The Law Commission has published a draft Legislation on Electronic Trade Documents

Why we need to digitise trade documents

Companies are often faced with challenges associated with the cost of moving goods across borders, which can render participation in international trade a difficult and costly exercise.

The international digital trade ecosystem is however witnessing a radical transformation, enabling industry to dramatically cut the cost, remove unnecessary bureaucracy, and improve transparency and efficiency. Digital technologies open up a range of new opportunities for businesses looking to trade across borders. Digitisation of trade documents can help reduce costs for businesses and help drive more competitive pricing for consumers, but it also reduces the carbon footprint of trade.

The emergence, over the past two decades, of central registry systems and more recently of technologies such as distributed ledger technology (“DLT”) has made paperless trade increasingly feasible. DLT-based electronic documents can be transferred between participants without the need for a central authority, with transfers recorded on a secure ledger which is for all practical purposes permanent. The push for digitalisation became particularly acute during the COVID-19 pandemic, which required businesses to develop rapid technical solutions in response to global restrictions on movement and human-to-human contact.

Despite this, the law continues to lag behind. The legal rules governing paper trade documents, including bills of lading, bills of exchange and warehouse receipts, are premised on the idea that they can be physically held or “possessed”.

What’s wrong with the current law?

The current law in England and Wales does not recognise the possibility of possessing electronic documents; possession is associated only with tangible assets. Industries using these documents are therefore prevented by law from moving towards a fully paperless process. It has been estimated that the international trade industry generates four billion paper documents per year. Allowing for electronic versions of certain trade documents could lead to significant cost savings and efficiencies, together with improvements in information management and security.

The case for reform and the proposed Legislation on Electronic Trade Documents

This week, The Law Commission of England & Wales has published its recommendations and draft legislation to allow for the legal recognition of electronic versions of trade documents such as bills of lading and bills of exchange. The Law Commission’s recommendations identify criteria that trade documents in electronic form would need to meet so that they can fulfil the same functions as paper documents. The aim of the recommendations is to enable electronic trade documents to be used as alternatives to, and be treated in law in the same way as, their paper counterparts.

If implemented, this change would increase efficiency and reduce the operating costs of trade, whilst also enhancing the reputation of the law of England and Wales as the go-to choice of law for global trade contracts and maintaining England and Wales as a pre-eminent jurisdiction for the resolution of disputes.

The report has been laid before Parliament. It will be for Government to decide whether to implement the recommendations. The Government has however already indicated that it intends to introduce relevant legislation when parliamentary time allows. You can find a summary of the report here.

What the UK can do at international level

The importance of international compatibility lies at the centre of the wider adoption of electronic documents. In techUK’s Digital Trade Report, we have been calling on the UK government  to  use its digital trade policy to advance the recognition and adoption of paperless trading and e-signatures, helping reduce trade costs across global supply chains. We encourage the government to build upon gold standards set in the UK-Singapore Digital Economy Agreement to facilitate paperless trading. In the UK-SG DEA, both parties commit to facilitate seamless end-to-end digital trade through common and interoperable digital systems for e-payments, e-invoicing, e-signatures and other key electronic documents such as bills of landing. The UK-New Zealand FTA and UK-Australia FTA also include provisions on the legal recognition of electronic contracts, signatures, e-payments and digital customs declarations and commitments to cooperate on the development of interoperable electronic systems, including electronic invoicing, to facilitate paperless trading.

Additionally, the UK should build off the WTO Trade Facilitation Agreement and seek to encourage countries to implement its provisions, especially relating to paperless trade. The UK should also work with international partners at the WTO and WCO, as well as through the United Nations Commission on International Trade Law (UNCITRAL) and UN Centre for Trade Facilitation and Electronic Business (UN/CEFACT) to continue to push for the development of new best practices in paperless trading and develop new innovation friendly model regulations.

techUK’s International Trade Programme hosted the Digitalisation of Trade campaign week last week exploring a variety of topics from digitisation of trade documents, emerging technologies, digitisation of supply chains to sustainability. You can catch up on all blog posts here.

We also hosted podcast on digitisation of trade where we discussed why paper-based trade does not work, how technology can facilitate paperless trading and challenges associated with digitisation of trade documents. Listen here.

If members would like to get involved in our future digitisation of trade documents focused activities, please get in touch with Jana at [email protected].