Cross-border e-commerce purchases are expected to reach $1T by 2020, which has created a crisis for customs inspectors, e-commerce logistics providers, and shipment tracking. The vast majority of existing trade agreements were established prior to the digital revolution, and therefore focus on large containers transporting goods from country to country. But with the advent of e-retailers, international package delivery has tripled since 2000 with very little accompanying infrastructure updates for small-parcel trade.
NewtonX interviewed 100 e-commerce executives in the U.S., China, Canada, and Spain to gather data and insights into why cross-border e-commerce is so difficult to regulate, what e-commerce companies are doing to make it easier, and what infrastructure changes are projected to occur.
From Domestic Regulations to Tax Revenue: International Shopping Is More Complex Than it Seems
The NewtonX e-commerce executives identified three major barriers to comprehensive global trade regulations for e-commerce.
- Variations in Domestic Regulations for Sale
The legal variations between countries are extensive and extremely difficult to track. A simple example is the difference in legal age of adulthood, drinking age, smoking age, etc. Local laws can also control how certain substances are packaged; for instance, a customer’s country could mandate that all packaged food have certain information printed on the label, and this information may be different from from the e-commerce company’s country mandates.
- Customer Data Protection
Controlled substances are just the tip of the iceberg: countries also vary greatly in terms of customer data privacy and protection — meaning that if you are selling to customers in another country you must adhere to that country’s consumer data laws. For instance, some countries mandate that data generated within their borders (such as a customer entering shipping and payment information) be stored on servers locally. This has forced many e-commerce giants to build foreign data centers.
- Jurisdictional Tax Obligations
From value added taxes (VAT), to tariffs and duties, international e-commerce can be not only expensive, but also confusing. Even in the U.S., there’s still debate over the applicability of state taxes on international ecommerce transactions. These inconsistencies are only exacerbated in less developed countries with fewer ecommerce companies.
The Future of International Ecommerce
Just last month, 75 nations including China and the US agreed to team up and establish regulations and guidelines for international e-commerce as part of the World Trade Organization. Among the issues on the table will be tax obligations, tariffs, compliance with data protection laws, and a legal framework for e-commerce providers to defend themselves regardless of the legal framework in the country they’re selling to. Additionally, countries will want to establish streamlined reverse logistics guidelines in order to simplify cross-border e-commerce operations.
E-commerce is projected to boost trade in manufactured goods by roughly 7% by 2030, spurring over $1.3T in incremental trade. Countries have strong incentives for lowering the barriers to cross-border trade, and will likely invest in customs departments to incentivize fast and streamlined international e-commerce.