The world of trade has gained a glimpse of things to come after the completion of the first ever cross-border digital trade financing pilot between two Model Law on Electronic Transferable Records (MLETR)-compliant jurisdictions.
The test transaction was carried out by Singapore’s Infocomm Media Development Authority (IMDA), the Monetary Authority of Singapore (MAS) and the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM), in collaboration with commercial partners DBS Bank, Emirates NBD and Standard Chartered. It used the IMDA’s TradeTrust framework to facilitate the transfer of electronic records between Abu Dhabi and Singapore – both of which have adopted United Nations Commission on International Trade Law’s (UNCITRAL) MLETR into their domestic legislation.
The model law essentially gives electronic trade documents the same legal standing as their paper-based counterparts, breaking down a crucial barrier to end-to-end trade digitalisation. However, to date, it has only been enacted by a handful of jurisdictions: the ADGM, Bahrain, Belize, Kiribati, Paraguay and Singapore. Without legal recognition of digital versions of documents such as electronic bills of lading and promissory notes, participants attempting to carry out paperless transactions have to rely on contract law to create a club of players who all commit to recognising a particular electronic document’s validity. While this is a workable solution, it isn’t ideal, as Geoffrey Wynne, partner and head of the trade and export finance group at international law firm Sullivan, explained to GTR last year.
“If you’re in the club, you can all agree that black is white. That is fine, until somebody outside the club says, no it’s not, it’s black. And so the problem you have got is that even within the club, unless you get every shipowner, every customs authority to agree to accept, for example, the electronic bill of lading, it still doesn’t work,” he said.
In addition, bringing all actors in the world’s supply chains together to agree on the validity of electronic documents simply isn’t feasible. “The idea of companies and banks trying to sort it out themselves is a wonderful one, but in practice, what tends to happen when there are two or more parties is that one party wants to exploit what they perceive as their position and would not necessarily want to sit down with other parties,” Wynne added.
In a statement released upon the completion of the pilot transaction, the IMDA says: “The adoption of MLETR into statute law provides increased legal confidence and commercial predictability to parties in both Singapore and ADGM in the recognition of electronic documents and digitalised transactions,” adding that this paves the way for a “more seamless, easier, and faster way” to transact digitally.
Work is underway globally to accelerate MLETR adoption. In a missive published at the start of the Covid-19 pandemic, the International Chamber of Commerce (ICC) called on governments to enable an “immediate transition” to paperless trading, urging them to carry out legal reform.
Several countries have heeded the call. In May this year, the G7 digital and technology ministers pledged to champion MLETR, while the Law Commission of England and Wales is currently working on a proposed reform that would see a common law-compliant version of MLETR added to the statute books.
In an effort to boost the MLETR adoption movement, the ICC today published a new practical guide for legal reform aimed at policymakers worldwide. In the document, the ICC shares lessons learned so far by those jurisdictions that have already changed their laws, in the hope of accelerating progress towards what it calls a “globally harmonised digital trade ecosystem”.
The Singapore and Abu Dhabi authorities say they will now focus on encouraging businesses to phase out and switch from paper to digital documents as the mainstream practice to support trade finance, with the IMDA adding that, following the pilot, suitable systems and trade platforms can now be used by exporters and their financiers for live shipments of goods between the UAE and Singapore.
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