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Guest author: Chris Ford, R3 head of government affairs EMEA
Over the past two decades, digitalisation has sped up significantly. Whether it’s on Zoom, Slack, WhatsApp, email, text or the array of social media apps now available, we constantly speak to and work with each other digitally. Paper-based forms of communication have wilted in the face of new digital tools. Most of us probably can’t remember the last time we wrote a hand-written letter.
Except in trade, where paper remains king.
Digital trade initiatives around the world are seeking to change this, with the UK’s Electronic Trade Documents Bill – presented before Parliament in October – the latest development in the long transition away from the country’s reliance on paper-based legacy systems.
Many have heralded the bill a game-changer in this shift, dubbing it a crucial piece of legislation in accelerating the adoption of digital trade infrastructure.
And while in many ways this is indeed the case, there are still some fundamental obstacles that need to be overcome before UK companies can reap the many benefits of digital trade.
So, with the bill now set to go through the House of Lords before heading back to the Commons, what does it mean for the future of trade and digitalisation?
One big step for digitalisation
Under current legislation, such as the longstanding 1882 Bills of Exchange Act and the 1992 Carriage of Goods by Sea Act, business-to-business documents such as bills of lading and bills of exchange must legally exist on paper.
The Electronic Trade Documents Bill marks a significant step forward in changing this. Once passed, the bill will provide legal recognition to digital trade documentation and facilitate the framework for UK businesses to move into a digital trade environment.
This is a big deal. The UK’s trade sector is worth a whopping £1.4 trillion, with over 28.5 billion paper trade documents printed and flown around the world daily.
The bill’s significance is even greater when we consider the complexity of supply chains and international trade networks. At their most basic, there are several steps in the supply chain process.
These include the sourcing and extraction of raw materials, manufacturing these materials into basic parts, refining basic parts into finished products, selling finished products to end users and delivering them to consumers.
Each step can involve multiple parties or participants, which ultimately means a lot of our most feared and dreaded word: paperwork.
Digitising these paper documents can bring enormous efficiency benefits by cutting the processing time of trade documents from days or even weeks to as little as twenty seconds.
Removing the legal obstacle to electronic versions of trade documents will significantly lower administration costs and could potentially provide a £1.14 billion boost to UK business over a ten-year period, according to Trade Finance Global.
The International Chamber of Commerce estimates that digitalisation could generate £25 billion of SME export growth, halving the country’s trade finance gap.
Collaboration – key to scaling up
The UK is forging ahead as a world leader in trade digitalisation and has taken a massive step forward in harnessing technology to simplify processes, cut costs and reduce delays. However, a fully digital trading environment is still a long way away.
We should not measure the impact of the Electronic Trade Documents Bill purely on its content, but rather on how many other jurisdictions are prompted to follow. The UK is certainly leading the way when it comes to digital trade, but unilateral progress will only take us so far.
If we put ourselves in the shoes of a UK exporter, for example, legal recognition of digital trade documents in the UK will mean nothing if this digitalised format is not legally recognised in the country you are exporting to. To reap the full benefits of digitalisation, a global approach is needed to harmonise efforts across jurisdictions.
Moreover, digitalisation inevitably throws up new forms of online security risks, which companies will have to make sure they have protective measures against.
And while new forms of privacy enhancing technologies are ready and available to mitigate the risk that these threats pose, companies will need time to properly integrate these tools and platforms into their operating systems.
What next on the road ahead?
In the very immediate future, not much.
The Electronic Trade Documents Bill will not digitalise trade overnight, nor should we expect to see the universal adoption of digital trade tools in one big bang moment.
There is an enormous amount of ground yet to cover, such as cybersecurity risks and jurisdictional alignment.
Technology like blockchain can play an important role in solving these problems, but we must recognise that that we have begun the journey – not finished it.
This is an extremely important step, nonetheless.
By introducing clear legal guidelines for a digital trade environment, the bill will allow the industry to begin the long overdue shift to digital trade.