Digital Trade Dialogues: Spotlighting the Philippines
 
eTrade Alliance Philippines Policy Dialogue

By Erica Vambell, Chelsea Hamati, Matt Rapkin, Brian Ream

The eTrade Alliance has a robust workstream to conceptualize and promote policy solutions conducive to MSME ecommerce. As part of this work, the Alliance is hosting several virtual Digital Trade Dialogues between Alliance members and emerging market private sector leaders and government officials. On June 17th, 2021, the Alliance hosted one of these virtual dialogues with Philippine policy makers and private sector leaders, focused on promoting Philippine micro, small, and medium-sized enterprises’ (MSMEs) use of cross-border ecommerce. The event was co-hosted by The Asia Foundation.

 

The Alliance looked to support through this engagement the implementation of the Philippine Ecommerce Roadmap 2022 and the participation of Philippine MSMEs, especially women-led and rural MSMEs, in domestic and cross-border ecommerce, with discussions on:

 

  • Challenges to Philippine MSMEs’ use of ecommerce and engagement in domestic and cross-border ecommerce;

 

  • Policy and technology solutions to these challenges in several key areas such as cross-border payments, ecommerce capacity-building, logistics and trade facilitation, and trade integration;

 

  • Ideas on pilot programs and policy initiatives to operationalize discussed solutions to promote MSME ecommerce, including through the Alliance’s work, both at national and local levels.

 

The Asia Foundation, USAID, and Nextrade opened the event by introducing the eTrade Alliance and providing diagnostics on Philippine MSMEs’ use of ecommerce, followed by a featured keynote address and presentation from Assistant Secretary of the Department of Trade and Industry, Mary Jean Pacheco, on the progress of ecommerce development in the country and plans for future growth. 

 

There were then a series of four separate panels from experts offering extensive expertise and rich perspective in discussing timely and relevant ecommerce topics such as:

 

 

A main theme from this panel was that there is not a “one-size-fits-all” approach to engaging small enterprises and entrepreneurs, because of the distinct differences between businesses and their lifecycles. Early startups and nascent enterprises are still forming their best practices and may not be as capable of adopting ecommerce practices compared to more developed businesses, leading to a consensus among panelists that there is a substantial need for local intervention and the need for local ecommerce centers, or Negosyo centers, to develop more effective and targeted plans to engage micro enterprises further. To do this, these centers can build an understanding of what firms exist in their respective jurisdictions and what their pain points are, and further partner with each other along with private entities in order to share information and effectively develop dialogue. These collaborations could also be translated to larger scale challenges facing the region.

The panel also discussed the mismatch between requirements for success in ecommerce and the existing skills and capacities of local MSMEs. These challenges call for better engagement and collaboration to bridge these gaps going forward. Possible solutions to address these challenges include a national and local strategy of upscaling enterprises and entrepreneurs to give them access to the knowledge and technology needed to develop an ecommerce footprint, as well as the involvement of private sector companies and NGOs to provide real business solutions. Finally, the discussion turned to how policies can be reviewed to build a stronger infrastructure for rural or last mile MSMEs. The panel discussed how the current provisions of the Data Privacy Act protect personally identifiable information such as home addresses, but often for MSMEs there is not a distinction between a home and business address, and perhaps in certain cases this information can be opened up to the public for facilitating business services of MSMEs.

 

 

 

This panel addressed how government agencies and the private sector can enable urban retailers and MSMEs to use ecommerce and other online platforms for services, specifically examining the case of Sari-Sari stores- micro retailers that provide convenience-store type services around the Philippines. The panel narrowed in on why 23% of surveyed Philippine SMEs in a recent Department of Trade and Industry (DTI) study note that while they use some tools personally, such as smartphones and social media, they do not use any online tools in their businesses, stating they do not need online capabilities or do not know how to best use them.

 

Discussion on some of the leading bottlenecks for Sari-Sari stores and other Philippine MSMEs to engage in e-commerce included: 1) internet access and connectivity; 2) MSMEs’ limited knowledge on running a successful ecommerce business; and 3) payments integration as most stores still operate on cash on delivery. Panelists weighed in on solutions to address some of these constraints, including improving access to online skills not only in using digital tools but also in formalizing financial management and book keeping, accessing capital, reducing onboarding costs onto online platforms, and using data obtained from online platforms to adapt their products and meet customers where they are at. Finally, addressing MSMEs’ risk aversion is key to promoting technology adoptions – MSMEs oftentimes are hesitant to adopt new tools into their business due to limited understanding of the benefits and potential, and solutions offered by both government and private sector can better demonstrate the value proposition to MSMEs and reduce potential costs to onboarding online platforms.

 

 

 

The panel agreed that logistics is one of the most significant challenges in cross-border ecommerce, as logistics in the international realm creates many kinds of transactional costs and complexities that are less prevalent in domestic transactions. First mile and last mile delivery is also difficult because of the Philippine geography and the fragmented market of logistics providers, and customs issues are a huge challenge to MSMEs looking to export: complex duties, taxes, and tariffs are often cumbersome and classification is difficult. Some best practices discussed by panelists to simplify import rates and tariffs for goods are for example emulating Canada, which has different buckets of classification assignments that apply to an entire field rather than a unique good, or in Australia where instead of collecting taxes as a border process, it is through the ecommerce platform itself with a given flat rate. Another solution is to increase transparency and open data to everyone through APIs which would allow for easier planning for MSMEs.

 

Philippine MSMEs face steeper logistics and trade compliance challenges than some of their better resourced and larger international competitors, but there is a role for government in bridging some of these gaps, by looking at the skills and resources necessary for ecommerce success and in trade facilitation itself. Examples from other countries include the United States Small Business Administration and the International Trade Administration’s support of MSME’s effort to increase exports through ecommerce. In Laos, there is an affiliated online trading platform, and Korea is experimenting with different end to end solutions. The panel suggested that similar efforts would in the Philippines be best housed within the DTI’s Ecommerce Bureau, and there can be more emphasis on boosting the internationalization of goods and services with a focus on MSMEs. The panel noted that though much of this is uncharted territory, the Philippines is in a good position to try to get it right due to high rates of internet activity and an abundance of ecommerce platforms, but it will be an ongoing challenge to provide solutions to the constraints around logistics and to provide an enabling policy environment.

 

  • Panel 4: Trade policy options to enable MSME ecommerce – leveraging RCEP, considering CPTPP and other trade agreements, hearing from representatives from DTI, Google, Visa, DHL, UNESCAP, R3, and Nextrade.

The panel addressed very timely trade policy issues – Philippines’ participation in the recently signed Regional Comprehensive Economic Partnership (RCEP) and its expressions of interest to also join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The panel highlighted trade policy as central to enabling MSME ecommerce in the Philippines and removing key barriers for small businesses looking to engage in cross border trade. Trade agreements such as CPTPP, through such rules as free cross-border data transfer, ban on duties on digital goods and electronic transmissions, protection of consumer privacy, and ban on server localization, enable greater stability, predictability, and interoperability, and thereby promote new opportunities especially for MSMEs to export and import goods and services. There was rather strong consensus that the Philippines would significantly benefit from joining CPTPP, which is also now gaining interest from such nonmembers as the UK and Korea. There was also rather strong consensus that while RCEP has a comprehensive digital trade chapter, CPTPP’s ecommerce provisions are even more robust and binding, and that emerging trade agreement models such as the Digital Economy Partnership Agreement (DEPA) among Chile, New Zealand and Singapore include provisions that can be useful for the Philippines to consider in its future trade talks – such as interoperability of payment platforms, cooperation on Fintechs, and protection of source codes.

 

However, the panel highlighted that agreeing on a trade deal, however robust and comprehensive, is not enough: MSMEs still often face the challenges of complex licensing and registration, extensive paperwork required for cross-border trade, and such complications as having to deal with disparate national Harmonized System codes. Additionally, the panel noted that countries must do more to enforce trade agreements.

 

The panelists presented solutions and recommendations to address the trade barriers impacting MSMEs, calling for more robust trade facilitation commitments going much beyond the WTO Trade Facilitation Agreement in future trade deals; simplifying and digitizing trade compliance, for example by leveraging blockchain, to reduce the time and compliance costs for small businesses looking to engage in cross-border ecommerce; and promoting interoperability of national digital systems and platforms, including for trade compliance and customs clearance.

 

The panel also weighed in on the importance of greater interoperability among agencies and digital platforms at the domestic level. With a number of different agencies involved with designing digital policy, there is a need for inter-agency processes and centralized management of technology-related issues in trade between the industry and government. Additionally, there was discussion on the opportunities that blockchain presents for trade compliance and traceability of products in supply chains, for MSME trade finance, as well quality control of products. Finally, while trade agreements with digital trade provisions can enable MSMEs, governments need to transpose these new rules into their national legislation.

The event agenda can be found here.

See eTrade Alliance's other Digital Trade Dialogues with Ecuador, the African Union, and the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP). UNESCAP event presentations are available here.