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It is probably not surprising that many international trade rules are based on English “merchant law”. England, after all, was the world’s leading naval power for centuries. What might be more surprising is that these laws, as they stand, require commercial banks to mail approximately 4 billion documents worldwide each year.

Why are they doing this? Because some of the documents they deal with – like a ship’s bill of lading – give title to the goods, but only when the document is in paper form. Under current English law, if something isn’t physically tangible, you can’t own it. This is why a paper bill of lading is valuable and an electronic bill of lading is more fragile.

There have been calls to change this for many years and it looks like it will finally happen – in part thanks to the harsh light the Covid lockdowns have thrown on existing practices. The UK Electronic Business Documents Bill is expected to come into force before the end of 2022.

And that’s not the only major legal change. The G7 agreed to collaborate on electronic transferable records in April 2021. The International Chamber of Commerce (ICC) called the decision “momentous”.

What the G7 has informed in favor of the Model Law on Electronic Transferable Records (MLETR), which was adopted by the United Nations Commission on International Trade Law in July 2017 but is slow to take off. At the end of 2021, only seven jurisdictions were on board.

The MLETR is technology agnostic; can include information from any industry standard (which often means more information than a paper document); treats electronic documents as equivalent to transferable documents or instruments; and is recognized across borders.

When G7 ministers outlined their decision in a statement, they said: “Paper-based transactions, which still dominate international trade, are a source of costs, delays, inefficiencies, fraud, error and of environmental impact.

This neat summary may have minimized the problems. The change in law that will allow electronic documentation, says Chris Southworth, ICC General Secretary, UK, “is by far the most commercially transformative change in commerce. What this allows us to do is sweep all the paper and bring technology and innovation to scale. »

The digitalization of global trade is very promising simply because the sector is so vast. The largest cargo ships can carry 24,000 containers, each requiring its own paper documentation that must be routed through many hands. UNCTAD reports that around 750 million containers moved through ports around the world in 2017.

The costs – and the potential for errors – associated with it are one of the main reasons for the $3.5bn (£2.81bn) ‘trade deficit’ – trade finance which does not is not available to SMEs – both in the UK and in emerging markets – because they cannot afford to use the existing system.

The All-Party Parliamentary Group on Trade says more than half of SME trade finance applications are rejected and less than 8% of SMEs use traditional forms of trade finance. He says ‘mostly manual’ bureaucracy in banks means incorporating an SME can cost £60,000. He sees lowering the cost of finance and integrating more SMEs into the trading system “as an imperative…in the context of a monthly drop in exports since the first quarter of 2019.”

A study by Coriolis Technologies indicates that UK trade fell by around 18% in value between December 2020 and the end of February 2021 and that the number of exporters, their income and their turnover have decreased since the fourth quarter of 2019 by 5% to 25%. Big companies fare better, in part because they are better able to overcome bureaucratic hurdles. These obstacles are both a function of Brexit, but also of the stricter rules in terms of, among other things, the fight against money laundering, introduced after the 2008 financial crisis.

Removing the sand from the trading gears can therefore only help – which the new law seems to want to do. “The EU is the most sophisticated customs union in the world,” says Southworth. “Goods can move easily, but less than 1% of trade documents are currently in digital form.”

But smoother processes are not always welcome. What about the potential for job losses as machines take over tasks currently done by people, such as checking business documents at banks?

“The reality is that it’s hard enough to find good document verifiers,” says Alex Gray, head of commercial and transaction banking at the London Institute of Banking & Finance. “Digital processes will allow trade finance professionals to focus on decisions that machines cannot make and leave the routine work to computers. This is a real victory for the industry.

However, perhaps the greatest challenge of fully digital commerce is that not all economies are equally ready. “The world is a diverse place, with diverse abilities. Half the world doesn’t have internet access,” says Southworth.

“In some parts of the world, the cost of trade exceeds its value. It is super, super important that we help governments discuss the policies and changes needed,” says Southworth. “The risk for everyone is that we have a global trade divide.”

To try to ensure this doesn’t happen, the ICC is working on a digital standards initiative for a “globally harmonized business environment”. The DSI maps each country according to its digital readiness stage and its digital capacities and laws, and offers practical support. The council includes the Asian Development Bank, the World Trade Organization and the World Customs Organization.

However, even countries that should be able to act quickly still face challenges. “Trading is a very old business, everyone is comfortable with the systems already in place, so digitization is also about behavior change,” says Southworth.

Yet allowing electronic documentation is a historic change in international trade and one that, done right, should be transformative.