In March 2017 I attended Geneva Global
Goals Innovation Day to visit a pop-up
shop set up by the EcomCoop, a pro bono
client of Sidley Austin’s Emerging Enterprise
Pro Bono Program. Displaying colourful
handicrafts from all across Africa, this makeshift
arrangement sought to familiarize potential
customers with the products of African small
and medium-sized enterprises (SMEs) that
soon will be available for purchase online in
the European Union (EU) and the United
States. I took advantage of the opportunity and
bought a Rwanda-made wallet of cow leather,
tanned in neighbouring Burundi.
It has long been recognized that e-commerce
has the ability to lower traditional
trade barriers and costs, providing great promise for inclusive trade. However, to
jump on the international e-commerce
bandwagon, it is imperative for businesses
to have the ability to navigate and comply
with an increasingly complex labyrinth of
legal and regulatory hurdles. This involves
both traditional trade issues, such as technical
barriers to trade, sanitary and phytosanitary
requirements (TBT/SPS), value-added
tax and custom regulations, as well as
e-commerce-specific laws and regulations,
including privacy laws, consumer protection
regulations, and cyber security regulations.
When conducting commerce through
the internet, traditional legal and regulatory
trade barriers can be multiplied. Typically,
producers engaged in e-commerce enter multiple markets simultaneously (‘Small
online Business Growth Report: Towards
an Inclusive Global Economy’, eBay, January
2016). This means that the merchant
must be able to identify, and be able to comply
with, the different legal and regulatory
requirements of the end markets in which it
expects to have consumers.
For instance, to sell the Rwandan leather
wallet I brought into the EU, the merchant
must not only ensure that the leather was
processed in compliance with the EU health
and safety regulations – which may be
more difficult to verify when it is processed
in Burundi – but also that it complies with
labeling requirements, such as language, that
vary for different EU members.
UNDERSTANDING REGULATIONS
Similarly, e-commerce augments the importance,
as well as the complexity, of understanding
custom duties and VAT regulations
of countries where the product will likely
be sold. Merchants must calculate the exact
amount of custom duties and VAT that will
be levied prior to export and reflect this in
the final price. They likewise must be aware
of the relevant incoterms to ensure additional
charges are not passed on to the customer.
Moreover, providing for returns is often
legally required for products sold online.
Where a returned product is above the de
minimis level, it may be subject to custom
duties as well as paperwork requirements
– the responsibility of which falls on the
seller (‘International E-Commerce in Africa:
The Way Forward’, ITC, 2015).
In addition to these traditional trade barriers,
SMEs that are selling online must also
comply with the data privacy regulation in the
consumer market as well as consumer protection
regulations, which may differ between
EU members. Thus, SMEs must have in place
privacy agreements and buyer-seller contracts
that comply with these often stringent requirements
in all the markets the SME is targeting.
Since many least-developed countries (LDCs)
do not have data privacy and consumer protection
laws in place, SMEs from these countries
often experience particular compliance
difficulties in these areas.
TRANSACTION ACCESS
A prerequisite to participate in international
e-commerce is the ability to access secured
transactions and payment systems to
prevent fraud. To sell products into the EU
market, SMEs from LDCs must have access
to electronic trust tools and services. While
international marketplaces like eBay and
Amazon provide a number of these services,
SMEs from many LDCs are not eligible to
open merchant accounts on these platforms
or receive payments from international
customers because they have limited or no access to secure payment systems, thus
creating due-diligence challenges.
Given the complexity of the digital trade
landscape, it is unsurprising that SMEs have
listed the lack of information as a top barrier
to online commerce (Companies engaged in
online activities, Flash Barometer 413, 2015).
In an attempt to address some of these
problems, many regional and multilateral
institutions are exploring initiatives to establish
a regulatory framework to facilitate international
e-commerce. While these initiatives
are necessary to reduce the complexity of the
cross-border issues faced by SMEs, they do not
necessarily address the on-the-ground obstacles
keeping many SMEs from LDCs from participating
in international e-commerce.
One way to help SMEs identify and
address these barriers would be to establish a
one-stop shop – in the public or private sector
– that provides custom-made legal advice to
SMEs from LDCs on the maze of different legal
and regulatory barriers they must comply with
when targeting consumers in a particular market.
This could be done either as part of a law
firm’s pro bono program, or through the work
conducted by an international organization or
non-governmental organization. This would
require a different approach to legal specialization:
rather than focusing in areas of law, like
trade, corporate or privacy law, the specialty
of this one-stop-shop would be defined by the
type of problem it aims to solve and the type of
entity it is advising.
Part of the work of such one-stop shop
would likely center on directly advising SMEs
from LDCs on how to sell goods online internationally
through their own website, and
establish a set of best practices. The other part
should focus on putting in place the requisite
legal framework that will enable innovative
market that are accessible to SMEs from LDCs
to flourish. Doing so would scale-up the impact
of the legal advice provided.
LEGAL TRAINING
There exists various examples of innovative
market places that generate such a multiplier
effect. One such model is ITC’s brainchild,
the EcomCoop, a United Kingdom-based
cooperative that operates a marketplace
owned by African SMEs that helps solve
cross-border issues and provides access to
foreign markets in a cost-effective way. By
being registered in the UK, African-based
SMEs have access to secure international payment systems. With the help of Sidley
Austin lawyers, the EcomCoop has put in
place a legal framework as well as training
sessions on VAT and TBT/SPS compliance,
ensuring that all SMEs that transact using its
platform – including the Rwandan SME that
manufactured the leather wallet I purchased
– comply with the requisite EU laws and
regulations.
Another example of an innovative
model is inclusivetrade.org, a marketplace
for garment-producing SMEs from developing
countries. Set up by the platform SPINNA
Circle – also a Sidley pro bono client – the
marketplace is set to go live in August. Registered
in the UK, SPINNA Circle enables its
SMEs – which have all undergone a strict
and socially-oriented due diligence process
– to sell their products to various EU countries.
Like the EcomCoop, it provides a number
of services that diminish the costs and
burden for SMEs in developing countries
to sell products online to consumers in the
EU market.
Providing comprehensive legal advice
to these innovative market places generates
a trickledown effect: it enables them to train
their SMEs to meet the legal and regulatory
requirements to sell online internationally.
In sum, SMEs must navigate a complex
legal and regulatory landscape to sell online
into high value markets like the EU. To turn
e-commerce from promise into opportunity
for SMEs in LDCs, lawyers cannot limit their
activities to macro-level trade agreements.
Rather, we must do our part by thinking
entrepreneurially on how to best provide
comprehensive advice on the legal and regulatory
challenges most pressing to SMEs from
LDCs, and by identifying and supporting innovative
models that could multiply the benefits
of such legal services provided. Then, a few
years from now, I may not just carry a Rwandan
wallet, but also wear beaded Kenyan sandals,
and use Ghana-made shea butter cream
– all purchased online.
The views expressed in this chapter represent the personal views of the author, and do not represent the views of Sidley Austin LLP or its clients. This article has been prepared for informational purposes only and does not constitute legal advice.