On 29th of June 2021, the G7 members voted to approve a new law - Uniform Rules for Digital Trade Transactions (URDT) Version 1.0, which is to be implemented by the 1st of October 2021.
Uniform Rules for Digital Trade Transactions (URDT) is a game-changing law that lays down a high-level framework outlining obligations, rules, and standards for the digitization of trade finance. This has been welcomed as a great step forward in the trade digitization process towards complete digitization of global trade.
Currently, paper-based transactions are still used in the majority of international transactions resulting in high costs, delays, inefficiency, fraud and error. In addition, it carries a negative environmental impact. Digital Container Shipping Association (DCSA) reports that currently, only 0.1% of the total volume of global Bill of Lading documents are issued electronically. However, with the implementation of this law, the situation is set to change. The COVID-19 pandemic has played its role in accelerating the pace of adoption, as during the lockdowns it was difficult to engage in paper trade. Within that period, the International Chamber of Commerce (ICC) urged government bodies to facilitate an “immediate transition” to digital trading. Initially, only a few governments responded to the request, however with this new commitment from the G7 – which represents 33% of the world’s economic output – this new law which will be implemented by October 2021 is all set to overturn barriers to trade digitization, and make trade easier, safer and cheaper for all. This law gives electronic documents and signatures the same legal standing as their paper-based counterparts.
The UK Law Commission has already launched a consultation for law amendment in the country, to allow for electronic trade documents to be treated as documents of title – the proposed legal reform covers a broad range of documents including bills of lading, bills of exchange, promissory notes, ship's delivery orders, warehouse receipts, marine insurance policies, cargo insurance certificates, and warehouse receipts.
One of the challenges that have been raised by trade body organizations such as the World Trade Organization (WTO) is about data security. Protecting free data flows and maintaining privacy and cybersecurity is one of their key concerns. As per UNCTAD Global Cyberlaw Tracker, 58 percent of all countries have already adopted or are in the process of adopting data protection laws. This is seen as a roadblock in implementing Digital Trade Transactions, which requires seamless cross-border data flows. For example, data laws in China and Vietnam mandate data localization. Laws like GDPR are very restrictive in the type of data that can flow out of the country. These types of laws affect adopting best-in-class standards and practices in security and are mostly not interoperable with globally recognized standards, thus making it challenging to do business across the border.
Therefore, as digital trade grows, the laws around international business which govern bodies like WTO will also need to change. Members across these international trading bodies must consider implementing a framework that allows for free cross-border data flows, prohibition of data localization and complemented with relevant disciplines on online consumer protection, privacy, and cybersecurity. This kind of holistic approach would promote transparency, and trust in digital trade for businesses and consumers alike.
In conclusion, the benefit of digitization in trade cannot be overstated. According to research carried out by the ICC and Coriolis Technologies, in the UK alone, it is expected to save USD 25 bn in new economic growth, boost SME trade by 25% by 2024, and free up USD 224bn in efficiency savings – USD 171bn of this coming from bills of lading alone. Considering these benefits ICC is looking to scale this initiative to include B20 and the Commonwealth as well. The challenges related to this framework also cannot be ignored and it has to be flexible enough to accommodate a variety of scenarios. For this initiative to be more meaningful and sustainable, the framework should also include rules addressing the specific needs of developing countries and enable their inclusion into the digital economy, which can only be achieved by increased participation, goodwill, and commitment of countries.