Enabling Paperless Trade
In the drive for simplicity and automation in trade, companies and banks are increasingly turning to digitization. In the last few years, eCommerce trade has grown from a few million dollars to over $1.7T of trade in 2016, across platforms such as eBay, Alibaba, Amazon, in US, EU and China.
But what does it mean and why should G20 leaders take note?
Digitization in trade and trade finance brings significant operational and financial benefits through automation whilst providing greater compliance and transparency. IATA estimate that eDocs will reduce export paper processes by up to 44% when fully digitized.
The digitization of things also known as the Internet of Things (IoT), increasingly offers real-time cargo information and in turn a reduction in risk for buyers and banks. As digitization efforts bear fruit, the risk (and cost) of trade will reduce, in turn allowing for more trade finance and more trade.
As financial inclusion bubbles to the top of policy imperatives, enabling digital trade should be a critical initiative for all G20 leaders.
In addition, real-time digital document analysis combined with artificial intelligence learning offers a powerful tool in identifying terrorism financing flows and dual use goods shipments which are in contravention of export controls.
There are several different levers which can be pulled to enable digital trade as follows:
Acceptance: ensuring that relevant arms of Government, such as the Central Bank, Customs, Health and Tax Authorities, as necessary, accept electronic trade documentation as an alternative to paper. Furthermore, where digitization projects are underway such as the IPPC ePhyto Hub Project, it is critical for Governments to participate to ensure their global success. Adoption of the World Customs Organization Data Model as part of a Single Window project will also greatly facilitate digital trade, as will the full implementation of the WTO Trade Facilitation Agreement (TFA) once more member states support and accept it.
Incentives: the transition to digital trade is a significant endeavor for companies and banks alike. Incentivizing trade participants to make the investment will accelerate the transition and in turn deliver the benefits to GDP and financial inclusion. Possible incentives that G20 countries could offer include: (i) blue line customs clearance for cargos shipped under digital documents; (ii) reduction in capital adequacy requirements for credit provided under a digital trade asset; (iii) tax credits for companies engaged in digital trade transformation; and/or (iv) tax credits or grants for digital trade providers.
Legislation: one key complexity in digital trade, is the enforceability of electronic title documents, such as bills of lading, warehouse warrants, bills of exchange and promissory notes, without the need for a complex multi-partite legal agreement. G20 leaders can assist by ratifying for example the Rotterdam Rules which enables electronic bills of lading, or the upcoming UNCITRAL Model Law on Electronic Transferrable Records (due to be adopted in July 2017), which deals with all negotiable instruments. In addition, G20 countries should focus on promoting technological neutrality, i.e. no requirements for local digital signature providers or local storing of data, as this negatively impacts the suitability of those rules for international trade.
In summary, Digital Trade will provide enormous benefits, whether focused on domestic or international trade. The support of G20 leaders is important in accelerating this transition.