Following months of consultation, the International Chamber of Commerce (ICC) has now published its Uniform Rules for Digital Trade Transactions (URDTT), which it says will serve as an overarching framework for a future, fully digital, trade environment.
The rules apply to each party involved in a digital trade transaction, which the ICC defines as a process whereby electronic records are used to evidence the underlying sale and purchase of goods or services, and the incurring of a payment obligation.
With this new framework, the ICC aims to establish a commonly understood and accepted set of principles to address the uncertainty associated with digital trade transactions, such as how parties can present electronic records to evidence a sale or payment obligation for goods, how electronic data relating to digital trade transactions must match, and what happens if it does not.
Work on the rules originally began in December 2018, with the first draft sent out to ICC national committees at the end of 2019. Since then, the drafting group, co-chaired by David Hennah, global head of trade and supply chain finance at Intellect Design Arena, and Geoffrey Wynne, partner at Sullivan, has developed six drafts, taking into account over 1,500 comments received from the national committees, before releasing the definitive version this month.
“The URDTT is about end-to-end digitalisation from a corporate point of view. Instead of being bank-centric, the URDTT are written for everybody involved in global trade covering the broader spectrum of financial service providers,” Daniel Cotti, managing director of the centre of excellence for banking and trade at blockchain-based trade finance platform Marco Polo Network, tells GTR. “Therefore, it took much longer than expected to have everybody agree on these standalone rules.”
However, not all national committees were in favour of adopting the finalised version of the URDTT, with some – including the US committee – either abstaining or voting against it, citing that the rules are not yet ready for commercialisation and that there is a risk that they may not be consistent with market demand.
In a statement, the ICC says: “It was the responsibility of the drafting group to draft the first set of rules which has been done. The next critical stage of the process is indeed implementation and commercialisation. To that end, a commercialisation group has been established whose remit it is to provide the necessary levels of educational support needed to encourage and accelerate market adoption. This is the process that was agreed at the outset.”
The ICC Banking Commission has already approved and issued electronic rules to advance the digitalisation of trade finance practices, releasing electronic supplements to the existing Uniform Rules for Collections (URC 522) and Uniform Customs and Practice for Documentary Credits (UCP 600) rules.
What makes the URDTT different from these is that the eURC and eUCP establish rules for electronic records – such as scanned images – associated with existing trade finance products, and are not fully digitalised owing to an ongoing reliance on manual reconciliation processes. The URDTT envisages transactions that are evidenced in a manner that is totally digitised.
The ICC also says it has learned from past failures – particularly that of the Universal Rules for Bank Payment Obligations (URBPO) when drafting the new rules. “The URBPO was written for banks. And it failed because it did not recognise that the corporates wanted the payment obligation in their favour and not in the bank’s favour,” Wynne tells GTR.
In addition, the URDTT are standards and technology agnostic, and not reliant on a single platform – as was the case with the URBPO, which relied on Swift’s Trade Services Utility (TSU).
Although the drafting group of the URDTT is comprised entirely by representatives of the trade finance community, Wynne is keen to emphasise that the perspectives of corporates were taken into account at all stages.
“We had a brief that was to write rules that corporates would use, because you don’t have a trade transaction unless you have corporates. So, is it aimed at corporates? Absolutely. The corporates gave input to the ICC national committees; we knew what corporates were saying,” he says.
“Corporates were saying two things: One, we would like to see trade transactions happening digitally more easily. Two, for goodness’ sake, don’t rewrite our contracts,” he adds. “So, we said this starts with your contracts. You sell goods, you deliver services, in the way you normally do. And you do that most of the time on paper, if that’s what you want to do. We recognise that the two bits of performance in a trade transaction are that the seller performs by delivering the goods that the buyer wants, and the buyer pays for them. If you want to evidence that performance with an electronic record, here are the rules for it.”
The publication of the URDTT is the latest in a series of moves towards facilitating the future state of digitalised trade.
Legislative change is underway in several jurisdictions, with the Law Commission of England and Wales announcing earlier this year proposed reforms that would give legal recognition to electronic versions of trade documents, which in turn came in the wake of the recent commitment made by G7 digital and technology ministers to recognise electronic transferable records in international trade transactions after jurisdictions, and the adoption by trade hub Singapore of the UNCITRAL Model Law on Electronic Transferable Records (MLETR) into domestic legislation.
With global legal certainty around electronic records on the – albeit distant – horizon, the URDTT will “help us as an industry sell digital trade transactions to corporates,” says Marco Polo’s Cotti, who says that work has begun on a new rulebook for Marco Polo that will take on the terminology of the rules for all of its solutions, from payment commitments to supply chain transaction management.
“URDTT has much a wider application than many people can see at the moment,” Cotti says, “because it gives that legal certainty to buyers and sellers that they didn’t have so far. That is critical.”