INF/MSME/P/4  
 
19 September 2022  
(22-6926) Page: 1/6 
  Original: English  
 
  
INFORMAL WORKING GROUP ON MSMES  
ASIAN TRADE CENTRE FOUNDATION  
The following communication, dated 19 September 2022, is being circulated at the request of the 
Coordinator of the Informal Working Group on MSMEs.  
 
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The information reproduced in Annex was provided by Asian Trade Centre Foundation. This 
document is circulated for information  only. 
 
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  INF/MSME/P/4  
 
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  ANNEX  
ASIAN  TRADE  CENTRE  
FOUNDATION  
 
 
A. Role of Digitalization  and E-commerce  for MSMEs  
Digitalization and e -commerce are fundamental to micro, small and medium sized enterprises  
(MSME). In Southeast Asia alone, the digital economy is expected to add an estimated 
US$1 trillion to r egional  GDP over the next ten years,  with 125,000  new users  joining  every  day. 
In the e-Conomy  SEA 2021  report,  Google,  Temasek,  and Bain & Company  found  that 
40 million  new internet users came online in 2021, bringing the internet penetration in 
Southeast Asia (SEA) to 75% of its population.  The report  also noted  a 5% increase  in online  
participation  in 2021 from 2020, reflecting  the ever-increasing  digital  potential  of the ASEAN  
region,  where  60 million  new digital consumers  joined  the internet  economy  since  the pandemic  
started  and 20 million  joined  in 2021.  
The rapid  development  of e-commerce  in the region  has been  a catalyst  for the growth  and 
internationalization  of MSMEs.  Traditionally,  MSME  participation  in international  trade  has been 
stymied  by factors  like certification  hurdles,  high barriers  to trade,  information  asymmetries,  and 
limited economies of scale. However, the proliferation of e -commerce marketplaces, market  
research tools, and MSME -friendly finance and logistics solutions have reduced the logistics and  
marketing costs and barriers faced by MSMEs. Smaller businesses that successfully leverage  
digital  tools can potentially  reduce  export  costs  by up to 40 percent  for goods  producers  and 
82 percent for  service  providers.1 
B. Issues and Recommendations to Achieving Inclusive Digital Trade 
for MSMEs  
The increasing  participation  of MSMEs  in the digital  economy  means  that it is important  to think  
of MSMEs as a key digital economy stakeholder. Moreover, a focus on smaller companies can  
best capture  the range  of opportunities  and challenges  presented  by digital  trade  and the issues  
associated  with managing  inclusive  outcomes  across  business  and civil society.  
Regulatory institutions, bodies and rules have a direct impact on individual organizations ' 
e-commerce behaviors by affecting the affordability, accessibility and growth of e -commerce  
activities.2 MSMEs  tend to have limited  awareness  of digital  trade  rules and opportunities  as well 
as limited capability to harnessing e -commerce. Smaller firms often lack the required skills,  
networks, financial support, and resources to implement more resilient and i nclusive business  
models. Building better digital policies that support trade for MSMEs can contribute to more  
businesses  growth  opportunities  for smaller  companies.  
Four aspects  of digital  trade  are key for MSMEs:  
1. Information . Small  and medium  sized  companies  need to know  about  market  
opportunities and need to be able to move information and data quickly and easily  
between  suppliers,  lead firms,  customers  and so forth.  
  
 
1 Asia Pacific  MSME  Trade  Coalition  (AMTC)  and AlphaBeta.  2018.  "Micro -Revolution:  The New Stakeholders  of 
Trade  in APAC. " AMTC,  February  23, 2018. 
2 ADB and UN ESCAP. "Embracing the E -Commerce Revolution in Asia and the Pacific. " Asian Development Bank, June 
13, 2018 . 
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  2. Smooth flow of goods with minimum roadblocks . Any impediment to the cross -
border movement  of goods —and particularly small size shipments and smaller or 
low value  shipments —can be devastating  to smaller  firms.  Delays  cost time and money.  
 
3. Ease in cross -border supply of services . In many Asian economies, the bulk of MSMEs  
are service  providers.  Research  has shown,  for example,  that up 90 per cent of Malaysian  
MSMEs  are service  providers.  Such firms  must  be encouraged  to participate  in global  
and regional  value  chains.  
 
4. Financing and payments . MSMEs have a particularly strong need for financing, since  
they do not have deep  balance  sheets.  In addition,  smaller  firms  need the ability  to 
easily and cheaply access payments systems  for their goods and services across 
borders. Firms that cannot be paid cannot  be engaged  in trade.  
 
1. Support  Information  Flows 
Developing policies to enable data and information to flow across borders is critical to digital  
trade  growth.  Digital  information  and services,  the infrastructure  that supports  them,  and their 
free movement are the backbones of electronically enabled trade. Without a clear mechanism  
to connect  MSMEs  to lead firms,  suppliers,  and consumers,  smaller  companies  will be left behind  
in the development  of resilient  supply  chains  for the future.  
Especially  key are the following  elements:  
● Facilitate  the flow of information  without  disruption  e.g., enable  good 
data/information  infrastructure, promote information sharing on resources and 
opportunities for MSMEs,  and permit  flows  of information  for the conduct  of business  
activities.  
 
● If there are exceptions to information flows, particularly due to privacy and national  
security reasons, have these explained in ways that make sense to smaller firms to 
help ensure easy compliance. It is also important to ensure transparency in 
notifications,  creation of enquiry points, or publication of details on official 
government websites to  ensure  outreach  to the broadest  possible  range of business  
stakeholders.  This information must easily be found and understood by smaller firms, 
including companies  located  in other  markets  overseas.  
 
● Facilitate cross -border data transactions by avoiding digital trade barriers such as data  
or server localization rules that require companies to keep data onshore as these are  
likely  to increase  costs  and complexity  of doing  businesses.  Paradoxically,  such rules 
are likely to make data less safe as smaller firms often lack capacity to safely use a nd 
store  information  on their own.  
 
2. Facilitate  the Flow of Goods  
Small firms are adversely affected by high costs caused by tariffs, taxes and the inefficient  
movement of goods across borders. MSMEs typically do not ship 40 -foot containers of goods,  
but one envelope or a few boxes at a time.  Delays and complexities in the movement of goods  
result in expensive charges to MSMEs.  Excessive paperwork or unclear and complex procedures  
and regulations for import and export can keep smaller companies from trying to expand to  
markets outside their home market at all.  Problems at the borders are magnified for MSMEs,  
including  time lost and expenses  that mount.  A study  by the OECD  has pointed  out that customs  
requirements and lengthy administrative procedures can increase costs by 2 -24 per cent of the  
value  of traded  goods.  
For e -Commerce goods to move seamlessly from seller to buyer, retailers and consumers must  
have access  to efficient,  reliable  logistics.  The Internet  allows  buyers  and sellers  to communicate  INF/MSME/P/4  
 
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  over vast distances,  but without  an efficient  way to fulfill  these  commercial  transactions  and get 
products to buyers in a predictable and timely manner, these connections do not translate to  
monetary  value.  As the Internet  has globalized  commerce,  transportation  networks  must also be 
supported  to service  this new global  demand.  
Complex customs procedures are a major impediment to the growth of e -Commerce.  A small  
company cannot manage the risks or costs associated with issues like a hold up of shipments at  
customs,  late deliveries,  or inefficient  return  procedures.  
Furthermore, a low threshold to e -commerce shipping (where low value shipments can be  
dutiable)  are also likely  to increase  the cost of conducting  cross -border  e-commerce  for MSMEs.  
Therefore, policies  should  help to facilitate  trade  in goods for MSMEs  including:  
● Harmonize and integrate rules around transportation services for the movement of  
goods  through  all modes  of transport  (air, land and sea).  
 
● Include  national  postal/courier  services  in the conversation  along  with logistics  
providers  and express  carriers  as all have relevant  roles in moving  shipments.  
 
● Swiftly and ambitiously implement the provisions of the World Trade Organization 's 
agreement  on trade  facilitation  including  the automation  of customs  procedures.  
 
● Review existing rules and customs procedures with an eye towards reducing barriers 
to low value  shipments.  One way of facilitating  the movement  of low value  shipments  
is the introduction  of a consistent  and not overly  low de minimis  or "MSME  threshold.”  
 
● Recognize that product returns are a critical aspect of e -Commerce and to put in place  
policies  for more  seamless  cross -border  returns  without  charging  duties  and taxes.  
 
● Provide for regulatory transparency by setting up national enquiry points at Customs 
as MSMEs  have a particularly  difficult  time understanding  regulations  in foreign  
markets  and improved regulatory transparency will help firms respond in a timely 
and cost - effective  manner  to regulatory  changes.  
 
3. Liberalise  Digital  Services  
Services are a critical conduit for MSMEs growth, particularly to allow smaller firms to plug into  
global and regional value chains. However, the trade cost equivalent of services trade barriers  
largely  exceeds  the average  tariff  on traded  goods.  According  to the OECD,  MSMEs  engaging  
in cross -border  exports  face an additional  7% in trade  costs  relative  to large  firms  for the average  
level of services  trade  restrictiveness.3 
 
The advent of the internet and new technology has introduced innovative business operating  
models  and services  unheard  of a mere  decade  ago. To encourage  innovation  and 
transformation, governments must offer an open and competitive policy environment for the  
incubation of new services. An open and competitive approach encourages the investment and  
innovation needed to offer the range of services that meet the diverse consumer and merchant  
needs.  Restrictions  on foreign  investment  ownership  in the logistics  sector  and in retail  services  
as well as postal  monopolies,  adds to costs  and complexities  in the e-Commerce  supply  chain.  
  
 
3 OECD.  "Promoting  the Productivity  of SMEs in ASEAN  Countries, " 2021.  
https:// www.oecd.org/industry/ind/promoting -productivity -of-SMEs-in-ASEAN - countries.pdf . INF/MSME/P/4  
 
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  More specifically,  policies  should  serve  to liberalise  the digital  services  sector  by: 
● Support  the market  opening  of as many  service  sectors  as possible  for digitally  delivered  
services and allow for new services, not yet invented or in early growth stages, to be  
supplied  under  trade  arrangements.  
 
● Encourage  supporting  services  growth  and development,  particularly  in areas  like 
logistics  by permitting  full foreign  ownership  in transport  and logistics  services,  
including  postal/courier  services.  
 
● Avoid local presence requirements, which can be costly or impossible for smaller firms  
to achieve.  
 
● Limit  qualification  and licensing  requirements  and avoid  using  these  criteria  as 
measures  to block  the flow of services  trade.  
 
4. Improve  Access  to Financing  and Payments  
MSMEs  do not generally  have deep  balance  sheets.  As a result,  delays  in payments  cannot  be 
sustained.  But many  banking  services  currently  provided  do not cater  to the specific  needs  of 
smaller firms which are particularly challenged by the demands of cross -border trade in goods  
and services .4 Hence,  MSMEs  need to have better  access  to finance  using  tools geared  towards  
their specific  needs.  Smaller  suppliers  active  in global  value  chains  need access  to trade  finance  
provided  by financial  institutions  through  lead firms,  even down  to Tier 2, 3 or 4 suppliers.  
Smaller firms also need swift and accurate methods of receiving payments as delays in  
processing,  or an inability  to collect  funds,  can mean  bankruptcy  for MSMEs  in short  term.  
To assist  MSMEs  with finance  and payment  needs,  policies  should:  
● Encourage  the development  of financing  systems  aimed  at smaller  firms  without  
collaterals.  
 
● Support  the growth  of e-payments  systems,  such as debit  and credit  cards,  mobile  
phone  payments  and online  payments  services  and online  banking.  
 
● Allow  the use of  interoperable  e-payment  systems across  borders.  
 
● Encourage innovative new approaches to managing trade financing aimed at supporting  
MSME  involvement  in supply  chains.  
 
C. Understanding the Needs of MSMEs  
MSMEs are stakeholders with limited capacity to manage complexity. A commitment to  
openness and engagement has to go beyond transparency in notifications, the creation of  
enquiry  points,  or publication  of details  on official  government  websites  alone  to ensure  that all 
outreach  makes  sense  to the broadest  possible  range  of stakeholders  and can easily  be found  
and understood  by smaller  firms.  
As the needs  of MSMEs  vary by country  and sector,  governments  and policymakers  will need  to 
continuously engage with different groups of MSMEs to identify most relevant and pressing  
needs to support their business growth and e -commerce expansion. Building accessible and  
impactful advocacy content that reflects the needs and challenges encountered by MSMEs and  
that outlines  ways domestic  and regional  policies  can contribute  to a more  open,  accessible,  and 
 
4 Deborah Elms. "Increasing access and interoperability of cross -border e-payments in Asia. " April 7, 2021.  
https:// www.hinrichfoundation.com/research/wp/digital/cross -payments -in-asia-deborah -elms/ . INF/MSME/P/4  
 
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  inclusive  digital  environment  could  provide  MSMEs  and relevant  stakeholders  with a clearer  path 
forward  to advance  MSME  interest.  
Building strong engagement with MSME stakeholders is key to understanding their needs.  
Policy  initiatives  may include:  
● Provide more forums or platforms for MSMEs involvement in the discussion of 
MSME -related  policies.  
 
● Widen  feedback,  as much  as possible,  to include  a diverse  range  of MSME  
participant s and  organizations.  
 
● Incorporate  a feedback  mechanism  for all MSMEs  programming  and initiatives.  
 
● Recognise  the importance  of building  strong  networks  and communities  with 
MSME -related  groups  and trade  associations  regionwide.  
 
● Support the development and exchange of MSME research, publications, and 
resources.  
 
About the Asian Trade Centre Foundation  
The Asian Trade Centre Foundation (ATCF) provides integrated support across a broad range of  
stakeholders including regulatory agencies, multilateral organizations, businesses, and the  
development community to strengthen their capabilities to plan, implement, and monitor  
effective trade policy initiatives and capacity -building programs. The Founda tion applies a  
robust and holistic lens to all aspects of programming to support our partners in delivering  
practical and actionable strategies that will address barriers to trade for MSMEs, women, rural  
partners,  and other  socioeconomic  groups.  
 
In develo ping an innovative, inclusive approach to digital trade focused on MSMEs, the ATCF  
sees strong potential for better digital policies and cooperative mechanisms in digital trade to  
help unlock  digital  trade  opportunities  for businesses.  
 
 
 
ASIAN TRADE CENTRE FOUNDATION  
10200  US Hwy 290 W. Ste. 301, Austin  TX United  States  78736  
 E info@atc -foundation.org  | U www.atc -foundation.org  
 
 
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