Unlocking the potential of digital trade (en)

Ecommerce is transforming the economic landscape and the way economic transactions are made in the global trade system. With the advent of the digital era, the exponential growth of e-commerce in the last decade is expected to grow in the coming years regardless of any accompanying trade rules. An estimated 1.6 billion people worldwide purchased goods online in 2016, generating revenue amounting to US$1.9 trillion, a figure expected to more than double by 2020.

Although the global digital divide has engendered common assumptions that online shopping is mainly a Western phenomenon, electronic commerce is also booming in developing countries. In Asia e-commerce sales in 2016 accounted for 12.1% of total global retail sales and Malaysia, India, Indonesia and Philippines are expected to witness the greatest share in terms of business-to-consumer e-commerce development by 2021.

Since small and medium-sized enterprises (SMEs) in developing countries make up the majority of businesses and employ the majority of manufacturing and service sector workers, facilitating cross-border e-commerce can have a direct impact on improving livelihoods and boosting economic development. The case of online retailer Alibaba’s Taobao Villages in China is a paramount example of how e-commerce succeeded in fostering higher living standards through a new model of rural development.

‘E-commerce is a huge tool for SMEs to leapfrog development,’ says International Trade Centre (ITC) Executive Director Arancha González. ‘Beyond local, national and even regional markets, e-commerce is an engine that puts SMEs into a global marketplace. Businesses in developing countries – especially SMEs – can hence seize the biggest gains from simpler, faster and more efficient cross-border e-commerce.’

E-commerce is now expected to be quick, efficient and predictable from the click triggering the online transaction to the product’s arrival. For domestic online shopping, this process mainly requires easy online access, good in-house organization of sales and delivery, and efficient transport services. However, e-commerce across borders brings challenges to traders and border regulatory agencies (BRAs) alike. When ordering from an international online store, a product shipped from a foreign retailer may face numerous lengthy and costly crossborder procedures, thereby undermining the expected speed and efficiency of the process.

A unique aspect of cross-border e-commerce is that it plays at the intersection of physical and digital infrastructures. Consumers shop and perform transactions on electronic platforms, yet the delivery of products is still constrained by physical transport and border procedures. Moreover, the consequent shift from large containers to small packages characterizing much of e-commerce has resulted in a massive increase in the number of shipments, creating a tsunami of parcels at the borders. The growing volume of online purchase and increasing demand for express delivery results in great pressure on shippers and BRAs to transport, clear and release goods within hours or a few days at most.

The challenges that e-commerce poses on trade facilitation are not new. Traditional and digital traders frequently identify poor quality of cross-border transport and infrastructure (including information technology and connectivity for digital traders), as well as inefficient procedures at the border, as key barriers to cross-border trade. The latter include the lack of transparency, complex and outdated customs procedures, and the absence of a coordinated approach by BRAs. These hurdles also explain why the performance of SMEs in cross-border e-commerce is only a limited fraction compared to the percentage of domestic e-commerce shares in many countries. No doubt, SMEs necessitate an enabling landscape of improved regulatory framework to assure wider access to cross-border online markets.

The demand for greater speed and efficiency at each stage of cross-border e-commerce – including administrative compliance at the border – renders these challenges even more pronounced and calls for conducive and transparent measures. Above all, the rapid surge of e-commerce solicits a substantial change in the mindset of policymakers and BRAs to design and implement reforms that respond to business needs. Only a technologically advanced, collaborative and transparent model of e-governance of administrative procedures – a shift from physical to digital control of compliance through simplification, standardization and harmonization of rules – can help businesses to overcome burdensome procedural obstacles.

Increasing efficiency and transparency of cross-border procedures is already directly addressed in the provisions of the World Trade Organization’s Trade Facilitation Agreement (TFA), which aims to expedite the movement, release and clearance of goods across borders. With e-commerce calling for high-speed compliance, an even more expedited implementation of trade facilitation reforms is required. Not only that, the reform processes must be designed from a ‘whole of supply chain’ perspective – which ensures efficiency at every stage of the transaction from the sellers’ premises to the buyers’ shelves. New solutions must also uplift the perspective of the private sector, especially the concerns of SMEs, which – for their smaller resources and capacity – suffer most from inefficient and non-transparent customs procedures.

To bring SME voices into the rule-making of cross-border commerce, ITC has set up a unique Trade Facilitation Programme to address trade facilitation issues beyond the TFA. ITC promotes the inclusion of business perspective in trade facilitation reforms through the enhancement of public-private dialogue and increased collaboration between key stakeholders. Among ITC’s clusters of intervention, the modernization and automation of cross-border procedures aims at comprehensively responding to the needs of business – including e-traders – through enhanced transparency and improved access to information and documentation. ITC also assists SMEs in overcoming physical and procedural barriers to online commerce by strengthening their capacity to meet border requirements. By leveraging trade facilitation measures, business has the opportunity to not only join but also to thrive in the virtual global marketplace.