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The Electronic Trade Documents Bill, currently making its way through the House of Lords, is a small but significant piece of legislation. I have called it “the most important law you’ve never heard of”.
It has the potential to bring vast benefits: allowing British businesses to trade easier, faster and more economically, encouraging the development and application of distributed ledger technologies (DLTs) and consolidating English law at the forefront of these important technological and trading developments.
It is a more than material opportunity, but we must do all we can to ensure that we support adoption. The change is permissive – it will allow those that want to transition to digital documents to do so, but will not mandate change. That is absolutely right, but it will be a test of confidence in the technology and will require a significant culture change. I am doing my utmost, therefore, grabbing my megaphone to alert people to the possibilities.
It might seem extraordinary in this digital age that trade documents must still be paper – extraordinary, but true. The Electronic Trade Documents Bill will make digital documentation legally recognised. As the minister said during the Bill’s second reading in the debate in the House of Lords recently, the objective is “to remove an obstacle for UK businesses that trade internationally – in giving electronic trade documents legal effect, we can unlock their current and future potential”.
There will be significant cost, efficiency and environmental savings. Processing times for electronic documents will be cut from what can be as much as seven days to 20 seconds and carbon emissions will be reduced by at least 10%.
Currently, common export documents such as a bill of lading – a receipt and contract for the transportation of goods, as well as a title document – is a possessive document. Much more than a contract setting out terms, it is a written instrument that proves ownership or control and possession. Creating a digital copy of a paper trade document without addressing the conditions and criteria inherent in title deeds would create practical and legal problems.
Inevitably, however, changing the law to say that digital, intangible documents can be possessive could have unexpected and unintended consequences. So, the Law Commission was asked to think through this legal and philosophical puzzle and make recommendations for reform. Its conclusion was that in order for trade documents in electronic form to be used in the same way as their paper counterparts, they must satisfy certain “gateway criteria”. These criteria are designed to replicate the salient features of paper trade documents and include the following:
- The electronic document should be susceptible to exclusive control. In order to prevent double spending, only one person (or persons acting jointly) must be able to exercise control of the document in electronic form at any one time.
- The electronic document should be fully divested on transfer. The transferor should no longer be able to exercise control of the document when it is transferred.
- A reliable system should be used to ensure that the criteria are satisfied. The underlying system whereby the document meets the criteria must be reliable. We further recommend that the Bill should contain a list of factors that may be taken into account when assessing whether a system is reliable.
The Bill has extensive support from the trade community, and parliamentary colleagues from across the House welcomed it during the second reading. It is uncontroversial and well supported, which is incredibly positive. My one fear, however, is that we do not make the most of the opportunity before us. This is a moment when we must carpe diem – or carpe DLT.
The UK is in an advanced position, but the rest of the world is – of course – also looking at this. Politico is reporting that one of the key announcements planned for the upcoming EU-US Trade and Tech Council (TTC) will be a pilot project for US and EU customs officials to use digital documentation to streamline how goods can be shipped between the US and the EU.
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Back in 2017, the UN published a Model Law on Electronic Transferable Records (MLETR) and so far some seven or eight jurisdictions worldwide have adopted it in full – Singapore to the fore – but dozens of others have it under consideration. The G7 countries have agreed to cooperate on its wider adoption and, of those, it is Germany and the UK that are farthest advanced on it.
English law is respected around the world, and with this Bill, we have an incredible opportunity to be the first G7 country to pass this legislation and consolidate that well-respected position. English law could continue to be the basis for international trade law for decades to come. The world is watching.
Although the Bill is, correctly, completely agnostic about what technology might meet the “gateway criteria”, currently DLT looks most likely to be the most effective digital solution. In the same year as the UN published MELTR, I published a report arguing that the government should take a leading role in the practical testing and application of DLT across the public and private sectors in the service of the UK, its businesses and its citizens.
My report, DLT for public good, spelt out the strengths: that DLT ensures data integrity and avoids data fragmentation, allowing far greater integration of new and existing systems and improved organisational effectiveness. As transaction data is usually fully replicated on each participating computer or “node”, parties see exactly the same information at the same time. Data partitioning can be applied so that each node contains only the transaction data relevant to or within the permissions allocated to that node.
It is pertinent to this potential use case that DLT can provide immutability, data assurance, distributed data, efficient management of data identifiers, embedded use of cryptography and support for value exchange, with evidential quality data providing greater resilience in relation to evidence of provenance and ownership of assets.
I also warned of the barriers, such as the issue of compliance or legal risk faced by ledger participants who may be transacting across different legal regimes. I am delighted that this Bill removes a key barrier, and I hope will promote greater deployment of this potentially game-changing technology.
It is often said that the impact of new technologies is overestimated in the short term and underestimated in the long term. I believe DLT/blockchain may be an example of this in practice and I am pleased that we appear to be moving beyond the hype and into an environment where we can truly explore this opportunity. This is also a call to action, to all, public and private, government and industry, to support this exciting and genuinely transformational potential for the UK.
Lord Chris Holmes of Richmond is a member of the House of Lords, where he sits on the Select Committee on Science and Technology. He is also a passionate advocate for the potential of technology and the benefits of diversity and inclusion and is co-chair of parliamentary groups on fintech, artificial intelligence, blockchain, assistive technology and the 4th Industrial Revolution. An ex-Paralympic swimmer, he won nine gold, five silver and one bronze medal across four Games, including a record haul of six golds at Barcelona 1992.