WT/GC/W/731  
 
24 February 2017  
(17-1147) Page: 1/7 
General Council  Original: English  
 
TOWARDS A MSME MARKE TPLACE: GROWING GLOB AL MICRO, SMALL AND MEDIUM 
ENTERPRISES (MSME s) FOR INCLUSIVE DEVE LOPMENT  
COMMUNICATION FROM T HE PHILIPPINES  
The following communication, dated 24 February  2017, is being circulated at the request of the 
Delegation of  the Philippines.  
 
_______________  
 
 
1  INTRODUCTION  
1.1.  It can be recalled that the Philippines together with Brunei Darussalam, Lao PDR, Malaysia, 
Singapore and Thailand laid out a road map for continuing the dialogue on MSMEs in 2016. In 
implementing this road  map, we started with the workshop entitled "Enhancing the Participation of 
Micro, Small and Medium Enterprises (MSMEs) in International Trade " on 21 June 2016 as part of 
the WTO Geneva Week (JOB/GC/95).  
1.2.  During the 15th WTO Public Forum held last Septembe r with the theme "Inclusive Trade ", the 
2016 World Trade Report on "Levelling the Trading Field for SMEs " was launched and the 
Philippines conducted a working session entitled "Towards a MSME Marketplace: Growing Global 
MSMEs for Inclusive Development " completing the activities ident ified in the roadmap (see 
Annex  1).  
1.1  What have we learned so far?  
1.3.  MSMEs participation in trade does not match up. It was highlighted that MSMEs 
participate in trade less than Multinational Corporations (MNCs). MSMEs also have bi gger 
productivity gap compared to larger firms. This gap is bigger in the developing world, almost two 
(2) or three (3) times the size of the gap in the industrialized world.   It was further highlighted 
that over 99% of enterprises in Lao PDR are MSMEs but  contribution to economy is quite small and 
mostly produced for local market. They struggle with access to markets, finance, technologies, and 
people, and while there have been integration in regional and global value chains, the value -added 
of production is not at the higher -end of spectrum.  
1.4.  For MSMEs, the trade costs are also bigger.  MSMEs face disproportionately a large share 
of fixed and variable costs of trade due to their relatively small turnover, these include access to 
information, access to financ e, tariffs, mandatory and voluntary standards, and rules of origin.  
MSMEs also have to grasp e -commerce opportunities, address productivity gaps, access knowledge 
and technology, and understand the intricacies of integrating in the global value chains (GVC s). 
1.5.  Non-tariff measures (NTMs) are big hurdles for MSMEs to cross borders.  This is the 
evidence provided in the ITC survey conducted across 52 countries as well as in EU -28 countries.  
The top five (5) NTMs included standards (SPS and TBT) and rules of orig in. It was further 
highlighted that it is important for information on these NTMs to be made available immediately 
and in a manner that is understandable and usable for MSMEs.  
1.6.  E-commerce is a tool widely used by MSMEs in doing business.  However, it is a to ol 
used mostly in domestic transactions. This data points to a complexity in shipping between borders 
(logistics).   It was highlighted that MSMEs face the same regulations in shipping across borders as WT/GC/W/731  
 
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  large companies. They face the same complexities, but must deal with them with fewer resources.  
The data also further supports the assertion that non -tariff measures are hurdles for MSMEs to 
cross borders.  
1.7.  Innovative firms are more productive and more likely to export.  However, MSMEs 
remain to have low adapt ability to new technologies due to lack of knowledge of its benefits, 
resistance to technological innovation, the high cost of technology, and the lack of foreign 
markets.  This pushes MSMEs to offer their products and services at higher prices, eventually losing 
their competitiveness. It is therefore, important to build an environment for MSMEs to thrive in an 
innovation economy.  This includes the need for MSMEs to have access to technology and 
considerations on how MSMEs can thrive in the algorithm economy . 
1.8.  National initiatives are thriving and should be complemented by international 
cooperation.  A number of countries that provided interventions during the workshop, including 
the panelists have initiated MSME -friendly policies and are working towards buildi ng on these 
policies through the development of strategic plans and roadmaps. It is notable that national 
policies and initiatives on MSMEs are developed against the backdrop of existing trade rules and 
made possible because of the existing flexibilities e spoused by the multilateral trading system and 
the WTO.  
1.2  How do these all come together?  
1.9.  Looking at how national governments deal with MSMEs in various stages of development as 
well as how regional arrangements and international organizations play their ro le, the discussion 
on MSMEs is not a new issue. In fact, there had been and there continues to be multiple activities, 
with a significant number of these undertakings being focused on the internationalization of SMEs. 
These efforts and relationships come t ogether and can be further explained in the Micro Small and 
Medium Enterprises (MSME) Diagram that show how the four pillars and cross -cutting elements 
can bring us towards a global MSME marketplace (see Annex 2).  
1.10.   The Four Pillars – In our conversations, w e learned that there are four main elements that 
facilitate participation of MSMEs in international trade, namely: (i) improving access to 
information, including knowledge about the working of the foreign markets; (ii) improving 
absorptive capacity in orde r to process information and thereby increase innovation; (iii) 
developing global MSMEs by enabling them to meet product standards and certification 
procedures, tackling unfamiliar and burdensome customs and bureaucratic procedures, to name a 
few; and (iv)  facilitating MSMEs to cross borders by equipping them with an understanding of and 
access to international trade rules such as rules of origin, e -commerce, and so on. It is worth 
noting that the first three pillars rests heavily on national interventions while the fourth pillar 
requires regional  and international cooperation.  
 Pillar 1: MSME Access to information  – Information is power, so how do we 
improve existing mechanism for up -to-date market intelligence? How can we improve 
statistics for Micro enterp rises to enable us to have a more evidence -based approach 
to finding practical solutions that would include Micro enterprises? How can we 
improve notifications to make it more MSME -friendly?   
 
 Pillar 2: MSMEs Absorptive Capacity  – It has been said that org anizational and 
technological benefits that local SMEs get from large firms ' knowledge flows (can be 
either intentional or unintentional) increase SMEs productivity (ESCRIBANO, FOSFURI 
and TRIBO). How do we improve MSMEs absorptive capacity by building li nkages and 
expanding knowledge?  
 
 Pillar 3: Developing Global MSMEs  – Developing global MSMEs includes the need 
for MSMEs to have access to technology and meeting product standards. Even if the 
implementation of a particular standard is advantageous, MSMEs m ay nevertheless 
fail to implement it as they frequently lack the absorptive capacity, expertise and 
organizational infrastructure.  
 
 Pillar 4: MSMEs Crossing Borders  – Electronic commerce and Information and 
Communications Technology (ICT) are areas to be developed to facilitate MSMEs ' 
access to international markets. This includes, among others, the promotion of online WT/GC/W/731  
 
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  platforms, innovative business models, availability of next generation high -speed 
internet and regulatory framework for conducive e-commerc e environment.  
 
1.11.   The Three Cross -Cutting Areas  – The four pillars cited above, however, can only be as 
effective if these are adequately complemented by encompassing institutional arrangements 
(canopy) and strongly supported by effective implementation and secure funding (base).   
 On Institutional Arrangements  - Recognizing that MSMEs form the backbone of 
many economies, support for MSMEs requires collective efforts that must be delivered 
not just at the national level but must extend at the regional and inte rnational levels. 
These institutional arrangements complement the work of national governments and 
help facilitate an enabling environment for MSMEs. It can be said that most SME -
related activities by these international organizations are clustered around two major 
themes of research/action: integration of SMEs in international trade, and more 
general SME support initiatives. Available statistics also indicate that the vast majority 
of SMEs fail, underlining the need for local, national and international in stitutions to 
help increase the survival rate of start -ups by facilitating product capacity 
development and enabling local trade relations. Aside from international 
organizations, horizontal and vertical linkages with other enterprises also enhance 
absorpt ive capacities of MSMEs.  
 
 On Funding and Implementation  – these two elements that form the foundation of 
the diagram catalyze action. Rule -making and interventions resulting from institutional 
arrangements can only be as effective as the implementation and  the available 
funding that drives them. Trade agreements can help deal with some of these 
challenges in a number of ways – by affecting government policies that determine 
MSME participation in trade, for example, or by lowering some of the specific barrie rs 
that MSMEs face, or by providing access to capacity -building support for MSMEs. WTO 
analysis shows that preferential trade agreements and multilateral rules, foster MSME 
participation in trade.  
 
1.3  How can the WTO help MSMEs integrate in the global market?  How WTO rules 
enable MSMEs to take an active role in the global trading system?  
1.12.   WTO agreements help MSMEs by reducing the variable and fixed costs of trade and by 
increasing transparency and predictability. The special situation of MSMEs is acknowledged a nd 
addressed in a number of WTO agreements, plurilateral agreements, work programmes and in 
technical cooperation.  Flexibilities for SME policies are likewise built in several WTO agreements.  
1.13.   The WTO has made it easier to access information with, for examp le, the Integrated Trade 
Intelligence Portal (with World Bank). This has been helpful in levelling the playing field in terms of 
available information, but there is still a long road ahead in terms of providing better information - 
a public good for MSMEs.  
1.14.   The Trade Facilitation Agreement (TFA) was emphasized as a step towards the right 
direction for streamlined process for MSMEs through the single window.  Additional improvements 
in implementation that looks further into addressing the low value shipments o f MSMEs by further 
reducing procedural requirements was likewise highlighted.   
1.15.   Flexibilities for SME policies have been identified in the Anti -Dumping Agreement (AD), 
Subsidies and Countervailing Measures Agreement (SCM), and the Agreement on Intellectual 
Property Rights (IPR).  It was likewise flagged that subsidies are actionable and a 'rebuttable 
presumption ' that MSMEs are too small to cause injury to domestic industry in other countries may 
spare MSMEs the costs of complying with the procedures of a CVD  investigation.  
1.16.   Other areas included improving the participation of MSMEs in public procurement; 
facilitation of MSMEs going out to other markets and undertaking investments, and enhancing the 
ability of MSMEs to defend their situation and avoid unnecessar y injury through competition law.  
1.17.   WTO's support provided through initiatives such as Aid for Trade (AfT), the Enhanced 
Integrated Framework (EIF), the Standards and Trade Development Facility (STDF), and the WT/GC/W/731  
 
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  recent initiative on trade finance have been ide ntified as essential tools for developing countries 
and LDCs.  
1.18.   In the discussions, it was emphasized that MSMEs must be the prism through the facets of 
which light is shed on policies and actions that affect international trade. Can the smallest 
component i n our economies – micro enterprises - comply with and benefit from the application of 
these rules?  How would these discussions be catalysts for inclusive growth?  
1.4  What 's next?  
1.19.   Discussions and workshops point that there is scope within the work of the WTO co mmittees 
in terms of implementation and monitoring of existing agreements to further improve the 
mechanism and delivery of service in a manner that MSMEs would understand, benefit, and take 
advantage of. It does not make sense if WTO provisions are operati onal only up to the level of 
medium and large enterprises; it should be useful and operation for micro and small enterprises as 
well. Hence, we recognize the work undertaken by the WTO, in particular, the Council for Trade in 
Services, the Council for Trad e in Goods, the TRIPs Council, the Committee on Trade and 
Development, he Working Group on Trade Debt and Finance, and the Aid for Trade initiative to 
continue its discussion and examination on aspects of MSMEs ' relevance to their respective areas 
of compe tence. We have also learned of the existing linkages with the initiatives of international 
organizations such as ITC, UNCTAD, and the World Bank could likewise be strengthened.  
1.20.   We can cite a few suggestions and ideas that have floated, such as the TBT cou nterpart of 
the Standards and Trade Development Facility (STDF), simplification of non -preferential rules of 
origin, strengthening the transparency mechanism, addressing low value shipments of MSMEs 
through reduced procedural requirements, exploring trade facilitation in services, and pursuing e -
commerce in the context of development, to name a few.  
1.21.   While we note that a wide range of support is already being provided to MSMEs, it is also 
notable that there is more work to do. MSMEs continue to face a serie s of barriers that prevent 
them from trading. Given their potential to drive growth and job creation, WTO members have a 
responsibility to examine these issues and explore what steps could be taken through the WTO, 
and elsewhere, to lower the barriers and release the full potential of MSMEs (2016 World Trade 
Report).  
1.22.   We believe that there is a need to continue our conversation on MSMEs by pursuing more 
substantive and concrete interventions in the specific committees to enhance participation of 
MSMEs by se eking appropriate arrangements within the existing framework of the WTO and its 
subsidiary bodies. Given the interest by policymakers on the subject of MSMEs and trade, the 
membership can also consider a more sustained discussion on how the Multilateral Tr ading System 
can impact and benefit MSMEs, with particular consideration to the needs and interests of 
developing and least -developed countries.  
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  ANNEX 1: HIGHLIGHTS OF THE PHILIPPINE WO RKING SESSION IN  
THE 2016 WTO PUBLIC FORUM  
 
The wo rking session entitled "Towards a MSME Marketplace: Growing Global MSMEs for Inclusive 
Development " underscored the importance of various tools and interventions at the regional and 
multilateral levels and how these contribute towards achieving the objecti ve of enhancing the 
participation of MSMEs in global markets such as transparency, data gathering, innovation, 
inclusive finance, logistics, and e -commerce, among others. We learned that these areas cannot be 
taken in isolation and there are merits in appr oaching them in a holistic manner. The session also 
delved on existing WTO rules that provide opportunities for MSMEs to address the challenges and 
opportunities identified.  
 
Philippine Undersecretary Terrado was joined by prominent speakers in the field o f trade, namely 
Mr. David Shark, Deputy Director General of the World Trade Organization (WTO); Ms. Arancha 
Gonzalez, Executive Director of the International Trade Centre (ITC); Ms. Anabel Gonzalez, Senior 
Director for Trade and Competitiveness of the Worl d Bank Group (WB); Mr. Steve Beck, Head of 
Trade Finance of the Asian Development Bank (ADB); and Mr. Carlos Grau Tanner, Director 
General of Global Express Association (GEA). Here are the highlights of their presentations:  
 
Undersecretary Terrado, Departm ent of Trade and Industry Philippines said that over 97% of all 
firms are MSMEs, which contribute more than 60% of employment in any country. This agenda will 
go a long way towards alleviating poverty and promoting inclusive growth. In the Philippines, the  
concept of "Bayanihan " or of helping one another guides our principle of the 7Ms approach to 
creating the infrastructure and policies needed for MSMEs. The 7Ms present a comprehensive 
approach which could be translated to what can be done at the internati onal level: mindset 
change, mastery and competence, mentor access, market link, money access, machine, and 
models of business concept.  
  
Mr. David Shark, WTO, mentioned some of the major challenges faced by MSMEs include tariffs 
and non -tariff measures, bo rder procedures and red tape (basically everything). Likewise, banks 
reject 50% of all trade financing applications from MSMEs, compared to 7% from multinational 
companies. Many WTO members have expressed interest in exploring MSME participation in trade 
since Nairobi, through WTO initiatives such as the Trade Facilitation Agreement (TFA) and a recent 
dialogue held with MSME stakeholders this Spring. Some suggestions include the digitalization of 
government, reduction of compliance requirements for MSMEs, a nd more research on MSME Global 
Value Chain (GVC) participation.  
 
Ms. Arancha Gonzalez, International Trade Centre (ITC), underscored ITC 's work in promoting 
inclusive trade by ensuring the legitimacy of the trade agenda. Since 97% of firms are MSMEs, this  
means that there is a need to change the narrative to the current economic reality of ensuring 
their participation in trade. Three trends highlight these: 1) decreasing transport costs, 2) 
technology (including innovation), and 3) e -commerce, which implie s MSME competitiveness. 
Compared to other organizations, ITC represents primarily the voice of companies (not 
governments), and focuses on three areas of work: 1) trade facilitation, including the TFA but also 
logistics and other areas, where the concern i s the current "smallness " of the scale of e -commerce 
versus the demand for it, 2) trade in services for e -commerce such as logistics, distribution, 
transport and finance, and 3) transparency of border procedures which creates the biggest non -
tariff barrier  and for which much can be done.  
 
Ms. Anabel Gonzalez, World Bank Group (WB), explained the Bank 's mandate to end poverty and 
boost prosperity underscores the economic importance of MSMEs. This means boosting the quality 
and quantity of jobs. Interestingly , while direct GVC participation of MSMEs is small, their indirect 
participation is quite significant. The WB advocacy is to increase MSME productivity both at the 
firm level and within their business environment. MSMEs need better skills and capacities to  
innovate, access to financing, transport, infrastructure, and regulatory mechanisms. To address 
these challenges, there should be 1) direct support to MSMEs, 2) cross -cutting reforms for 
business environment projects – the WB currently has US$17.7 Billion  invested i n targeted 
projects, including a ) International Finance Corporation 's two skill building programs that include 
connecting bi g business and supplier firms, b ) the Information development program for business WT/GC/W/731  
 
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  incubation and acceleration services, and c) access to finance projects that give 5.4 Million SMEs 
up to $2.25 Billion in loans. However, in total, 245 million MSMEs need [systemic] help, and so far 
only a small fraction of them are receiving help. Priorities should include: 1) TFA reforms, 2)  
transparency such as through online Trade Portals (e.g. those WB set up in Lao PDR among 
others), 3) streamlining Rules of Origins, 4) tariffs, which still have scope for reduction, and 5) the 
e-trading environment, where so far only 22% of all individual s have bought anything online.  
 
Mr. Steve Beck, Asian Development Bank (ADB), explained an ADB study on the gaps in trade 
finance, and found that there is a US$1.6 Trillion global gap in trade finance requirements. About 
58% of SME financing requests are r ejected vs 10% of Multi National Corporation requests. Half of 
SMEs did not seek alternative funding, either because of the absence of it (in many developing 
countries), unawareness (70% of surveyed SMEs are unaware of digital finance) and other 
reasons. T he perceptions of "risk" [and MSMEs being a "risky" bet] is a big deal, even though 
actual statistics on trade loans by MSMEs show that their default rate is very low (0.02 -0.05%). 
ADB has supply chain financing programs ongoing, and the current advocacy t o improve the MSME 
infrastructure is in principle easy to implement: the key is for each company to have "legal 
digitized identities ", to improve and satisfy information and credibility requirements for trade 
financing.  
 
Mr. Carlos Grau Tanner, Global Expr ess Association (GEA), showed the industry trend of increasing 
traffic in small parcels versus big container shipments. For MSMEs, shipment patterns are for low 
value added parcels that are irregularly sent. GEA has a modest proposal to help MSMEs: focus o n 
low value added parcels. For instance, the World Customs Organization (WCO) has existing 
immediate release guidelines for 1) correspondence and documents, 2) consignments below a 
certain duty/tax de minimis  threshold (recommended is US$200), and 3) consi gnments below a 
formal declaration threshold (US$1,400). What is important is for governments to decrease the 
cost of collection by focusing on "smart collection " of duties and taxes [letting go of small parcels]. 
A GEA survey showed that less than 50 coun tries in the world have enacted simplified entry 
thresholds, which range from US$14 to US$11,000 with median shipment value of US$500. The 
survey found that there was no coordinated approach to managing information and fees for most 
shipments. GEA 's propos al is thus for the TFA to 1) harmonize plurilaterally this common 
threshold, which would be easy to implement, 2) impose common entry requirements such as 
common datasets for documents across governments, and 3) to address compliance challenges by 
increase d cooperation between GEA and border agencies for tax and customs.  
 
 
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 WT/GC/W/731  
 
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  ANNEX 2: MSME DIAGRA M 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
__________  INSTITUTIONAL ARRANGEMENTS  
Access to 
information 
(notifications, 
trade data, 
market 
intelligence)  Improv ing 
MSMEs 
Absorptive 
Capacity  
(building 
linkages and 
knowledge)  Developing 
global MSMEs  
(Innovation, 
standards, 
e-commerce, 
trade 
finance)  MSMEs 
Crossing 
Borders  
(ROO, 
conformity 
assessments,  
trade 
facilitation 
e-commerce)  
FUNDING, IMPLEMENTATION