The extensive use of English law in trade contracts means the UK is uniquely positioned to promote the use of digital documents in international commerce. So when the Electronic Trade Documents Bill rather unexpectedly found its way into the proposed legislative agenda for the UK government’s next parliamentary session, its potential impact was always going to reach beyond those shores.

At the publication of the draft legislation, the Law Commission referenced an estimate from the International Chamber of Commerce that digitising trade documents could generate £25bn in new economic growth by 2024 and free up £224bn in efficiency savings.

The international trade finance industry is reckoned to produce in the region of four billion paper documents each year. While the technical capabilities – particularly distributed ledger technology or DLT – required to digitise trade finance documents have existed for some time, the law did not recognise the notion of ‘possession’ if documents are paperless.

“Possession is a critical concept to the right to claim performance of an obligation recorded in a document,” explains Ruud van Hilten, VP of Compliance at Tungsten Network. “The bill solves the possession issue and proposes a secure and efficient framework for paperless trade finance transactions. These developments are similar to those we have seen in electronic invoicing following the adoption of equal footing of paper and electronic invoices.”

The lack of digital records limits access to formal finance for small and medium sized businesses, restricting their ability to grow. Electronic trade documents will make verification processes more reliable and efficient with monitoring and tracking of documents pre-trade, in transit and post-trade, demanding fewer manual hours and lower turnaround times for multiple document checking processes.

“Furthermore, when there is doubt about the originality of paper documents, digital trade documents will have the added advantage of easier traceability,” observes Pushkar Mukewar, Co-Founder and CEO, Drip Capital. “This will also help trade financiers underwrite cross-border transactions.”

According to van Hilten, other countries are likely to implement similar legislation to create similar efficiencies for domestic companies, facilitate trade and retain their competitive position. Some already have legislation in place where certain trade documents are required to be digital, such as waybills in India.

“This is often driven by indirect tax law and it is our expectation that we will see more convergence between indirect tax documentation (B2B invoices, payment receipts) and trade finance documentation,” he says.

Acceptance of digital documents will greatly accelerate access to trade finance, adds van Hilten. “Digital documents are shared faster, with more transparency and traceability and cannot be repudiated and form an excellent basis for providing early trade financing.”

If the Electronic Trade Documents Bill becomes law it will have a major impact on the commodity trading space by bringing more speed to the trade says Ram Arapally, Executive Vice President, Triterras.

“To allow a digital document to take on the same status as physical paperwork increases security and when hashed in a blockchain can be a better source of originality,” he adds.

Mukewar strikes a cautious note, however, suggesting that establishing a uniform approach internationally will be challenging.

“Because different geographies have different jurisdictional rules, there is a possibility of conflict of laws,” he concludes. “It either needs to be decided which nation’s law takes precedence in a conflict situation, or new international laws, rules and regulations need to be considered to deal with the emerging project around trade documents.”