An important question for researchers would be whether the current rules and logistics systems genuinely support such small firms. If these favour larger firms or foreign sellers, they may be the ones who benefit from expanding e-commerce apps and platforms.

A key area of policy are the fundamental rules on how goods are imported and exported when they are sold on e-commerce platforms. Recent research shining a light on such rules highlights a complex and understudied area of policy [1]. Below I will argue that prevalent directions, although pitched as developmentally beneficial, are much more ambiguous and could lead to counterintuitive and problematic outcomes.

The role of small-package logistics

Many cross-border marketplaces in the global south, such as Jumia, Lazada and Shopee operate using cross-border platform models. Rather than running operations within a single territory, they operate regionally integrated business models.

In comparison to global north countries, this results in major differences in how logistics are organised. Where e-commerce platforms operate marketplaces independently in each country, the “downstream logistics” to the customer takes place in-country (i.e. from a local warehouse to a local customer). In contrast, in cross-border platforms, goods being sold may not be available in local warehouses. When a consumers makes an order, logistics then have a cross-border component.

The most common way such goods are transported across borders is through “small-package trade”. Sellers on marketplace platforms will package each sale individually, sending them through cross-border delivery or third-party (3PL) logistics firms such as FedEx, DHL and many others.

Why small package trade is a norm, is a quirk of history. Prior to the Internet, parcel trade was seen as a niche, individual-to-individual exchange. Under the assumption that these parcels were low volume and low value, they were subject to lower regulation (in comparison to general trade) making them quicker and cheaper.

This is specified by so-called de minimis rules on trade (roughly translated as “lacking significance or importance”). So the argument goes, the cost of trade regulation, taxation or other documentation checks for small packaging trade would have higher costs than benefits. As such they are less regulated.

As e-commerce trade has expanded globally, small parcel logistics has rapidly expanded particularly in global south countries. What does it mean when these rules, that are a quirk of history, become mainstream?

Small-package logistics for the digital age

When e-commerce is in its infancy in a country, small package logistics can support the emergence of digital marketplaces. As cross-border models expand though, countries may struggle to handle the unruly volume of small packages. This will require investments and upgrading to allow small package logistics to work in the digital age.

Support has readily come from private firms and donors. When the Russian postal system was reportedly struggling under the weight of small packages, it was Alibaba that stepped in to support and invest. Other marketplace platforms, global logistics firms and payment providers have also readily supported this through investments, partnerships and technical support.

There has also been action at an international level. Rules on small packages can still be variable across different countries [2]. Discussions within the WTO and regional “digital trade” agreements have begun to touch on these topics [3]. The goal here is that countries make binding commitments to equalise rules on small packages for e-commerce. Ambitions often go further than this. Global south countries are pressured into higher threshold levels – allowing higher-value goods to be considered small packages – with more agile cross-border e-commerce potentially emerging.

These campaigns for expanded small package logistics have been closely associated with development. Within major discussions on “e-commerce for development” or “aid for e-trade”, maximising small package trade is seen as a key to pushing SMEs in the global south to be part of regional markets. So it is argued, in the digital age, we need to remove any logistics barriers to allow creative “micro multinationals” to operate more regionally or globally.

The deregulatory dynamics of rules

There is, however, another side to this debate. The emergence of small package logistics in e-commerce is having major regulatory challenges. Goods that go through traditional general trade (i.e. imported/exported in bulk) are supported by a well-agreed global system with regular tariffs, rules, procedures, checks and taxes. As more goods move through small package delivery these rules are side-stepped by the less regulated system of small package trade.

This has significant implications. The most direct impact is that it often gives foreign firms an unfair advantage in cross-border marketplaces involving global south countries. With e-commerce small packages not needing to go through detailed checks and with lower taxes, foreign firms may be at an economic advantage (including lower taxes and regulation) over local producers (who pay local taxes, VAT etc).

Evidence from Malaysia, for example, showed some such evidence when the country upgraded its small-package systems [4]. Even though a few local SMEs were able to gain through integrating better with Chinese platforms and exporting small packages, this was dwarfed by the expansion of cheap online goods imported into Malaysia. Local firms were being “crowded out” by Chinese imports – leading to net national losses.

With e-commerce expansion, regulation may also begin to risk eroding an important tax base. For many developing countries, industrial policies have also been an important measure to develop local skills and industries. One way these are applied is through tariffs or quotas on foreign trade. For example, by focusing policy on imports of certain goods (such as clothing, machinery, and certain technologies) a country might seek to support domestic industries in this area. Within the deregulated system with expanding small packages, these strategies become more difficult.

Conclusion

Small package logistics is rarely discussed and when it is, it is seen as a developmental good. However, with significant tensions and choices to be made by developing countries, there needs to be more critical analysis. At present, there has been a strong skew towards pushing small package logistics expansion in the name of efficiency and development. But it might be useful to consider this further. There needs to be a discussion of alternative approaches that have longer-term benefits for smaller nations and reduce the risks of deregulation and crowding out.

As an illustration, Chinese policymakers, well aware of the growing challenges of small packages e-commerce have sought to radically reform their e-commerce logistics systems [1]. In legislation enacted in recent years, rather than deregulate small packages, they look to redefine and guide cross-border e-commerce much more strongly. Although these Chinese rules have their own challenges, they highlight that there may be alternatives to the small-package logistics orthodoxy for digital marketplaces.

Originally posted on the CDD blog

References

Foster, C.G. (2023) Shaping a Digitalising Infrastructure: Logistics and the Dynamics of Chinese-Southeast Asian e-Commerce, Digital Development Working Paper Series, 102, University of Manchester, Manchester, UK.

The post The minor rules shaping the development impacts of digital marketplaces. appeared first on Digital Trade Tracker.

The WTO “Joint Statement Initiative on E-commerce” (E-commerce JSI) may not have been concluded or formalised during the bi-annual Ministerial Conference (MC12) in June, but it remains very much at the forefront of discussions on digital trade.

As the previous blog on the JSI negotiating positions summarised, one of the major questions about this negotiation is not about the content, but process and if such a plurilateral agreement is legal within the WTO system. Since then, this debate has intensified, and this blog will outline some of the discussions.

Implementing an e-commerce JSI

WTO agreements are decided by consensus, meaning they will not come into force unless they are agreed upon by all 164 WTO member states. Plurilateral agreements, where only a subset of members are involved, have been incorporated into the WTO in the past, but rarely and only under very specific circumstances.

The E-commerce JSI discussions have been notable for the fact that several WTO members have decided not to join negotiations. So for this agreement, a key question has is how it could be legally implemented within WTO rules and regulations.

What is at stake was illustrated in strongly worded communication from India and South Africa in March 2021. These two countries, who have been outside the JSI, suggest that it would break the “Marrakesh Agreement” which defines major WTO rules.

Similar sentiments have been echoed in more detailed analysis, suggesting that E-commerce JSI negotiations might face barriers

JSI parties are likely to face challenges if they are to consider negotiating the JSI as a plurilateral agreement…..consensus from the WTO membership is likely to be required. Garnering consensus has not been possible to date and would be expected to be onerous in the future

However other nations, including the lead negotiators of the JSI (Australia, Singapore, Japan) remain convinced that they can push such an agreement through in the future.

More insight on how they see this happening comes from a major source of guidance – an opinion from Geneva-based law firm King & Spalding written by Hamid Mamdouh. (Mamdouh is a former Director at the WTO, and a trade negotiator from Egypt once going as far as standing as a reform candidate for the WTO director-general).

Although this opinion [not available publicly but with some copies online] argues that plurilateral negotiations are consistent with WTO rules, its major message is that the negotiations will be

…political in the first order….WTO rules were made by Members and can be changed by Members.

The above quote is crucial. It suggests that the path for the e-commerce JSI is likely to be linked to a change in the rules at the WTO (this is more overtly expressed in Mahdouh’s presentation at the 2021 WTO public forum).

This provides the basis for the JSI to continue to negotiate. There is an expectation of the need for (unspecified) political actions needed in the future for the e-commerce JSI to come into force.

The WTO 2.0

The idea might initially seem far-fetched. No matter how important digital trade is, it might seem unlikely that such a large amount of political capital would be spent on ensuring that the JSI is ratified. But the e-commerce JSI is not the only plurilateral agreement emerging.

Over recent years, other areas of plurilateral negotiation have been revived or sprung up in areas such as domestic regulation and investment facilitation.

Some see such JSIs as the heart of how a future WTO would work (the so-called WTO 2.0). Stalled agendas would be pushed forward through a set of plurilateral agreements at the WTO, with E-commerce as just one strand of a broader agenda.

These pluilateral directions are also becoming visible in discourses in more liberal countries, with arguments being built as to how this reform can be beneficial to all nations. In the UK for instance, a recent report on the future of plurilateral agreements by the UK Trade Policy Observatory, a government-sponsored policy research group, argues that such initiatives would be beneficial even for developing countries

…once they [developing countries] have the security and ability to stand aside from new agreements, the nervous or indifferent might no longer feel the need to veto them.

This would reduce the ability of ‘the system’ to bring laggards along i.e., to muscularly encourage reluctant parties to liberalise – but equally, it would greatly reduce the incentive for those laggards to hold everybody else back.” (p6)

Opposing voices

For those who oppose the JSIs, these future directions are problematic because they move towards a WTO where consensus is not required.

In a response to the King & Spalding option, Auckland-based legal and trade scholar Jane Kelsey discusses these ideas in some detail. In her paper, she examines the legal opinions related to JSIs. But more critically, she pushes back on the idea that the JSIs should instigate political actions to move forward.

[Actions]…must be legal in the first order….[and going outside this]….would seriously undermine another foundational tenet of the WTO…

In contrast to this bringing benefits to less powerful nations, Kelsey argues they might not be represented within new rules, if consensus is not necessary.

…if the JSIs are legitimised, the voice of the Global South, already foresaken in the stagnant Doha round, will become even more marginalised in the WTO.

The positions gives just a flavour of the recent debates surrounding the e-commerce JSI and how it links this into a broader discussion about the future of the WTO.

The legal question about how to implement a plurilateral e-commerce JSI is increasingly entwined within broader discussions about plurilateral agreements at the WTO. How these questions pan out appear to be core to how the WTO will operate in the future. Will the WTO operate within new remits defined by plurilateral groups of powerful nations, or will a new direction or consensus be found?

Image source: “World Trade Organization: MC12 – Day 3 – 14 June 2022” (CC BY-SA 2.0)

The post The legality of plurilateral e-commerce agreements and its implications for “WTO2.0” appeared first on Digital Trade Tracker.