The Electronic Trade Documents Act Comes into Force

As a technology enthusiast who has been writing about potential applications of distributed ledger technology and blockchain since 2017 Chris has been a vocal supporter of this new law. The Electronic Trade Documents Act comes into force this week (20th September 2023).

On the face of it a simple change – to allow digital trade documents the same status in law as paper trade documents. In practice, as so many trade documents (such as bills of lading and promissory notes) are possessive in nature some serious thought by the Law Commission has gone into drafting a law that will allow digitization of trade documents to function in the same way as paper documents and be subject to the principle of possession.

Chris has described it as the most important law you’ve never heard of. Not only because it could transform international trade – making it easier, cheaper, faster, more secure and delivering significant environmental benefits – but because it has the potential to turbocharge blockchain innovation and adoption.

The law itself is technology neutral, both agnostic about preferred solution providers and future-proofed as technology develops. What it does do is set out the criteria that must be met by a ‘reliable system’ to qualify as an electronic trade document. These criteria are set out in clause 2 of the Act and include singularity, integrity and exclusive control. Requirements that can be designed using distributed ledger systems.

The implications of this move to digital are huge. Currently there are three elements to trade, finance, paperwork and shipment, all with their own processes and systems and all reliant on paper. If these processes move from paper to data, those three parts collapse. Finance will be able to transact at the same time as the physical shipment and the transfer of possession of the goods (in real time rather than months and weeks).

The UK is at the forefront of these developments and is the first G7 nation to pass legislation that is compatible with the UN’s model law on electronic transferable records (MLETR). English law has a considerable impact on global trade, 80% of bills of lading and 60% of global trade finance operate on English law. Shipping companies and insurers also tend to operate on English law as well as the trade companies themselves.

As Chris says, this is a game-changing piece of legislation, but it is just the start. In the House of Lords, he has been calling on Government to act to spread the work to ensure we make the most of the opportunity and unlock these extraordinary benefits for all.

The UK benefits from a combination of our tradition of common law, technological expertise (including in blockchain) and excellent financial services ecosystem. Now that the Electronic Trade Documents Act has removed a significant barrier to digital trade Chris calls on everyone to get involved and explore how the digitization of trade documents can increase efficiency, reduce costs, improve security and compliance and deliver environmental benefits.

Read more about the Bill’s passage through Parliament and various perspectives on the new law in Chris’s blog.