by Alexander Paetzold, COO Trade Technologies & MD Trade Technologies Germany GmbH
For several years already, different players in the ecosystem of International Trade are working on further digitizing the processing of transactions in International Trade.
Despite all these (partially isolated) efforts, we've seen little in the way of transformative change. Emerging technologies such as Blockchain – Distributed Ledger Technology - predominantly focused on using technology as a substitute or workaround for traditional paper documents.
The missing piece of the puzzle? A compelling legal framework supporting the shift from paper to digital. Without this, all technology- or platform-driven approaches in the past were (almost) automatically doomed to fail.
However, a new development might just tip the scales in favor of digital transformation. In July 2023, the UK implemented the groundbreaking Electronic Trade Documents Act (ETDA).
This act, which is based on the principles of the Model Law on Electronic Transferable Records (MLETR) already adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 2017, has the potential to revolutionize how we conduct international trade electronically. The MLETR enabled the use of electronic forms of transferable documents like Bills of Lading, Promissory Notes, and more. By incorporating these principles, the UK's Electronic Trade Documents Act could signal the beginning of the end for cumbersome paper documents in international trade.
Fundamental Features of the MLETR (extract)
- Technology neutral:
Promotes interoperability and dataflows
- Built around functional equivalence rules:
Same law applies to electronic and paper-based documents
- Inclusion of Metadata
While the UK has been a frontrunner in the adoption of digital trade laws, it is not the only country making strides in this area.
The United States and Germany, for instance, have some legal frameworks in place that generally enable the use of most transferable documents.
However, specific documents used in International Trade, like Bills of Lading, still require further application. And this is exactly where the UK just went one step further, being the first G7 country to comprehensively address this issue by implementing the Electronic Trade Documents Act.
Structure of Electronic Trade Documents Act (ETDA)
- Defining Paper Trade Documents
- Definition of what constitutes a paper trade document
- Outlining the criteria that a document must meet to qualify as such
- Defining Electronic Trade Documents
- Setting out the criteria that a document must meet to qualify as an electronic trade document
- Establishing a framework for digital possession under the ETDA
- Possession and Endorsement of Electronic Trade Documents
- Equates the legal status of electronic trade documents with their paper counterparts
- Ensuring that actions taken in relation to electronic trade documents have the same legal effects as those taken in relation to paper trade documents
- Change of Medium or Form
- Providing the conversion of paper trade documents into electronic ones and vice versa
- Facilitating a smooth transition between formats
- Opt-out Provision
- Allowing for clauses three and four to not apply to the relevant electronic trade document
- Consequential Amendments
- Outlining amendments to the Bills of Exchange Act 1882 and repealing certain provisions of the Carriage of Goods by Sea Act 1992
- Ensuring the ETDA aligns with existing legalization
- Territorial Extent, Commencement Date and Short Title
In addition to all of the above, the ETDA also addresses the issue of reliability in the use of electronic trade documents.
Although the ETDA does not outline specific requirements for an electronic trade document system, it does provide a non-exhaustive list of factors that courts may take into account when assessing the reliability of a particular system.
And this is where major players, such as the ICC, are now stepping into the picture. Their goal? To devise measures that address the issue of reliability in the market, ultimately allowing only those parties that fulfill certain standards to issue (and use) electronic trade documents.
Once fully implemented, this development is expected to significantly reduce processing time, especially for SMEs. This could enable those players to drive economic growth in the world of international trade.