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Analysis: Building the framework for digital trade with URDTT

As legal reform to allow for the use of electronic documents in trade gets underway in the UK, the International Chamber of Commerce (ICC) UK and the Centre for Digital Trade and Innovation (C4DTI) have released a new report explaining how the recently published Uniform Rules for Digital Trade Transactions (URDTT) can provide the necessary guidance to take advantage of the new digital future of UK trade.

Released in October last year following months of consultation, the URDTT establish a commonly understood and accepted set of principles to address the uncertainty associated with digital trade transactions, such as how parties can present electronic records to evidence a sale or payment obligation for goods, how electronic data relating to digital trade transactions must match, and what happens if it does not.

The publication of the rules was the latest in a series of moves towards facilitating digitalised trade. Legislative change is underway in several jurisdictions, with the adoption of the UNCITRAL Model Law on Electronic Transferable Records (MLETR) by a small but growing number of countries, including trade hub Singapore, which carried out the world’s first MLETR-enabled transaction with Abu Dhabi in November 2021.

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In March this year, the Law Commission of England and Wales published a draft bill, since placed on the legislative agenda which is intended to enable trade documents in electronic form – such as electronic bills of lading or bills of exchange – to be used in the same way as their paper counterparts.

Currently, under English law, being the “holder” or having “possession” of a trade document has special significance. However, the law only allows for tangible items to be possessed – and electronic documents are considered to be intangible.

Once the law is changed – which is tipped to happen by the end of this year – trade will have all the ingredients it needs to go fully digital, says Chris Southworth, secretary general of the ICC UK.

“The key is that we now have a complete framework,” he tells GTR. “We have the laws, in the shape of MLETR, the Electronic Trade Documents Bill (ETDB), and free trade agreements such as the UK-Singapore Digital Economy Agreement. We have the standards, as laid out in the WTO/ICC Standards Toolkit. And we have the rules, with the URDTT and eUCP.”

To understand how the URDTT are compatible with the proposed legislative changes in England and Wales with regard to the use of possessable electronic trade documents, GTR speaks to David Meynell, digital rules advisor to the C4DTI, who authored the report.

GTR: What are the key takeaways of the report?

Meynell: As highlighted in the Law Commission recommendations, the current law in England and Wales does not recognise the possibility of possessing electronic documents. As such, the Department for Digital, Culture, Media and Sport (DCMS) asked the Law Commission to make recommendations to solve the problems caused by the law’s approach to the ‘possession’ and transfer of electronic documents. DCMS also asked the Law Commission to prepare draft legislation to implement those recommendations.

The URDTT already support such an approach by providing that where the applicable law requires or permits delivery, transfer, or possession of an electronic record, that requirement or permission is met by the transfer of that electronic record to the exclusive control of the addressee. ‘Exclusive control’ of an electronic record is functionally equivalent to ‘possession’ of a paper document and therefore meets the criteria for possession as defined in the Law Commission’s recommendations. The recommendations of the Law Commission and the ETDB are not predicated on the functionality of a particular technology. Instead, they ask: as a matter of law, what features must trade documents in electronic form have in order to be equivalent to paper documents, and therefore amenable to being possessed? The URDTT are essentially agnostic in nature with regard to underlying technology and effectively address the gaps in digital trade, focusing on the use of data in digital trade transactions.

Trade documents may be required to be signed in order to be validly issued. The MLETR makes specific provision to allow for the signing of electronic documents. However, as the Law Commission discusses in detail in its electronic execution report, the law of England and Wales is already sufficiently flexible to accommodate electronic signatures. What is important is not the form of signature, but whether it was applied in a manner which indicates the parties’ intention to authenticate the document. The Law Commission thinks that electronic signatures can be used to sign electronic trade documents without the need for an express statutory provision.

Although at this stage, there are no recommended minimum standards surrounding electronic signatures, the ICC publication Implementing URDTT provides a guide.

The URDTT do not contain any substantive requirement that an electronic record contain an electronic signature. The only reference to ‘electronic signature’ is contained in article 10, wherein it states that if an electronic signature is used, it must be in compliance with any conditions specific to that electronic signature in the digital trade transaction.

GTR: What do exporters and financiers need to know about how the URDTT relates to the ETDB?

Meynell: The URDTT describe a digital trade transaction as a representation of the underlying transaction and is the process by which the terms of the commercial contract between the seller and the buyer are recorded and progressed.

As a key issue, it is essential to identify the benefits for each party, by encompassing a totally digital process, standardisation, access to trigger points for financial services providers to provide risk mitigation and settlement, and so on.

The URDTT provide for the information traditionally contained in a paper document being replaced by data in an electronic record.

GTR: What do policymakers need to know about using the URDTT and ETDB to drive digital trade?

Meynell: In order to qualify as an electronic trade document, a document in electronic form must contain the same information as would be required to be contained in the paper equivalent.

Both the URDTT and the Law Commission recommendations cater for this.

Documents that fall within the scope of the Law Commission proposals for reform may have a requirement that they must be ‘in writing’. Unlike the MLETR, they do not include an explicit provision in the bill allowing for electronic documents to satisfy ‘in writing’ requirements. This is because the law of England and Wales defines ‘writing’ in broad terms. As such, they think that the position in domestic law is already clear: a trade document in electronic form can satisfy a requirement to be in writing.

The URDTT highlight that, unless applicable law requires otherwise, a requirement that information should be in writing is satisfied when an electronic record containing such information is accessible to an addressee and is not affected by any data corruption. This reflects one of the objectives of the MLETR, which is to enable or facilitate the use of electronic commerce and provide equal treatment to users of paper-based documentation and users of computer-based information.

GTR: What benefits will the adoption and acceptance of URDTT in combination with the legal reform have for trade?

Meynell: As stated in the Law Commission’s summary, possession has a core role in the current functionality of paper trade documents, both at common law and in domestic statutes, in terms of establishing who may have certain rights and entitlements. The URDTT provide for submission of electronic records rather than presentation of paper documents.

Much of world trade is underpinned by English law – a legacy of the UK’s historic role in trade. This is not just across the Commonwealth, but for every buyer, seller, insurer, financier and intermediary using English law as a basis for contract law or handling trade documents. The bill will have a disproportionately large and positive impact on global trade at a time when companies all over the world are facing unsustainably high trade costs and suffocating under a sea of unnecessary paper documents.

The proposed legal reform will also benefit other ICC rules such as eUCP Version 2.0 and eURC Version 1.0, whilst providing support to the trade industry to make the necessary strides forward in terms of digitisation.

 

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