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Tuesday, November 28, 2023

How the Internet Transactions Act can stifle MSMEs

The government must balance regulation with the growth of MSMEs and barriers to entry into the e-commerce space

E-commerce has become the default mode of transaction of Filipino consumers and for MSMEs.

Now that the pandemic is over and the economy has opened up, consumers and businesses have embraced the benefits and convenience of online and e-Commerce platforms using cashless payment methods, thus creating an opportunity for the country to evolve into a thriving digital economy.

As internet penetration improves with more investments in digital infrastructures, the borderless nature of e-commerce presents great opportunities to tap into a global market that is open to all e-commerce merchants whether big or small.

However, the ease and speed of e-commerce transactions also creates issues and challenges.

The Department of Trade and Industry has recorded increasing complaints from consumers of bad transactions because of defective products, and deceptive, unfair, or unconscionable sales acts or practices by some online sellers.

The Philippines has seen a significant growth in its e-commerce sector, with total market sales reaching $17 billion in 2021, largely due to the COVID-19 pandemic.

The US Department of Commerce estimates by 2025, total sales will reach $24 billion.

This rapid growth has prompted the need for a regulatory framework to govern the sector.

In December 2022, the proposed Internet Transactions Act passed the lower house and is now pending in the Senate.

The goal of the ITA is to regulate the sector, protect consumer rights, promote intellectual property, and more.

E-commerce has provided opportunities for growth and broader participation of MSMEs in the market.

With lower fixed capital requirements, the barriers to market entry are low, encouraging many smaller local entrepreneurs to participate.

MSMEs have found platforms not only in e-commerce giants such as Shopee and Lazada but also in social media.

However, both large e-commerce platforms and MSMEs have expressed concerns about the current version of the proposed ITA, which is now pending in the Senate.

While the bill aims to empower consumers, there are provisions in the current proposal that not only create barriers to entry but also include penalty provisions that could put MSMEs at a disadvantage.

The establishment of an online dispute resolution system where civil and administrative complaints can be filed by online consumers has both advantages and disadvantages.

On the one hand, it can help prevent scams.

On the other hand, an all-encompassing regulation may harm small players, as the definitions of violations, liabilities, and other terms are currently so broadly defined that MSMEs may face numerous legal cases and high fines that they cannot afford.

Large platforms like Shopee and Lazada have their own legal departments to handle and resolve such cases, while e-commerce-based MSMEs may not have the legal capacity or resources to do so.

The proposed bill will create more bureaucracy, requiring both platforms and merchants to register with the e-commerce bureau for transparency and legitimacy purposes.

The information required for registration will be made public, potentially raising data privacy concerns. Additionally, the current bill imposes an extensive range of “obligations of e-retailers and online merchants,” including detailed guidelines on marketing, selling, issuing receipts and invoices, and more.

MSMEs may not have the manpower capacity to comply with these extensive guidelines, as most e-commerce small businesses operate with a small number of workers.

The proposed regulations could potentially act as a barrier to market entry, rather than fostering growth in the sector, which could put MSMEs at a disadvantage.

Over-regulation may even lead to many MSMEs exiting the market.

This sentiment was echoed by MSME participants in a roundtable held by Bayan Academy in December 2020, who noted if the implementation of registration, added costs, and more regulation were required to participate in e-commerce, they would be less likely to engage in the sector.

It’s clear these potential changes could have a significant impact on the willingness and ability of MSMEs to participate in e-commerce, which is a concern for both the businesses themselves and the consumers who benefit from their services.

As the rights of both buyers and sellers in the online marketplace must be protected, a legal framework is needed to govern the e-commerce space, but it must balance regulation with market growth and innovation.

A good model is how Singapore has approached e-commerce regulation.

They have issued their first national standard, TR 76, to increase transparency and consumer confidence in online transactions. E-marketplaces must show their legal identity and contact details and have mechanisms to handle disputes.

The guidelines aim to improve consumer awareness and self-regulation in avoiding scams.

Desmond Tan, Chairman of the Inter-Ministry Committee of Scams and Minister of State in the Prime Minister’s Office of Singapore, stated the E-commerce Marketplace Transaction Safety Ratings build on these guidelines by raising consumer awareness on anti-scam measures on major e-commerce marketplaces in Singapore.

While the proposed Internet Transactions Act can provide consumer protection, the government must balance regulation with the growth of MSMEs and barriers to entry into the e-commerce space.

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