In the ever-evolving landscape of international trade, digitising trade processes and documents plays a pivotal role. 

One significant development in this realm is the adoption of the UNCITRAL Model Law on Electronic Transferable Records (MLETR). 

To learn more about the latest updates on MLETR adoption in the G7 countries and emerging markets, Trade Finance Global spoke with Luca Castellani, legal officer at the Secretariat of the United Nations Commission on International Trade Law (UNCITRAL).

The journey of MLETR

MLETR aims to bridge the gap in trade digitisation by addressing transferable documents and instruments, such as bills of lading, warehouse receipts, promissory notes, and more. 

Historically reliant on paper-based processes, these documents require legal adaptation to ensure equivalence with electronic alternatives. MLETR is a model law that provides these needed adaptations.

The United Kingdom takes credit for bringing MLETR into the spotlight during its presidency of the G7. While the UK has made notable strides in implementing MLETR, other G7 nations are progressing at varying paces.

Adoption in G7 economies

In the United States, the legislation enabling the use of most transferable documents is already in place. However, some specific documents, like bills of lading, still require further application. 

Germany finds itself in a similar position, with existing legislation that has yet to be fully utilised and the country’s business community eagerly awaiting guidance on effectively embracing MLETR. Notably, Germany is now considering the option of adopting MLETR through implementing regulations.

Japan stands out within the G7. It has a study group dedicated to exploring the application of MLETR to bills of lading and already possesses laws based on different principles for electronic promissory notes. 

Meanwhile, France is anticipated to release a white paper that addresses both the legal and business aspects of MLETR.

Castellani said: “I was privileged to participate in the preparation of the legal part of the French whitepaper, and I have to say that will be a game changer for the countries that have legal systems similar to France, such as Italy, Spain, or in Latin America.”

Overall, the G7 countries are steadily progressing toward MLETR adoption, with each nation approaching the transition from its unique perspective.

Engaging emerging markets

The adoption of MLETR is wider than the G7 economies, as other markets also exhibit a keen interest in the model law. Notably, countries that have already implemented MLETR often fall within the emerging market category.

Countries like Papua New Guinea, Belize, Kiribati, Bahrain, Paraguay, the Abu Dhabi Global Markets in the United Arab Emirates and Singapore have already adopted MLETR.

India, within the framework of the G20, has expressed preliminary interest in MLETR adoption, though it remains in the early stages. 

China, in collaboration with the Asian Development Bank (ADB), demonstrates a strong interest in MLETR. The ADB actively supports MLETR considerations with ongoing initiatives in China and Georgia. 

Multilateral development banks like the ADB are crucial in advancing MLETR adoption worldwide. Through partnering with the ICC Digital Standards Initiative (DSI), ADB has made significant progress in promoting MLETR and the European Bank for Reconstruction and Development (EBRD) recently launched a similar initiative. 

The involvement of these institutions underscores the broader implications of digitisation beyond trade efficiency, encompassing areas such as compliance, governance, and environmental impact.

Castellani said: “For banks, it is about making trade financing more efficient, but there are broader implications. Once we shift towards digitisation, we will have easier compliance, better governance, and the possibility to account for ESG in the supply chain. 

“These implications are important for development banks, and we should not forget them when considering the impact. Even just the environmental impact of not printing and sending all of this paper will be quite something.”

Electronic transferable records use

As MLETR adoption progresses, using transferable electronic records is becoming increasingly prominent in international trade.

The benefits of using electronic documents are manifold –  including improved efficiency, reduced costs, enhanced security, and greater transparency – and one significant area where electronic transferable records are gaining traction is trade finance.

The digitisation of trade finance processes, including electronic bills of lading and electronic letters of credit, streamlines operations and reduces the reliance on paper-based documentation.

This, in turn, facilitates faster transactions, minimises the risk of document loss or fraud, and enables real-time tracking of goods in transit.

Moreover, the use of electronic transferable records has a significant impact on supply chain management. By digitising trade documents and making them easily accessible across multiple stakeholders, the entire supply chain can be synchronised and optimised, improving visibility, coordination, and communication among various parties involved in the trade process. 

Adopting electronic transferable records also has broader implications for global trade as it promotes interoperability and harmonisation of trade practices, enabling businesses from different countries to engage in seamless digital transactions. This can boost international trade volumes, foster economic growth, and create new business opportunities worldwide.

MLETR among broader digital trade trends

Adopting MLETR and electronic transferable records aligns with the broader digital transformation trend in various industries. 

As businesses increasingly embrace automation, data analytics, and artificial intelligence, the digitisation of trade processes becomes a natural progression. It allows for the integration of trade data into digital platforms and systems, enabling advanced analytics, predictive modelling, and the development of innovative trade finance solutions.

However, addressing potential challenges and concerns associated with electronic transferable records is essential. 

Castellani said: “Adoption of the model does not mean that we’re flicking the magic switch. There is a need – a serious need – to rethink business processes.”

One crucial aspect is ensuring the security and authenticity of electronic documents, as the risk of cyber threats and document tampering exists. Robust security measures, including encryption, digital signatures, and secure authentication protocols, are necessary to mitigate these risks and build trust in electronic transactions.

Additionally, the industry needs legal frameworks and international standards that recognise and enforce electronic transferable records across jurisdictions. Harmonising inter-jurisdictional regulations is also crucial to ensure consistent and reliable treatment of electronic documents, regardless of the countries involved in the trade.

The adoption of MLETR and the use of electronic transferable records represent a significant milestone for trade digitisation. While the G7 countries and emerging markets alike are making progress, there is still work to be done to achieve widespread adoption and address associated challenges. Recent regional trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) provide certain foundational elements in that direction. The pluri-lateral Digital Economy Agreements give additional details, including by requiring consideration of MLETR adoption.

The potential benefits of electronic transferable records in efficiency, cost reduction, transparency, and global trade facilitation make it a promising development for businesses and economies worldwide.

The post Status update: MLETR adoption in the G7 and emerging markets appeared first on Trade Finance Global.

The views expressed herein are personal and do not necessarily reflect the views of the United Nations.

As we navigate through a tumultuous and uncertain start to the decade, the banking industry faces new challenges in 2023. 

However, with these challenges come exciting opportunities to adopt new technologies and move towards digital and sustainable futures. 

At the BAFT Europe Bank to Bank Forum, experts from across the industry have come together to discuss the future of banking and trade finance.

Among the items on the agenda is the role of the United Nations Commission on International Trade Law’s (UNCITRAL) Model Law on Electronic Transferable Records (MLETR) in supporting the regulatory environment for digital trade. 

To learn more about UNCITRAL and the efforts to support the regulatory environment around digital trade, Trade Finance Global (TFG) spoke with Luca Castellani.

The practical impact of MLETR on global trade

The MLETR was first introduced in 2017 to address the possibility of using electronic forms for transferable documents and instruments, such as bills of exchange, bills of lading, warehouse receipts, and promissory notes. 

Castellani said, “MLETR came at the right time because it came just before the pandemic, and therefore, the need to complete the digitisation of trade documents became even more evident.”

This has led to a transformative new vision of looking at trade-related information and data from a single source and sharing it with stakeholders – rather than the highly fragmented nature that the industry has traditionally employed.

Currently, seven jurisdictions have fully adopted MLETR, including key trading hubs such as Singapore. 

Additionally, several nations – such as the USA and Germany – have adopted some MLETR provisions. Other countries, such as the UK, and France, currently have MLETR-inspired bills passing through their houses of parliament, or are planning on taking legislative action soon.

The practical impact of MLETR can already be seen in some of the early adopting nations that have enabled electronic bills of lading, which can be presented and opposed to third parties. 

Such real-world examples demonstrate that solutions and use cases currently exist. Now, it is just a matter of putting together the business case, technology, and law to embrace transformation.

Challenges to, and approaches for facilitating digital trade regulation

MLETR finds itself in an interesting regulatory position when it comes to implementation in jurisdictions worldwide.

Castellani said, “MLETR comes as a development of prior UNCITRAL texts in this field, and these UNCITRAL texts have already been adopted in more than 100 states.”

This means that the approach and the fundamental principles have already been thoroughly tested for regular transactions. With MLETR, their application is extended to electronic transferable records.

When it comes to such electronic records, there are still regulatory challenges that need to be addressed. 

For instance, there is a degree of uncertainty around whether customs authorities will accept electronic bills of lading, or whether monetary authorities will acknowledge the capital requirements as being the same or less than those for paper bills of lading. 

Overcoming these obstacles in many jurisdictions requires engagement with regulators across disciplines. 

While adopting an overarching enabling law, such as the MLETR, is a crucial first step that policymakers can take to continue supporting trade digitalisation efforts, there is much more that they can do.

For instance, they could address regulation, implement a common framework for trust services to validate data quality across borders, and mandate public entities to accept the submission of information in electronic form.

Expected benefits from widespread MLETR adoption

Experts expect widespread MLETR adoption to bring about several significant advantages, such as reducing the environmental impact of trade paper, and increasing the speed of trade. 

The most prominent advantages, however, are likely to stem from a broader approach to reusing and analysing data.

This would lower compliance costs, ease access to credit for small businesses, allow monitoring supply and logistics chains in real time, and even help prevent documentary fraud. 

With so many benefits on the horizon and so many nations actively working to push through the enabling regulatory frameworks, there can be little doubt that the global trade world of tomorrow is looking increasingly more digital. 

The onus will soon be on practitioners and business leaders to ensure that their organisations are prepared to thrive in the new world.

When asked for advice to give banks or corporates looking to integrate digitalisation technologies into their trade and supply chain processes in 2023, Castellani said, “Just four words: think data, not documents. That’s all.”

The post VIDEO | Think data, not documents: advancing MLETR in 2023 appeared first on Trade Finance Global.