The Electronic Trade Documents Act (ETDA) comes into force this week, after receiving Royal Assent just under two months ago in July. It’s potentially a landmark moment for UK trade, with various industry experts describing it as a “game-changer” and the as “missing piece in the jigsaw”.
The legislation itself gives digital versions of certain key trade documents – like bills of lading and promissory notes – equal legal standing to their paper equivalents in English and Welsh law. However, its scope is potentially much larger. As Ramin Takin, the co-founder and head of sales & partnerships at global trade management software firm Exabler, said in our explainer two weeks ago:
“It’s more about enabling the trade process to now be digitalised, rather than any individual document.”
“The impact can be only positive and bring potential benefits to the business,” said Ilona Kawka, the Institute of Export & International Trade’s (IOE&IT) digital trade and customs specialist.
However, as we explored last week, there is no guarantee that the game-changing potential of the act will be realised, with the UK now needing to clear a number of hurdles to secure the reported £1.1bn of potential savings for UK businesses.
So with the law coming into effect on Wednesday 20 September 2023, what happens next?
Digitising other documents
The legislation itself specifies certain trade documents for which digitisation now has a legal basis, including bills of exchange, bills of lading and promissory notes.
Kevin Shakespeare, the director of strategic projects and international development at IOE&IT, notes that these documents are largely “negotiable instruments” through which trade transactions have historically been completed.
He hopes they can be drivers for the digitisation of other documents not mentioned within the legislation, such as e-Phyto certificates, electronic export health certificates, airway bills and CMR notes for road transport.
Sylwia Nowak, senior customs and foreign trade compliance officer at automotive supplier Brose Group, hopes that ETDA paves the way for the digitalisation of transit – the customs procedure through which goods can move across multiple customs territories without incurring customs costs and checks at each border.
“One of the most important things, especially as an automotive exporter, would be electronic transit and the facilitation of road freight,” she said. “For instance, in Germany, authorised consignors can open a transit within their premises digitally and trouble-free. I think this is an important next step for the UK.”
“I think one of the challenges is always industry adoption,” said Shakespeare last week.
The adoption challenge is one faced by both businesses and the software developer community. As Takin told us, because the legislation is quite thin on detail – it’s only around four and a half pages long when printed – the onus is on industry to come up with the solutions and systems that will allow businesses to make the most of its purported advantages.
“In general, it's good to have something that’s more open, because then it’s up to industry to come up with the solutions,” he said. “But to get things moving, there could be a problem for whoever it is that takes the first step to come up with a view on what’s going to work and what’s not going to work.”
For businesses, a lack of information about what the act really means for them, and how it will work in practice, could also lead to slow adoption of the digital solutions it’s supposed to encourage.
Furthermore, the act, as a legal instrument, needs to be translated for businesses. As Nowak told me, it needs to be presented in “plain English” to businesses.
So it’s clear that two further activities need to happen. Firstly, businesses need to be given clarity about what the law means for them and how its benefits can be practically achieved. Secondly, the industry will need to create or drive adoption of technological solutions that enable businesses to digitise the trade documents included in the legislation.
Single Trade Window and other initiatives
It’s no coincidence that ETDA comes into force in the same autumn as the government’s publication of the UK’s new Border Target Operating Model (BTOM) and the development of a new Single Trade Window (STW) platform.
Both of these initiatives are key planks on which the government is trying to achieve its 2025 Border Strategy, which seeks to use modern technologies to create the world’s “most effective border that creates prosperity and enhances security for a global UK”.
BTOM seeks to harness “power of data and technology” to facilitate a risk-based approach to conducting controls on goods entering Britain, while the government is hoping that the new STW portal will “reduce the cost of trade by streamlining trader interactions with border agencies”. Both rely, to some extent, on the digitalisation of various trade processes.
“I see tonnes of opportunities out there, especially with the STW,” says Nowak. “I think this, with ETDA, will open doors for companies that would like to implement electronic systems or provide electronic solutions for traders, without having to worry about the need for paperwork.”
The need to ensure new systems interoperate with other future IT platforms has also been highlighted as an important requirement in this new digital trade era.
This is particularly important for STWs. As Nowak points out, in reference to the fact that Australia and New Zealand already have STWs and that the EU is also looking to develop its own:
“It’s really important that STWs integrate with each other, so that the systems transfer data electronically. For example, an EU exit declaration, submitted into the EU system, could be registered by a UK system like CDS.”
“At the moment businesses face a huge burden when systems don’t communicate with each other. If you could submit the information through one system and only once, because the different country’s systems are communicating with each other, that would minimise a lot of documentary requirements for traders.”
Shakespeare agrees and says that this approach should be broadened out to all countries.
“We want everybody to be able to participate in the new world of digital trade, which includes all sizes of businesses and all nations. Interoperability is the key.”As Kawka puts it:
“It might be a long term vision for digital trade, as we know developing tangible plans and goals takes time, but I would love to see all those solutions and plans coming together as an interoperable ecosystem driven by truly global standards.”
Standards and assurance
The role of standards certainly has a key role to play both in ensuring that the right systems are developed and in ensuring that businesses can show their compliance in the new digital, trust-based era for trade.
In terms of systems development, Kawka explains:
“Standards provide a transparent framework that promote interoperability, data consistency, security, and, in many cases, help to provide a further legal basis for digitalisation.”
Work is already under way to ensure there are standards that developers and businesses can adhere to internationally. For instance, the ICC Digital Standards Initiative seeks to establish a “globally harmonised digital trade environment”.
For businesses, the International Organization for Standardization (ISO) has developed Legal Entity Identifiers (LEIs) to provide a “clear and unique identification of legal entities participating in financial transactions,” according to the Global Legal Entity Identifier Foundation (GLEIF).
Shakespeare says that LEIs provide both an “additional level of compliance and assurance” for businesses.
“It gives another layer of assurance as well as interoperability. It also creates the opportunity to ensure trade finance is bought into future initiatives like the Ecosystem of Trust as it gives banks assurance about the businesses participating in these schemes.”
Businesses need to prepare
However, Shakespeare adds that only around 4% of businesses in the UK currently have a digital LEI.
It’s therefore clear that businesses also need to start preparing for the new era of digitalised trade that ETDA supposedly paves. This could be potentially transformative for businesses. As Kawka explains:“Undergoing a digital transformation is a company-wide project where all departments should be involved.
“To truly embrace the digitalisation and maximize the results, the businesses need to assess the current state of their IT infrastructure, internal processes and training capacity.”
Training is definitely something businesses can do right away to ensure they’re moving in the right direction and IOE&IT partners with ICC UK and the Centre for Digital Trade and Innovation (C4DTI) to deliver two courses to support businesses with this transformation.
Kawka says that courses like this are “one of the keys to digital transformation.”
“IOE&IT provides training about digitalisation of trade documentation, which I recommend to incorporate into your business’ digital transformation plan. It is suitable for everyone dealing with any trade or financial document for cross-border transactions.
“We are also delivering specific courses on data standards and digital identity. This course tells you everything you need to know about LEIs, which are key to building trust in the digital trading environment.”
Staying alert and ‘give it a go’
However, while standards and training courses have already been developed to help traders prepare, the way in which trade digitalisation will unfold will likely be quite fluid in the weeks and months ahead. As noted above, the legislation is thin on detail, so it remains to be seen how industry will exactly interpret it.
Takin adds that it will be important for businesses – particularly smaller ones which may, at this stage, be less ready for digitalisation – stay alert to industry updates.
“Listen to what organisations like the IOE&IT have to say to ensure you’re staying up-to-date about what changes are coming, what systems are being developed and how your business can benefit.”And businesses need to approach this new era with a can-do attitude, Nowak says.“The key rule is to always be open to changes. It’s a new act and I appreciate there is uncertainty about how it will work in practice.
“But the new era of digital trade it could lead to is really exciting. Businesses will need to be ready to try new systems. You’ll have to give it a go!”