On 4th July 2023, CARICOM will be fifty years old. A CARICOM Cloud Readiness Assessment is both timely and necessary. In a world enveloped by AI and the IoT, there are clear political and commercial imperatives to accelerate the process of legal reform to enable paperless trade across CARICOM. Electronic Communication across CARICOM has the potential to curtail cost and increase trade as an upshoot of the introduction of legal reform that allows the use of electronic transferable records.
The Model Law to enable Electronic Transferable Records in trade (MLETR) is a legal framework provided by the United Nations Convention on Electronic Communication (UNCITRAL) which has been adopted by the International Chamber of Commerce (ICC) Digital Standards Initiative (DSI) to provide a legal undercarriage to allow governments, MSMEs, and merchants to accelerate the process of Digital Trade adoption.
It will therefore be a priceless activity to quantify the potential impact of legal reform to enable the use of transferable documents and instruments on CARICOM trade. “Transferable records” are paper-based documents or instruments used in domestic or international trade and trade finance and include: –
- Warehouse receipts
- Bills of lading
- Bills of exchange
- Guarantees
- Standby letters of credit, and
- Promissory notes
The International Chamber of Commerce (ICC) has noted that there are an appraised 4 billion paper-based documents that are being processed at any one point in time around the world. Article 7.1 of the Model Law on Electronic Transferable Records of the United Nations Commission on International Trade Law states that:
“An electronic transferable record shall not be denied legal effect, validity or enforceability” (p.9), solely because it is in electronic form.
Article 8.1 of the United Nations Convention on the Use of Electronic Communications in International Contracts states that:
“A communication or a contract shall not be denied validity or enforceability on the sole ground that it is in the form of an electronic communication”, (p. 5).
In lay terms, this is the process of moving to electronic trade documentation. This shift has four elementary advantages.
- Amplifying Access to Finance
Neo-Banks and Challenger Banks that use FinTech-driven solutions have already enabled trade finance “assets” (financial documents such as Bills of Lading, Bills of Exchange or Promissory Notes) to be “distributed” across Neo-Bank networks, recognised investors or non-bank trade finance providers, such as invoice finance or supply chain finance providers. This has the potential to increase the volume of available finance for MSMEs across CARICOM states.
The shift leverages the idea that the documents themselves are instruments through which finance is enabled. In this way, technology is used to enrich the business environment for digital trade to take place within CARICOM since digital documents circulate faster and to a wider potential market in a secure fashion.
- Reducing Costs Manual processes can take weeks to process trade documents before awarding finance is directed to a transaction. This is burdensome for the MSME and for any trade finance provider.
- Reducing Fraud The principal sources of fraud across existing paper-based systems are: – (1) diverse uses of a single document for financing purposes; (2) the fact that documents can potentially be used for financial or insurance purposes that are not authentic or not the original intent; (3) the misallocation of product codes to evade taxation or identification. These risks are likely to increase as we move toward requirements for greater transparency on environmental, social, and governance (ESG) issues.
- Global Standards Not only does digitalization have the capacity to accelerate the processes of standardisation in global trade, but it is also a prerequisite of the digitalization process itself. Presently there are possibly no common standards in global trade outside of Customs and Excise frameworks, dual-use goods and prohibited trade, and increasingly sustainable financial disclosures (SFD).
Bills of lading are legal documents that attribute features to the type and quantity of goods shipped, port of origin, and destination. They are fundamentally receipts. As such, they confirm that something has been produced and shipped, and can therefore be used as a means to leverage working capital by the shipper, from when it leaves the port to when it is picked up, and approved by the buyer at the other end.
These documents are produced manually and are non-standard. The outcome is delay and leaving the system exposed to deception. The non- standardised and manual nature of a Bill of lading also makes border processes convoluted and costly for the exporter.
To accelerate the advance of legal reform to enable paperless trade across CARICOM member states, a useful idea is a “think tank” or a – One CARICOM Lab. The policy lab can structure strategic reflection around critical issues.
The outcomes will feed the momentum for a CARICOM Summit by suggesting objectives and new levers of action to influence the future shape of CARICOM Digital Trade.
The summit will convene FinTech providers, MSMEs, green finance experts, and merchants known for their engagement and innovative proposals to facilitate the ecological acceleration of CARICOM towards digital value chains, the use of electronic records in trade, and electronic communication in trade.
