This guide explores the realities of trade as it is, with an understanding of the challenges and benefits that surround trade digitisation. It also provides an overview of how MLETR alignment can support digital trade globally.
The realities of trade today
In simple terms, international trade is defined as the exchange of goods and services across borders. These economic transactions involve the transmission of data and information between relevant parties such as importers, exporters, logistics providers, regulatory bodies, and governments, among others. As such, global trade relies on four billion documents daily, with documentation for a single shipment requiring up to 50 sheets of paper exchanged with up to 30 different stakeholders.
According to ICC Digital Standards Initiative, supply chain information is frequently stored in paper documents (either physical or PDFs) in more than 90% of global trade. This data is duplicated every time goods and services cross borders before reaching the end consumer.
It must be manually managed, extracted, and validated in varying IT systems – most of which run autonomously – giving rise to problems such as:
- Higher incidences of discrepancies and even fraud
- Time-consuming process that adds up in cost
- Environmental inefficiencies
Referred to as the digitisation of information flows, including making available and enabling the exchange of trade-related data and documents electronically, paperless trade has many benefits, including speeding up trade and easing the cost of doing international business. For small and medium sized enterprises (SMEs), this shift is particularly advantageous as it alleviates the challenges of supply chain delays and the burdensome manual regulatory paperwork typical of a paper-dominated system.
These challenges highlight the need for a structured approach to digitising trade, which is outlined in the roadmap below.
The roadmap to digital trade
The digitalisation of trade involves a complex set of stakeholders, from policymakers to global corporations. It is essential for all stakeholders to understand their role and impact and collaborate to enable global digital trade.
The roadmap to digitising trade can be outlined around four critical pillars: Standards, trust, legal, and capacity building. The four pillars are interdependent and collectively important for a cohesive digital trade environment. No single pillar can support trade digitisation on its own.
- Standards focus on establishing a global baseline for digital trade documents and data, to ensure interoperability across networks and platforms.
- Trust emphasises the need to define and implement technology principles that can create scalable digital trust throughout the entire trade ecosystem.
- Legal advocates for the adoption of legal reforms and the development of policy frameworks that support the digitisation of trade globally.
- Capacity building aims to engage and educate stakeholders across public and private sectors, with the goal to build capacity and collaboration to drive digitisation at key leverage points.
Together, these four pillars provide a strategic guide for stakeholders navigating the digital transformation of trade, while ensuring an efficient, secure and legally sound transition.
Challenges to trade digitalisation
Transforming an originally paper-based system into a digital one comes with its challenges. These include:
- Legal constraints – Most jurisdictions still require and rely on paper-based trade documentation, limiting the adoption of electronic records.
- Complexity and inefficiency – To transition to paperless operations, organisations are currently reliant on existing solution providers that operate under private law contracts within closed-loop trading platforms. This often forces organisations to use multiple platforms and products to meet the requirements of different jurisdictions, resulting in inefficiencies.
- Cost barriers for SMEs – The high costs associated with navigating these complexities make adopting ETRs prohibitive for SMEs.
As a result of these challenges, the adoption rate of electronic bills of lading (eBL) is still in single digits. Advancing digital trade requires both legal reform and policy enablers. Part of legal reform would be to modernise existing regulations that mandate paper-based or electronic substitutes in business, including updating Commercial Codes. By legally permitting the use of digital technologies, including digital signatures, blockchain, and distributed ledger technologies (DLT), digital operations become both more secure and efficient.
Likewise, policy actions such as digital economy agreements, implementing digital trade agreements and Customs Single Window legislation are important to enabling an environment where digital trade can become the new norm.
Introducing MLETR: A key enabler for digital trade
The Model Law on Electronic Transferable Records (MLETR), drafted by the United Nations Commission on International Trade Law (UNCITRAL), is central to the conversation around trade digitisation.
Specifically, the MLETR recognizes the legal validity of ETRs, permitting functional equivalence to paper-based transferable documents or documents of title. This means that digital documents such as bills of lading, bills of exchange, promissory notes, and warehouse receipts are legally recognised as equivalent to traditional paper documents. MLETR facilitates a legally certain environment for digital trade.
The 3 key principles of MLETR include:
- Technology neutrality which translates to not discriminating against any specific types of technology.
- Functional equivalence, allowing electronic documents to serve the same legal function as paper documents.
- Non-discrimination between electronic and paper forms.
MLETR builds a case for the use of ETRs in trade because it:
- Provides for distinguishing the original electronic document from copies, important for maintaining authenticity.
- Ensures that electronic documents can be kept confidential, protecting sensitive trade data.
- Designed to be easily read by both machines and humans, improving accessibility.
- Enables digital documents to be transferred, stored, and processed by the holder just like paper versions.
- Ensures that the electronic records are legally binding and enforceable, providing the same legal rights as paper documents.
The main advantages of MLETR alignment include:
- Singularity: Ensures that only one ETR exists – no duplicates or copies.
- Control: Guarantees that only one person can ‘own’ the ETR, such as the case of requesting performance.
- Integrity: Tracks all events and ensures the immutability of records, maintaining reliability and integrity of the document.
MLETR's role in advancing digital trade
MLETR addresses several key areas that are essential to the shift from a paper-dominated system to a digital one.
- Legal recognition and functional equivalence of ETRs: Legally recognising ETRs as functionally equivalent to their counterparts is vital for businesses to have confidence in digital transactions.
- Facilitating cross-border trade: Standardising how ETRs are treated across jurisdictions reduces legal complexities associated with cross-border trade, which allows businesses to rely on consistent legal frameworks.
- Enhancing efficiency and reducing costs: MLETR alignment supports businesses in moving away from cumbersome paper-based processes to more streamlined digital systems. This greatly reduces time spent in producing, handling, and transferring physical documents, which makes trade operations more cost-effective.
- Technological integration: As it is designed to be technology-neutral, MLETR can be implemented alongside a variety of digital technologies, including blockchain, electronic signatures, and distributed ledger technologies (DLT). This encourages businesses to integrate digital solutions while complying with legal requirements.
- Enables SMEs: MLETR lowers the barriers to entry for SMEs in the global trade market by reducing the reliance on complex, legacy paper-based system.
The alignment with MLETR has gained global traction, countries such as the United Kingdom, France, Germany, Bahrain, and Singapore have completed domestic legal reform while countries like Thailand, China, Japan, Australia have started. However, the future of digital trade relies on the combined, collective efforts of policymakers, international organisations, and businesses. Transitioning to digital trade is representative of a paradigm shift in how we conduct trade.
View the MLETR tracker to understand where alignment is on a global scale: MLETR Tracker | Cross-Border Paperless Trade Database (digitalizetrade.org)
For more on MLETR, read our interview with Tianmi Stilphen, Lead Legal Reform at ICC DSI, where we cover the frequently asked questions about MLETR and its impact on international trade.
About ICC Digital Standards Initiative (DSI)
The ICC Digital Standards Initiative aims to accelerate the development of a globally harmonised, digitised trade environment, as a key enabler of dynamic, sustainable, inclusive growth. We engage the public sector to progress regulatory and institutional reform, and mobilise the private sector on adoption, implementation and capacity building.