Digital trade documents are on track to be granted the same legal status as their paper-based equivalents in the UK, after the introduction of a bill lauded by a parliamentary blockchain champion as ‘ground-breaking’.
The Electronic Trade Documents Bill, which passed its first reading in the House of Lords on 12 October, aims to reduce administrative costs and make it easier for companies in the UK to buy and sell internationally. Its development and progress has been hailed by blockchain advocates, excited by the opportunity it creates for the use of distributed ledger technology – a growing list of records, called blocks, that are securely linked using cryptography.
Business-to-business documents such as bills of lading (a contract between parties involved in shipping goods) and bills of exchange (used to help importers and exporters complete transactions) must currently be paper-based due to longstanding laws.
The bill will allow businesses to choose to use electronic trade documents but does not force them to do so. It was placed on the legislative agenda for the year ahead in the Queen’s Speech in May.
Technology options for companies deciding to ditch paper are open-ended but the government states 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 advocates in favour
Lord Holmes, who is well known as a technology and blockchain champion within the UK Parliament, described the bill – which was developed by the Law Commission of England & Wales – as a ‘truly ground-breaking, tech enabling, potentially even (genuinely) world-leading, beauty of a bill’.
In a post on LinkedIn, Holmes described the bill as an ‘elegant and succinct piece of legislation’ that would ‘make trade easier, faster and cheaper’ and ‘will also set an excellent precedent for how we can legislate to encourage and promote the use of distributed-ledger and blockchain technology.’ He added that he looked forward to the bill’s second reading, which will take place when parliamentary time allows. The bill will also need to pass through the House of Commons.
Professor Dr Naseem Naqvi, president of the British Blockchain Association, welcomed the bill’s progress, pointing to efficiency and ‘man-hour’ savings made under the Dubai Paperless Strategy – under which the government of the UAE emirate is aiming to go ‘paper-free’. “As highlighted in the UK’s National Blockchain Roadmap [published last year and to which Lord Holmes was a contributor], the next step is to utilise the potential of DLT in ensuring transparency, audit-ability and efficiency of digital trade processes,” he told Global Government Fintech.
The secretary-general of the UK branch of the International Chamber of Commerce (ICC) has also hailed the start of the bill’s parliamentary journey.
“There are huge economic gains to be made for trade if companies digitalise systems and remove paper. Trade plays a huge role in the global economy so digitalisation is vital to establishing a more sustainable system,” Chris Southworth said.
He added that “real-time transactional data will enable us to gather far richer, more insightful information to help us track and monitor the flow of sustainable goods and finance across the system” – something that “is simply not possible if information is held on paper documents.”
UK government initiatives
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) last year; and a UK-Singapore Digital Economy Agreement (DEA), agreed earlier this year, covering digitised trade in services and goods.
One further initiative is the government’s support for the Centre for Digital Trade and Innovation (C4DTI), which launched in April to help make trade ‘cheaper, faster, simpler, more secure and sustainable’. Its operations are co-ordinated by the UK branch of the 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 three months ago 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 “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. But 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.”
In terms of blockchain’s potential, Davies emphasised the C4DTI’s thinking when it comes to specific technologies, emphasising “technological neutrality” and that the centre was “not promoting one technology or indeed one proprietary solution against another”.
FCDO funding ‘technical assistance’ programme
In terms of progress between the UK and Singapore, the C4DTI is working with Singapore’s Infocomm Media Development Authority, the UK’s Department for Digital, Culture, Media and Sport (DCMS) and Department for International Trade (DIT) to ‘test and connect’ digital trade systems between Singapore and the UK, starting with electronic bills of lading. The aim is to ‘operationalise’ the UK-Singapore DEA, implement international standards identified in a ‘Standards Toolkit for Cross-Border Paperless Trade’ (published in March by the World Trade Organisation and ICC) and ‘establish a model digital trade corridor that enables more SMEs to trade at lower cost’, the ICC said last week.
The C4DTI has also announced that it is launching a ‘technical assistance’ programme for low- to middle-income countries in partnership with the Centre for Applied Sustainable Transition Law (CASTL) to accelerate legal reform. The first project – funded by UK’s Foreign, Commonwealth & Development Office (FCDO) – will work with a yet-to-be-announced partner country in the ASEAN region.
The centre is also to launch a national (UK) campaign in partnership with the Switzerland-headquartered Global Legal Entity Identifier Foundation (GLEIF) and digital identity company Ubisecure to promote greater adoption of Legal Entity Identities (LEIs). These will enable companies to ‘speed up due diligence checks, reduce fraud and efficiently track secure transactions of goods and finance’, the centre said.
The United Nations’ Model Law on Electronic Transferable Records (MLETR), adopted just over five years ago, created a blueprint for the use of electronic counterpart trade paperwork.
‘What role for fintech in international trade? Chris Southworth and Nick Davies interview’ – our interview (8 July 2022) with the ICC UK’s secretary-general Chris Southworth and Nick Davies