On 20th September, the Electronic Trade Documents Act came into force.

I have written here before about why the Electronic Trade Documents Bill was one of the most important bills you had never heard of:

“Not only will this bill make trade faster, cheaper, and greener, it is an English law model of how to legislate for technology through specific criteria. A blockchain bill that will stimulate blockchain development and adoption without ever mentioning blockchain.”

Almost a year later and we are here.

The bill is now an act, and on the 20th of September this important new law came into force. On the same day Lloyds Banking Group and Matalan completed the first digital trade transaction under the new law using Enigio’s trace:original system. Lloyds have invested €3 million to help Enigio develop this blockchain solution for trade finance documentation and take advantage of the opportunity presented by the Electronic Trade Documents Act.

Currently only 1% of the 4 billion trade documents in transit daily are digital.

From paper to digital

It appears to be a simple change – to allow digital trade documents the same status in law as paper trade documents. In practice, however, because so many trade documents (such as bills of lading and promissory notes) are possessive in nature, legislating so that electronic documents ‘behave’ like paper documents has been far from straightforward. Paper trade documents have been in use for 200 years, they are the system currently, and the principle of possession in law attached to them is securely embedded.

Fortunately, technology has a solution. Although the law itself is technology neutral, no particular technology is mentioned in the act, it sets out the criteria that must be met by a ‘reliable system’ to qualify as an ‘electronic trade document’. These criteria are set out in clause 2 and specify that an ‘electronic trade document’ must be identifiable so that it can be distinguishable from any copies, retain its integrity, and be subject to exclusive control. These are requirements that can be met by several technologies currently, an obvious one being distributed ledger systems also known as blockchain.

I have been writing about potential applications of distributed ledger technology (DLT) for public good  since 2017. Blockchain, the technology that underpins bitcoin, continues to be tainted by that association and despite some successful applications, there are none that have been brought into public awareness in the same way AI and LLMs have been by ChatGPT. Could the Electronic Trade Documents Act mark the moment of mass adoption of blockchain?

Economic and Environmental Benefits

The government estimates that the new law could generate a net benefit of £1.14 billion for the British economy over the next decade for UK businesses trading across the world.

Chris Southworth, Secretary General of the UK International Chamber of Commerce points out:

“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.”

There are three elements to trade - finance, paperwork, and shipment - all with their own processes and systems and all reliant on paper. If these processes move from paper to data, that separation collapses. Finance will be able to transact at the same time as the physical shipment and the transfer of possession of the goods (in real time rather than months and weeks).

Based on ICC figures Chris has called it “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.”

This scale of impact helps underscore the potential environmental benefits from massive reduction in the use of paper and courier emissions. Estimates from the World Economic Forum consider the reduction in carbon emissions from logistics could be as much as 10-12%.

International leadership

The UK is at the forefront of these developments and is the first G7 nation to pass legislation that is compatible with the UN’s model law on electronic transferable records (MLETR). English law has a considerable impact on global trade, 80% of bills of lading and 60% of global trade finance operate on English law. Shipping companies and insurers also tend to operate on English law as well as the trade companies themselves.

The UK benefits from a powerful combination of our tradition of common law, technological expertise (including in blockchain) and excellent financial services ecosystem. 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 can once again play a central role in establishing a legal framework fit for the next 200 years of trade. 

Conclusion

The law could be a game-changing piece of legislation, but this is just the beginning. As the law is rightly permissive, you are now legally able to use digital documents, but you do not have to. There is a real risk that this colossal opportunity will be missed. We have removed the legal barrier, but we must now spread the word, raise awareness, and build confidence.

Looking at a recent Santander Barometer survey 65% of SMEs reported that they aspired to go digital although only 45% said they were ready to. Closing these gaps so that SMEs feel both confident and enabled about going digital is essential. I have called on the government to do more on this as well as engaging with our trade partners to follow our lead in adopting this legal framework and unlocking global digital trade.

If we get this right, we will create economic growth and environmental benefit, and drive greater connectivity and visibility ,around the world. Togetherness will be brought about by English common law in combination with new technologies enabling digital trade.