India must resist any binding negotiations as the few developed nations that dominate the space will tailor it
Electronic commerce (e-commerce) is the latest buzz in many international institutions and intergovernmental organisations. Be it at the WTO, G20 or UNCTAD, many countries appear enthusiastic about the need to negotiate multilateral rules to govern international trade through e-commerce. Their enthusiasm appears misplaced. Further, WTO rules on e-commerce may actually hurt the interests of most developing countries.
At the WTO, countries have been discussing different facets of e-commerce. However, these discussions are being undertaken outside a negotiating mandate. Some countries are working towards seeking a negotiating mandate on e-commerce at the 11th Ministerial Conference of WTO, to be held in Argentina in December this year. The highly concentrated market structure in e-commerce explains why binding rules in this evolving area may not be beneficial for most developing countries.
Market concentration in e-commerce can be understood from four perspectives. First, what is the market-share of various countries in global e-commerce? China’s B2C e-commerce market was at $766.5 billion and the US was ranked second with $595 billion in 2015. Compared with this, the markets in the third- and fourth-ranked countries—the UK and Japan, respectively—were at less than $200 billion. Other countries are well below even a $100 billion mark. As the global e-commerce market is dominated by just a handful of countries, the outcome of negotiations may not be of positive interest to most of the WTO membership.
Second, what is the market-share of various e-commerce players across the globe and regionally? Based on retail revenue, top three e-tailers worldwide (Amazon, JD and Apple) captured more than 60% of the market in 2015. Regionally, the top-ten web merchants in different regions of the globe account for between 37% (in Europe) and 86% (in Asia) of the total sales of the 500 largest web merchants.
Third, what is the market-share of various e-commerce players within a country? Here also, e-commerce market in most of the countries is dominated by two or three major players. For instance, in India,the top three online retail platforms dominated the e-commerce market in 2015 with a combined market share of 83%. Similarly, in China, the top three players—Tmall,GMV and JD.com—accounted for more than 80% of the B2C e-commerce market Fourth, what is the market-share of various players involved in different segments of e-commerce? Take the example of the payment gateway segment of e-commerce. The highly concentrated nature of this market segment can be gauged from the fact that just three companies—MasterCard, Visa and AMEX—have an overwhelming market dominance in the world. The Indian market illustrates this.
RuPay, the Indian payment gateway, accounts for less than 1% of the total value of transactions at Point of Sale. Thus, almost all transactions through PoS are generated through Visa, MasterCard and AMEX. Hence, these three companies are the main revenue earners from credit and debit card transactions. Among developing countries, only Brazil, China and India have their domestic payment gateways. The market structure in this segment of e-commerce in most of the developing countries is not likely to be any different from that in India.
Based on the examples mentioned above, it is amply clear that a handful of players overwhelmingly dominate different segments of the global e-commerce market. The market structure is likely to get further skewed and power get concentrated in the hands of fewer players, if binding rules on e-commerce are negotiated at the WTO.
E-commerce players, who dominate the world market, have the first-mover advantage and deep pockets. This helps them in ousting domestic players in spite of sustaining huge losses in emerging markets, like India. A case in point is Snapdeal, a homegrown e-commerce company, which has been losing market-share to rivals, one of which increased incentives for sellers last year to expand its vendor base in spite of running huge losses. The foreign online retail giant has reported significant losses in international business due to aggressive spending in the form of special offers and discounts in the Indian online retail market. Thus, it should not come as a surprise if domestic players in developed countries get gradually edged out by the virtual oligopoly power of global giants.
If governments in developing countries have the will, existing rules under the WTO provide them the flexibility to regulate and curtail such unfair business practices. However, reading between the lines of some of the proposals at the WTO, suggests that one of the main aims of binding rules would be to severely restrict the flexibility of governments to regulate markets in the e-commerce space.
An unregulated market, particularly in developing countries, will further deepen the dominance and entrench the already significant market power of global giants. The losers would be the millions of SMEs and consumers who are linked to the different segments of the e-commerce market.
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It is therefore, not surprising that global e-commerce giants are pushing aggressively for initiating negotiations for binding trade rules at the WTO. India and other developing countries should seek to preserve the policy space to frame rules pertaining to international trade on e-commerce in accordance with their domestic requirements, and not be dictated to at the WTO, or any other forum, by global giants. At their present stage of development, any other course of action on e-commerce negotiations could inflict lasting damage on economic prospects of most of the developing countries.
The author is assistant professor, Centre for WTO Studies, IIFT, New Delhi. Email: email@example.com. Views are personal