Ensure the ITA balances regulation and MSME growth

The unprecedented growth in e-commerce has necessitated the crafting of regulatory framework to govern the sector. In December 2022, the proposed Internet Transactions Act (ITA) was passed in the lower house and is now pending in the Senate. The aim of the ITA is to regulate the sector, protect consumer rights, and promote intellectual property rights, among other objectives.

The ITA bill is a top legislative priority in response to the country’s fast adoption of e-commerce, which enabled a bustling online marketplace that created both benefits and risks — mostly from transactional issues that have flooded government regulators with complaints from both buyers and sellers being victimized by fraud, scams, cybercrime, and data privacy rights violations.

With the accelerating pace of digital innovation, governments are confronted with unique regulatory challenges. The sheer pace of technological change itself fundamentally challenges regulation. Governments and regulators play a major role in encouraging digital innovation and in incentivizing the development of these technologies for the benefit of society. However, regulatory frameworks often lack the agility to accommodate the increasing pace of technological developments. Digital technologies also challenge deeply the manual and bureaucratic way governments regulate.

As the country quickly shifted to e-commerce to survive the pandemic, there was an irreversible trend towards a global digital economic system that is blurring the traditional definition of markets, challenging enforcement, and an urgency for systemic digital transformation that transcends administrative boundaries domestically and internationally.

The e-commerce ecosystem in the Philippines is booming and has become the fastest growing economic engine in the country. Filipino consumers have embraced online shopping, making it their preferred mode of purchasing. Virtually anything can be ordered and delivered directly to your doorstep through online marketplace platforms. These platforms rely on a robust logistics system, which has become an essential industry in the supply chain.

The ease and speed at which Filipinos adapted to e-commerce platforms resulted in significant growth. According to a US International Trade Administration Report, in 2021, the total market sales reached $17 billion, largely due to the impact of the COVID-19 pandemic. The US Department of Commerce predicts that by 2025, total sales will reach $24 billion.

The sectors that will potentially reap the greatest benefit are Micro, Small and Medium Enterprises (MSMEs) because of the low capital and easy access to the online marketplace. There are many platforms available like Lazada and Shopee, and also social media platforms where buyers and sellers are able to deal directly.

As the dynamics and disruptive nature of e-commerce technologies need a different mindset from the traditional bureaucratic concepts (that are often incompatible), there is a need to work closely with the stakeholders, especially the industry players whose global scope in terms of experience and expertise should be harnessed. However, large e-commerce platforms and MSMEs have expressed concerns about the current version of the proposed ITA pending in the Senate.

One of the concerns is the establishment of an online dispute resolution system for civil and administrative complaints filed by online consumers which can have both positive and negative impacts. Though this can help prevent scams, overly broad regulation could harm small players. The current definitions of violations, liabilities, and other terms are so broad that MSMEs could face numerous legal cases and high fines that they cannot afford. Unlike the well-established platforms that have their own legal departments to take on these issues, e-commerce-based MSMEs don’t have such capacity.

The proposed bill introduces additional administrative requirements or more red tape. It requires the registration of both platforms and merchants with the e-commerce bureau for transparency and legitimacy purposes. The information required for registration will be made public, which may violate data privacy rights.

Additionally, the bill outlines an extensive range of obligations for all online sellers such as detailed guidelines on marketing, on selling, how to issue invoices and receipts and invoices, and so on. MSMEs have very limited human resources and should not be burdened by too many guidelines. The ITA should align with the spirit of the Ease of Doing Business Law.

Instead of being able to engage the online marketplace with a few clicks and keystrokes with minimal information in the e-commerce platforms, imposing additional registration costs and requirements will be adding barriers to market entry, rather than fostering accelerated and inclusive growth that our economy needs to recover. This could turn off MSMEs and may lead to many MSMEs exiting the market. It is important to consider the potential impact of these regulations on MSMEs and their ability to thrive in the e-commerce sector.

In the Organization for Economic Co-operation and Development paper on “Regulatory Reform and Innovation,” it states that in the interest of economic efficiency and innovation, regulations should seek to remove duplicative, onerous, and inefficient regulations, particularly to aid small- and medium-sized enterprises.

The paper’s conclusions on “how to realize positive regulatory effects on innovation, while taking care not to jeopardize the original regulatory objectives” offer good guidance for our government legislators and regulators. It recommends understanding regulation-technology linkages, introducing competition, streamlining regulations, use technology-driving approaches, and harmonize internationally.

While the proposed Internet Transactions Act aims to provide much-needed consumer protection, it is important for the government to strike a balance between regulation and supporting the growth of MSMEs. Careful consideration must be given to ensure that the regulations do not create barriers to entry into the growing e-commerce space.

Victor Andres “Dindo” C. Manhit is the president of the Stratbase ADR Institute.