Policy must not stifle MSMEs’ e-commerce potential

When the pandemic-driven lockdowns restricted our mobility, e-commerce powered by digital technologies ushered us to the new normality we now live in. It became practically the only means we could continue buying things – food, clothes, grocery items – without physically going outside the confines of our homes.

Now that the pandemic is no longer a global emergency, online transactions are now preferred by consumers because it opens up more options and greater flexibility. 

As a result, e-commerce has also driven the growth of micro, mall, and medium-sized enterprises (MSMEs). They have thrived on the possibilities of doing business on the internet.

Through popular e-commerce and social media platforms, they have empowered MSME’s to reach customers even beyond national borders. E-commerce has become an equalizer for business ventures that do not have big offices, have few staff members, much less able to advertise their products or services through traditional channels. 

Total e-commerce market sales reached $17 billion in 2021, largely due to the COVID-19 pandemic. According to the US Department of Commerce, sales are expected to reach $24 billion by 2025. Indeed, improving internet penetration as a result of greater investments in digital infrastructure will invite more participants in this thriving global economy.

Of course, there are issues and challenges. The Department of Trade and Industry has been receiving more complaints about defective products or deceptive, unfair, and even unconscionable sales acts. Without a doubt, these practices that take advantage of consumers must be curtailed, and the internet marketplace needs to be made a safe space for all. 

Legislators and government regulators are now pushing legislation to regulate internet transactions. In December 2022, the proposed Internet Transactions Act (ITA) -- which aims to regulate the sector, protect consumer rights, promote intellectual property, among others -- was passed at the House of Representatives. It is now pending at the Senate. 

Many quarters, however, have expressed concern that the ITA may become overly restrictive and  hinder the growth and innovation of MSMEs. E-commerce platforms and stakeholders say that even as the bill claims to empower consumers, some of its provisions could put MSMEs at a disadvantage. 

For example, the bill mentions the establishment of an online dispute resolution system where civil and administrative complaints can be filed by online consumers. This has advantages and disadvantages. If implemented properly, this could help prevent scams. But an all-encompassing regulation will be a regulatory risk for small business players.

In the text of the bill, the definition of violations, liabilities, and other terms are so broad that they could be interpreted in numerous ways. MSMEs could face exorbitant fines and numerous legal cases. A large platform like Shopee or Lazada have their own legal departments to manage such cases, but not MSMEs. A single case, even if unfounded, could spell the demise of the business venture. 

The proposed law also adds another layer of bureaucracy as both platforms and merchants will now be required to register with the e-commerce bureau, supposedly for transparency and legitimacy. And then, there are data privacy concerns as registration information will be made public. 

The bill imposes an extensive range of obligations of e-retailers and online merchants, going as far as detailed guidelines on marketing, selling, issuing receipts and invoices, and more. MSMEs will then be deluged by these administrative tasks given their small number of workers, taking away time and energy to focus on their core business. This will negate the key benefit of e-commerce for MSME’s which is to make business operations easier, more efficient, and at low cost.

As early as December 2020, when the bill was still being crafted, a roundtable discussion was held by Bayan Academy to get a feel of MSMEs’ sentiment on the proposal. The participants said that they would be less likely to engage in the e-commerce sector if they are required to register, if they would incur additional costs, and if they were subject to stricter regulation.

These are very practical concerns that should be considered. We must be wary about overregulation, which could become policy barriers to the digital economy and cause existing MSMEs to exit the e-commerce market.

This is a concern for the business and also for the consumers who stand to be served by their products or services. The lack of options will also be a loss for ordinary citizens and consumers as well. 

Singapore could provide a good example of e-commerce regulation. Their TR 76 aims to increase transparency and consumer confidence in online transactions. E-marketplaces must show their legal identity and contact details. They, too, must have mechanisms to handle disputes. 

But their main focus is on improving consumer awareness and self-regulation in avoiding scams, according to Desmond Tan, chairman of the Inter-Ministry Committee of Scams and Minister of State in the Prime Minister’s Office. 

As consumer advocates, we at CitizenWatch recognize that the rights of both buyers and sellers must be protected. All of us, buyers and sellers alike – and sellers are themselves buyers, too – stand to benefit from the emerging digital economy that thrives on innovation. 

Our legislators and regulators should engage in close consultation with the experts of the e-commerce and social media platforms in crafting policies that would balance the need for the protection of both the merchants and the consumers. Indeed there is a need for regulation, and hopefully our policy makers will avoid creating debilitating regulatory resistance that will stymie the growth potential of our digital economy.
 

Chrisopher "Kit" Belmonte is a co-convenor of CitizenWatch Philippines.