cyber security—stand to benefit from clearer guidelines, harmonized regulations, and greater regulatory predictability. In practical terms, this could mean faster clearance of digital goods and services, lower barriers for regional tech startups seeking access to larger markets, and more efficient digital service delivery across ASEAN’s diverse economies.
Beyond the DEFA, the upgraded ATIGA is set to refresh and reinforce the framework governing trade in goods, with a targeted focus on contemporary issues that influence how goods move across borders today. The upgrades address evolving challenges such as remanufactured goods, environmental considerations linked to production and trade, and trade in humanitarian crises scenarios. By incorporating new elements that respond to these emerging realities, the ATIGA upgrade aims to streamline cross-border commerce while aligning environmental and humanitarian standards with commercial objectives. This alignment is critical; it promises to reduce non-tariff frictions and harmonize rules that can otherwise create compliance costs for businesses operating regionally. The overall effect is expected to be a more seamless flow of goods within ASEAN, accompanied by improved supply chain connectivity and more predictable regulatory environments for traders.
The ASEAN-China Free Trade Agreement and the ASEAN-India Trade Inclusion Agreement complete this strategic quartet. The ASEAN-China FTA continues to be a central pillar of regional economic integration, expanding market access and facilitating the movement of goods, services, and investments between ASEAN member states and China. The inclusion of service sectors, investment protections, and reforms under such a framework has historically yielded broad benefits, stimulating manufacturing, digital services, and logistics sectors that benefit from a larger, integrated market. Meanwhile, the ASEAN-India Trade Inclusion Agreement seeks to broaden the scope of trade and economic cooperation with India, offering additional channels for supply chains to diversify and for regional producers to tap into a growing Indian market. Together, these agreements provide a multi-lateral backbone that complements DEFA and ATIGA, creating a holistic environment in which intra-ASEAN trade can expand more rapidly and with greater resilience.
Within these negotiations, the emphasis on modern trade practices, regulatory alignment, and transparent dispute resolution mechanisms is apparent. The upgrades and additions are designed to address both traditional trade concerns—tariffs, quotas, and border procedures—and modern challenges such as digital trade barriers, data localization requirements, and the governance of cross-border data flows. By addressing these issues comprehensively, the region aims to reduce the cost and complexity of doing business across member states. In doing so, ASEAN hopes to unlock productivity gains across manufacturing, agriculture, and services, while also enabling small and medium-sized enterprises (SMEs) to access regional markets with fewer frictions. The convergence of these deals can create a more predictable and reliable trading environment, enabling local firms to scale up regionally and attract greater investment into regional value chains.
The strategic logic behind combining DEFA with upgraded ATIGA and the two major FTAs is clear: digital-enabled trade and traditional trade must be developed in tandem to ensure that the region’s digital transformations translate into real economic gains. The DEFA lays the groundwork for digital services and cross-border data flows, while ATIGA and the FTAs remove friction for physical goods and provide a framework for cross-border investment in a manner that complements the digital economy. In practical terms, this means faster clearance times for goods, more efficient customs procedures, better compliance with shared standards, and a coherent policy environment that supports digital and physical trade alike. Taken together, these measures are expected to contribute to higher intra-ASEAN trade volumes, improved supply chain reliability, and increased regional competitiveness on the global stage.
Zafrul also highlighted that the ATIGA upgrades will address contemporary issues that affect trade efficiency and sustainability, such as the trade and environmental implications of modern manufacturing and distribution. By tackling remanufactured goods and integrating environmental considerations into trade rules, the region seeks to align economic growth with sustainable development goals. This alignment is essential as global demand shifts toward greener production methods and as consumer expectations evolve regarding environmental responsibility. The trade framework’s modernization is designed to encourage firms to adopt sustainable practices while still maintaining competitive pricing and reliable supply lines across ASEAN markets. The net effect is anticipated to be a more resilient regional economy capable of withstanding external shocks and maintaining steady growth even amid global volatility.
In his remarks at the ASEAN Economic Ministers’ Meeting, Zafrul emphasized that boosting intra-ASEAN trade is not merely a political or economic aspiration; it is a strategic imperative for building a more resilient, self-reliant, and globally competitive region. He asserted that a more integrated regional market will support diversification of exports, enhance value addition within ASEAN, and strengthen collective bargaining power in the global economy. While acknowledging challenges, including non-tariff measures and the need for regulatory coherence, he argued that the new and upgraded agreements provide a clear path forward. The overarching goal is to create a regional ecosystem in which digital and physical trade are seamlessly connected, enabling businesses—from large manufacturers to SMEs and start-ups—to participate more actively in regional value chains. The result would be a more dynamic, innovative, and inclusive economy that can better withstand external fluctuations and maintain momentum in a rapidly changing global trade landscape.
The Digital Economy Framework Agreement (DEFA)
The DEFA stands out as a cornerstone for ASEAN’s digital transformation, with an explicit mandate to advance cross-border digital trade, promote digital services, and facilitate the movement of data in ways that are compliant with regional norms and national regulations. By codifying digital trade norms, the DEFA seeks to lower the barriers that often impede digital service providers and tech-enabled businesses from operating across multiple ASEAN markets. The anticipated impact includes more predictable regulatory conditions, smoother cross-border data processing, and the reduction of friction associated with cross-border digital payments and e-commerce. An important aspect of the DEFA is the emphasis on building trust and security in the digital economy. This includes establishing agreed-upon standards for cybersecurity, data privacy, and consumer protection, all of which are essential for fostering consumer confidence and encouraging higher levels of digital trade participation among businesses and consumers alike.
Additionally, the DEFA is expected to catalyze investment in digital infrastructure—such as high-quality broadband networks, data centers, and cloud services—across ASEAN. Improved digital infrastructure will enable more efficient digital service delivery, enable SMEs to scale their online operations, and support innovative platforms that connect buyers and sellers across national borders. This is particularly relevant for sectors such as e-commerce logistics, fintech, health tech, and education technology, where cross-border delivery and service provision can be significantly streamlined through shared standards and mutual recognition arrangements. The DEFA’s success will depend on coherent governance frameworks, aligned regulatory regimes, and continuous collaboration among ASEAN member states to keep pace with rapid digital innovation while safeguarding public interest and national sovereignty.
Upgraded ATIGA: Focus on Contemporary Trade Realities
The upgraded ATIGA will integrate provisions addressing the realities of modern trade that extend beyond traditional tariff schedules. Chief among these are measures designed to address remanufactured goods—an increasingly common trade category as manufacturers shift toward circular economy models and as remanufacturing and refurbishing activities create new lines of cross-border trade. The upgrade also emphasizes environmental stewardship, integrating trade rules with environmental objectives and ensuring that environmental considerations are embedded into the trade framework. This alignment supports sustainable production and consumption patterns, reducing negative environmental externalities associated with cross-border trade. The emphasis on supply chain connectivity is another pivotal feature, aimed at strengthening the documentation, standards alignment, and logistical cooperation required to keep regional supply chains resilient and efficient.
The ATIGA upgrade is expected to reduce non-tariff barriers by harmonizing technical standards, conformity assessment procedures, and other border procedures with greater efficiency. Streamlined rules of origin, better tariff-line classifications, and more consistent customs practices across ASEAN member states can collectively reduce compliance costs and improve predictability for exporters and importers. For businesses engaged in regional supply chains, these enhancements mean shorter lead times, lower operating costs, and greater confidence to invest in cross-border production capabilities. In sum, the ATIGA upgrade is designed to modernize a core trade instrument to reflect the contemporary needs of multi-country manufacturing and distribution networks, while aligning with broader regional goals around sustainable development and responsible business practices.
ASEAN-China Free Trade Agreement and ASEAN-India Trade Inclusion Agreement
The ASEAN-China FTA remains a central mechanism for expanding access to one of ASEAN’s most important bilateral partners. The agreement supports broader market access for a wide range of goods and services, while also facilitating investment flows and collaboration in critical sectors such as digital infrastructure, manufacturing, and logistics. The continued evolution of this FTA is designed to ensure that ASEAN member states can capitalize on China’s growing demand for high-quality regional inputs and finished goods, while enabling Chinese firms to participate more effectively in Southeast Asian production ecosystems. For ASEAN, the FTA with China supports diversification of export markets, enhanced technology transfer, and deeper integration into regional value chains that include Chinese technologies and capabilities.
The ASEAN-India Trade Inclusion Agreement likewise broadens the scope of economic cooperation between ASEAN and India. By deepening market access and smoothing trade procedures, this agreement seeks to unlock new opportunities across multiple sectors, including manufacturing, information technology services, and consumer goods. The inclusion framework supports a broader, more inclusive regional market where both sides can leverage their comparative advantages and expand trade flows that complement the DEFA and ATIGA upgrades. The cumulative effect of these partnerships is to create a multi-layered, diversified regional economy that can better absorb external shocks and sustain growth during periods of global uncertainty. The integration of these partnerships with digital-focused agreements and goods-based trade upgrades offers a holistic strategy for enhancing intra-ASEAN trade and regional prosperity.
Integration and practical implications for business
Taken together, these deals create a comprehensive platform for boosting intra-ASEAN trade that aligns with both traditional and digital economic realities. Businesses operating within ASEAN can anticipate simpler cross-border procedures, more predictable regulatory environments, and improved access to neighboring markets. SMEs, which comprise a large portion of ASEAN’s economic landscape, stand to gain from lowered barriers to market entry, easier access to regional supply networks, and clearer rules for cross-border digital and physical trade. Larger corporations can leverage the enhanced regional framework to optimize supply chains, diversify sourcing, and deploy digital transformation initiatives more effectively across the region. At the policy level, these agreements demand sustained efforts in harmonization, standardization, and mutual recognition, as well as robust enforcement mechanisms to ensure compliance. The long-term payoff is a more integrated ASEAN market that can compete effectively in the global economy while supporting sustainable development and resilience in the face of global economic fluctuations.
The broader strategic significance
The reforms reflect a broader strategic orientation toward regional resilience and self-reliance. By creating a more integrated and digitally capable market, ASEAN aims to reduce dependency on external supply chains and to encourage diversification of trade partners within the region. This approach has important implications for risk management, as a more interconnected regional economy can respond more quickly to supply chain disruptions and demand shifts. The digital economy, in particular, offers pathways for innovation-led growth, enabling new business models, cross-border services, and data-enabled value creation that can elevate the region’s competitive standing. As the global economy continues to evolve with rapid digitalization and shifting geopolitical dynamics, ASEAN’s emphasis on DEFA, ATIGA upgrades, and strategic FTAs positions the bloc to capitalize on opportunities while maintaining prudent governance and sustainable development principles.
Digital economy growth and strategic importance
The DEFA’s anticipated impact on the ASEAN digital economy is substantial, with proponents estimating the framework could help double the region’s digital economy to around US$2 trillion by 2030. This ambitious projection hinges on several interlocking dynamics: accelerated digitization of services, expanded cross-border digital trade, and a conducive environment for digital innovation to flourish across member states. Achieving this target would require not only robust physical and digital infrastructure but also harmonized regulatory regimes, cyber security cooperation, and data governance that supports cross-border trade while protecting privacy and national interests. The DEFA’s success depends on member states’ commitment to common standards, mutual recognition, and transparent governance mechanisms that enable a predictable, safe, and vibrant digital marketplace across ASEAN.
A deeper digital economy within ASEAN would influence multiple sectors, from financial services and e-commerce to cloud computing and digital health. Fintech innovation, cross-border payment solutions, and digital identity verification could accelerate financial inclusion and broaden access to financial services for individuals and small businesses. E-commerce platforms could harness cross-border data flows to optimize logistics, inventory management, and customer experiences across markets. In education technology and digital content, regional collaboration could unlock new opportunities for learners and creators, while health tech and telemedicine could expand access to services across borders. The DEFA thus represents not only a policy framework but a catalyst for private sector investment, workforce development, and regional productivity gains that collectively lift the region’s economic trajectory.
Strategically, the DEFA aligns with a broader ASEAN aim to integrate digital and physical trade ecosystems. By normalizing digital trade rules and creating secure channels for data exchange, ASEAN seeks to reduce non-tariff barriers and promote a more agile, innovation-driven economy. This, in turn, fosters an environment where digital startups and traditional firms alike can experiment with new business models, collaborate across borders, and scale operations more efficiently. The resulting productivity improvements and capability building can enhance the region’s global competitiveness, encouraging investors to consider ASEAN as a cohesive, opportunity-rich market rather than a collection of separate economies with divergent regulations.
The DEFA’s broader economic implications extend beyond immediate trade facilitation. As digital ecosystems mature, the region could benefit from stronger regional innovation clusters, skills development programs aligned with future job requirements, and more effective collaboration across public and private sectors to address shared challenges. This includes cyber security preparedness, digital literacy initiatives, and infrastructure investments in underserved or undersea connectivity-strapped areas, ensuring that digital growth is inclusive and widely shared. Moreover, the DEFA informs policy debates about data localization, data sovereignty, and cross-border data governance, raising important questions about how to balance national security and consumer privacy with the benefits of a connected regional economy.
From a policy perspective, the DEFA must be supported by complementary reforms in other areas, including investment in physical infrastructure, improvements to the ease of doing business, and the development of regional standards that facilitate cross-border commerce. A robust regulatory environment, aligned with clear enforcement mechanisms, will help to reduce the risk premium associated with cross-border digital trade and attract higher levels of private investment. ASEAN policymakers must also address potential digital divides among member states, ensuring that slower or less-developed economies can catch up through targeted assistance, knowledge transfer, and capacity-building programs. The combined effect of these efforts can be transformative, turning the DEFA from a high-level aspiration into a practical engine of growth for the region.
Intra-ASEAN trade remains a critical measure of the region’s economic integration. The 2024 trade landscape shows that intra-ASEAN trade accounted for around 21.2% of the total trade within the region, a share that underscores the potential for greater regional porosity and trade within member states. This figure stands in contrast to the European Union’s intra-trade share of about 60%, highlighting the room for improvement in ASEAN’s internal market integration. Strengthening intra-ASEAN trade is not simply about increasing volumes; it is about deepening regional value chains, improving production efficiency, and creating a more balanced economic structure across the bloc. The ongoing negotiations for DEFA, ATIGA upgrades, and the ASEAN-China and ASEAN-India trade agreements are seen as instrumental tools to accelerate progress toward a more integrated internal market, where goods, services, and digital offerings can move across borders with lower barriers and greater predictability.
Non-tariff measures (NTMs) have been a persistent concern in the DEFA and ATIGA discussions. While the exact measures and reforms are still under negotiation, leaders and ministers have signaled a commitment to addressing NTMs that hinder trade efficiency and increase compliance costs for businesses. Although specific details of NTMs are not disclosed at this stage, the broad consensus is that harmonization of standards, streamlined conformity assessment procedures, and mutual recognition of technical requirements can significantly reduce red tape and facilitate smoother cross-border activity. The management of NTMs is essential, as these measures often have a disproportionate impact on SMEs, which rely on predictable and low-cost cross-border access to regional markets. The negotiations acknowledge that a balanced approach is needed: protecting national interests and public welfare while enabling more efficient, cost-effective cross-border trade that supports inclusive growth across ASEAN.
The economic rationale behind these reforms is clear. By reducing friction in both digital and physical trade and by strengthening supply chain connectivity, ASEAN creates a more attractive environment for regional and foreign investment. The improvements can stimulate job creation, promote the transfer of technology and know-how, and deepen the regional specialization that underpins sustainable growth. A more integrated intra-ASEAN market could attract manufacturing and service-export investments that previously flowed to other regions, contributing to higher regional productivity, more resilient supply chains, and greater economic diversification. As the ASEAN region continues to navigate global headwinds—from supply chain disruptions to shifts in trade policy—these agreements are designed to offer a clear, data-driven pathway toward greater regional prosperity.
In conclusion, the confluence of the DEFA, ATIGA upgrades, and the ASEAN-China and ASEAN-India trade instruments represents a comprehensive strategy to boost intra-ASEAN trade, modernize the regional trade architecture, and accelerate digital transformation. Each component addresses different dimensions of trade—digital services, goods, environmental considerations, and cross-border cooperation—while reinforcing a shared regional framework designed to withstand external shocks and adapt to evolving global markets. The result is a more integrated, dynamic, and resilient ASEAN economy with expanded opportunities for businesses of all sizes. As ministers and policymakers work toward finalizing these agreements, the focus remains squarely on translating commitments into tangible gains for trade, investment, and sustainable growth across the region.
Intra-ASEAN trade: current state, challenges, and opportunities
The intra-ASEAN trade share, hovering around the low 20s percent, reflects a fundamental challenge: ASEAN’s member states maintain diverse development levels, regulatory regimes, and market structures that complicate seamless cross-border commerce. The 21.2% share for 2024 indicates a substantial portion of regional trade continues to move outside the intra-ASEAN framework, with a considerable volume exiting the regional boundary to access external markets or re-enter through global value chains in non-ASEAN configurations. This fragmentation reduces potential benefits of regional cooperation, such as the spur to manufacturing productivity and the creation of cross-border clusters that can drive innovation and scale. The new and upgraded trade agreements are designed to address these structural frictions by harmonizing standards, simplifying procedures, and aligning regulatory expectations across member states.
On the upside, there is a robust appreciation of the long-term gains from strengthening intra-regional trade. If DEFA fosters deeper digital trade and if ATIGA upgrades streamline goods movement, the region could see a shift toward greater regional specialization and more integrated supply chains. This would enhance efficiency, reduce production costs, and create a more balanced distribution of economic activity among ASEAN members. The long-run impact includes higher regional competitiveness on the global stage, more diversified export portfolios, and resilient economic structures that can better absorb external shocks. The challenge lies in implementing these reforms consistently across all member states while maintaining social and environmental safeguards, ensuring that the benefits are broadly shared and do not exacerbate regional inequalities.
To achieve these ambitions, policy coordination will be essential. ASEAN must continue to align technical standards, regulatory practices, and market access terms so that goods and services can flow smoothly, with minimal friction across borders. This requires not only political will but also practical steps toward capacity-building, knowledge transfer, and technical assistance to less-developed economies within the bloc. By building a more cohesive intra-ASEAN market, the region can create a higher level of trust among member states, which in turn encourages private sector investment and participation in regional value chains. The combined effect is a more dynamic regional economy with a stronger growth trajectory and greater resilience against external shocks.
Outlook and strategic considerations
Looking ahead, the momentum generated by DEFA, ATIGA upgrades, and the ASEAN-China and ASEAN-India agreements will depend on effective implementation and ongoing cooperation. Achieving the intended benefits will require continuous dialogue among member states, robust enforcement of trade rules, and sustained investment in digital and physical infrastructure. Private sector engagement will be critical, as businesses must adapt to the evolving regulatory environment, seize new market opportunities, and participate in regional projects that strengthen supply chain ecosystems. The regional leadership will also need to address issues such as data governance, privacy, and cyber security to build trust in digital trade and services across borders. In addition, attention to inclusive growth—ensuring that SMEs and marginalized communities can benefit from regional integration—will be essential to realize the full potential of these reforms and maintain social and political support for ongoing liberalization.
The inflationary and macroeconomic context in many member states suggests that the timing of these reforms is particularly sensitive. While deregulation and tariff liberalization can support growth, they also require complementary macroeconomic stability, prudent fiscal management, and targeted support for sectors transitioning to more integrated regional operations. The ability of ASEAN to navigate these dynamics successfully will shape the pace and scale of intra-ASEAN trade growth over the coming years. If implemented effectively, the DEFA and related upgrades could catalyze a virtuous cycle of investment, technology transfer, and productivity gains that elevate ASEAN’s standing in the global economy while delivering tangible benefits to businesses and consumers within the region.
The role of governments and the private sector
Governments play a crucial role in creating the enabling environment for these agreements to flourish. This includes investing in infrastructure, ensuring regulatory coherence, and delivering public–private collaboration that aligns policy goals with market needs. The private sector, in turn, must capitalize on the opportunities created by reduced frictions and enhanced market access. Small and medium-sized enterprises need targeted support to participate in cross-border trade, including access to finance, digital platforms, and knowledge networks that help them scale regionally. Together, government and industry can create a feedback loop: smarter regulations and digitized trade procedures attract more investment, which funds further improvements to infrastructure and services, enabling even greater participation in intra-ASEAN trade.
In summary, the ongoing negotiations and upgrades reflect a coordinated strategy to fuse digital capability with traditional trade liberalization. The expected result is a more integrated, innovative, and resilient ASEAN economy capable of sustaining competitive growth in a rapidly changing global context. As these agreements enter their final negotiation phases and move toward implementation, stakeholders across the region will be watching carefully to measure progress, adjust policies as needed, and ensure that the benefits of greater intra-ASEAN trade are realized broadly and equitably.
Conclusion
The leadership of ASEAN’s trade integration efforts—centered on DEFA, upgraded ATIGA, and the ASEAN-Chinese and ASEAN-Indian trade mechanisms—signals a deliberate shift toward an increasingly integrated regional economy. By combining digital economy acceleration with modernized goods trade rules and expanded regional partnerships, ASEAN seeks to create a more seamless, resilient, and competitive market. The objective is clear: to boost intra-ASEAN trade, strengthen regional value chains, and position the bloc for sustainable growth amid shifting global trade dynamics. While challenges remain, particularly around non-tariff measures, regulatory harmonization, and ensuring inclusive benefits for all member states, the trajectory is toward a more connected, innovative, and prosperous ASEAN.