The Development of SMEs, E-Commerce, and their

Impact on SPS Enforcement

A. SME Involvement in International Trade

SMEs are the backbone of many economies. According to a study jointly con­ducted by the OECD and the World Bank Group in 2015, SMEs are estimated to account for almost 95% of all firms, over 50% of global GDP, and up to 70% of employment.^[192] Although SMEs are large in number, they often lack efficiency and are less competitive in international trade.^[193] Due to lags in pro­ductivity and the inability to benefit from economies of scale, the economic performance of SMEs is also found to be less impressive compared to their larger peers.^[194] The positive correlations found between a firm’s size and its involvement in international trade also indicate that SMEs are less capable of participating in international trade.

Even though most SMEs rarely participate in international trade, they are not exempt from being affected by the rapidly emerging global market. As trade barriers are gradually removed under the WTO and free trade agree­ments, SMEs now face competition from foreign firms. Large MNEs like Wal­Mart and Costco outcompete local businesses in many countries since they enjoy economies of scale and operate at a lower cost. Although SMEs may also benefit from reducing trade barriers and may gain through participating in international trade by becoming part of the global value chain, they remain vulnerable to trade barriers due to their inherent capacity restraints. Even cus­toms requirements and costs may prevent SMEs from entering the market.^[195] The vast and complicated SPS and technical regulation requirements adopted by states, in particular, cause tremendous difficulties for exporters, especially SMEs, to enter the market.^[196] Given that SMEs and producers in developing and least developed countries often lack the capacity to overcome trade obsta­cles, states have cooperated in various ways hoping to increase SME involve­ment in international trade.^[197] As a result, numerous SME-facilitating efforts and arrangements have been made under the multilateral WTO and regional trade agreements.

The most recent achievement in the multilateral arena that facilitates SME participation in international trade is the Trade Facilitation Agreement (TFA), which entered into force on February 22, 2017, following ratification by two- thirds of WTO members. In the TFA, states commit to expediting the move­ment, release, and clearance of goods at customs.^[198] Customs authorities and other agencies whose function relates to implementation and enforcement measures, such as the SPS and technical barriers to trade bodies, are also called to cooperate and reduce the miscellaneous and burdensome requirements.^[199] For transparency purposes, states are also required to reveal the pre-arrival pro­cessing procedures and publish the average release times. In addition, they shall review and make known the possible incurred fees under the TFA.^[200] Guide­lines and best practices are also published and shared among the members to benefit from each other’s experiences and take advantage of capacity-building opportunities available to support the implementation of the TFA.^[201] Although the benefits of the TFA apply to both SMEs and other trade participants, it nevertheless significantly helped SMEs overcome the obstacles limiting their performance.

Besides the TFA, scholars have also urged the use of existing WTO pro­visions to assist SME development. For instance, Karsten Potschke digs into Article 6.13 of the Anti-Dumping Agreement and Article 12.11 of the Agree­ment on Subsidies and Countervailing Measures (SCM). He argues that these provisions may be used to assist SMEs when they face anti-dumping and SCM investigations.^[202] Although the provisions under the Anti-Dumping Agreement or the SCM do not exempt SMEs from anti-dumping investigations, they urge authorities to consider SMEs’ needs. By calling on the authorities to provide proactive support and more flexible procedures to the SMEs, Article 6.13 of

Cross-Border E-Commerce and SPS Measures 67 the Anti-Dumping Agreement prevents SMEs from being negatively discrimi­nated against.

Regarding the new developments in regional trade agreements, many of the recently concluded regional trade agreements (RTAs), such as the Com­prehensive and Progressive Agreement for Trans-Pacific Partnership, and the United States-Mexico-Canada Agreement contain provisions or even a chapter dedicated to promoting and facilitating the development of SMEs. In the com­prehensive studies done by Jose-Antonio Monteiro, which assess the 270 RTAs currently in force, it is noted that more than half of the RTAs contain at least one provision explicitly mentioning SMEs. It is also recorded that the number of SME-related provisions within RTAs is increasing.^[203] Although the treaty language in most SME-related provisions remains relatively soft, and the parties are only asked to act to the best of their ability, the existence of these provisions signals the emerging consensus that states shall take notice of SMEs’ particular needs and support their development.

In addition to the rules and regulations developed at the multilateral and regional level, it is proposed that SMEs would greatly benefit if their operations could be further integrated with cross-border e-commerce.

C. Promoting SME Development Through E-Commerce

E-commerce has a variety of definitions. In the 1998 Work Program for Elec­tronic Commerce, e-commerce is understood as “the production, distribution, marketing, sale or delivery of goods and services by electronic means.”^[204] In the OECD definition, e-commerce refers to a business model where the commer­cial transaction between the supplier and consumer is done through commu­nications networks with wireless devices.^[205] As technology has further evolved and business models developed, cross-border data flows, information exchange, cybersecurity, and intelligence also fall within the scope of the modern concept of e-commerce.

Despite the wide variety of e-commerce applications, the flexible and con­venient features of e-commerce may significantly contribute to SME devel- opment.^[206] Through e-commerce, SMEs are not only able to reduce operating

costs by adopting more efficient production procedures, but they may also pro­vide new products and services such as online financial and streaming services to consumers.

There are various ways SMEs can use e-commerce to enhance their par­ticipation in cross-border trade.^[209] For instance, SMEs can reach foreign con­sumers by merely creating a website and displaying their products on the webpage. With the help of cooperation between international financial insti­tutions and the arrangements made thereunder, the entire checkout proce­dure can be completed online without dealing with matters like currency exchange. Alternatively, SMEs may also expand their operations by utiliz­ing e-commerce platforms such as e-Bay, Amazon, or Google Shopping. Although some of these platforms have been limited territorially for taxation reasons, this problem has now mostly been resolved through taxation coop­eration between the countries and tariff exemptions given to goods under a specific value.

Moreover, powerful internet search engines also connect and facilitate collaborations between different e-commerce platforms. For instance, e-Bay creates local websites in places it operates, such as e-Bay U.S., e-Bay U.K., e-Bay Israel, and so on. However, when consumers search for products on any of these websites, the search engines show goods listed on the local website and those in other countries. Thus, by surfing and exploring on a single web­site, consumers may have access to products listed all over the world. This can greatly help the SMEs expand their outreach distance.

Last, affordable international postal and express carrier services also low­ered entire transaction costs and allowed SMEs to deliver goods even without having any local marketing channels. Furthermore, the arrangements made between countries to expedite the clearance procedures for postal and express carrier packages also benefited SMEs since small packages of goods can now be shipped more quickly. As a result, they may be delivered to customers in shorter periods.

IV.