Perhaps the headline of this article holds a little hyperbole but, not so much. The law I’m referring to is the Electronic Trade Documents Act which comes into force today (20 September).
The reason I make such a big claim for this slight yet significant statute is because across the UK, and around the world, it has the potential to transform trade for the economic, environmental, and social benefit of us all. It’s the most impactful piece of trade law passed in over 140 years.
It is not, however, merely a trade law. I have also called it – again with a hint of hyperbole – a blockchain bill, albeit one that does not mention the technology specifically.
This Act is the first example of Parliament passing legislation that has carefully considered the ways in which particular technologies can imitate the way some paper documents work in law, and setting that out in a technologically agnostic way by specifying certain criteria and a “reliable system” requirement.
Make the intangible possessable
This is more complicated than legislating the use of smart contracts, for example. Trade documents such as bills of lading are not instruments setting out contractual terms – rather, they are “possessive”, meaning they are a physical manifestation of goods. Digitising these documents is not simply a case of permitting “digital documents”.
Legislating to allow the intangible to be possessable might have had dangerous unintended consequences and although, from today, the concept of possession in law will apply to trade documents – that will be true only of them and not digital assets more widely.
That is a significant legal conundrum that the Law Commission continues to consider. Its recent report on digital assets recommends legislation to confirm the existence of a distinct third category of personal property, although the government has yet to act on this.
The Electronic Trade Documents Bill arrived with us, in the Lords, last autumn. It had been deftly drafted by Professor Green and her team at the Law Commission who deserve much praise. Personally, it was a privilege to be on the Special Public Bill Committee responsible for scrutinising the Bill through that stage of its parliamentary passage.
As already set out, this is a technology bill that does not mention any one technology in particular, only the criteria that a trade document must meet to qualify as an “electronic trade document”. These criteria are set out in Clause 2 and state that an electronic trade document uses a “reliable system” to:
(a) identify the document so that it can be distinguished from any copies,
(b) protect the document against unauthorised alteration,
(c) secure that it is not possible for more than one person to exercise control of the document at any one time,
(d) allow any person who is able to exercise control of the document to demonstrate that the person is able to do so, and
(e) secure that a transfer of the document has effect to deprive any person who was able to exercise control of the document immediately before the transfer of the ability to do so (unless the person is able to exercise control by virtue of being a transferee).
Distributed ledger possibilities
Blockchain is not the only means to create a reliable system to meet these criteria, but it is a current one. There is a reasonably mature market for solution providers, a dozen globally. One provider we heard from uses a distributed ledger system (DLS) which creates a PDF file to hold the content and a unique number or ID registered on a blockchain. There is also a cryptographic key and those two together are the original and make the trade document. As a system provider, they say they will never know or be close to the key or know what is in the document. It will be completely up to the user.
The advantages of electronic trade documents over paper are self-evident, making it easier, cheaper, faster, and more secure to trade internationally. Increased efficiencies – transfers that take seconds rather than days – reduced administrative and logistics costs and much improved transparency and traceability are also gained from this digital switch. There are also significant environmental benefits from reduced use of paper and courier emissions.
Putting this into numbers, the Digital Container Shipping Association (DCSA) estimates that if 50% of the container shipping industry were to adopt electronic bills of lading, the collective global savings would be in the region of £3bn. The World Economic Forum estimates a shift to digital trade documents has the potential to reduce global carbon emissions from logistics by as much as 10% to 12%.
The UK has a real opportunity to be (genuinely) world leading in this space. Our common law heritage – and the fact that over 80% of bills of lading are established under English law – along with our technological expertise and financial services ecosystem come together to create a powerful combination.
The Electronic Trade Documents Act incorporates the 2017 UN Model Law on Electronic Transferable Records (MLETR). So far, MLETR, has been adopted by a handful of jurisdictions, including Singapore. Many more have it under consideration, but the UK has become the first G7 nation to pass the legislation. Good, obviously, but the mission now must be to get all G7, all nations to pass similar law and be part of a new technology enabled trading epoch.
Passing legislation has removed a key barrier to digital trade. It is however far from the whole story. None of us want to put the time in simply to see this potentially ground-breaking statute mouldering on the library shelves. The law is, rightly, facilitative, and permissive rather than mandatory. No one will be forced to use electronic trade documents. But it is therefore critical that we now, all of us, move to the action stage.
Transforming trade
For government that means using its communication power to ensure everyone knows of the law and its benefits. Similarly, using its convening powers to parle with other jurisdictions to convince them of the benefits of passing similar legislation.
For business organisations, that means communicating to every micro-, small- and medium-sized business to ensure they are aware of the law and how it will make international trading easier, more efficient and in many instances, possible for the first time.
I started by suggesting a slight hyperbole. There is though nothing hyperbolic about this, if we get it right – if we innovate and adopt, we will all go further than a transformation of trade.
We will create economic growth, environmental benefit, and drive, in real time, greater connectivity, visibility and togetherness around the world. Togetherness, brought about by English common law in combination with new technologies enabling digital trade.
Blockchain/DLT has such potential. When I wrote my 2017 report entitled DLT for public good, I argued that we needed “leadership, collaboration and innovation” to ensure we would unleash all of its possibilities.
That message is as valid now as it was then – with this new law are we about to witness the most significant use case and an increasing mainstreaming and mass adoption of blockchain?
Lord Chris Holmes of Richmond is a member of the House of Lords, where he sits on the Select Committee on Science and Technology. He is also a passionate advocate for the potential of technology and the benefits of diversity and inclusion and is co-chair of parliamentary groups on fintech, artificial intelligence, blockchain, assistive technology and the 4th Industrial Revolution. An ex-Paralympic swimmer, he won nine gold, five silver and one bronze medal across four Games, including a record haul of six golds at Barcelona 1992.