A few months ago, a small UK business sent a letter to our director general – the letter was a cry of alarm and a call for help.
The supply chain and transport disruptions caused by the COVID-19 pandemic had become so severe that the business of this small company – a stockist of bar and restaurant furniture that imports from Asia – was now under threat.
Even at the best of times, it can be complex for small businesses to participate in international trade – whether due to lack of information, complex procedures that involve numerous actors, lack of access to trade finance, or processes that remain heavily paper-based.
The current pandemic has brought these challenges to a new level, threatening the lives of millions of SMEs.
The International Trade Center (ITC) estimates that 60% of micro and 57% of small businesses have been strongly affected by the pandemic, compared with 43% of large firms.
During the early days of the pandemic, governments rapidly stepped in to help small businesses stay afloat.
Our mapping of actions taken by governments shows that most support measures focused on providing short-term liquidity, to ensure that businesses could ride out the pandemic and to try to prevent unnecessary layoffs.
Some WTO members also introduced measures to support SMEs engaged or interested in international trade, in the form of deferrals of and reductions in trade-related payments, such as customs duties or freight fees, as well as export credits.
But these measures are only patches. To help small businesses build resilience in the long term, strong action is needed to lower the cost of entry into the marketplace for small businesses and level the playing field.
Digitalisation can play an instrumental role in this regard.
The promise of digital
E-commerce has been a lifeline for many SMEs during the pandemic.
Various studies have shown that SMEs selling online, even in sectors hit hard by the pandemic, did significantly better than those not selling online.
As an increasing number of SMEs had no choice but to turn to new suppliers and markets to mitigate the impact of the pandemic, the need for easy access to vetted and reliable information became more important than ever.
Lack of information on foreign markets has been a recurring complaint of small businesses since well before the pandemic.
The call for easier access to market grew louder in the early days of the pandemic, leading the international community to accelerate efforts to develop platforms such as the Global Trade Helpdesk (GTH).
This multi-agency initiative jointly led by the ITC, UNCTAD, and the WTO aims to simplify market research for companies, especially SMEs, by integrating trade and business information (such as tariffs, rules of origin, and non-tariff measures) into a single online portal.
The numerous testimonies received since the beginning of the pandemic about the difficulty finding trade-related information among SMEs also prompted the WTO Informal Working Group on MSMEs to develop the Trade4MSMEs platform.
Launched in December 2021, the platform aims to help small companies find trade-related information that improves their ability to trade internationally.
The platform contains short guides providing key information on the steps that companies need to follow before exporting or importing goods or services, such as how to assess the export potential of the markets they are targeting, and their readiness to export.
A new frontier with advanced digital technologies
More importantly, perhaps, to level the playing field for SMEs is the impact that digital technologies could have on trade processes.
Technologies such as blockchain open interesting opportunities to truly digitise trade documents, by fixing the famous double-spending problem and breaking down the silos between multiple actors involved in a trade transaction.
This would reduce coordination and transaction costs that weigh heavily on small firms.
Digital technologies from artificial intelligence (AI) to blockchain and Internet of Things (IoT) are being used to try and address the infamous trade finance gap.
Far from shrinking, the global trade finance gap hit an all-time high of $1.7 trillion in 2020, according to the Asian Development Bank (ADB), with SMEs the hardest hit.
From deep-tier financing to better risk assessment, opportunities to fix the financial plumbing of global trade through digital technologies are numerous.
Urgent action is needed to accompany the move to digital
Unfortunately, digitalisation without the right legal framework or standards can only have a limited impact.
A legal framework that allows for the recognition of e-signatures and e-documents is essential, as are standards that allow data to flow seamlessly from one end of the supply chain to the other.
To date, only seven jurisdictions have transposed the Model Law on Electronic Transferable Records (MLETR), and use of standards for trade documents remains limited.
Urgent action by both public and private actors is needed on these two fronts to make trade digitalisation a reality.
With the current pandemic accelerating the move to digitalisation, we now have a unique chance to digitalise trade.
Let’s not waste it. Let’s create the right ecosystem to allow digital technologies to facilitate international trade and enable small players – like the UK stockist of bar and restaurant furniture – to thrive.
Read our latest issue of Trade Finance Talks, Spring 2022
