Diagnosis
A preliminary diagnosis shows that the percentage of participation of MSMEs in international trade in the region is less than 5%, which highlights the need to develop instruments to enhance their incorporation into marketing chains. In fact, in developed countries, companies with less than 250 employees represent 78% of exporters, but only 34% of exports. In developing countries, on the other hand, MSMEs represent only 7,6% of total sales in the manufacturing sector, compared to 14,1% for large manufacturing companies.[1]
Hence the need to generate specific measures, from both the public and private sectors, that allow for an increase in the participation of MSMEs, both from a regulatory point of view, but also from the training, information and possible preferential treatment in terms of rates.
The current scenario of the economy, and especially of exporting SMEs after the Covid-19 pandemic, is paradoxically diverse. While many of them significantly reduced their sales, and some even had to lower their shutters, others saw an opportunity and explored new markets, especially using cross-border e-commerce or e-commerce. And it is this type of trade that, especially during the pandemic, registered a very notable increase, tripling. And although the numbers are incredible and represent high growth and performance, there are a large number of companies that do not participate in the E-Commerce Cross Border, where in Latin America alone they could access a market of 660 million people.
Why do SMEs not participate in international trade? There are many reasons, and some of them would be:
- Lack of information and knowledge regarding trade and customs regulations and international agreements, as well as the logistics necessary to complete an export or import process;
- Uncertainty regarding the requirements necessary to complete an export and import process (taxes, authorizations necessary to complete an import process such as health, agricultural permits, etc.)
- Not having access to the appropriate platform for making online sales (shopping cart, online payment, high-quality photos, etc.);
- Lack of comprehensive logistics that allows reaching different markets.
It is true that some countries in the region have implemented support programs for MSME export processes (PYME Exporta, Exporta Fácil, etc.), however, they do not seem to be sufficient, since there is data that shows that the import process in the destination market can be so cumbersome and expensive that, after the first attempt, the company does not export again.
Hence, it is necessary to think about how to complete the “export cycle” and design solutions that include the process of preparing an export, the export, the import, and the closing and feedback of the process.
At the IX Summit of the Americas, held in Los Angeles in June 2022, the Leaders' Declaration[2], highlights the following mandate regarding the Digital Transformation program: “41. Expand opportunities and capabilities for entrepreneurs and businesses, especially micro, small and medium-sized enterprises (MSMEs), to participate in e-commerce, use digital technologies or tools and logistics services, encouraging free competition to improve their operations and develop digital skills for the Fourth Industrial Revolution and access to markets to be more competitive.”
The Leaders' statement makes explicit recognition by indicating that entrepreneurs and MSMEs have an opportunity in e-commerce, but that this necessarily implies moving towards environments of greater digitalization, simplification and support for logistics services. The creation of environments of paperless trading This seems to be a particularly outstanding debt in our region, where original commercial invoices signed by hand by the importer are still required, or where, in order to access tariff preferences in trade agreements, the presentation of the original certificate of origin is required. During the pandemic, there were positive experiences, which involved simplifications in this regard, and many Customs Administrations implemented contingency measures that allowed electronic submissions. Why not continue and deepen this path?
Likewise, the Americas Business Dialogue (ABD), a private sector group that supports the work of the IDB, developed a series of Policy Recommendations, among which we can highlight number 7:
“Implement and digitize secure and simplified customs procedures that allow MSMEs to integrate into international trade; make effective use of new technologies and improve coordination between government agencies and the private sector, to consolidate and solidify the advances in resilience and innovation achieved by customs authorities during the pandemic, while at the same time updating customs regimes to make them more compatible with the new reality of digital trade.
And among the actions: Implement programs to promote trade in low-value shipments, including “Authorized Digital Merchant” initiatives that incorporate streamlined components in customs processes for shipments originating from MSMEs, the digitalization of customs processes (including cross-border tax and fee payments), and the creation of single windows for digital trade.”
The ABD once again underlines the need to implement simplified customs procedures that facilitate the insertion of MSMEs in international trade, through the use of ICTs, but also by deepening the work and cooperation between the private sector, Customs and other border agencies, which leads us to think, for example, about the role of foreign trade single windows (VUCEs). Do you consider these tools a space, a special channel for MSMEs? Can this type of operators use VUCEs to streamline their foreign trade processes? I think that for now, and reviewing some windows in the region, the answer is negative. We can think about that.
The IDB's private sector group also invites us to think about all those simplification measures dictated on the occasion of the pandemic, which is why it is worth keeping in mind the compilations made by the WCO.[3] and the WTO[4], on certain simplification, coordination and digitalisation measures that were applied during the pandemic, but which could be applied in normal times.
Based on these ideas, and considering that there is a shared consensus between governments and the private sector that the integration of MSMEs in marketing chains seems to be an imperative, as well as the deepening of intraregional integration, we believe that it is possible to think of a series of measures that could meet the objective.
What are we thinking and what are we proposing?
Create a customs export and import procedure for MSMEs, which allows them to access preferential treatment in the import or export processes, which may consider, among other benefits: special channels for MSME shipments, lower levels of physical inspection or inspections through non-intrusive technologies (x-rays); assignment of an official who can address questions or difficulties during the process; complete digitalization of import/export processes (zero paperwork); among others. And that these benefits are recognized, both in the country of import and export.
MSMEs that wish to participate in the program must meet a security standard, not equivalent to the OEA because it is very demanding and expensive for this type of company, but which allows them to ensure that their shipment is safe. But in order to further guarantee that these shipments are safe, the logistics partners (transporter, customs agent, courier) that participate in the expo/impo operation should have the OEA certification. This MSME security standard must be developed by Customs, in order to guarantee that MSMEs can comply with it, more limited than the OEA standard, but which can still establish rules regarding compliance and security.
In this initiative, not only Customs should participate, but also the entities that manage the Single Window systems, enabling a module or channel for MSMEs for this type of shipments, which allows them to process their shipments in a simplified manner and obtain the necessary certifications or authorizations from organizations such as Health or Agriculture, and the authorities can validate on the platform if the MSME is benefited from the certification. This point is crucial, since it is about deepening inter-institutional coordination, but also creating the necessary digital environments to streamline the operation and reduce unnecessary costs.
In addition, it would be important to have capacity building programs for MSMEs, and joint support from the private and public sectors. As we have already said, one of the main obstacles for MSMEs is that they have little access to information, or even if they have it, it is unintelligible. This issue is essential today, where the vast forest of international and national regulations often requires a super specialist to understand and apply it. It is essential to “translate” customs and trade legislation. Many times countries comply by publishing all the information in official bulletins or journals or on their websites, thus complying with Article 1 of the Trade Facilitation Agreement, but we believe that it is still possible to go one step further, and it is necessary to do so. "translate" that language. Indeed, it is a matter of working more on the implementation of article 1, paragraph 2 of the AFC, which provides:
“2.1 Each Member shall make available, and update to the extent practicable and as appropriate, through the Internet the following:
a) a description of its import, export and transit procedures, including appeal or review procedures, informing governments, traders and other interested parties of the practical measures necessary for import, export and transit;”
MSMEs must have useful and simple information, and training that allows them to understand the legislation they must comply with and the customs procedures they must follow, but in addition to the practical procedures to be able to apply them, this is where efforts should be focused, and where the Academy and the private sector should also be invited.
Finally, whose role is it to encourage the participation of MSMEs in international trade? Who is responsible?
The answer is all of them. But this column serves as a stage for us to invite the Customs and the community of logistics operators, such as customs brokers, express shipping companies, and transporters, to think about how we can design innovative solutions, which can be agile and secure customs procedures, which on the one hand allow MSMEs, which also generate the largest amount of work in our countries, to insert themselves in regional and global chains, complying with certain standards, which will imply helping in their formalization and standardization. Solutions that allow Customs to ensure a greater degree of compliance with regulations, given that they will know in greater detail the risk profiles of these operators and will obtain greater revenue. Solutions that allow logistics operators to work more efficiently in terms of costs and times. Solutions, finally, for the MSMEs of our countries to become engines of innovation and development.
[1] World Trade Report – Source WTO.
[2] “Leaders of twenty-three Western Hemisphere countries attended the ninth Summit of the Americas in Los Angeles on June 6–10, focusing on “Building a Sustainable, Resilient, and Equitable Future.” During the Summit, five political commitments were adopted by Heads of State and Governments: Action Plan on Health and Resilience in the Americas; Regional Agenda for Digital Transformation; Accelerating the Clean, Sustainable, Renewable, and Just Energy Transition; Our Sustainable Green Future; Inter-American Action Plan on Democratic Governance.
[3] WCO Guidelines for Disaster Management and Supply Chain Continuity (June 2021)
[4] How WTO Members have used trade measures to expedite access to essential medical goods and services to combat Covid-191 – Briefing Note.
https://www.wto.org/spanish/tratop_s/covid19_s/services_report_16092020_s.pdf
Lawyer, Master in International Law from the University of Heidelberg. He worked for almost 20 years in the Chilean Customs, holding various responsibilities. He is an accredited expert of the WCO and is a frequent arbitrator/panelist at the WTO. He is a professor at various universities and the author of various publications on customs and international trade. He is President of the Chilean Institute of International Trade, and is currently Director of Regulatory and Customs Affairs for DHL for Central and South America.
