At the World Economic Forum’s annual meeting in Davos, 76 countries agreed to create a new set of regulations, to make global eCommerce “open and predictable”. In this post, our CEO, James Hyde, explains the agreement and the key issues it must tackle.
While there’s a lot of focus on physical trade right now – mostly centered around Brexit and its impact on European supply chains – another type of international trade – digital – was being discussed in Davos.
We think of the internet as global – a universal and borderless entity – but the reality is that regional policy and regulation can provide significant barriers to trading internationally online.
The current barriers to global eCommerce
The International Trade Centre published a review in late 2017, which stated that “barriers to setting up an online international presence often limit firms to the domestic market.” This was highlighted as a significant business opportunity, if only those barriers could be removed.
The issues and policy recommendations centered on several key areas:
- Knowledge and awareness building: many businesses are either inexperienced with online international trade, or haven’t even considered that eCommerce can be more than just domestic B2C sales
- Cost efficient delivery and physical presence: finding overseas warehouses and delivery services, to reach local consumers quickly and manage returns, was a major barrier for many
- Consistent regulation: the rules around payment systems, consumer protection, data protection and product labeling are different around the world, often making it difficult to both sell products and set up businesses overseas.
These issues are more prevalent in developing economies, partly because there has been less investment in international trade, but also because a much higher proportion of businesses are small to medium-sized enterprises (SMEs).
Many of these regulatory issues are also getting worse. A report by the European Centre for International Political Economy found that in 1960, there were no laws on cross-border data transfer. By 1990, the number of restrictions had risen to 10, leaving most of the world still unregulated. Fast forward to today and that number is nearer to 90, with the General Data Protection Regulation (GDPR) being the best-known example.
What’s being done to encourage global eCommerce?
Since 1998, a large number of regional trade agreements (RTAs) have been agreed, covering telecoms, banking, postal and courier services, insurance services, distribution services, and so on. However the majority of these were in Europe and the USA, leading to a large divide when it comes to digital trade with the rest of the world.
Talks at the World Trade Organization (WTO) summit in December 2018 were unable to consolidate some 25 separate global eCommerce proposals, but last week, 76 member countries met on the sidelines of the World Economic Forum in Davos, to try to commit to new cross-regional digital trade agreements.
While this commitment is positive news, it’s far from real progress. 88 WTO members are are yet to commit. Among those that have, the USA has criticized the WTO for being stuck in the past and Japan has reiterated that rules desperately need to be updated to encompass digital trade.
So what global eCommerce rules needs to be agreed?
International agreements of this type often look to cover many areas of policy at once, but there should be some areas that we can all agree on now.
The failure of many emerging economies to respect intellectual property (IP) rights has been a significant issue, with several high-profile cases such as the Chinese copy of the Range Rover Evoque. While laws on physical theft are pretty much universal, digital theft laws are open to much more interpretation. We need to ensure that digital innovation is protected through a single set of IP laws.
Data protection laws have become complicated to the point of scaremongering – there are numerous examples of US websites that are (through perhaps overzealous interpretation of GDPR) no longer accessible in the European Union (EU).
While it’s clear that data protection and data piracy is becoming a larger concern, a single global policy on best practice data management is what’s required. Where the data is stored is not important, it’s who has access that matters.
If consumers are to buy online from overseas, they need to be confident that their data will be handled in consistently secure ways. Whether some countries can be trusted to uphold these standard will be the limiting issue – see IP above.
In the UK and EU, consumer protection laws are taken for granted, but for much of the world there are no consumer protection laws related to digital trade – only 97 countries have eCommerce related protections according to the United Nations. Those that do have laws in place offer widely varying protections, which makes buying internationally both complex and risky for the consumer, limiting the market size.
Product and labeling regulation
For many retailers it’s bad enough ensuring that your product meets the various international standards, let alone ensuring that the labeling meets each country’s requirements.
This is one of the largest barriers to international eCommerce – even a piece of steel is covered by no less than 10 different international standards, let alone national standards. The EU has gone a long way to removing many of the barriers within the block – it’s a shame the UK is trying to leave it.
This isn’t just limited to getting a warehouse, but the policies and compliance issues that come with obtaining and running a fulfillment center abroad. Overseas registration of a subsidiary, local building regulations, tax requirements, and employment and safety laws all make this harder than just picking up a real-estate brochure.
Luckily, there are many companies that can already help with this. For example, our global network of fulfillment centers makes it easier for American businesses to export to Europe, and vice-versa. Hopefully the commitments made at Davos will enable and encourage more of them to do just this.