Avery warm welcome to you, Luca, and thank you so much for accepting this invitation. We are very privileged to have you here with J M BAXI GROUP today. Thank you.
Luca Castellani – Thank you, thank you very much for inviting me here to share my views, which, of course, are mine alone and do not necessarily reflect the views of the United Nations.
Our topic today is electronic trade documentation.
Q: Luca, would you please start with a brief introduction to your current work and focus areas?
Ans : I have been working for the United Nations for some time. I did different things of late. I focused on international sale of goods and also on what we traditionally called electronic commerce law, but actually is now referred to as digital trade law. I was also privileged to work with colleagues in the United Nations Economic and Social Commission for Asia and the Pacific in Bangkok. I am currently working on specific legislative-drafting projects, e.g. supporting countries in drafting electronic transactions. This gives me opportunities to better understand issues specific to each different country. For instance, I have been working many years assisting Afghanistan on this and we achieved a milestone last year when the electronic transaction law was passed. Now I’m working in South Asia and in the Pacific. Some countries, like small islands, are really fragile and they depend more on connectivity and digital trade. At the same time, they face real issues like the costs of satellite connectivity etc. It makes me privileged to understand such real challenges across the globe.
After graduating in Law from the University of Torino, Luca received a doctoral degree at New York University. He joined the Office of Legal Affairs in the Secretariat of United Nations in 2001 and the UNCITRAL Secretariat in 2004, where he works in the areas of international sales law and electronic commerce. As a secretary of UNCITRAL working group 4, on electronic commerce, he oversaw the preparation of the UNCITRAL model law on electronic transferable records. He is also active in the field of paperless trade facilitation and has contributed to drafting the Framework Agreement on Facilitation of Cross-Border Paperless Trade in Asia and the Pacific. From March 2012 to November 2013 he was assigned as the first head of the UNCITRAL Regional Centre for Asia and the Pacific located in Incheon, Republic of Korea. He has published several articles and other materials on international trade law and comparative law, namely, sale of goods, electronic commerce and trade law reform in developing countries. With that brief introduction we look forward to talking with Luca.
Q: Thank you for that introduction. Can you tell us how long this effort has been ongoing – the effort to create digital alternatives to paper documents? Do you feel that progress has been slow? If yes, why?
Ans : When we start discussing this issue, we have to bear in mind that one of the first cases dealing with the legal value of an electronic signature comes from New Hampshire, United States, and dates back to 1869, which is more than 150 years. Progress has been slow but what comforts me is that the solution suggested in 1869 is the same that we have today, which means it is the right solution.
The use of documents in electronic form is comparatively simple. We have clear legal standards and huge acceptance in business. However, we still have different understandings of what an electronic signature actually is.
We also have issues like the transfer of negotiable documents, which have the peculiar feature that they entitle the holder to payment of money or delivery of goods. With respect to negotiable documents, the issue is tangibility, which means the possibility to touch. This notion refers to physical control, which we call “possession” in legal terms.
Q: What is MLETR? Why do you think this is particularly a catalyst for change? What are the significant other laws that one ought to read and get acquainted with?
Ans : Indeed. The UNCITRAL Model Law on Electronic Transferable Records (MLETR) is the talk of the day as it was enacted recently by Singapore.
To put things in perspective, UNCITRAL has prepared a series of legislative texts that enable the use of electronic transactions. The first of them was the Model Law on Electronic Commerce of 1996, then came the Model Law on Electronic Signatures in 2001, and the United Nations Convention for the Use of Electronic Communications in International Contracts in 2005.
These texts altogether have been adopted by more than 100 states, which is a huge number, including in South Asia, Bangladesh, Bhutan, India, Pakistan, Sri Lanka and soon the Maldives.
And now we have this new model law, the MLETR, supporting the use of electronic transferable documents in global trade. This matter had already been addressed in articles 16 and 17 of the Model Law on Electronic Commerce, but those provisions have not been implemented.
I would like to stress that currently there is reference in business to “electronic bills of lading” but, in the vast majority of these cases, these are not real bills of lading in electronic form; these are based on contractual rule books that replicate some features of the given trade. To be very clear, the business function of bills of lading may not be discharged with these so-called “electronic bills of lading”.
This is an issue for some of the parties involved in the use of bills of lading. In particular, if one wants to use the bill of lading as a collateral for trade finance, this type of “electronic bill of lading” may not give a lien on the goods, and this in turn requires more capital to the banks for finance.
The MLETR is the daughter of her times. It performs all the functions of paper bills of lading and other transferable instruments and documents. Moreover, a paper-based document cannot contain metadata or dynamic information originating from dataflows. An electronic transferable record issued under the MLETR can.
In the year 2021, we are all able to use MLETR to legally enable electronic trade documentation. But we should be able to do more than just replicating the functions of paper-based documents. For instance, we should be able to incorporate in the electronic bill of lading contractual terms on payment of the price upon arrival of the goods at port so that, when the ship arrives at the port, the GPS of the ship can communicate to the bill of lading that the condition for payment has been complied with and the bill of lading will automatically send an instruction to the bank to pay the price of the goods. You see how the automated transaction means more control, more visibility, fewer costs, less human interaction. We already have all of this technology and we also have the legal certainty. We will need to develop business practices and operating procedures so that when we migrate to a digital environment, we have better governance and reduced compliance costs.
The risk of fraud is perceived as less in paper documentation – we feel we can verify what is authentic and original and we can predict the margin of loss based on experience and practice. This may not be necessarily true.
Q: In your opinion do you think some nations can aspire to go paperless in trading soon and who are the frontrunners globally?
Ans : Of course there are some countries that want to be at the forefront and have to be at the forefront because of economic policy priorities, sometimes because of their geography; for instance, they may have an ideal profile for digitisation, which means a country not too big but also not too small and developed enough. The MLETR early enactors are Singapore and Bahrain, together with the Abu Dhabi Global Market in the United Arab Emirates. These are countries with strong trading experience and history. They have been prominent for centuries.
We need to reach a critical mass for MLETR adoption and use.
Other countries may also be frontrunners. When there is an interest, we see a lot of excitement in terms of technological development. I am old enough to remember when calling overseas was very expensive. Video calls were supposed to be for professionals only: TV connections or stuff like that were totally out of reach. Now millions can do it at the same time for free. Success in digital trade is the result of various components: the policy has to be clear and has to be implemented in an effective manner, the technical infrastructure has to be robust and modern, and the legal environment has to be enabling. By enabling I also mean we should keep regulations to levels that are actually needed. The words ‘regulation’ and ‘innovation’ may rhyme but don’t sit well in the same sentence. We need to create a space where innovation works.
Some big obstacles today are related to sharing commercial data and to regulation. I think it is essential for people to understand that data has value if used in a timely manner. The data has to be aggregated or analysed in a certain way to be put to use. We have to treat data in a better way than as a commodity, giving value to data along the mindset of ‘data is the new oil’. The next big challenge is to break the data silos we have within organisations and between countries.
Q: Can you share a word of advice for companies and countries looking to adapt and adopt?
Ans : The possibility to go 100% digital depends on the field of operations. Can we go 100% digital with trade documents and trade facilitation? Today we can do it more easilywith business-to-business exchanges.
We have a big elephant in the room. The elephant is the single window, which is electronic but should also be designed in a highly interoperable manner. In case of countries like Singapore and Bahrain that have already adopted MLETR, I would like to see use cases implemented. I see no reasons why these use cases should not deliver the expected benefits. We only think of benefit for business; however, we have to think also of benefits for broader society, such as reduced environmental impact. Once the benefits are measured, I see no reason why business will not buy in.
Larger countries face special challenges. My suggestion is to start with pilot cases. However, do not use a pilot case that is too different from reality and is not meaningful. Ideally it should be possible to pass legislation in a special economic zone that says: “OK, now we operate 100% digital for six months, one year, two years, see what happens.” And then go back to the central govt and report on requirements and benefits. That’s what I’d like and hope to see.
Also, if you’d please allow me to speak on how we respond to the pandemic; you know well that if you have visibility of the entire logistics chain, then you are able to prioritise your logistics and shipments, eg import or export of vaccines. If the supply chain is automated, you rely less on human factors. Down the line, governance of shipments is more efficient because of the better control of the ecosystem, so that we always know where things are because of better connectivity. Also, it’s important to have more access to clients’ data because if we know clients better we reduce transaction costs and risks.
Q: I remember reading about using free trade agreements to establish a channel of trusted data sharing and, just like one would agree on duty free or on a “green channel” between two countries, one could also agree on wholly electronic trade documentation between those two countries.
Ans : This is a very interesting point and it has multiple layers. Technology neutrality and interoperability go hand in hand. As has been said earlier, we have to be wary of special ways of arranging data because special arrangements may come with technical specifications and create another information silo.
However, especially in Asia and the Pacific, there are significant regional trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP and the Regional Comprehensive Economic Partnership or RCEP that provide a certain uniformity in electronic trade documentation, at least in aspiration.
There are digital economy agreements between Singapore and Australia, Chile, and New Zealand and more are being discussed with Canada, UK, etc. – where you will find some detailed guidance on implementing electronic trade documentation. At a high level, you also have the Framework Agreement on the Facilitation of Cross-Border Paperless Trade in the Pacific, which has entered into force in February 2021, and is an umbrella framework treaty providing a forum for exchanging information and best practices with working groups on both legal and technical issues.
In this context, a country like India may soon embrace the right mix of policy, governance framework and law to move towards digital and paperless trade.