Holly Piggott is director of Alinea Customs – a customs brokerage based in the United Kingdom. Alinea Customs provides import and export clearance at all major UK ports, assisting companies with moving their goods across borders. Alinea Customs have in-house legal expertise and are specialists in UK customs regulations and their relationship to the international conventions established by the World Customs Organisation and the World Trade Organisation. Alinea Customs provide advisory to corporate and commercial organisations on areas such as tariff classification, customs valuation, rules of origin, customs procedures, trade agreements, freeports, and the application of Incoterms® rules, the world’s essential terms of trade for the sale of goods established by the International Chamber of Commerce.
The Electronic Trade Documents Act (ETDA) gained Royal Assent on 20 July 2023 and came into force in the United Kingdom on 20 September 2023. The ETDA enables international trade documents to be legally recognised in digital as well as paper format, provided they are subject to the same type of exclusive control by a single person, or group of individuals acting as a single entity, as could be expected of a holder of an original paper document. The purpose of this is to prevent two persons with access to a document from delegating rights of transfer to different places.
The Law Commission’s interpretation of the legislation highlights the adoption of Distributed Ledger Technology (DLT) and centralised registry systems, where “only the transferee’s security credentials (that is, log-in details) will provide the ability to transfer or otherwise exercise control over the document.” Companies that adopt the use of paperless trade can use DLT or smart contracts partners that incorporate the provisions of the UNCITRAL Model Law for Electronic Transferable Records (MLETR).
A cheaper, faster, and more sustainable global trading system
The International Chamber of Commerce (ICC) has published that approximately 80% of international trade transactions are conducted under English law. The Bill enables a sophisticated approach to the multiple transactions that support international trade within transport, insurance, finance, and logistics. The UK government estimates that 25 billion paper documents are created globally each year to facilitate container shipping – and the associated government report cites practices whereby “A single trade finance transaction can involve 20 entities and between 10 and 20 documents amounting to over 100 pages.”
The first transaction reported to have been conducted under the new legislation was an issuance of a digital promissory note by Matalan Retail Ltd via Lloyds Bank supported by blockchain-powered software platform Enigio’s trace: original solution when purchasing clothing from one of its suppliers, to accept liability for settling a documentary collection. Under the new legislation, Lloyds Bank has identified that the transaction was completed two days earlier than it would have been had the transaction been concluded on paper. Gwynne Master, Managing Director, Lending and Working Capital, Lloyds Bank stated: “This new legislation is a turning point for a cheaper, faster, and more sustainable global trading system.”
Impact on Global Trade
Prior to the introduction of the ETDA, the recognition of intangible possession of trade documents was not possible. The Electronic Trade Documents Report cites that in a survey on the impact of COVID-19 on Distributed Ledger Technology (DLT) and trade, conducted by the World Trade Organisation (WTO) and Trade Finance Global, the legal challenges were considered to be a more pressing concern than any other challenges. The pandemic catalysed a growing consensus identifying that the onerous legal obligations to provide paper-based documents to support international transactions placed limitations on the use of certain traditional forms of financing such as the bill of exchange, and also the production of the bill of lading, which traces its antecedents to the 17th century and has traditionally required a wet signature.
Which countries have adopted similar practices?
In 2017, UNCITRAL published the Model Law on Electronic Transferable Records (MLETR). Bahrain was the first nation to adopt the MLETR in 2018. The impact of the coronavirus pandemic accelerated the uptake, for example, Singapore introduced the Singapore Electronic Transactions (Amendment) Act 2021, which adopts the MLETR in modified form into domestic legislation.
German law recognises electronic bills of lading (Konnossement), consignment notes (Ladeschein), warehouse receipts (Lagerschein), waybills, and sea waybills (Frachtbriefe und Seefrachtbriefe), however, German law does not currently permit negotiable instruments to be issued in digital format.
The State of New York has recognised electronic bills of lading since 2001, and on a wider basis, it has been reported that the United States is considering the potential reform of the Uniform Commercial Code Article 3. Currently, the Uniform Electronic Transactions Act (UETA) recognises electronic promissory notes but does not recognise electronic bills of exchange or drafts.
What are the benefits of trading under the ETDA?
The UK government estimates that the introduction of the ETDA will result in a reduction in trade documents administration from up to 7 days reduced to 10 minutes and has identified that it will boost GDP by £1.14 billion over the forthcoming decade due to the efficiencies created.
However, a key determining criteria will be the adoption of the use of electronic documents, both internally within the United Kingdom and on a wider basis. Whilst electronic documents are recognised under English law, they may not be wholly recognised in other jurisdictions. With regards to bills of lading, Marina Comninos, Co-Head of ICE Digital Trade reports that 80-90% of bulker bill transactions are reported to be conducted under UK law (under the UK-law governed charter-party), whereas 40 -50% of transactions concerning liner bills will be. Where trade finance transactions are conducted the jurisdiction governing the debt facility should also be taken into consideration.
As the institutions that support trade within the United Kingdom slowly take steps to initiate and encourage paperless practices, reform will be required on an international basis to secure and further market opportunities, and subsequently reduce costs and encourage trade participation.