Digital Development and Online Trading
The Pacific E-commerce Strategy proposes a number of enabling measures for Pacific businesses to expand their presence in national, regional and international markets. Many of those measures rely explicitly or implicitly on relationships with powerful global technology companies such as Amazon, AliBaba or Google who provide infrastructure to buyers and sellers, act as buyers and sellers themselves, advertise and facilitate advertising, operate their own fintech and often logistics and distribution systems. The Pacific E-Commerce Strategy promotes the benefits of these relationships, but fails to alert Pacific governments to the risks.
Developed and developing countries have become increasingly captive to mega technology corporations that operate from offshore and have no effective local presence.
These companies are not shy of using their market power to resist new policies, laws and taxes which they believe would impact on their business model and/or profitability or create an undesirable precedent. Google, Facebook and Amazon all threatened to, or did, withdraw services from Australian users over government proposals to make the corporations pay media outlets for use of content.
Far from enabling digital development, the aggressive business model of the technology giants consigns small businesses to a precarious presence in online marketplaces. Customer (and other) data that should help develop local products and activities are transferred offshore, beyond the control of source countries and without compensation - a process UNCTAD refers to as “data colonialism”. There is no reason to believe these companies would act differently in the Pacific.
Big Tech platforms
The Pacific E-commerce Strategy recommends partnerships with the main digital marketplaces as means of enabling Pacific businesses.
Those expectations need a reality check. The difficulties for Pacific businesses selling online in these marketplaces are not just “perceived”; Stringent conditions and overbearing behaviour are very real, especially for SMEs. Over the past decade the EU has fined Google 8.2 billion Euro for anti-competitive practices.
Amazon also has a conflict of interest in selling its own products alongside those from third party sellers, and has exploited its access to competing sellers’ data and information to produce similar products, which Amazon then gave higher placements through the search algorithm.
Digital Marketplaces
A related proposal in the Pacific E-commerce Strategy is to develop a regional e-commerce marketplace (REM). This is an attractive option if participating Pacific Islands Countries can retain control of the infrastructure and the data, and avoid capture by the Amazons and AliBabas.
The Strategy says it would be led (and presumably owned and controlled) by the private sector. What the measure describes is not a typical private sector tech business model, which suggests a level of coordination and support that would require a degree of government involvement.
To ensure that can happen, governments would need a REM can retain or at least freely access data generated in and with the region. A requirement that this data is provided to sellers or the REM may be considered a “measure” that “affects” the cross-border supply of computer and related services in PACER-Plus and contravene the data localisation rules proposed in new e-commerce or digital trade agreements.
A regional e-commerce marketplace
The Pacific E-commerce Strategy actively promotes the use of fulfilment centres in principal export markets to overcome the region’s under-developed logistics infastructure and specifically refers to existing e-commerce players such as Alibaba and Amazon. A closer look reveals similar problems to the online marketplaces.
“Fulfilment by Amazon” invites sellers to give Amazon full responsibility for storage in warehouses, shipping, returns processing, VAT application and customer care. That package deal has obvious attractions for smaller Pacific businesses. But one-stop marketplaces quickly become gatekeepers that set the terms for independent sellers to access, and may even leave them out of pocket.
Fulfillment centres
Perhaps the most significant digital platform for Pacific Island Countries, aside from remittance transfers through fintech, relates to tourism. The same story of big tech dominance applies to Online Travel Agencies (OTAs), albeit with different players. A duopoly of Expedia Group (which owns Expedia, Hotels.com, Travelocity, Orbitz, Trivago and Hotwire) and Booking Holdings (which owns Priceline, Kayak and Booking.com) has dominated the online market for years. Small hotels that seek bookings on these OTAs can face onerous commissions. Standard rates have increased from around 10% in the early 2000s to between 15% and 30% of the value of the reservation by 2020. Higher placement on the list pages costs more.
Google is now competing with them, offering streamlined trip planning across hotels, flights and other tools.
Individual PICs have no leverage over OTAs. They need to be regulated regionally and preferably delivered regionally too. One option for the Pacific is to collaborate in the development of a viable open regional platform of the kind being developed in India (see more here). This could provide equitable listings of small and large local tourism providers that is widely promoted within and beyond the region is an attractive option to explore. Again, free trade agreements may pose obstacles unless they can be neutralised.
Online travel agencies
Another option recognised in the Pacific E-commerce Strategy is to develop online content. Local content can take many different forms, including advertising of local goods and services, social interactions and communications, development of purpose-built apps and cultural content, including in local languages, making component parts, repair and installation services, and other activities. These are important initial steps to develop capacity and build a critical mass of competencies for a digital industry and service sectors.
Measure 2.3.1 assumes that local content will be adopted by websites and social media platforms, especially Facebook. But Facebook is not a passive receptive platform on which local content producers can ply their wares. It is driven by algorithms, has user rules that determine what appears where, applies terms and conditions that can change without warning, and gives priority to inhouse products.
Were Pacific governments to require the use of domestic content or provide incentives that are not available to content-making counterparts, say in Australia or New Zealand, they could breach the non-discrimination (national treatment) obligations on computer and related services and specific services sectors, such as advertising, under PACER-plus.
Regional procurement arrangements may help to provide the scale that encourages development of local skills and services. But larger projects are more likely to fall foul of the procurement rules in FTAs.