The Electronic Trade Documents Act (ETDA) enters into force on 20 September 2023 in what has been called a “vital development for the improvement of the efficiency and sustainability of international trade” by many business leaders.
The bill has been hailed as a possible cost-saver for traders, with technology and digital economy minister Paul Scully recently saying that it could save businesses an estimated £1.1 bn over the next decade.
Chris Southworth, the secretary general of the International Chamber of Commerce’s (ICC) UK branch, and a long-term advocate of the act has also called it the “missing piece in the jigsaw” in the UK’s plans to digitalise trade processes.
“The legal requirement to handle commercial trade documents is holding up the implementation of new digital trade corridors, the scaling up of technology solutions and the standardisation of trade platforms, processes and systems across both the public and private sectors,” he recently posted.
However, what actually is the act and why is it so important for trade?
What is ETDA?
The act, for the first time in English and Welsh law, gives digital versions of certain commercial trade documents the same legal footing as paper versions, particularly those used for the “trade in or transport of goods” or the financing of such trade or transport.
The legislation lists the following as examples of the documents that can now be digitised: bills of exchange, promissory notes, bills of lading, a ship’s delivery order, warehouse receipts, a mate’s receipt, marine insurance policies, and cargo insurance certificates.
Brief on details
However, Ramin Takin, co-founder and head of sales & partnerships at global trade management software firm Exabler, says there isn’t much information within the act itself about how this will work in practice.
“It's a fairly short act – it's only four and half pages long,” he says.
“It largely focuses on enabling the digitisation of certain trade documents by creating a definition of what an electronic trade document actually is.
“However, compared to some other countries, there’s less information or guidance about how this will be operated.”
He notes that it will be largely down to the private sector to determine how the trade documents cited in the legislation will be digitalised and then used.
The documents themselves
Kevin Shakespeare, the director of strategic projects and international development at the Institute of Export & International Trade (IOE&IT), also notes that the initial scope of the legislation may be more relevant to certain sectors than others.
“If you use shipping documents like bills of lading or financial documents like bills of exchange, you will now have the opportunity to use electronic versions of these. This will reduce the costs of having to pay for paper copies of these documents, but this is a relatively small cost.
“Something like a bill of lading is generally of more importance to traders of time-critical commodities like oil, gas and steel. The initial benefits of the digitalisation of these documents will therefore probably be more felt by time-critical sectors and traders of other perishable commodities like agricultural goods, who more frequently use the documents included in the legislation.”
Sylwia Nowak, senior customs and foreign trade compliance officer at automotive supplier Brose Group, further notes that companies like hers, who move goods by road rather than sea, will be less affected by the opportunity to digitise documents like bills of lading.
“Many automotive suppliers don’t import so many sea containers, so the usage of letters of credit or bills of lading is less frequent”, she says.
Broader impact
However, Nowak, Shakespeare and Takin all see the impact of the legislation as being less to do with the documents themselves and more to do with the legal hurdles it allows businesses to overcome when digitalising their broader trade procedures.
Takin explains:
“The way I read it, and how others seem to have described it, is that the act’s impact is making possible things that have till now been impossible, allowing documents to go digital all the way through the trade process.
“So, it’s more about enabling the trade process to now be digitalised, rather than any individual document.”
Nowak agrees, saying, “I think the legislation is a huge opportunity as it opens doors to wider opportunities because you need to have some sort of legal basis for digitalisation.”
She cites the UK’s plans to introduce a Single Trade Window portal as one of the major potential consequences of the act.
Digitalisation drivers
Shakespeare adds that the documents cited in the legislation are of importance because they’re “drivers of electronic documentation” due to their historic importance as the “negotiable instruments” through which trade transactions have been completed.
However, he adds that the importance of the act could well be the fact that it indirectly encourages the digitisation of other documents that aren’t necessarily included as examples in the legislation. This includes e-Phyto certificates, electronic export health certificates, airway bills and CMR notes for road transport.
Tackling fraud
Shakespeare also explains that the legislation will also help banks and other financial institutions have better “visibility” of trade transactions, helping them to tackle money laundering in global supply chains.
“Banks are seeing an opportunity not just for digitisation to support the trade finance services they provide, but also how they cover issues like money laundering.
“If you have greater visibility of transactions, which the digitisation of financial documents through this legislation supports, you can know what’s actually taking place.
“For instance, you can spot a ghost shipment digitally or you can see if a commercial invoice is being used in a fraudulent way for invoice discounting or factoring. You currently hear stories of someone presenting a single commercial invoice to seven different banks and getting seven different bits of financial support in return, which is fraudulent.
“The greater visibility that banks will have, because these documents are becoming digital and therefore trackable, will help them to tackle this as you can have one version of the truth – you know it’s a real transaction you’re lending money against”
Adoption needed
Ilona Kawka, a digital trade and customs specialist at IOE&IT, says that, overall, the act should be beneficial to traders, but agreed with Takin that it will be up to the private sector, including exporters and importers, to adapt and adopt the new digital trade procedures the legislation is aiming to drive.
“The impact can be only positive and bring potential benefits to the business.
“However, traders will need to start to prepare to adapt their processes and systems to utilise the technologies that will be enabled by the act.”
Nowak agrees, despite there currently being a bit of “uncertainty amongst businesses about how the act will exactly impact them” at this stage.
“UK automotive industries use a lot of road freight, doing a lot of groupage shipments. There might be a number of different suppliers for vehicle parts under a single entry, and often imported under customs special procedures.
“However, importers are ending up with huge piles of paperwork, which can include multiple commercial invoices, packing lists, delivery notes and so on, and that’s just for one supplier.
“If for example you’ve got 20 or 30 suppliers with parts in one consignment, you’re often ending up with 150 pages of documents, that must be kept for auditing.
“You can see how much paper is involved there and this act will simply support remove some paper burdens.”
She adds that the act will give the legal basis for companies like hers to store information digitally, so that when “the customs officer comes to our doors, we are ready to present the documents within a few seconds, and we have that legal basis that we don’t need to be showing them hard copies”.
However, Nowak adds that the industry will now need to be shown that a digital approach “actually works and this will take some time”.
The bill certainly paves the way for digitalisation; the challenge for the UK now is to help businesses walk the path.