The Electronic Trade Documents Bill: The problem, solution and potential benefits
In my 2017 report on DLT/blockchain – although back then blockchain was so often confused with Bitcoin we tried to avoid that particular pitfall by sticking to DLT – we made the argument that if the government matched the capabilities of DLT (transparency, traceability, accountability) with the public policy delivery challenges they were facing then areas of particular opportunity for the UK included (along with many others) border control, customs, trade, food standards and safety.
I am delighted that a mere five years later on Monday (November 7) I had an opportunity to speak in the second reading debate, in the House of Lords, on the Electronic Trade Documents Bill. This legislation, on the face of it, is entirely technology neutral, but it is an example, finally, of an opportunity for the UK that could turbocharge DLT/blockchain and transform a £1.4 trillion industry.
I began by setting out the problem. In international trade there are various legal documents, bills of exchange and bills of lading for example, that must be capable of being possessed for them to have legal effect and function as intended. In order to have possession of goods you must possess the document. The law does not currently recognise the possibility of possessing electronic documents because they are considered intangible. The problem is how to make something that is intangible (a digital document) possessable (like a paper document) without various unintended legal and practical consequences.
The cost of a £ 1.4 trillion industry relying on inefficient and costly transfers of paper, taking potentially seven to 10 days rather than an electronic transfer taking seconds, is significant in both economic and environmental terms.
The solution is in three parts, this bill, alongside international standards, and the right technology.
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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”.
The second part of the solution is standards, interoperability and assurance based on international standards. Some excellent work has been done by the ICC and WTO on the digital standards initiative. But, as was pointed out by my colleague Viscount Waverly during the debate, despite the progress being made by industry organisation in these areas, “this needs to be supported by Governments to pave the way for international harmonisation and adoption. It will be a balancing act to create international standards in such a way that creates legal certainty on the one hand without hampering further adoption of new technologies or innovation on the other.” English law underpins international trade law (80% of bills of lading) and with this small change in the law we have the chance to consolidate that position and to take the lead in setting international standards
And finally, the technology. In that 2017 report we tried to explain the reasons why DLT is a gamechanger – and now a bill that clearly sets out criteria that can be satisfied by DLT means we are a step closer to realising just what a gamechanger this technology could be. There is however work still to be done on the detail. As the bill moves into committee stage we will have an opportunity to closely examine all elements of the bill, for example the exact nature of the stated criteria will of course impact which of the various technological solutions would be best suited to the task. Lord Lansley pointed out several of the issues:
“Provisions relating to the indication of time and place are found in many trade documents; there may well be mechanisms through which we can make the time of documents electronically secure, but not necessarily in the same way as we do with paper documents. This concept of “reliability” will have to be extended to time on documents as well as to other factors.” Also “on the question of acting jointly, when one is dealing with paper documents, one knows who has possession of them. In the context of electronic documents, not least because of some of the technological aspects, such as the number of people who have access to a private key, we may deal with people who have to act jointly in circumstances that would not be evident for paper documents. We need to understand the safeguards associated with the intentions of people acting jointly, because the Bill rests upon that understanding and how it will be achieved.”
It was evident throughout the debate that the bill has excellent cross-party support from across the house for this “long overdue reform”. There was also consensus about the areas that required further discussion, in addition to the points above relating to definitions, colleagues and I raised the issue of digital identity, interoperability, and questions around ensuring adoption and applications in other settings.
Several colleagues throughout the debate made the point that the move to quicker, digitally based transactions would be especially welcomed by SMEs, which are often affected most by the complexity and associated costs of trading systems that are heavily paper based.
It was good to hear the Minister’s response to questions on digital identity, “I certainly agree that digital signatures and digital ID are areas that would benefit from harmonisation. As noble Lords stated, this Bill is merely the first foundational step towards digitisation and interoperability. The Bill is very specific in removing the legal blocker to possession of electronic trade documents; that really is its core purpose. We want to remove an obstacle for UK businesses that trade internationally.”
The Minister gave a clear run through of all the benefits of the bill including the fact that Electronic Trade Documents will “increase security and compliance by making it easier to trace records.” Also insisting that “the Bill will lay the foundations for the future digitisation of our global trade approach and ambitions”.
This bill does indeed have the potential to truly transform international trade. And my hope is that it is also another step forward in realising the potential of DLT/blockchain technology generally. If the Government looks at more of the myriad public policy delivery challenges set out in ‘DLT for public good’ then the transformation could reach far beyond trade and benefit us all, citizen and state.