The potential impact of the UK’s just approved Electronic Trade Documents Bill goes far beyond a boost to the country’s trade prospects. By enshrining in law that a digital document is equivalent to physical paper, the reform means that counterparties can issue and process documents electronically by default, – and with UK law acting as the basis for trade transactions across much of the world, the opportunity for transformation is unprecedented.
On paper, there is little remarkable about the Electronic Trade Documents Bill. At just seven pages long, its passage through parliament has been free of controversy or legal wrangling. When initially proposed, lawmakers expressed surprise at how little resistance they encountered from industry participants.
Its purpose is straightforward. Currently, English law gives special significance to “possession” of a trade-related document, such as a bill of lading (BL), but only applies that to tangible items. The bill makes electronic documents legally equivalent to physical ones, meaning “possession” can cover digital versions too, providing certain conditions are met.
Crucially, the bill explicitly states that “an electronic document has the same effect as an equivalent paper document,” and anything done in relation to the digital version carries the same legal weight as it would for physical paper.
The domestic impact of the new law is expected to be significant. The UK government estimates that globally, there are nearly 30 billion paper trade documents printed and circulated every day. According to the UK government, going digital will reduce processing times from hours or days to just 20 seconds while cutting carbon emissions by at least 10%.
A government impact assessment last year concluded that the reforms would increase trade volumes by removing barriers, lowering costs, decreasing transaction times and improving transparency. It also said the opportunity for increased participation could bring wider access to trade finance for SMEs.
But the significance of the bill goes far deeper than giving a boost to the UK’s trade prospects. A UK law facilitating electronic trade documents solves two long-standing problems at once, and has benefits far beyond the borders of the country.
Creating a global solution: Adopting trade digitisation
First, the lack of legal footing for digitisation has been a major barrier to adoption. Although numerous initiatives and innovations have been implemented to facilitate the use of electronic BLs, the absence of legislative support for this process has resulted in parties having to establish contractual agreements to govern the handling of documents.
Second, UK law is widely used today as the basis for trade agreements and transactions around the world. Instantly, any contract where parties agree on using UK law can be digital by default, rather than the result of negotiations between parties. If something goes wrong, the digital trade documents can be presented in court.
Chris Southworth, Secretary-General of the UK International Chamber of Commerce (ICC) said in an October 2022 article, “This is the breakthrough we have all been waiting for.”
“It is a game-changing moment, with so much of world trade operating on English law, including 80% of all bills of lading,” he wrote. “It is also the missing piece of the jigsaw in the digitalisation of trade. The legal requirement to handle commercial trade documents is holding up the implementation of new digital trade corridors, the scaling up of technology solutions and the standardisation of trade platforms, processes and systems across both the public and private sectors.”
Taking legal effect in September this year, UK policymakers are already pushing for equivalent reforms in other markets. The Commonwealth group of nations is emerging as fertile ground for adoption; the 56-member bloc is aiming to boost overall trade to $2 trillion by 2030, and sees digitising trade documents as a crucial step in that journey.
The issue was top of the agenda at a London meeting of Commonwealth trade ministers in June, the first such summit since before the pandemic. Nigel Huddleston, the UK’s Minister of State for International Trade, told reporters at the meeting that “the legal backing of this is really important.”
“Digital will really help open up a lot, [not just] on basic costs relating to trading goods across borders, but it’ll help enable the opening up of services trade as well,” he said.
Ahead of the meeting, the ICC UK’s Southworth called on ministers to reach an agreement on adopting electronic trade documents, saying this is the “golden moment to reform laws and digitalise trade across the Commonwealth.”
Commonwealth Secretary-General Patricia Scotland confirmed the association is already looking at models for digitisation, including that of the UK as well as Singapore.
Real-life impact of the ETDB
In practice, there could still be a few wrinkles to iron out. In its response to a government call for evidence on the bill, law firm Kennedy said clear definitions of “possession” and “exclusive control” still need to be established, and that lawmakers should consider how disruptive technologies could impact electronic trade documents in future.
But the bill should have an immediate impact. The reforms are broad, covering a full range of trade documents including BLs, promissory notes and bills of exchange, as well as various receipts and certificates.
It also requires that a “reliable system” is used to verify that documents are originals rather than copies, cannot be altered by unauthorised parties, and cannot be controlled by more than one person at any given time. Thankfully, fintech providers are already offering platforms and solutions capable of meeting those requirements.
Surecomp’s RIVO solution is a centralised digital hub providing seamless integration with fintech partners such as ICE Digital Trade, Enigio and WAVE BL, to issue electronic trade documents that will be fully compliant with the UK law, while bringing together corporates, financial institutions and other parties onto a single platform. And so it seems the UK Electronic Trade Documents Bill certainly should be the turning point for digital trade.