Trade across the G7 could increase by an eye-watering US$9tn in the next five years if the industry reaches full digitalisation, according to a new report by the International Chamber of Commerce (ICC).
The report, released today, says that if the G7 countries can achieve the legal reform, standardisation and adoption of digital records that their digital and technology ministers committed to earlier this year, trade would climb by nearly 43% on 2019 values by 2026.
“A typical trade transaction involves up to 27 documents, nine of which relate to the transfer of possession,” the ICC says, adding that this can cost $80,000 per transaction and take up to three months to process. “In total, 4 billion documents move across the trade ecosystem at any given time, creating inefficiencies that slow trade down and hamper growth and innovation.”
According to the ICC, enabling digital information to move seamlessly across borders and between stakeholders, from buyers to sellers, financiers, insurers, shippers, logistics and customs, would not only cut the cost of doing trade but also enable greater access to trade finance solutions – helping to close the US$1.7tn trade finance gap – and smooth the entry of exporters into new markets.
At a meeting held in May, the intergovernmental organisation, made up of Canada, France, Germany, Italy, Japan, the UK and the US, agreed a framework that will champion the work of the United Nations Commission on International Trade Law (UNCITRAL) and promote the adoption of its Model Law on Electronic Transferable Records (MLETR) – which gives electronic trade documents such as the e-bill of lading (eBL) the same legal standing as their paper-based counterparts.
“Paper-based transactions, which still dominate international trade are a source of cost, delay, inefficiency, fraud, error and environmental impact,” said the ministers in a joint statement. “It is our shared view that by enabling businesses to use electronic transferable records we will generate efficiencies and economic savings. This will strengthen the resilience of our global economic system and play a crucial role in trade recovery across the G7.”
By the end of this month, G7 governments are expected to provide a status report on domestic legal barriers to the use of electronic transferable records and establish actions to address these barriers, consider any further legal issues that may require international collaboration, review regulatory issues which may impede private sector adoption of electronic transferable records, and establish actions for co-operation.
The new research, commissioned by ICC United Kingdom in partnership with ICC France and Germany and the Digital Standards Initiative (DSI), aims at keeping momentum going by building a comprehensive evidence base on the economic value to the G7 nations of legal reform and harmonisation, Chris Southworth, secretary general of ICC UK, tells GTR.
“Whilst there is a G7 ministerial declaration, it is not a given that reforms are either implemented or that implementation ensures alignment to MLETR,” he says.
Three studies have been produced. The first, which looks at the G7 as a whole, finds that paperless trade facilitation alone – that is, the digitisation of customs documents as envisaged by the World Trade Organization’s trade facilitation agreement programme – could reduce costs as a share of total trade across the G7 by 76%, creating US$267bn of additional exports compared to the base forecast by 2026. But by bringing down barriers to entry via the full digitalisation of the trade ecosystem – that is, the digitalisation of all trade documents, exports could climb by US$6tn, the study says.
The other two studies look individually at the cases of the UK and Germany, which are key battlegrounds for trade digitalisation.
“In Germany’s case, there are laws in place to handle transport documentation in digital form but no clear guidance for industry to implement the laws. For this reason electronic documents haven’t been adopted. Also, not all documents are accepted in digital form so more reform is needed,” says Southworth.
According to the ICC, if it were to align fully with MLETR, Germany could cut trading costs to business by 81% and add €1.1tn to its trade figures by 2026, versus near-flat growth projected under current scenarios.
In the UK, meanwhile, although the Law Commission of England and Wales is working on a proposed legislative reform, barriers to the growth of digital trade remain, says Southworth, who points to the slow take-up of digital identities such as the legal entity identifier, which the ICC says would enable industry to capitalise on the benefits of a fully digitalised trade ecosystem.
ESG becomes a catalyst
Until now, the messaging from the ICC and other bodies pushing for trade digitalisation has focused largely – if not solely – upon cost savings and efficiency gains. In an interesting change of tack by the international business organisation, the three studies out today address a new angle: the linkages between digitalisation and sustainable trade.
Citing regulatory changes such as the newly introduced EU taxonomy as a key driver, the report outlines the imminent requirements for monitoring ESG products, sectors and activities at a transaction level – be that through track and trace solutions to verify the provenance of goods or the verification and certification of supply chains. “Digitalising the trade ecosystem offers the potential to track products through bills of lading, so the scope for linking ESG and digital goals offers huge possibilities,” the report says.
“If we digitalise the trade ecosystem we can start to monitor and track sustainable trade end to end. That will mean we have more transparency and accurate data to inform decision makers on the how to make the shift towards a more sustainable, greener economy,” adds Southworth.
With adoption rates of digital trade and trade finance solutions still in the single digits despite the so-called forced digitisation brought about by the Covid-19 pandemic, the ICC is confident that regulatory pressure around ESG will be the tipping point needed to bring trade into the digital age.
“Every company we talk to is prioritising ESG and digitalisation,” Southworth tells GTR. “The latter enables us to deliver the transition to net zero and a more sustainable economy. The pressure is coming from consumers, investors, governments and within industry. There is no question that this is the direction of travel, with both agendas accelerating at enormous pace.”
The ICC is now calling on the G7, G20 and other large economies to undertake the reforms necessary to create an enabling legal environment for digital trade, in order to drive and maintain the economic recovery from the pandemic.