The starter gun has been fired on moving trade into the 21st Century
The Electronic Trade Documents Act came into force today, enabling all companies using English law to remove paper and transition to a system where transactions can be fully paperless.
Trade is vital to economic growth but the system has been suffocating under antiquated laws and a mountain of four billion paper documents with all the associated bureaucracy. This is putting companies off trading at a time when we want economic growth, especially SMEs who do not want the hassle of dealing with it all.
A recent Santander Barometer survey stated that 35% of SMEs say paper and bureaucracy are a barrier to trading yet 45% said they are ready to go digital with a further 65% saying they are aspiring to go digital. This is both a reflection of the scale of the issue but also a reflection of the demand to remove a longstanding pain point for trading companies.
Whilst there has been much progress made to digitalise customs documents, this has not delivered the desired digital transformation across the trade system. This is because of legal barriers preventing the digitalisation of commercial trade documents. For trade to be fully paperless and technology solutions to scale, all documents must be digitalised.
The act is the most significant milestone to date in the drive to modernise the global trading system. 80% of bills of lading, 60% of global trade finance, marine insurance, shipping and commodity flows all operate under English law with 56 Commonwealth countries also sharing common law systems. Internationally, English law is often the law of choice for trading companies and plays a dominant role in the trade system.
Importantly, the Act will play a significant role in mobilising other countries to also remove legal barriers. Thanks to UK government leadership, G7 countries and China, representing 50% of world trade, are all removing legal barriers to trade digitalisation, the G20 are also committed and 90% of world trade is expected to be on a path to digitalisation once the WTO Ecommerce Agreement is signed.
This is the milestone we have all been waiting for to make trade cheaper, faster, simpler and more sustainable. From 20 September, companies using English law can remove paper completely, reduce fraud risk and use data more effectively to enable global supply chains to become transparent and ESG reporting more accurate. The law will enable financial institutions to remove bureaucratic, paper driven processes, bring down the cost of SME working capital and ultimately free up more finance to fund trade growth.
The Act will, for the first time, provide a legal environment of sufficient magnitude to scale up technology solutions worldwide which is vital if we are going to digitalise global supply chains. In a recent test, Melon & Co became 15% more profitable importing melons from Brazil to the UK by using technology not paper, a clear sign of the potential to trade more efficiently. It isn’t the only example.
This isn’t just about trade either. The law will unlock new ways of financing domestic transactions and new ways of raising funds to drive local enterprise and growth. Lloyds bank recently financed a domestic land transaction that was completed in one day instead of the average 8 days. We will see a wave of digital transactions over the coming weeks which will be published in an ICC United Kingdom report in November.
200 years ago, the UK played a central role in establishing the laws for trade that we have used ever since. Today marks the moment when the UK once again plays a central role in establishing the legal framework we need for the next 200 years of trade.
“The Electronic Trade Documents Act is the most important law you’ve never heard of. With this new law we are the first G7 nation to implement the UN model law on electronic trade records and demonstrate not just leadership on international trade but on legislating for a technologically advanced future. I have long argued that the benefits of emerging technologies must be utilised for public good and here is an opportunity to unlock such incredible economic and environmental benefits for all. We must ensure we all do everything we can to support this exciting and genuinely transformational change for the UK.”
Lord Holmes of Richmond MBE
“In time, many of the processes and requirements we associate with trade will no longer exist. The system will be much simpler, data will flow freely between public and private sectors, trade and finance will integrate and transactions will take place instantly, in real time. This is a once in a generation opportunity to unlock £25 billion in UK SME trade growth, £1 billion in additional trade finance, reduce trade transaction costs by 80% and deliver £224 billion in efficiency savings. If we want economic growth, this must be a top of the list of trade priorities for government and industry.”
Chris Southworth, Secretary General, ICC United Kingdom