E-trade for Development Solutions from the World Bank Group E-trade for Development Solutions from the World Bank Group 1    E-trade and its Benefits1 T he Internet creates new opportunities for e-trade in at least two ways: by offering a global marketplace for ‘traditional’ goods and services from shoes to design services, and by providing an environment for the development of ‘new trade’ of digital goods such as e-books, streamlined music, digital services like database services, and online payment systems. By reducing communication and information costs, the Internet also contributes to lowering trade costs and expanding the variety of goods and services that can be traded ­ internationally. 1 These multiple facets of e-trade offer the potential to boost international trade and to multiply the economic and social benefits that it entails. It does so through two main channels: ●● It increases competitiveness by expanding the offer of goods and services available to domestic producers, thus increasing quality, expanding variety, and reducing costs of inputs for domestic firms. The use of digital technolo- gies for conducting international transactions practically eliminates the distance between sellers and buyers, thus lowering trade costs and increasing export competitiveness. ●● It increases exports of goods and services and promotes diversification, both in terms of size and composition of the export basket, by allowing traders to tap into new markets, expand the export basket of both traditional and digital goods and services, increase the number of exporters, and develop links with global value chains. Most importantly, however, e-trade supports poverty reduction and promotes social inclusion—in new and existing markets, in social interaction, or in government service delivery systems. By reaching to small and medium enterprises (SMEs), microenter- prises and individual sellers, it allows for excluded participants to engage in new, and offer high value added, trade. E-trade also strengthens incentives to a more inclusive society. For example, digital payment systems effectively create incentives for the for- malization of businesses, including SMEs and individual traders; similarly, the highly dynamic and skilled environment of the digital transactions promotes education and development of skills, in order to participate effectively in e-trade. 1 Please refer to “E-trade for Development: Opportunities, Challenges, and Policy Consider- ations for Developing Countries” for an expanded analysis of e-trade, its benefits, challenges, and the conditions that enable it. E-TRADE FOR DEVELOPMENT 2 Challenges for Leveraging E-trade While it can open new channels for contribute to the information society. export and increase competitiveness, E-trade, as a specific component of few countries systemically address the digital economy, requires specific e-trade as a matter of trade policy. A enabling conditions that build on those flourishing environment for e-trade must foundations. Businesses require spe- be, for starters, a conducive environ- cific digital skills and entrepreneurship ment for the digital economy more to engage in e-trade, as well as a sound broadly, where businesses and con- regulatory framework that addresses sumers can leverage digital technolo- challenges like digital documentation gies for improved competitiveness and signature and data flows, and efficient increased welfare. The foundations of trade facilitation and logistics suited to the digital economy rest on a modern e-commerce deliveries. Finally, reaping telecommunications infrastructure, a the full benefits of e-trade requires the favorable environment for domestic capacity to embrace data as a tool for and foreign investments, and an edu- growth. cated population who can engage and E-TRADE FOR DEVELOPMENT 2    WBG Offering on E-trade T he World Bank Group provides a wide range of support to help countries improve the environment for e-trade, and maximize the positive impact on growth, job creation and poverty reduction. This support is coordinated by the Trade and Competitiveness Global Practice and involves a number of different areas of the World Bank Group. Support is provided across all aspects of the e-trade environment (see chart below), including: ●● Financing for infrastructure and telecommunications sector reform to improve basic connectivity; ●● Improving the fundamental business environment to ensure it is conducive for investment related to e-trade; ●● Supporting digital incubators, accelerators, and early-stage funding programs to foster e-trade entrepreneurship; ●● Streamlining trade facilitation and addressing logistics bottlenecks to lower e-trade costs; ●● Supporting policy and regulatory reforms to enable e-trade growth. The WBG Works Across All Elements of the E-trade Environment  Data management Growth tools E-commerce E-trade enabling Digital E-trade logistics and conditions skills and regulation trade entrepreneurship facilitation Telecoms Business Human Foundations infrastructure environment resources E-TRADE FOR DEVELOPMENT 4 This note focuses on providing information on support available to address the enabling conditions for e-trade. Without the right enabling environment, countries cannot realize the full potential benefits of e-trade for economic growth and develop- ment, undercutting the impact of significant infrastructure investments to improve ICT connectivity. Improving the Enabling Conditions for E-trade E-trade, in its dual role of promoting in wholesale capacity prices in East export diversification and reducing Africa. In Kenya, this helped in increas- trade costs, can be a valuable tool for ing the number of Internet users to reducing poverty and fostering inclusive 14 million in 2012 from 2 million in 2007. growth through trade and competitive- In the Pacific, to take another example, ness improvements. a regional program is helping develop fiber-optic cable links between Pacific Basic connectivity is a requirement for island countries. One element of this is participation in e-trade. This has been a new 827 km fiber-optic cable system the focus of significant initiatives by linking Tonga to the main trans-Pacific many developing countries, often with link between Australia and the United support from the WBG and other part- States, which became operational in ners. For example, the World Bank has August 2013. Following the completion worked on a range of projects to build of the fiber-optic link, Tongans are see- the backbone fibre-optic cable infra- ing more ICT applications and services, structure needed for lower-cost Inter- and Internet access is growing more net in Africa. For example, a US$424 affordable: the household price for a million World Bank program supported month of Internet service, per gigabyte, improvements in the enabling environ- has fallen by 60 percent. The country ment and regional integration of tele- has opened its first call-center and communications terrestrial networks many Tongan businesses, health cen- through financing of public-private ters, and schools are enjoying cheaper, partnerships and broadband capacity faster connections. purchases. The WBG has also invested directly through its private sector arm These infrastructure improvements to support connectivity improvements: are essential for providing basic con- for example, through a US$240 million nectivity. However, without addressing IFC investment in the EASSy subma- the enabling conditions for e-trade, rine cable connecting the east coast improvement to the connectivity founda- of Africa (from South Africa to Sudan) tions alone will not lead to significant to Asia and Europe. These projects growth in e-trade. contributed to a 90 percent reduction E-TRADE FOR DEVELOPMENT 5 Client-Specific Support The World Bank Group offers develop- WBG also provides support for ing countries practical support oriented the implementation of reforms to to increasing their engagement on address the barriers identified and e-trade, and maximizing the positive improve the enabling environment impacts of e-trade. Focused in the for e-trade. Trade and Competitiveness Global Practice, and drawing on the expertise ●● Third, the WBG builds on its long of a wide range of teams, the World experience on trade facilitation and Bank Group focuses its support on logistics to support the adoption of four key pillars of the e-trade enabling customs procedures and logistics environment. conditions for e-trade. This includes targeting aspects of the border ●● First, the WBG provides diagnostics management regime that most of the performance of a particular affect e-trade, especially small economy on e-trade, assessing firms and entrepreneurs, includ- the main limitations hampering the ing transparency and de minimis e-trade environment. regimes. It also includes working on “last-mile” logistics and internal ●● Second, the WBG supports clients connectivity to trade, to ensure that in reforming the regulatory environ- high domestic logistics costs do not ment for e-trade, covering issues undercut the impact of reforms to like e-signatures and electronic lower trade costs at the border. documentation; privacy and con- sumer protection; cross-border data ●● Fourth, the WBG provides support flows; and electronic payments. to foster digital entrepreneurship, This involves conducting an assess- based on experience and lessons ment of the regulatory environment learned working around the world on e-trade based on international in a wide variety of industries, and best practices, focusing both on is tailored to the unique circum- the enabling regulation on e-trade stances of our clients. as well as regulatory barriers. The E-TRADE FOR DEVELOPMENT 6 Support for Improving the E-trade Enabling Environment  E-trade Environment Policy and Trade Facilitation Digital Diagnostics Regulatory Reform and Logistics Entrepreneurship and Strategy • Understand • Strengthen • Reduce trade • Expand private e-trade policy and regu- costs for sector capacity performance latory framework e-commerce for e-trade Objectives • Identify key to enable e-trade goods • Improve small constraints • Support • Streamline bor- and micro- in e-trade ­evidence-based der procedures enterprise ­environment policymaking by • Upgrade logis- participation in • Insert e-trade in governments tics ­environment e-trade broader trade for e-commerce strategy • E-trade flows • Enabling • Customs and • Access to early- of goods and regulation: e.g., other border stage funding services; data e-signatures, agency regula- • Digital lit- flows consumer tions for small eracy and • Platforms and protection, shipments (e.g., ­entrepreneurship Key Issues partners in- privacy & data de minimis volved in e-trade ­protection threshold) • Key constraints • Regulatory • Domestic in the e-trade barriers: e.g., logistics along environment restrictions e-commerce on data flows; supply chain, in- localization cluding last-mile ­requirements delivery • Indicator-based • Review of laws • Field assess- • Ecosystem sup- review of e-trade and regulations ments of border port: incubation, environment on e-trade and logistics acceleration, drivers • Gap assessment constraints, gap mentorship and WBG Approach • Data analysis of with global best assessment early funding e-trade flows practice with WTO-TFA • Ecosystem • Development of • Private sector ­provisions ­assessments e-trade strategy consultations • Support to and private sec- • Technical sup- implement tor ­engagement port to imple- streamlined ment reforms procedures and improve logistics environment Diagnosing e-trade constraints one reason for this is the dispersion of statistics capturing e-trade flows, Despite being the fastest growing of especially in the developing world. This international commerce in the last limited access to e-trade data further decade, e-trade remains not fully hampers the ability of policy makers to understood and, more importantly, sel- comprehend the links and potential of dom integrated with broader trade and e-trade as a tool of economic growth, growth strategies. Beyond its novelty, E-TRADE FOR DEVELOPMENT 7 leading to policies that miss out on the digital transactions through online international trade opportunities sup- platforms. ported by the digital economy. These data are assessed together The WBG T&C GP builds on trade with key indicators that represent the and analytical expertise to support broader conditions of the e-trade envi- countries to conduct a data-based, ronment, including aspects such as comprehensive diagnostic of its e-trade environment. The diagnostic sup- ●● telecom infrastructure and use of IT ports policy making by assessing an by individuals and businesses; economy’s performance of e-trade of goods and services, and how it links ●● business climate, regulatory open- to the different sectors of its economy, ness governance; promoting e-trade as a key component of broader trade-based growth strate- ●● literacy and digital skills; and gies. In particular, the e-trade environ- ment diagnostic seeks to understand ●● logistics for e-commerce an economy’s performance on e-trade, in order to identify the main obstacles identify the key limitations affecting it, that hamper the development of and support e-trade as a key compo- e-trade. nent of trade strategies. The main issues addressed by the Reforming the regulatory e-trade diagnostic include the e-trade environment for e-trade ­ and data flows, including, depending The legal and regulatory environ- on data availability types, economic ment can be an enabler or a barrier to sectors involved, and relevant part- e-trade. A weak regulatory framework ners. In order to capture these different can create barriers to e-trade. An effec- elements, the assessment taps into tive regulatory framework for e-trade multiple databases, both public and pri- must strike a balance of introducing vate, of both trade flows as well as data rules that enable and promote digital flows, from domestic and international commerce, while avoiding overburden- sources. The joint analysis of differ- ing and creating unwarranted restric- ent types of data bring about a clearer tions to e-trade. picture of e-trade that each source of (partial) information fails to deliver. Rel- With regard to e-trade, the WBG brings evant data may include: expertise to assess and tackle reform on laws and regulations pertaining to ●● Public trade data reviewed include e-trade of goods and services, as well balance of payments and customs as horizontal disciplines that affect all data at the lowest level possible sectors of the economy. Building on to more accurately reflect e-trade experiences from different regulators transactions. across the globe, the WBG can help assess regulatory options and provide ●● Private data related to data flows advice on regulatory reform on data and, where possible, international flows. Furthermore, by cooperating with E-TRADE FOR DEVELOPMENT 8 global stakeholders on electronic pay- if designed and implemented in certain ments, the WBG can ensure that regula- ways they can introduce excessive tory reform brings effective benefits to burdens or unwarranted restrictions the domestic e-trade environment. to e-trade. Server localization require- ments and limitations on data flows are A stronger regulatory framework for among the most common regulatory e-trade involves promoting enabling restrictions to e-trade. regulation while limiting restrictions to e-trade. An enabling regulatory frame- Strengthening the regulatory envi- work is essential to e-trade in order ronment must be based on a solid to promote consumer trust in digital understanding of the existing environ- markets. Such regulation includes, for ment, based on rigorous analysis and instance, engagement with both public and private sectors. This involves going ●● laws and regulations on electronic beyond an identification of what regula- documents and e-signature; tions exist on paper, to understanding how they are applied in force. ●● regulations affecting electronic payments; Analytical work to assess the e-trade regulatory environment focuses on laws ●● consumer protection measures and regulations specific to the e-trade such as the restriction on spam, environment. This includes an evalu- right of withdrawal (e.g., proce- ation of policies in light of standards dures for returning products of developed in international or regional e-commerce), and online dispute bodies, including: resolution; ●● APEC Privacy Framework of 2005, ●● rules on intermediary liability, OECD Guidelines on Protection of addressing the legal responsibility Privacy, as well as lessons from the of digital platforms for the goods implementation of EU Data Protec- and services traded by their users; tion Directive; ●● privacy and data Enabling regulatory protection, ensur- policies Restrictive measures E-trade ing that reasonable safeguards exist for Privacy and data protection the use of personal Intermediary information, includ- liability ing consent on the Consumer Server localization use by third parties, protection requirements and the “right to be E-payments Data flows forgotten.” restrictions E-signature Although governments Electronic Ban of online sales documentation can have legitimate motives for introducing Regulation regulation in these areas, E-TRADE FOR DEVELOPMENT 9 ●● OECD Consumer Protection Rec- Streamlining e-commerce facilitation ommendation of OECD Guidelines and logistics for Consumer Protection in the Con- Streamlining trade facilitation and text of Electronic Commerce; upgrading the logistics environment is essential in boosting developing ●● UNCITRAL model laws for elec- country participation in e-trade. In tronic signature and documents that developing countries, the costs of trade seek to reduce regulatory diver- are significant, given poor transport gence for e-traders. infrastructure, weak trade facilitation, The WBG’s regulation assessment and limited logistics capacity (shippers, focuses on a review of actual laws logistics, warehousing, etc.). These and regulations, complemented with costs are especially high for small consultation with government officials businesses shipping small parcels, the and practitioners in order to identify the hallmark of B2C online trade. Given factual conditions of application of such their limited shipments, SMEs have measures, and an evaluation of those higher fixed costs per parcel (or “per regulations and practices in light of unit”) in shipping their products than do international standards. Where regula- large exporters shipping large volumes tory restrictions are found, such as data (Suominen 2014). flows limitations or server localization The World Bank Group supports requirements, the analysis proposes developing countries in providing regulatory alternatives that achieve the robust analysis on the trade facilitation same legitimate policy objective, such and logistics costs most relevant for as consumer protection or national e-commerce and implementing reforms security, without obstructing e-trade. that facilitate e-commerce. Analysis Support to implement regulatory reform tackles regulation and procedures at and effectively implement policies is the border, such as de minimis thresh- also provided. The WBG has ample olds, expedited release of those goods experience in operational support to entered through air cargo facilities, client countries for improving relevant advanced declaration mechanisms, trade-related policies and regulations. In simplified regimes, and facilitation of Bangladesh, efforts to support exports e-payment and enabling legal validity of IT-enabled services include a com- of electronic transactions, as well as the prehensive assessment of the legal broader conditions for risk assessment and regulatory framework, including by customs. In this analysis, relevant aspects such as data flows. In Albania customs procedures and regulations and Kenya, the WBG assisted with the are also assessed in light of the World development of e-payment systems to Trade Organization (WTO) Trade Facili- facilitate import/export payment transac- tation Agreement, which features a set tions. In order to support the enhance- of measures relevant to e-trade. Finally, ment of Single Window Systems, WBG the analysis also considers the condi- teams assisted in the implementation of tions of logistics for e-commerce behind new regulations on electronic transac- the border, in particular by assessing tions in Ethiopia, Colombia, Kenya, and the ability of transport service providers, Sao Tome. E-TRADE FOR DEVELOPMENT 10 including express delivery services, to other material on trade facilitation and reach individual consumers. logistics. Toolkits for trade informa- tion portals have been developed and Support is also provided to imple- deployed in various countries (Laos, ment the findings of this analysis. For Lesotho, Botswana, among others) and example, the WBG is currently design- single window development guides ing a technical assistance program for have been used for implementations countries in Central America in order to across the world. Single window imple- enhance regulatory, procedural, border mentations, in particular, are quite com- management, and technological chal- plex as they require not only refining lenges around general and express air business processes and reviewing the cargo, involving not only customs and legal environment but also the develop- other control agencies, but also state- ment of functional and technical archi- owned enterprises in charge of operat- tecture for systems, risk management, ing airport cargo and express terminals. and governance. In the past, the WBG has helped client countries enhance their risk manage- Entrepreneurship support ment systems, in collaboration with The Trade and Competitiveness Global multinational express companies that Practice’s Digital Entrepreneurship provide their own risk engines for gov- Program provides diagnostic support ernments to implement. on the entrepreneurship environment The WBG assistance to developing through a Digital Entrepreneurship countries supports implementing the Diagnostic Toolkit, as well as support- different ICT systems (customs automa- ing reforms and practical initiatives like tion, automation at other border control digital incubators, accelerators, and agencies, enabling e-payment, single early-stage funding programs. The window systems, procuring ICT equip- support builds on experience and les- ment, cargo tracking systems, among sons learned working around the world others) and providing for interconnectiv- in a wide variety of industries, and it is ity (at borders and between agencies); tailored to the unique circumstances of supporting the back-end streamlining our clients. Assistance can be provided that is often required prior to automa- at the level of national governments as tion; maximizing the WBG’s use of well as subnationally, for example to city convening power to bring stakeholders governments. to the table; providing a more effective governance mechanism for enabling, The Digital Entrepreneurship Program implementing, and monitoring automa- assists clients in assessing the entre- tion; and providing support and ensur- preneurship environment, through a ing adequate attention is placed on the Digital Entrepreneurship Diagnostic legal issues discussed earlier which Toolkit. The toolkit combines quantita- can often hinder progress. tive indicators with qualitative protocols across six entrepreneurship domains WBG teams have also produced a (markets, policy, human capital, large amount of knowledge on best finance, culture, and infrastructure) to practices, case studies, toolkits, and identify opportunity areas. This diag- nostic tool can be tailored to focus E-TRADE FOR DEVELOPMENT 11 specifically on trade-related barriers early-stage funding programs. For faced by entrepreneurs in the digital example, the Digital Entrepreneurship economy, and can be used to provide Program supports the growth of com- policy and project guidance on remov- petitive mobile applications industries ing such barriers or otherwise easing in emerging and frontier markets. The digital trade for start-ups. program is scaling Mobile Application Labs (mLabs)—incubation facilities The WBG also provides support for and innovation hubs for digital entre- practical initiatives intended to boost preneurs—in Kenya, South Africa, and entrepreneurship in the digital economy, Senegal. like incubators, accelerators, and E-TRADE FOR DEVELOPMENT 3    Global Engagements C omplementing and informing our support to developing countries on e-trade, the World Bank also plays an important role as a source of global knowledge as an advocate for trade and as an engine of inclusive growth. Knowledge Generation One important area where the WBG In addition, the World Bank Group has a strong leadership role is that is developing quantitative indicators of metrics-based assessments. On meant to assess the performance and e-commerce, the Trade and Competi- to identify the challenges of the different tiveness Global Practice has developed types of e-trade, with a view to support- methodologies, such as the Digital ing country-specific analytical work and Entrepreneurship Toolkit, to assesses the policy advice. conditions for digital business to flourish, based on a set of quantitative indicators The WBG has also organized a number that capture key elements of the digital of research conferences to deepen ecosystem. These methodologies com- understanding of the analytical aspects plement the indicators with a methodol- of e-trade, and what methods exist ogy for collecting qualitative information to provide better policy advice and and identifying the main challenges to implementation support to developing digital business, and designing appro- countries. priate country-specific operations. Advocacy and Thought Leadership T&C engages with international part- The World Bank Group has been ners to advance research and knowl- actively engaged in discussions at the edge on e-trade and to promote the multilateral level on e-trade, helping benefits of e-trade across the globe, in contribute evidence and ideas as an particular to developing countries and increasing number of WTO Members least developed countries. The World express interest in more intensive work Bank Group is currently partnering with on e-trade in the WTO. WTO Members multiple international agencies, donors, are drawing their attention to the role and stakeholders interested in e-trade. of the multilateral framework on e-trade E-TRADE FOR DEVELOPMENT 13 rules and promotion. As a key interna- Finally, the WBG is also working closely tional organization in the G20 Trade and with multiple private entities, leading Investment Working Group, the WBG the global thinking on e-trade. These is also well positioned to contribute to include key stakeholders like PayPal, discussion in the G20 on e-trade, which eBay and McKinsey Global Institute, was featured in 2016 during China’s academic institutions like the George Presidency and is expected to intensify Washington University, and think tanks in 2017 under the German Presidency. like the Brookings Institution. In collabo- ration with these and other partners, To take another example, the WBG is T&C has organized multiple confer- collaborating with UNCTAD and other ences on e-trade in Washington D.C. international partners in establish- and Geneva, bringing together policy ing “E-trade for All,” a demand-driven makers, international organizations, and mechanism for leading development the private sector. partners, together with the private sector, into bringing a comprehensive set of tools for developing countries to engage further on e-trade. This initia- Contacts for Further Information tive will try to achieve common goals for e-trade in developing countries, Martín Molinuevo, Senior Trade make actions by international partners Specialist, Washington DC more coherent, and pool expertise and Michael Ferrantino, Lead Econo- resources from the different interna- mist, Washington DC tional actors in these fields. The World Bank Group, as one of the main institu- Marcus Bartley Johns, Senior tions active in this area, has a central Trade Specialist, Singapore role to play in this initiative. E-TRADE FOR DEVELOPMENT