Micro, small, and medium sized enterprises (MSMEs) represent well over ninety percent of Lebanon’s firms and are integral to the success of the nation’s economy. These firms have a central role in promoting inclusive, sustainable development and provide jobs for about half of the nation’s working population. E-commerce can be a powerful tool for MSMEs because of the visibility its platforms offer to consumers around the world. E-commerce is not, however, a ready-made solution. There remain significant barriers to effective utilization of e-commerce by SMEs in Lebanon.
Applying the framework developed by the International Trade Commission (ITC), which examines the four stages common to all e-commerce transactions, in a legal context, we identify regulatory bottlenecks and challenges particularly relevant to Lebanon. The ITC’s four stages are: Establishing an Online Business, International Payment, Cross-border Delivery, and Aftersales.
(Source: International Trade Centre)
In each of these four areas, several legal and regulatory issues arise, which are summarized below and discussed in the chapters that follow. Recent events highlight that the Government of Lebanon is placing an increasing focus on improving infrastructure and public-private dialogue, making these recommendations timely and well-aligned with policymakers’ stated priorities.
1. Establishing an online business
Regulations and fees for formal registration should be streamlined. Currently, an MSME faces a disproportionate obstacle when starting a business because of bureaucratic red tape and unnecessary expenditures. Changes to the legal requirements and minimum capital thresholds for registering a business will promote e-commerce and make it easier for small businesses to transition to the formal economy.
Lack of accessible finance creates a bar to entry for many MSMEs. Inclusion in the financial system is a challenge more broadly, and Lebanon’s insolvency procedures are more punitive than necessary, further stifling business activity. Lebanon’s insolvency regulation needs to be part of a coherent framework that provides stability and enough flexibility for innovation.
For online platforms, government should work to facilitate the establishment and use of e-platforms. MSMEs usually lack technical and business information needed to establish an effective e-platform. Once established, challenges accessing capital can limit the diversity of products offered on e-platforms. Government can take the initiative to set up or incentivize the creation of e-platforms that cater to market demands, calling for MSMEs to enroll.
Adapting Lebanon’s consumer protection law to e-commerce will foster confidence and trust. Lebanese consumers are reluctant to purchase online due to mistrust of online platforms. To ensure the enforcement of the law, policymakers should promote awareness of consumer protection rights, collaborating with the private sector to work toward a common solution. This will ensure that consumers are making transactions fully informed of their rights.
Regulation of consumer data collection and use is necessary. Regulating the behavior of business conduct in the collection and use of consumer data and enforcing service provider safeguard measures and remedies in case of breach will enhance customer’s confidence in online shopping.
2. International e-payment
The availability and usage of payment mechanisms for e-commerce are essential. Implementing a regulatory framework in line with several critical components will help facilitate electronic payment: 1) regulatory neutrality and proportionality, 2) risk management, 3) protection of deposits and e-money customer funds, 4) financial customer protection, and 5) financial integrity. In addition, setting up an appropriate risk management system could encourage innovation, without sacrificing safety and stability.
To ensure ease of transactions, regulators must ensure that e-payment systems have a high degree of interoperability. In order to ensure that MSMEs have adequate banking capabilities to conduct cross-border transactions, government must also interact with peer governments to foster correspondent banking relationships.
3. Cross-Border Delivery
Bureaucratic delays and fees greatly impede the delivery process for MSMEs wishing to ship items across borders. Implementing reforms that facilitate trade, as contained in the WTO Trade Facilitation Agreement, would greatly help the MSME community in Lebanon by smoothing out cross-border procedures and improving access to information.
Adopting simpler, cheaper border procedures, as well as creating an electronic single window will speed up cross border clearance. A study by the World Bank found that, on average, each additional day that a product is delayed prior to shipment reduces trade by at least one percent. These border transaction costs can be especially burdensome, both in the context of e-commerce and for MSMEs. E-commerce shipments in general, and especially those of MSMEs, are often of lower value and higher frequency than traditional cross-border trade shipments, increasing the per unit share of fees. There are also high fixed costs of dealing with unpredictable regulations, which again is problematic in the context of lower value shipments.
All border regulations should be notified in advance of adoption, published on the Internet, and updated regularly. Lebanon could also establish a tailored portal to publish laws and regulations as well as complementary explanations. Access to information is especially problematic for MSMEs, because these traders do not generate sufficient income to offset the high fixed cost of acquiring customs information. They are also likely to struggle more with the minutiae of border processes than larger-scale traders and may be more affected by discriminatory practices.
Effective and accessible dispute settlement procedures must be in place in order to ensure consumer confidence and foster repeated interactions.
The interaction between businesses and consumers continues after delivery of the good or service. For MSMEs to remain competitive when trading across borders, it is imperative that they have transparent and fair policies to increase consumer satisfaction. Preventative measures can be taken to reduce the frequency of resorting to formal dispute settlement procedures. Litigation is expensive and time consuming; therefore, a quick, reliable, and neutral system for Online Dispute Resolution should be implemented by firms or the government.
Lebanon is a country with tremendous opportunity for MSME growth, and e-commerce offers a promising route for such growth. It is imperative that steps be taken to improve the standing of MSMEs within the domestic economy and facilitate their activity in cross-border transactions. Responding to the challenges identified throughout this paper could have a significant impact on Lebanon’s MSMEs.
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