The following article has been aggregated from Trade Finance Global. Its author is Pamela Mar of ICC United Kingdom
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The Model Law on Electronic Transferable Records (MLETR) has become a rallying point for digital trade advocacy. It provides the foundational framework for moving from “document to data” by enabling the use of electronic transferable records in the place of negotiable documents in trade.
There are only seven so-called documents of title which are directly covered by MLETR (and much depends on which ones each country will incorporate) but the law has nonetheless become shorthand for revamping paper-based trade systems into digital ones.
It is also central for educating policymakers about the gains from digitalisation and how to access those, and for pushing the private sector to embrace digitalisation all along the supply chain.
Seven years and one week after MLETR was finalised by the UN Commission on International Trade Law (UNCITRAL), ten economies have adopted it officially into their respective legal systems, with another two, Germany and the USA, having effectively aligned, for a total of 12.
Source: https://www.digitalizetrade.org/mletr
With 188 members and observers participating in global trade via the World Trade Organization (WTO), twelve in seven years might seem underwhelming, but it is far from the case.
12 use cases for MLETR on the global stage
A closer look at the twelve adopters, as well as the longer tail of those economies that are actively in preparations, offers a glimpse into the potential of MLETR to transform global trade.
The MLETR framework is both simple and robust, and therefore adaptable across developing economies seeking to leapfrog ahead in their digitalisation journey, as well as highly developed economies with more complex trade profiles.
Of the twelve adopters, five fall into this latter category—Singapore, US, Germany, UK and now France – which together make up nearly 37% of global GDP.
The remaining seven adopters are mostly smaller less developed economies with a collective impact of just between 1 and 2% of global GDP.
Conventional wisdom is that supply chains operate at the technological level of the least developed player, so perhaps with “only” 37%” of global GDP aligned to MLETR, it might not be a surprise that use of electronic documents such as the electronic bills of lading is still estimated at less than 5%.
It’s true that some processes, for instance, the customs declaration which benefits from coordination under the World Customs Organization, or the payment confirmation under SWIFT are highly digitalised; but overall progress on digitalising most other trade documents is still rather halting.
What is slowing the digitalisation progress?
The reasons for this are well known: developed countries have legacy systems and their own approaches while developing countries need capacity building, new hardware, and massive resources to bring them within reach of digital trade.
Everyone hides behind business as usual, cumbersome as it may be.
I would argue that we are just now reaching a crest of change, and that 2024 will go down as a historic turning point.
Interest in digital trade is stronger than ever, and political will is emerging, with resources falling into place. Looking at economies that are actively working to comply with MLETR, we assess their readiness based on existing legislation, roadmaps, and access to technical assistance.
Our findings show that both large economies, such as China and Japan, as well as smaller ones, including Thailand, Morocco, and Colombia, are making these preparations.
In sum, economies that fall into stages 2 through 5 on the MLETR Tracker, signallling active preparations, account for roughly 26% of global GDP. Adding these economies to those who have already aligned would mean over two thirds of global GDP would be aligned to a common framework for digitalising trade.
In other words, the crest of the movement is view.
What can we do to make it arrive faster?
Although MLETR itself appears to be one size fits all, its adoption is anything but. From the actual legislation to the implementation across governments, there is no simple answer.
The MLETR tracker lists eight steps to legislation passage, including the preparation of an impact study and roadmap, and education and engagement across different parts of the government. But even these are subject to variances given the individual characteristics of economies and governments.
Questions from roundtables conducted in the last two months highlight the broad spectrum of issues that need to be addressed:
- If we are planning to move towards automated clearance and checking, what happens to the current occupants of those jobs?
- How should digital trade platforms to transfer ETRs work with existing digital solutions being used, particularly in the financial sector?
- Will individual bilateral arrangements be needed in every instance?
- Should the government just develop a single platform to ensure the implementation of reliable, interoperable systems?
- How should we ensure that our ETRs won’t be subject to attack, a question amplified given the recent Cloudstrike outage.
The only commonality across these issues is that they will require new levels of collaboration between the public and private sectors; in turn, faster progress can also arrive with key domestic players drawing on the wide range of international experiences available.
Chambers and industry associations will be crucial to disseminating new best ways of working, training the needed new skills, pinpointing bottlenecks, and sharing progress to empower more to act.
And while every country is unique and will chart its best path, the international community can highlight all the options available and channel development assistance.
At the same time, digital trade corridors can offer opportunities to practice these skills even before legislation officially passes, as is happening now with China and its trading partners.
As more economies come online to digital trade, that menu of experiences will increase, and this can only spur faster integration of good practices from abroad. In other words: practice early, and communicate widely.
Digitalising global trade is a journey, and the passage of legislation is but an early step. The combination of legal and technical expertise, capacity building, development aid, and political will that will enable faster implementation of MLETR Is now clear.
Given the rewards, now is the time to marshall these resources to bring more economies over the finish line—or starting line—sooner, so that more people can benefit.
Article written by Pamela Mar, Managing Director, ICC Digital Standards Initiative (ICC DSI)