Regulation or facilitation? The battle heats up for the future of cross-border e-commerce

Attending events over the past two days organised by the World Economic Forum and the World Trade Organization in Geneva, the changing nature of cross-border trade is becoming clear.

The established model of large North American or European retailers importing container loads of products from Asia, utilizing the services of trading houses, and with long standing relationships with shipping lines, freight forwarders, customs agencies and banks, is already becoming disrupted. In its place, Western consumers are increasingly using e-commerce platforms to buy direct from micro-businesses.

This is proving to be worrying to those parties affected, particularly trade regulators, who feel they have lost visibility and hence control of trade as millions of packages move relatively unhindered through postal networks. In their view, this opens the door to illicit trade such as the import of counterfeit goods and the loss of tax and duty revenues which are proving almost impossible to collect. Also crying foul are the incumbent retailers who believe that the playing field is far from level. The many regulatory hoops which they have to jump through are just being ignored by a vast informal B2C or C2C global trading system.

On the other side of the argument are the e-commerce networks and the micro, small and medium-sized companies (MSMEs) who have been the main beneficiaries of this digital innovation. They argue that for decades the market has been stacked against them with big corporates enjoying a cosy relationship with the regulators and vast global distribution networks which have provided an unmatchable competitive advantage. Technological disruption has provided the opportunity for millions of tiny companies, especially in developing countries right across the world, to access global markets for the first time. This has undoubted benefits resulting in more equable worldwide economic growth.

The tensions between the regulators in Brussels and Washington and those in the trade facilitation camp are set to increase. Small businesses have only a small voice when it comes to trade negotiations which are dominated by Big Government and Big Business. Arguments based on security concerns, loss of tax revenues, the movement of contraband and the desire for formal processes which monitor and control trade seem to be holding sway. What’s more, many fear that if a regulatory model is implemented by the European Union and USA, this will be seen as a pattern for developing regions.

Understandably, given that their business models depend on them, companies such as Alibaba and e-Bay are keen to champion the interests of the MSME. To paraphrase Jack Ma, Alibaba’s Executive Chairman, speaking at the plenary session of the WTO’s Public Forum, innovators, not regulators, create solutions. As he went on to say, there is a deep-seated fear of innovation in government circles (however keen they may be to embrace innovative entrepreneurs) and a mind-set which prefers the formal trading systems of 20-30 years ago. In essence he believes that regulators are pushing against a tide of digital change.

This is perhaps a simplistic view of the issues involved. After all, many of the postal networks which have enabled the global flows of e-commerce purchases, are subsidised by taxpayers and in turn have subsidised the use and rise of the global e-retail platforms. However, it is clear that there is significant risk that regulatory forces may stifle innovation and suppress economic development in the markets where it is needed most. As policymakers struggle to catch up with a market which has already undergone a systemic transformation, it must be hoped that a sensible balance between regulation and facilitation can be struck.

Source: Transport Intelligence

Author: John Manners-Bell


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