Electronic Trade Documents Bill [HL]

Viscount Waverley Excerpts

Second reading committee
Monday 7th November 2022 Grand Committee

[Viscount Waverley (CB)]

My Lords, the Minister intimated that this is a milestone, innovative Bill, so with the leave of the Committee I intend to follow that theme and be equally innovative.

One of the essential ingredients to make progress with the global trading community is to combine innovation, build efficiency and create sustainability and to do so by joining the dots—putting the jigsaw into place, if you will. Currently there are different excellent components that could usefully be harnessed into a unified approach, rather than being taken in isolation. Over the past months, I have been reflecting on a possible global trade blueprint and will take the extended opportunity afforded today to put into context three ingredients that could dovetail with the Electronic Trade Documents Bill, which would be a key component. However, none is dependent on any other.

The first lends itself well, as the Commonwealth is fertile ground given the commonality of common law and language, which is the bedrock of this Electronic Trade Documents Bill. It is a free trade agreement template initially targeting Commonwealth member states, excluding the two that are members of the EU as they are responsible to internal protocols, that can be adjusted by country to address any specific anomalies. I was originally approached some time back by a well-meaning US interest to stitch together a US/Commonwealth agreement, including the UK, of course, that would unlock the UK/US circumstance, given that the bilateral free trade agreement is moribund. This Commonwealth approach would consist of making a template of what is expected to be covered in a trade agreement with language options built in. To fast forward to the week before last, I was delighted to learn at first hand that our very own noble Lord, Lord Hannan, who is not in his place, is also running with this ball with his Institute for Free Trade, in a most welcome development.

The second is a dedicated, big-data analytics platform to encompass advanced data analytics and modelling for foreign trade data relating to supply chains in order to consolidate multiple datasets already used by the International Trade Council. These datasets, with additional overlays into a single database, could be used for analysis of markets and supply chains, forecasting and predicting market behaviour. This would enable corporates to validate their supply chains, understand market pricing, monitor competitors and forecast the market and would allow Governments seeking to assist their exporters to find new markets, identify priority investment FDI targets and model future market demand, growth, customers and suppliers. A UK entity is in the making to transition this data for global consumption.

Thirdly, and this brings me full cycle to the Electronic Trade Documents Bill, the magic is that it is all the more beneficial for being an enabler process, free for the world to join up to—just follow the provisions. If the answer to today’s ails is in the timing, this initiative hits the spot with the legal enactment necessary to a more competitive world to the benefit of all. Passing this law would be a victory for global trade and for the United Nations, as the legislative work is led through the UN Model Law on Electronic Transferable Records—MLETR. By allowing electronic documents and physical documents to be used in parallel, the transition to paperless trade can be made an evolutionary process where the adoption of electronic trade documents will take place when different stakeholders in trade and trade finance are ready to take the step to paperless trade.

Radical change in removing paper-based trading documents will make for a faster, lower-cost, more resilient and more liquid world of trading, leading towards transparent digital supply chain management. It will be especially good for small businesses. While all problems cannot be solved at once, recognising a practical step-by-step approach to solve one would be an excellent beginning.

The Bill is core to the success of improving logistical flow that will address the impediment to the speed of payments, and the current need to move paper to discharge goods and receive payments, bringing more opportunities as we align with the MLETR and benefit from digital trade corridors and individual country compliance, to which I have referred. This will allow for documents that carry value and promises to be drawn up and signed in digital form, provided that the system or document fulfils the listed requirements of the Bill.

A number of trade documents with which domestic and cross-border trade would become significantly more efficient and affordable for all are listed, but small and medium-sized entities would benefit the most. This will create significant opportunities for smaller importers and exporters globally, one reason being that the law of England and Wales is often used when parties have difficulties agreeing on the jurisdiction in which to settle disputes.

Therefore, the Bill brings benefits not only for the United Kingdom but for importers, exporters, carriers, brokers and bankers internationally. It should be recognised that the Bill is a stepping-stone towards enabling the modernisation of domestic and international trade, but more needs to be done to reduce friction in trade and trade finance.

Four questions come to mind which illustrate this and I would be grateful for the Government’s view. Are they satisfied that: international digital identities are sufficiently harmonised; international digital signatory laws are harmonised; international freight tracking systems with a lack of interoperability are a hurdle that needs to be overcome; and legal entity identifiers are accepted universally?

Significant work is being done and progress is being made in these areas by industry organisations but this needs to be supported by Governments to pave the way for international harmonisation and adoption. It will be a balancing act to create international standards in such a way that creates legal certainty on the one hand without hampering further adoption of new technologies or innovation on the other.

The United Nations Model Law on Electronic Transferable Records is a very well-designed framework, balancing the need for commercial certainty, relying on current and internationally well-harmonised substantive laws, with allowing for electronic trade documents, providing that the provisions in the MLETR are met.

The Bill will play a pivotal role when other countries revise their bills of exchange acts and other trade-related legislation when promoting alignment to the MLETR. I anticipate that this will become a global trend, with law changes already taking place in North America, South America, the Middle East, Asia and Europe.

The Bill does not change the function of the instruments listed in the Bill. All the safety mechanisms these instruments have and cater for remain intact. Allowing them to be in electronic format means that they will become more efficient and significantly safer. I underline, however, that the Bill does not address the quality of signatures or how to establish identities, other than to say that they need to be “reliable”. The European Union has a list of trusted digital signature sites and for trade it is important that different parties can use simple verification processes to trust the documents coming from another party, but it is up to the contracting parties to define the method to ensure reliability.

What is reliable today, however, will differ tomorrow as new technology evolves. Legislation that is principles-based rather than technically prescriptive is more favourable. The adoption of the EU regulation for eID and other electronic trust services has been slow in cross-border trade, the main reason being that these have not been readily available and easily accessible as technical solutions. The result has been paper-based trade rather than electronic. Although not perfect, in some cases a lower standard is the stepping-stone for adoption, especially in cross-border dealings, provided that the parties have agreed on where to settle disputes.

The Bill does not resolve the development and standardisation of eID and signature technologies, however, which must continue to evolve. We will also see new payment and settlement solutions, possibly decentralised, as we realise that large players such as MasterCard and Visa will come to have a large degree of global systemic risks associated.

The Bill will help to encourage the development of solutions that will address deficiencies. To take some examples to illustrate progress, Trace:Original, a product of Enigio of Sweden, is producing the means by which electronic documents that will be trade finance-enabled yet functionally equivalent to a paper document, which will render documents paperless using existing processes and international practices, provided that this Electronic Trade Documents Bill passes. I am informed that Lloyds Bank is showcasing the technology available and that the efficiency gains are significant for all concerned. There is also noteworthy development with Contained’s BlueRing platform as a technology solution advancing the process.

It is essential that there be a key role for the Commonwealth Secretariat in informing and encouraging Governments. We should also look at a mix of the Institute of Export and International Trade—with which I am also discussing the role of secretariat to the All-Party Parliamentary Group for Trade and Investment, which I co-chair—with additional support from the International Chamber of Commerce, as an architect of this Bill, together with a secondee of HMRC of this electronic trade initiative. A trade advisory to Governments, International Economics, might also be well suited to act as a global co-ordinator.

These are early days, with much to do and no time to lose. This enabling Bill is, however, the beginning of an exciting journey that ticks the boxes and I commend it accordingly.

[Lord Lansley (Con)]

My Lords, I am very glad to have the opportunity to follow the noble Viscount, Lord Waverley. He is, as he mentioned, co-chair of the all-party group for trade and export promotion, of which I am a member—

[Viscount Waverley (CB)]

Vice-chair.

[Lord Lansley (Con)]

Indeed—I am a vice-chair. I thought the noble Viscount made some interesting points, and I very much join him in welcoming the Bill.

Sometimes, we are wont to criticise Bills that are in the form of a framework but, in this instance, there is an understandable structure here from the Law Commission. In the adoption of electronic trade documents, it encountered the legal constraint of the possession of electronic trade documents as a common-law principle and, rather than try to codify and put into statute everything relating to the common law in this respect, it said, “Let us at least try to equate electronic trade documents to paper documents in statute.” This will allow us to see how some of the courts’ decisions over time enable those established principles in relation to paper documents to be extended into electronic trade documents, which would be very helpful.

We are, therefore, dealing with a Bill that is technology neutral. I know that my noble friend Lord Holmes of Richmond knows far more about the technology of these things than I do; I hope he will agree that a technology-neutral Bill is a good structure for us to work with.

I want to talk about a number of other things. I am a member of the International Agreements Committee of your Lordships’ House and we have had the opportunity to look at some of the agreements that we are now entering into; for example, on digital trade with Singapore and the free trade agreements that we have entered into with Australia and New Zealand, as well as the prospect of entering the CPTPP agreement, which, in the context of regional, international and plurilateral agreements, is probably the most advanced in its promotion of digital trade. There is no point having such agreements that open these opportunities for digital trade if we do not put the literal building blocks of digital trade in place.

Last October, the G7 group of Trade Ministers agreed digital trade principles. I think the United Kingdom was instrumental in enabling that to be brought together; it is therefore terrific that we are implementing it rapidly in our legislation. As the noble Viscount, Lord Waverley, said, I hope other countries will take similar steps to put their jurisdictions into a similar framework. I hope we will look toward the framework of the United Nations Commission on International Trade Law, the Model Law on Electronic Transferable Records, to which the noble Viscount referred. The more that jurisdictions across the globe can structure their legislation domestically on an international template of that kind, the better.

We have a particular responsibility because, for so many of these international trade documents, in so far as they have a legal base, they have it in English law. I am advised that 80% of bills of lading, if they were challenged, would be challenged in an English court. We really need to make sure that our law is a leader in this respect. I hope we will find that during our work on this Bill.

I entirely applaud the Bill’s overall structure and intentions. My noble friend the Minister very well and happily set out all the substantial benefits that can accrue from this, in trade, economic and environmental terms. I very much look forward to our achieving those. However, there are issues we need to discuss, notwithstanding this being a Law Commission Bill; by its nature, we need to examine it—it is our job as a revising Chamber to look at it very carefully and ask all the questions, not least so that the other place can be confident that it can pass it happily and quickly.

I will refer to a range of issues. Underlying this is the fact that, if we are not trying to structure the legislation around the concept of the possession of electronic trade documents, we are none the less trying to adopt what is referred to as exclusive control in the singularity of electronic trade documents. It is difficult. The explanatory notes to the model law in UNCITRAL captured it rather well at paragraph 82, which says that

“a paper document, as a physical object, is by nature unique and, furthermore, centuries of use of paper in business transactions have provided sufficient information to commercial operators for an assessment of the risks associated with the use of that medium, while practices relating to the use of electronic transferable records are not yet equally well established.”

We need to be sure that we understand where the risks emerge. There are potential benefits associated with the use of electronic documents, as my noble friend will doubtless explain, including those in security and reliability, but there are also risks.

I hope the House will establish a Public Bill Committee to examine this Bill so, before I stop, I will raise a number of issues. I do not ask my noble friend to reply to them in this debate; they are more appropriate for the committee, but I thought it would not hurt to flag them up, simply because in my preparation for today I encountered a number of issues that I thought would be interesting to discuss.

First, there is a reference in Article 13 of the model law under UNCITRAL to time. Provisions relating to the indication of time and place are found in many trade documents; there may well be mechanisms through which we can make the time of documents electronically secure, but not necessarily in the same way as we do with paper documents. This concept of “reliability” will have to be extended to time on documents as well as to other factors. Since Article 12 of the model law is transposed almost literally into this Bill, for example, I wondered why we have not transposed one or two other aspects of it in the same way.

Secondly, on the question of acting jointly, when one is dealing with paper documents, one knows who has possession of them. In the context of electronic documents, not least because of some of the technological aspects, such as the number of people who have access to a private key, we may deal with people who have to act jointly in circumstances that would not be evident for paper documents. We need to understand the safeguards associated with the intentions of people acting jointly, because the Bill rests upon that understanding and how it will be achieved.

Thirdly, there is a whole process in Clause 4 by which documents can be transferred from paper to electronic or electronic to paper forms. The Bill is clear that this has to be in circumstances made evident in the respective documents. However, if I recall the Explanatory Notes correctly, it is clear that, while that should be the case, if it is not, it does not automatically follow that the electronic trade document concerned is not valid. It may still meet the criteria to be a valid document for these purposes. I would like to explore in Committee how that is the case and what happens in circumstances where documents are transferred from one form to another, not least because there is greater risk of duplication in such a case.

Clause 1(2) lists examples of documents. This is not the same as the list in the model law. I know that this is not exhaustive—it is indicative—but I do not understand why, in paragraph 38 of the explanatory notes to the UNCITRAL model law, for example, there is a reference to

“bills of exchange; cheques; promissory notes; consignment notes; bills of lading; warehouse receipts; insurance certificates; and air waybills.”

This is not the same as the list in the Bill. Why is it different and what are the justifications for those differences?

A question we need to follow up and explore further in the debate is the intention of the Law Commission. It says it is going to come on to the interaction between these changes and private international law, but we need to think particularly about the transitional issues—I hope they are only transitional—associated with our jurisdiction creating valid electronic trade documents when other jurisdictions do not. How do we deal with those connections? From our point of view, similar to the discussion on a single trade window, we want interoperability. We want our borders to be frictionless and other borders to be frictionless. That means they need to be aligned in various ways, including in those jurisdictions.

I want to make two final points. First, I want to explore what the voluntary industry standards are for the purposes of the reliability standard. Secondly, in paragraph 36 of the Explanatory Notes to the Bill, there is an expectation that documents are original, but there can of course be multiple original documents. There can be multiple paper documents that are treated as original. The explanatory notes for the model law make it clear that this is something that electronic trade documents do more readily. We have to understand that these documents are not necessarily singular and how to deal with them when they are not, but are multiples that are original.

I hope that gives your Lordships a sense of the discussions we might have in Committee. I very much share what I hope is the collective view of the House: I support this Bill and want to see it make good progress quickly.