The Global High Street: E-commerce is counting the cost of age-old policy

Global high street
20 March 2017

Kissinger once observed that success ‘only buys an admission ticket to a more difficult problem.’

Business leaders in small and medium-sized enterprises have certainly enjoyed unprecedented opportunities overseas through e-commerce. But where will the ticket they’re clutching onto lead when you consider the antiquated trade policies which have failed to keep pace?

For the past century, global trade has been dominated by a small number of large multinational corporations. Only ‘big business’ had the capital funds necessary to develop global supply chains which trade relied on. But the emergence of e-commerce platforms like Amazon has changed all this. 

Today, these platforms provide a global marketplace for SMEs to sell to consumers located all over the world. With the platform providing the upfront capital investment necessary for a global operation, expansion becomes easier.  These platforms provide SMEs with access to global shared services – including marketing, IT systems, warehousing, delivery and supply chain logistics.   We are starting to see the emergence of ‘micro-multinational corporations’. 

Around 80% of online Australian SMEs export the goods and services they sell.  The Australian cross-border e-commerce market has grown at a rate of over 16% since 2013. In Europe and North America, e-Commerce is the fastest growing retail market. In developing countries, it is hailed as an opportunity to cement a place in the multilateral trading system. Not surprisingly, Asian and Latin American countries, reflecting economic gains in more traditional sectors, are leading the e-commerce charge. In economies such as Nigeria, e-commerce is a bigger industry than traditional bricks-and-mortar stores. 

Businesses regardless of size or location are using the internet to transcend old barriers. 

Up to a point at least.

21st Century Policies

Policies have not kept pace with 21st Century trade.

Digital impacts on global trade are creating policy frictions — both in the online space and for the delivery of e-commerce shipments. Today’s trade rules largely reflect 20th Century ideals. 

In the past, trade agreements have focussed on the reduction and removal of tariffs. We now need to focus on removing ‘non-tariff barriers’ to trade. This is where technical differences between the laws and regulations of different jurisdictions raise that bar to outsiders trying to trade directly with consumers. This includes laws in relation to tax, product safety, customs processes, data protection laws and industry specific regulations. These non-tariff barriers hurt SMEs more than big business. This is because SMEs sell in high frequency small shipments direct to consumers. Also, SMEs don’t have the scale, resources or administrative capacity to navigate legal and regulatory issues across multiple jurisdictions. 

As a consequence, the growth of SMEs is hamstrung by rules regarding tax, customs and market access. 

Another precondition for the success and viability of e-commerce is the ability for information to freely and efficient cross borders. Anti-competitive bottlenecks and fragmented national rules on data are increasingly impacting on growth for SMEs. Unjustified restrictions on cross-border data flows and the inconsistent regulation of the use and storage of data is creating significant costs for additional data management, local facilities and power. Clearly, this undermines the ‘global platform’ model that most digital services suppliers use to keep costs low for SME users.   It is also a barrier to trade in services which relies on cross-border data flows more extensively than does the trade of goods. A new era of trade requires new thinking and policy reform. 

A new way

Business is leading the charge. One initiative is a world trade platform (e-WTP). This initiative would be charged with creating ‘virtual’ (online) free trade zones for SMEs. Enterprises operating in this online space could sell directly to consumers without having to worry about any tariff or non-tariff barriers. 

With the clock ticking on the UN’s 2030 Sustainable Development Goals, it’s clearly time for a new global agreement to support Internet-led trade. However, despite initial momentum, WTO discussions have stalled. 

To promote inclusive growth, the International Chamber of Commerce is calling on the WTO to act. The ICC is calling for a holistic package of trade disciplines, rules and assistance to boost SME e-commerce. Its report recommends an agreement based upon three pillars: 

  • Enhancing connectivity and capacity-building for e-commerce

    The ICC wants to see upgraded WTO rules to enhance SME access to the Internet and related services — including by removing of regulatory impediments to trade in telecommunications, removing barriers to the construction of new telecommunication networks and enabling the deployment of new technologies to enhance connectivity. A new, global capacity-building fund would be initiated to help SMEs growth through e-commerce.  

  • Enabling SMEs to get goods sold online to consumers more efficiently 

    These measures are already being dubbed ‘Trade Facilitation 2.0’. Put simply, they would expedite the clearance of e-commerce shipments through targeted customs, tax, and market access measures. These clearly build on the WTO’s landmark Trade Facilitation Agreement. Already there’s talk of harmonized tariff codes for low-value items, mandatory de minimis thresholds and greater use of electronic payments for customs duties. 
  • Digital rules to support online growth and build consumer trust.

    The third pillar of the ICC’s report focuses on new global rules to promote an open, trusted and secure Internet. This would drive down transaction costs for businesses trading online. Possible measures being mooted include commitments on cross-border consumer protection standards along with rules to promote online security and reliability. There is also the suggestion of a prohibition on customs duties for digital products as such duties are becoming a significant impediment. 

So, what’s next?

SMEs make up the majority of business and employ the majority of workers in manufacturing and service sectors. This is true of both developed and developing countries. Every country has a stake in working collaboratively. In December, the WTO next Ministerial Conference convenes. The ICC is calling on governments to launch new e-commerce negotiations ahead of this international gathering. Negotiations on a multilateral or plurilateral basis may reap rich rewards. 

If we fail to build a cohesive framework for 21st Century trade, then we risk leaving SMEs behind. 

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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James North

Partner. Sydney
+61 2 9210 6734