Internet and e-commerce are hacking protectionism

Internet and e-commerce are hacking protectionism

Kati Suominen is founder and CEO of Nextrade Group; funder of Kati Suominen TradeUp Capital Fund, Adjunct Fellow at the Center for Strategic and International Studies (CSIS), and Adjunct Professor at the UCLA Anderson School of Management.
Kati Suominen is founder and CEO of Nextrade Group; funder of Kati Suominen TradeUp Capital Fund, Adjunct Fellow at the Center for Strategic and International Studies (CSIS), and Adjunct Professor at the UCLA Anderson School of Management.

The image of globalisation, imprinted on many minds, is of American factories fleeing to Mexico or China. But here's what globalisation really is: The voluntary, mutually consenting exchange of goods and services between a buyer in one country and a seller in another country.

More important, here is what globalisation is becoming: Cross-border sales of goods and services among small businesses that are selling online, and foreign buyers who are finding them there. Why would we want to shut down such globalisation?

E-commerce is breaking what seemed to be an "iron law" of international economics: That exporting was possible only for large companies. Today, while fewer than 5% of US companies export, 97% of US eBay sellers do. In a new survey of more than 3,000 developing country companies, my firm Nextrade Group finds that half of small online sellers export (while only 20% of small offline sellers do), and that more than 60% of online sellers export to two or more markets (offline sellers tend to export to only one market).

Companies today are born global because they are born digital. Which makes this a historic time. We are on the verge of creating a global equivalent of a medieval town square where small sellers and buyers come together to transact. It is a market where anyone can sell to anyone, anywhere, anytime.

While e-commerce enables developing countries to leapfrog to the 21st century's technology-powered world economy, the United States is well-placed to benefit. We already have the connectivity; logistics; intellectual property; and people with widespread digital skills, which developing economies lack.

But we are not optimising this opportunity. If we were, we would be celebrating free trade and open markets as enablers of small businesses and online entrepreneurs, not bashing them as enemies of factory workers whose time has passed. McKinsey Global Institute -- which uses dozens of indicators to create an index of digital assets, usages and workers -- finds that the United States is using only 18% of its full digital potential; Europe is at just 12%.

Policymakers who aspire to empower small businesses to thrive in the global online marketplace need to think outside the box. That means making it easier for online lenders to support small exporters, backing more export promotion for online sellers.

One innovative model for e-commerce capacity-building is a social impact bond, whereby private foundations, social impact investors, and commerce platforms make the initial investment in promoting exports and get compensated at a premium by the government and development agencies if the project meets certain pre-established metrics that governments value, such as the number of e-commerce-related jobs created, or the amount of new exports.

Customs regimes, now tailored for traditional traders like large companies, also need altering. The silver bullet for fueling small business trade is the value of shipment below which goods enter duty- and tax-free. A high de minimis (minimum threshold) creates free trade for small business. The United States raised its de minimis to a very respectable US$800 (27,600 baht) per shipment in 2016. However, de minimis is in many countries laughably low, such as $15 in Canada and $150 in the European Union).

One solution is to launch negotiations on de minimis among a "coalition of the willing". As such, each member government might commit to ratcheting up the de minimis level over a period of 5-7 years to, say, $1,000, in exchange for a similar commitment from the other members. In other words, each member government would give a little market access at the lower rungs of trade in order to gain a lot more market access in return.

Also needed: Digital regulations that can cross borders.

In the US, small financial services companies report suffering from stringent consumer data privacy and protection rules in foreign markets, and from uncertain legal liability for internet intermediaries for user content on their sites. In a survey of Latin American companies, one-third of online sellers viewed uncertain legal liability rules as "very significant" obstacles.

This is an area where the US has gold-standard rules, and needs to drive trading partners to adopt measures that are interoperable with ours. The Trans-Pacific Partnership was just that vehicle, and its killer, the Trump administration, has to come up with a new and better one.

Globalisation as we've known it is coming to a close. It's time to stop chasing its ghosts -- and to start crafting creative policies to empower businesses. ©2017 ZOCALO PUBLIC SQUARE

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