New legislation has entered into force this week in the UK in a development being heralded as kick-starting a ‘new era’ of digital trade.
The Electronic Trade Documents Act 2023 puts electronic bills of exchange, electronic bills of lading and other commercial documents on the same legal footing as paper-based equivalents. It came into force on 20 September, two months after gaining Royal Assent.
Business-to-business documents such as bills of exchange (used to help importers and exporters complete transactions) and bills of lading (contracts between parties involved in shipping goods) have until now needed to be paper-based due to long-standing laws. The new act allows businesses to use electronic trade documents but does not force them to do so.
Technology options for companies deciding to ditch paper are open-ended. But the UK government said last October, when the new law began its parliamentary journey, that ‘electronic trade documents increase security and compliance by making it easier to trace records – for instance, through the use of blockchain and distributed-ledger technology [DLT].’
The Act’s arrival has been hailed by DLT and digital finance advocates, as well as business representative groups. Lloyds Bank announced (on 20 September) that it had completed what it believed to be the first transaction under the new act.
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Law’s ‘vast potential’
‘I have repeatedly described it as “one of the most important laws you’ve never heard of” because, although it is a small-sounding law with a simple purpose – to permit electronic trade documents on the same legal basis as paper documents – it also holds such vast potential,’ wrote Lord Holmes in a blogpost on 20 September. ‘Not just for international trade but for the development and adoption of DLT and significantly, positively, on our environment.’
The technology and blockchain advocate described the bill last year as a ‘truly ground-breaking, tech enabling, potentially even (genuinely) world-leading, beauty of a bill’. It is based on the United Nations’ Model Law on Electronic Transferable Records (MLETR), adopted just over six years ago, which created a blueprint for the use of electronic counterpart trade paperwork.
‘A lot of work still needs to be done, incorporating the standards and building confidence in the systems,’ wrote Holmes, who was a member of a special public bill committee for the legislation as it progressed through Parliament, this week.
‘Crucially, everyone needs to communicate the potential of this world-leading legislation,’ he urged. ‘I am leading work on two fronts, in the UK, working with those in the trade ecosystem including financiers, extending to the business community and especially the SME [small- and medium-sized enterprise] community to enable them to connect, to feel comfortable using the provisions within the legislation. The second part of this is the international engagement, encouraging and supporting other jurisdictions to bring in similar legislation.’
British Chambers of Commerce head of trade policy William Bain made the same point this week. “This new era is starting in the UK, but we can also act as a beacon, leading towards further digitalisation of trade across the world. We now need to see other governments accelerating their work to digitalise border processes,” he said.
Lloyds said in its announcement that it had completed its apparently pioneering transaction for a retailer, Matalan, using a technical solution developed by Enigio – a Swedish tech company in which it had announced an investment of €3m (about £2.6m) just two days earlier to help ‘expand and accelerate’ the use of digital documentation in trade
A digital promissory note was issued by the British retailer to accept liability when settling a documentary collection for the purchase of garments from one of its suppliers. Lloyds said that the technology enabled the key documents to arrive two days earlier than they would have done if the promissory note had been concluded on paper.
“This new legislation is a turning point for a cheaper, faster and more sustainable global trading system,” said Lloyds Bank managing director (for lending and working capital) Gwynne Master.
“We’ve spent many years working with industry, government, suppliers and clients to find ways to support the transition to digitisation, and we are pleased to be spearheading the practical implementation of the act,” she added.
“This historical landmark transaction evidences a new era of trade and trade finance, where legislation and technology now truly work hand-in-hand,” said Enigio chief executive Patrik Zekkar.
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UK government support
UK government departments have been working on multiple fronts to accelerate the digitalisation and standardisation of trade systems.
Examples include the ‘roadmap to reform for electronic transferable records’ published during the UK’s presidency of the G7 (Group of 7 nations) in 2021; and a Digital Economy Agreement (DEA), agreed in 2022, between the UK and Singapore, whose parliament passed an Electronic Transactions (Amendment) Bill more than two-and-a-half years. Singapore’s Electronic Transactions Act (ETA) was first enacted in 1998.
One further UK initiative is the government’s support for the Centre for Digital Trade and Innovation (C4DTI), which launched in April 2022 to help make trade ‘cheaper, faster, simpler, more secure and sustainable’. Its operations are co-ordinated by the UK branch of the International Chamber of Commerce (ICC), supported by central government departments including HM Revenue & Customs (HMRC), plus the Tees Valley Combined Authority and mayor (in north-east England), as well as the private sector.
In a Global Government Fintech interview last year ICC UK’s secretary-general Chris Southworth and Nick Davies, who has been seconded from his day-job as HMRC’s technology lead to run the centre day-to-day, described the Electronic Trade Documents Bill (as it was at the time) as “game-changing”.
“We’re finding smart solutions to pretty archaic systems across the whole trade ecosystem,” Southworth said at the time. “It’s difficult to break things down as FinTech, RegTech, InsurTech and so on – it’s about finding smart ways using technology to solve the problems in front of us. Banking and finance is obviously a big part of that, with an awful lot of manual paper activity and many actors operating on processes and systems that don’t connect to each other.”
‘Quantum-secure cross-border e-trade transaction’
In terms of international developments, ICC UK announced three months ago that a consortium of industry and technical experts, ‘supported by government, business and other organisations’, had already completed the ‘world’s first quantum-secure cross-border electronic trade document transaction’.
The pilot – which was orchestrated by the ICC UK and C4DTI on behalf of the UK government, and supported by the Singapore government agency the Infocomm Media Development Authority (IMDA) – saw sample building products transported from the UK to Singapore using traditional paper documentation, but also electronic trade documents, including an electronic bill of lading and a digital promissory note, simultaneously reconciled using a DLT in both jurisdictions.
The ICC described the pilot as ‘delivering a verifiable, secure and legally recognisable solution for future digital trade transactions’.
It explained that a quantum-secure ‘seal’ was placed around the electronic trade documents using technology from London-headquartered company Arqit. This ‘ensured that the documents were protected from current and future cyber threats including the risk posed by quantum computers’, the ICC said.
The transaction was made possible by the UK-Singapore DEA. This followed a Memorandum of Understanding on digital trade facilitation the previous year.
Singapore’s TradeTrust framework
IMDA, meanwhile, announced more than five months ago that the ‘world’s first live electronic transferable record (ETR) cross-border trade’ had taken place using its ‘TradeTrust’ framework.
TradeTrust relies on blockchain-powered technology to enable digitalisation of transferable documents into ETR.
IMDA said that it had worked alongside companies including ExxonMobil Asia Pacific and Singapore-headquartered tech company Bunkerchain to successfully execute a paperless trade involving a shipment of liquid chemicals from Singapore to Thailand.
‘The use of TradeTrust has enabled the digitalisation of the issuance, ownership title transfer and surrender of the ETR as an electronic bill of lading between the different stakeholders across different systems, that is compliant to the UNCITRAL [United Nations Commission on International Trade Law] MLETR requirements,’ IMDA stated at the time.
In his blog post this week Holmes opines that the new UK legislation ‘could become a model law’ for how to adopt the UNCITRAL model law. In respect of selected other major economies, Germany is ‘expected to have full legislation later this year and France by 2025, probably 2024. China and the US are on similar timeframes’, he adds.