AS readers would be aware, there is currently significant work being conducted around the world aimed at modernising and facilitating trade. Part of that work includes attempts to “digitise” the process by moving away from the use of paper-based trading documents in the supply chain and the adoption of “blockchain” processes.
In a recent study published by McKinsey & Co, it estimated that an electronic bill of lading could save US$6.5 billion in direct costs and enable US$40 billion in global trade. The Digital Container Shipping Association has indicated that if 50% of the container shipping industry adopted electronic bills of lading, the collective global savings would be around £3.6 billion (US $4 billion) per year. The International Chamber of Commerce estimates that small and medium businesses could see a 13% increase in international business if trade is digitised. Further, the World Economic Forum has found that digitising trade documents could potentially reduce global carbon emissions from logistics by as much as 12%. In addition to the cost savings, electronic trade documents also increase security and compliance by making it easier to trace records, for example, using blockchain and distributed ledger technology.
One example of the work being undertaken is found in the paperless bill of lading created by the International Federation of Freight Forwarders Associations (FIATA). Another example is the UN/EDIFACT (the United Nations rules for Electronic Data Interchange for Administration, Commerce and Transport) which comprises a set of internationally agreed standards, directories, and guidelines for the electronic interchange of structured data, between independent computerised information systems. Further, many free trade agreements and other trade agreements include chapters on the development of digitising the documents required in the supply chain. In more local developments, Australia has entered several memorandums of understanding pursuant to its Digital Economy Agreement with Singapore focussed on digitising and facilitating trade.
However, the relevant work has not been conducted comprehensively throughout the world and a significant volume of international trade is still conducted with certain kinds of trade documents which are dependent on physical possession of those documents by a person which are then transferred to other parties. A classic example is the need for a purchaser of goods to produce the bills of lading relating to the shipment of those goods before those goods can be released. A significant further development has now arisen with the introduction of the new “Electronic Trade Documents Bill” into the Parliament of the UK which has been approved by the House of Lords and is being described as a bill to allow for blockchain and digital documents for the UK’s international trade estimated to be worth more than £1.4 trillion.
The rationale for the bill will be to make digital documentation legally recognised, reduce administrative costs and make it easier for British firms to buy and sell internationally as well as reducing processing time for electronic documents to 20 seconds and reducing carbon emissions by at least 10%. The bill will give digital trade documents the same legal standing as their paper-based versions and will provide more flexibility in choice of how those businesses trade. The bill allows parties the option to continue with paper-based processes as well as switching to electronic trade documents.
According to materials published by the UK’s Department for Digital, Culture, Media and Sport, the bill provides for the following documents to become electronic including:
- a bill of exchange
- a promissory note
- a bill of lading
- a ship’s delivery order
- a warehouse receipt
- a mate’s receipt
- a marine insurance policy
- a cargo insurance certificate
The bill will require the electronic trade documents to comply with certain criteria designed to reflect the essential features of paper trade documents. This includes ensuring only one person, or parties acting jointly, can exercise exclusive control over the documents at any time and removing the previous holder’s ability to exercise control over the documents once they have been transferred.
The commentary from the UK suggests that the need for the bill also arose from the vulnerabilities exposed in the supply chain through the Covid 19 pandemic where the ability to transfer paper documents was significantly compromised and that the Bill could act as the initiative for other countries to adopt similar processes.
The introduction of the bill is timely with the “trade facilitation” and “trade modernisation” agendas of the Federal government and its various agencies in Australia which also incorporate methods to advance digitisation of trade. The federal government and its agencies have now also enhanced their engagement with the private sector on those agendas with recent meetings of the National Committee on Trade Facilitation (NCTF) and the Trade Facilitation Initiatives Working Group as an advisory body to the NCTF.
Those meetings also referred to the establishment of a new working group to the NCTF being the “Trade and Technology Working Group” focussing on the business outcomes sought from the rest of the proposed developments.
We look forward to advancing these agendas with the federal government and its agencies.
