JOTA | Curbing e-commerce development will hamper economic growth in Latin America 

JOTA | Curbing e-commerce development will hamper economic growth in Latin America 

This article was originally published in JOTA on 13 February 2022. 

Recently introduced bills in Chile and Peru aimed at regulating e-commerce and certain tech companies have proven controversial, fuelling a negative reaction from civil society organisations and experts. The two proposals address different topics, yet share the commonality of being fundamentally flawed. In Chile, the Digital Platform Regulation Bill Nº 14.561-19 was drafted with the purpose of “balancing the power of some technology companies and citizens”. The text establishes rules that would restrict digital rights, something which civil society organisations have publicly labelled a violation of human rights. Meanwhile in Peru, Bill 415/2021 modifies various articles of the Consumer Protection and Defence Code and if passed, would generate unintended consequences for Peruvian digital development and the adoption of e-commerce, especially for micro, small and medium size enterprises (SMEs) that would face higher costs and entry barriers. 

In the same vein, during the pandemic, the Peruvian Ministry of Production enacted stricter regulations which created obstacles for businesses looking to expand into existing online channels. In line with the new regulations, businesses looking to invest in e-commerce needed to ensure that a minimum of 2% of their total sales were made online, furthermore, goods needed to be delivered using their own logistics, meaning third-party delivery services were not allowed. The regulations also limited online sales to the Lima Metropolitan region, therefore omitting 40% of e-commerce activity in other regions. This led to a decrease of 32% in e-commerce operations in March 2020 when compared with same month of the previous year, according to PayU. 

As shown by these recent proposals, any premature or knee jerk reaction seeking to regulate companies offering online solutions could harm e-commerce growth and prevent SMEs from expanding into new sales channels. To ensure that there are no unintended consequences when introducing policies seeking to regulate complex business models offering competitive, innovative products and services, policymakers need to act with caution. This is even more important considering the current wave of antitrust investigations sweeping across Europe and US involving large companies and e-commerce. In the face of increased scrutiny by these antitrust agencies, there is an urgent need for Latin American policymakers and regulators to consider the economic impact many of these companies have had on the region, and to examine how ecommerce services integrate and compete with offline retail channels in their own markets. 

This is particularly necessary considering that retail is one of the most dynamic sectors in the region and, as such, it is a driver of economic growth and innovation. International companies such as Shopee, Walmart and Amazon; big Latin American players such as Mercado Libre and Falabella; and many local retailers reach customers through both offline and online channels. Retailers are often pursuing omnichannel strategies meaning that e-commerce is ultimately just one sales channel within retail, where online-offline solutions complement and compete with each other. Not only this, but Latin American countries are at a very different stage of development and have different market realities than the US and Europe. Despite some growth during the pandemic, e-commerce only accounted for 11% of retail sales in Latin America in 2021, and as social distancing measures and health quarantines are being lifted, e-commerce’s pace has already begun to slow down in the region. 

What the region needs are suitable frameworks that are clear enough to avoid legal ambiguity, sufficiently flexible to allow for the growth of e-commerce and adaptable to changing market conditions and businesses models. As well as this, regulations must provide sufficient safeguards to protect businesses and consumers from online fraud, data breaches and cyberattacks. The lack of transversal regulations that guarantee the safety of online transactions, such as cybersecurity or data protection laws, or policies that foster the adoption of electronic and digital payment systems are remaining challenges that need addressing by policymakers in the region. 

Through the expansion of new sales channels and coexistence of different business models, e-commerce growth leads to greater competition within the retail sector, a wider range of options of products and marketplaces for both consumers and sellers, increased productivity, regional integration and, ultimately, economic growth. By avoiding the implementation of untested regulations that could curb e-commerce development, the region has a better chance of coming out stronger from the economic crisis triggered by the pandemic. Latin America cannot afford to miss out on this opportunity. 

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