Bridging distance for development: Elaborating a shared vision for MSMEs in the WTO
Internet-enabled commerce has the potential to reduce inequalities between and within countries, offering a tool for achieving the United Nations’ 10th Sustainable Development Goal. Today, the question is no longer if online commerce could make trade more inclusive and if small businesses could participate in trade in their own capacity, but rather how to ensure that everyone can leverage the Internet and technology for trade and how to further reduce trading costs for small firms. In this article, the author considers the new initiatives for cooperation in the WTO and identifies priorities for advancing work on electronic commerce and the participation of MSMEs in international trade.
I recall when my team, eBay’s Public Policy Lab, launched its very first report describing the emergence of a new type of trade. This was in 2012 and our research revealed how micro and small firms, leveraging the Internet and technology, overcame the cost of distance to serve customers globally at a rate that was unprecedented for firms of their size. While just a negligible share of traditional micro businesses exported, on eBay nearly every micro firm was an exporter.
At that time, our research findings were pioneering. We could show how the prediction that Professor Hal Varian had made in 2005 of “micro-multinationals” – independent small businesses accessing customers around the world thanks to the Internet – was finally becoming the reality.
The phenomenon of micro exporters was groundbreaking in 2012. Today, the promise of online commerce for more inclusive trade and broader-based development is recognised by leading institutions like the United Nations Conference on Trade and Development (UNCTAD) and the WTO. Encouraging initiatives, such as eTrade for All and the Friends of E-Commerce for Development, are gaining momentum.
And rightly so. The research the Policy Lab has presented over the years shows how there is indeed an alternative model of commerce, enabling significantly more independent firms in more places to benefit from world markets. Our data confirms how Internet-enabled small firms in both advanced and emerging economies seize the opportunity to connect directly with customers nationally, regionally and globally. Serving customers in 27 different countries in a year on average, these firms are trading internationally regardless of their country of origin.
Figure 1. Share of eBay-Enabled MSMEs Exporting*
Source: eBay Public Policy Lab
* The eBay data reflects the share of 2015 eBay-enabled MSMEs (those with US$10,000 or more in sales annually on the eBay Marketplace) in each country, who exported in that year.
We also find that the platform model supports a more geographically inclusive distribution of business growth within a country. So far our studies have examined the geographical distribution of net enterprise growth in the US, the UK and Germany. We can show that the online commerce platform supports new business growth in places that the traditional economy does not serve very well.
Internet-enabled commerce has the potential to reduce inequalities both between and within countries, offering a tool for achieving the United Nations’ 10th Sustainable Development Goal.
Today, the question is no longer if online commerce could make trade more inclusive and if small businesses could participate in trade in their own capacity; it is how to ensure that everyone can leverage the Internet and technology for trade and how to further reduce trading costs for truly independent small firms.
For me, that is also the very context for the recent initiative announced at the 11th WTO Ministerial Conference. A large number of WTO members signed up to advancing work on electronic commerce and on the participation of micro, small and medium-sized enterprises (MSMEs) in international trade, confirming that since 2012 we have indeed gone from if to how.
Priorities for cooperation in the WTO
Specifically, two Working Groups were announced. One will explore the possibility of future WTO negotiations with a view to enhancing the “benefits of electronic commerce for businesses and consumers across the globe.” Another aims to establish a formal Work Programme to eventually address at a multilateral level obstacles to trade for MSMEs.
I hope there will be collaboration and coordination between these two groups. In my view, the Working Group on electronic commerce should focus on the conditions that enable MSMEs to use the Internet and technology for trade, while the Working Group on MSMEs addresses lowering the costs for trading MSMEs.
The e-commerce Working Group could prioritise its work around the key services and conditions that enable trade by independent MSMEs. These include:
- Connectivity to the global Internet at low cost and without gatekeepers;
- Global platform-based marketplaces;
- Global payment services; and
- Efficient, modern and connected package-level logistics and delivery services.
The MSME Working Group could bring immense value to trade policy discussions by launching a work stream on customs and value-added tax (VAT) de minimis levels for remote MSMEs. This is about ensuring that MSMEs, having gained access to the key enabling Internet and technology services, can then effectively take advantage of the commerce opportunities opened up to them. Let’s not forget that the overwhelming majority of small firms are not fortunate enough to be located in the privileged economic hubs.
Towards a shared vision
Technology tools are increasingly ubiquitous and large retail incumbents all employ similar tools to those that are lowering commerce barriers for the micro enterprise. Many large merchants combine technology with a physical network, adopting an omni-channel business strategy, which tells us that local facilities are viewed as the most cost-effective and competitive way of attracting and serving customers.
Internet-enabled traders, in particular those located in underprivileged communities, regions and even national markets, are in many cases disadvantaged to local merchants: without a local facility but with shipping costs and delays, they attempt to serve distant customers, who generally prefer domestic offerings.
Internet-enabled commerce has not tipped the playing field in favour of the small and remote; it has cracked open the door for uncounted small enterprises historically locked out of global commerce. Levying sales or consumption taxes on such trade introduces a market access barrier for remote micro firms trying to expand beyond their locality and serve customers often in more thriving economic hubs.
The impact that low de minimis tariff levels have on global and national efforts to support productivity and growth through independent internationalisation of MSMEs, reaching in particular MSMEs in developing countries and underserved areas of developed countries, deserves imminent attention. Hopefully the new Working Group at the WTO can answer this call.
Micro exporters are still rare, five years after the Lab’s first study and 12 years after Professor Varian’s prediction. WTO members are right in putting pressure on each other to better take advantage of online commerce and to promote the participation of MSMEs in international trade. These are two separate Working Groups but their vision should be one: a world where the smallest enterprise in any part of any country can, as an independent business, serve customers everywhere.
This post is an adaptation of the paper Bridging Distance for Development: Regulatory Cooperation Applied to Consumer Rights, Parcel Delivery and Sales Tax commissioned by ICTSD under the RTA Exchange, jointly convened with the Inter-American Development Bank (IDB), and authored by Hanne Melin.
Hanne Melin is Director, Global Public Policy and Head of eBay Inc. Public Policy Lab for Europe, Middle East and Africa.