What are the benefits of Electronic Transferable Records [ETRs]
?
Transferable
documents or instruments are essential to the functioning of international
commerce. They include but are not limited to, bills of lading, promissory
notes, bills of exchange, cheques, warehouse receipts, and insurance
certificates.
Electronic
Transferable Records, therefore, refers to electronic equivalents of
transferable documents and instruments. An electronic bill of lading, or eBL,
is one such example.
Electronic
transferable records bring a host of benefits.
1. Their
use can reduce fraud risk in trade finance. Issuance of ETRs recorded on
distributed ledgers, for instance, can guarantee singularity of an ETR, and
identify the entity that has exclusive control of the record at any one time.
Early in the pandemic there were a raft of commodity trade fraud cases,
particularly in Asia-Pacific. Letters of credit were duplicated, or were
created for non-existent goods. ETRs can help to mitigate this risk.
2. ETRs
can provide access to new forms of metadata throughout supply chains, further
enabling industries to measure and course-correct their progress toward the
United Nations Sustainable Development Goals.
3. Improved
quality of the data that companies use for their reporting and analytics needs,
will increase analytic accuracy and enable all companies—from MSMEs to
multinationals—to better anticipate market movements.
4. Through
the liberation of quality data throughout supply chains and international trade
processes, financial institutions will be able to find new mechanisms to
measure risk, including ESG risk, offering up new asset classes that can drive
sustainability in trade finance and help minimize the trade finance gap.
5. ETRs
are much faster than their physical counterparts. Consider that prior to the
pandemic, express couriering of a negotiable instrument from Seoul to Singapore
took a matter of hours. In the early days of the pandemic, when jurisdictions
around the world were enacting lockdowns, that same negotiable instrument was
taking upwards of a week to arrive. It cost more to deliver the document, it
took longer to unload cargo, and ships incurred significant demurrage fees
while goods languished in ports. ETRs can make trade faster, cheaper, more
secure, and will have environmental and social co-benefits for all.
In most jurisdictions around the
world, transferable documents or instruments are legally required to be in
writing and presented in paper format.
The UNCITRAL Model Law on Electronic
Commerce of 1996, or “MLEC”, provides that information shall not be denied
legal effect, validity, or enforcement solely on the grounds that it is in the
form of a data message. Legislation based on or influenced by the Model Law has
been adopted in 82 States and a total of 162 jurisdictions as on date.
The Model Law does not specifically
exclude negotiable or transferable records from its sphere of application,
instead encouraging enacting States to specify what exclusions they deem
appropriate.
Many states chose to exclude ETRs from the Model Law’s sphere of application.