Trade finance might not be the most common topic you hear discussed while out at a pub, but Lord Holmes and Trade Finance Global (TFG) agree; trade finance is cool.
Trade finance affects most of our everyday lives, it plays a role in almost every aspect of the modern economy. The vegetables in the supermarket that you buy, the device you are using to read this, and the clothes you are wearing all likely were part of a trade finance transaction.
That’s why transitioning to a more digitised system is such an essential topic in the trade world. How the industry transitions from paper to an online system is a multi-trillion-dollar question.
While at the ITFA and BCR: Trade & Investment Forum 2023, Trade Finance Global’s Deepesh Patel was happy to sit down and talk to Lord Holmes of Richmond MBE to discuss what the UK government is doing to support this digital transition.
Electronic Trade Documents Bill: moving trade into the 21st century
Lord Holmes gave an excellent overview of why we at TFG think trade finance is cool.
Lord Holmes said, “[Trade finance is] cool because it enables potential. Sure, economic potential, but social, individual, community, city, country, global potential is enabled through trade finance.”
But in order for trade to stay relevant into the future, the industry needs to modernise. The current system is far too bogged down by endless paper, creating inefficiencies throughout the process.
The pervasive use of paper creates inefficiencies in the process and leaves a negative environmental footprint. The UK government estimated that the trade industry uses 28.5 billion paper documents a year. The same report noted that the UK emitted roughly 2.5 million tonnes of carbon dioxide in 2018 simply from paper and printing in international trade.
This is precisely why the Electronic Trade Document Bill (ETDB) is so important to the industry, and the world at large.
Lord Holmes said the bill is “incredibly succinct, it’s incredibly simple, but it’s an incredibly powerful bill because it will enable trade documents to be held and transacted in electronic format.”
Possessibility: a key to electronic trade law
One of the most challenging aspects of moving towards the digitisation of trade is the possession of documents.
Possession of certain trade documents is relevant to determining who may exercise certain rights at law. Transfer of the possession of a document can also transfer the right or obligation on its face. However, under the current law, a trade document in electronic form is not possessible, because it is intangible. This is the result of two decisions: OBG v Allan and Your Response v Datateam.The University of Oxford Law Faculty
The current laws do not account for digital trade documents and possessibility, but the new ETDB aims to fix this.
Lord Holmes said, “We have an even better opportunity through the common law principle of possession, which means that all those centuries of English law precedent can be brought to bear for the benefit of electronic trade documents.”
Applying centuries of common law precedent to the ETDB will help clarify the questions regarding the transfer or liabilities of goods. Without this legal clarity, the digital transition would struggle to gain widespread traction. After many detailed rounds of debate to ensure the ETDB covers all aspects of electronic trade, the bill is ready to be adopted in the near future.
Lord Holmes sits on the Special Bill Committee and has been instrumental in the development of the ETDB, reporting that the bill has “one final stage, a third reading in the House of Lords, which should be a formality. It then goes to the House of Commons. It should go through the Commons relatively speedily and we should have it enacted on the statute book, spring this year.”
Adaptability within the trade community
Though the ETDB represents a great step towards digitisation in the UK, the work has just begun. The UK government must educate everyone in the trade finance ecosystem, including bankers, insurers, traders and producers. This is the first step of making them comfortable with using the permissive legislation.
However, international trade requires two parties, so the UK must help other countries adopt similar bills. Lord Holmes said that the second step includes connecting with “key jurisdictions right around the world… to help to enable to support their legislatures to bring in similar acts so we can have electronic trade enabled right across the planet.”
As more individuals become comfortable with using electronic trade documents and more governments pass modernised legislation, trade digitisation will start seeing exponential growth in the coming years.
The personal side of international trade
Lord Holmes knows that international trade is more than just passing papers back and forth in some faraway office. Before moving to a career in the House of Lords, Lord Holmes spent 15 years as an athlete, representing Great Britain in the 1988 and 2000 Paralympic Games.
Spending much of his life travelling to compete in different countries, Lord Holmes developed an international perspective on everything in life, including trade and technology.
Lord Holmes said, “International trade and technology has always been an interesting place for me to operate, to bring about that potential, to enable, to empower, to unleash economic, social, individual potential.”
The very nature of international trade creates endless possibilities for expansion. Both for the industry and for the actors who operate in the space, which is especially exciting for young people looking to join the industry.
Lord Holes said, “[International trade] will open more doors than not, and you can plot your own path. And crucially, more than anything else, dream your dreams, make them a reality in the daylight and never, never let anybody tell you that you can’t.”