How quickly will companies take advantage of the advances in trade related technology that affords them reductions in costs as well as improvements in risk mitigation?
On April 6th the International Chamber of Commerce issued an urgent memo to governments and central banks on essential steps to safeguard trade finance operations. The memo’s main point is a call on all governments to void, as a temporary measure, any legal requirements for trade documentation to be in hard copy; and adopt meanwhile the UNCITRAL Model Law on Electronic Transferrable Records.
Governments are being encouraged to implement the 2017 United Nations Commission on International Trade Law Model Law on Electronic Transferable 3 Records (MLETR), which provides the clarity necessary for widespread adoption of digitalized trade and trade finance instruments.
The ICC further stated: “Despite extensive negotiation and unanimous adoption of the instrument by the United Nations General Assembly—and associated discussions in the World Trade Organization —adoption of the MLETR has been low. Now is the time for its widespread adoption of to ensure trade finance can be conducted in a paperless manner with a workforce working-from-home.”
Whilst this measure is presented as temporary given the current extraordinary health crisis, it does have, however, a high potential to become permanent.
The ICC’s memo follows two major revisions of the legal framework supporting international trade, in an effort to assist banks and corporates to accelerate adoption of paperless trade: the revised Electronic Uniform Customs and Practice for Documentary Credits (eUCP Version 2.0) and its first-ever supplement of the Uniform Rules for Collections URC 522 (eURC Version 1.0).
This move comes as part of the ICC’s Banking commission on-going work, focusing on three main pillars: eCompliance, eLegal and eStandards. According to the ICC website, eUCP Version 2.0 supplements the ICC’s UCP No. 600 (2007 Revision) “in order to accommodate presentation of electronic records alone or in combination with paper documents […] where the credit indicates that it is subject to the eUCP”, while eURC Version 1.0 supplements the ICC’s URC 522 (1995 Revision) to similarly accommodate for electronic presentation or mixed electronic and paper document presentation “where a collection instruction indicates that it is subject to the eURC”.
With its memo, the ICC urges governments to act in favor of digitalization of trade finance. This reflects the global and industry-wide consensus towards advancing trade processes and rules and making them fit for the digital era.
With the advances in technology, numerous parties in the global trade and entrepreneurs have recognized the huge opportunity afforded by taking trade related communication to the next level. Too many solutions on the market, however, are focused on a particular niche or technology. Some are proposing to replace paper documents with e-documents, others are dealing with digitizing all aspects of trade execution whilst many others are focused on communication aspects surrounding trade finance processes. Some of these consist of innovative platforms, whilst others are leveraging on new technology such as blockchain. Some solutions are aimed at the agricultural and food sector only, whilst others cover the energy players.
In 2018, with the media flooded with blockchain proof of concept news, we were asking a central question: what is the value proposition, e.g. what will drive exporters, traders and importers together with their financiers adopt a certain solution?
To answer this question, we have identified some key benefits primarily for the corporate sector: producers / exporters, trading companies and importers / consumers.
The adoption of digitized trade solutions can have significant positive impacts in several interlinked areas:
- Operational: faster document processes including creation, signature, amendment, storage and traceability; automation of certain manual tasks all the way to robotic process automation; faster communication with process relevant parties; potential for automated invoicing with data availability related delay elimination; electronic certificates speeding up processing.
- Financial: reduced processing costs, reduced specific trade and trade finance costs (e.g. demurrage, confirmation), improved days sales outstanding meaning reduced working capital need and related cost; lower cost of borrowing stemming from improvement in pledged asset / security monitoring.
- Risk: lower operational risk, lower fraud risk, lower compliance and credit risk with full asset traceability.
We believe the world of trade finance, and corporate treasuries, will be quick to embrace the optimization potential offered by a digitized trade world.
We look forward to hearing your views and supporting your company with identifying and implementing relevant solutions to turbo-charge your trade.