The Electronic Trade Documents Bill completes Lords stages and gets closer to becoming law
I have written in these pages before about why the Electronic Trade Documents Bill is one of the most important Bills you’ve never heard of.
The Bill, introduced in October last year, is an incredibly important piece of legislation, small, succinct, and simple with just one clear aim – to allow the digitisation of trade documents.
Incredibly, until this law comes into effect, trade documents, such as Bills of Lading and Bills of Exchange, must be hard copy – paper documents. This can mean someone boarding a plane at Heathrow with a document wallet so that a container ship in Singapore can have the right paperwork and be able to continue moving. One British importer of fresh fruit from Brazil reported that getting the paperwork transferred can take up to 14 days whereas if digital documents were possible this would take mere moments.
Millions and millions of pieces of paper, endless hours of burdensome bureaucracy, delays, inefficiencies, and significant environmental costs.
International trade is a £1.4 trillion industry, subject – currently – to significant friction. The Electronic Trade Documents Bill is an excellent enabling piece of legislation. Drafted by the Law Commission it will allow digital documents to have the “same legal treatment, effects and functionality” as the paper documents as long as they satisfy various criteria. These criteria are:
- it must not be possible for more than one person (or persons acting together) to exercise control of the document at any one time.
- when the document is transferred, any person who was able to exercise control of the document before the transfer loses the ability to do so.
- a reliable system must be used to allow any person who is able to exercise control of the document to “demonstrate that fact, to protect the document from unauthorised interference, and to ensure the document can be distinguished from any copies”.
I was honoured to be appointed to the Special Public Bill Committee tasked with scrutinizing the Bill in the House of Lords and we recently completed three weeks of evidence sessions, hearing from expert witnesses from the legal, trade and technology sectors. The Bill will have Report stage in the Lords on 14th March then 3rd Reading, before going for final stages in the Commons.
Three themes – the potential for international leadership, the technological opportunity, and the legal terminology (in terms of the distinction between the concepts of “possession” and “exclusive control”) – ran throughout all our evidence sessions.
The Electronic Trade Documents Bill is based on a model law passed in 2017 by the UN International Trade group. This model law on electronic transfer records (MELTR) provides a framework but governments need to align the framework with their national legal systems. Although many countries have accepted the principle – in fact the UK brokered the ministerial agreement at the G7 – very few have yet incorporated the law properly. Germany is expected to have full legislation later this year and France by 2025, probably 2024. China and the US are on similar timeframes. Singapore is one country that has already passed a law and with this Bill we have the chance to be the first G7 country to do so.
English law governs 80% of trade documents worldwide. As Chris Southworth from the International Chambers of Commerce put it,
“All eyes are on the UK because of that fundamental relationship between English law and the international trading system.”
Witnesses also pointed out the opportunity across the Commonwealth. The business case for digitalising commercial trade documents in this context is worth £1.2 trillion and as we all share English law, this Bill could form the template by which we could replicate this Bill across the 52 countries that do not have legislation already in place.
Amidst the positivity it is important to be aware of significant momentum around the ASEAN and APEC regions in this space. We must not rest on our laurels.
Again, there was vigorous agreement that technology was not the problem. The technology is proven and had been around for a while – although a point was made that it was positive that the market was more developed.
A few years ago, there were just a few players and not much choice, making it too expensive for smaller and medium-sized enterprises. The market of solution providers has matured, and we were told there is sufficient choice for different parties to use this in a trusted environment.
In terms of questions about fraud and cyber security, evidence suggests that the use of this technology is far safer. We cannot completely eliminate risk, but the evidence points to these methods being far safer than the current paper system.
Possession vs Exclusive Control
One of the most interesting questions from a legal perspective is the use of the term possession – instead of exclusive control – which is the term used in the model law.
The Law Commission referred to the issue as the “possession problem” and it stems from the fact that in English law commercial trade documents are not documents setting out contract information but an actual physical manifestation of goods and this is described in existing law as ‘possession’.
Translating that into a that digital context has been much harder than merely permitting ‘digital documents.’ Making the law say that things that are intangible can be possess-able might have dangerous unintended consequences so specifying certain criteria has solved this problem.
All our witnesses agreed that for practical purposes possession and exclusive control would be functionally equivalent and the real benefit is that it brings in Centuries of common-law rules and principles, not just conversion but other concepts such as bailment and pledge.
It is important to note that this concept of possession in law will only apply to trade documents and not digital assets more widely – a huge legal question that the Law Commission is working on at the moment.
This legal blocker has been a huge hurdle to innovation and progress in terms of tech solutions and trade. When the Bill becomes an Act and comes into force, hopefully by spring – we will have achieved something significant. But that is actually just the starting gun.
A lot of work still needs to be done, incorporating the standards, systems, and raising awareness across business.
Again, we must not rest on our laurels. But should we do the work, we will benefit – increased efficiency, lower costs, increased security and compliance and environmental benefits. We can do this.