“Paper-based transactions, which still dominate international trade are a source of cost, delay, inefficiency, fraud, error and environmental impact. It is our shared view that by enabling businesses to use electronic transferable records we will generate efficiencies and economic savings. This will strengthen the resilience of our global economic system and play a crucial role in trade recovery across the G7.”
G7 Digital and Technology Ministers, 28 April 2021
The ICC (International Chamber of Commerce) report on modernizing the digital trade ecosystem has far-reaching implications for the global economy. As the world becomes increasingly connected, it is essential that we have the tools to facilitate trade across borders. The report highlights that the current digital trading system operates on outdated systems and laws, creating inefficiencies that slow trade down and hamper growth and innovation. By reforming national laws and aligning them with the UNCITRAL Model Law on Electronic Transferrable Records (MLETR), a modernized trading ecosystem can be created that is simple, efficient, and interoperable.
The report argues that the optimal way to achieve this is to reform national laws and align them with the UNCITRAL MLETR. The MLETR provides an international framework to align national laws and enable the legal use of electronic transferable records both domestically and across borders. It builds on the principles of non-discrimination against the use of electronic means, functional equivalence, and technology neutrality underpinning all UNCITRAL texts on electronic commerce. It enables the use of modern technologies, including registries, tokens, and distributed ledgers.
In order to create a modern digital trade ecosystem, national laws must recognize all trade documents in digital form, and legal systems must be aligned to enable digital information to move seamlessly across borders and between stakeholders. The report notes that while great progress has been made to digitize trade facilitation and customs documents, most jurisdictions around the world still require documents that transfer the possession of goods (transferable records) to be presented in paper form. Examples of such documents in international trade include bills of exchange, bills of lading, promissory notes, and warehouse receipts.
Harmonizing legal frameworks worldwide will remove a key barrier to the growth of digital trade and contribute to economic recovery. The report suggests that digitizing trade will generate £25 billion in new economic growth, reduce processing times by up to 75%, free up £224 billion in efficiency savings, and generate £1 billion to tackle the trade finance gap. Harmonizing systems will help SMEs scale their businesses into international markets at a lower cost and better access supply chain opportunities.
Legal reform and harmonization are fundamental building blocks to a successful modern digital trade ecosystem. Without reform, the cost of trade will remain high, and solutions will be unable to scale across borders. It is also a prerequisite to implementing international digital standards, another key building block that removes the fragmentation that currently exists in the trading systems and enables systems and processes to talk to each other and information to flow in digital form.
The report also notes that harmonizing legal frameworks will make countries more attractive to digital foreign direct investment and, with faster connectivity, will improve the digital competitiveness and capacity of firms to trade internationally. Furthermore, digitalizing trade will enable more SMEs to participate in global trade, as it will dramatically reduce the cost and complexity of trade. This will help to ensure that no one gets left behind, particularly in emerging economies.
In addition to supporting the G7 Framework for Collaboration on Electronic Transferable Records, the report also supports the work of UNCITRAL in promoting MLETR, the Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), and the ambition of The Commonwealth Connectivity Agenda to increase intra-Commonwealth trade to $2 trillion by 2030.
Overall, the report calls for urgent action to modernize the digital trade ecosystem. The opportunity now exists to rapidly scale up legal reforms to harmonize legal frameworks worldwide and remove a key barrier to the growth of digital trade. In the context of the economic recovery, this exercise presents itself as a low-cost, high-return activity for all governments seeking to reduce the cost and complexity of trade and increase SME participation to drive economic growth.
