Regulatory and Legal Challenges around the Digitization of Trade and Shipping

The superimposition of DLT into the trade and shipping space naturally brings about a major step towards the digitization of trade. The process of trade digitization, however, is still traversing a legislative grey area. In many jurisdictions, including the USA, there are currently no regulations or laws that recognize electronic negotiable instruments in lieu of their written counterparts. Overcoming this immense operating hurdle will be a key initiative to reaching the full potential of DLT in the trade space.

Standardisation and a trade finance digital ‘rulebook’

A working group spearheaded by R3, BAFT, and Shearman & Sterling LLP has delved into this issue and recommended a handful of potential solutions. The short-term solution recommended, and currently employed by several consortia, is to inextricably intertwine a written ‘Rulebook’ with the digital platforms, defaulting any disputes to the legally recognized writings.

The ideal final state proposed by this working group is to amend the legislation itself. They estimate that the timeline between preparation and enactment for such an endeavour will span years. To further complicate matters, in an international trade ecosystem, platforms must abide by the legal limitations of every operating jurisdiction. This may require the legislation of several different countries to be altered. A prerequisite to this potentially necessary alteration would be a certain degree of standardization within the industry, particularly with regards to the future vision of the legislatively relevant aspects of the field.

Conclusion

Should DLT in the trade and shipping space continue to closely follow the Gartner hype cycle framework, as most nascent technologies do, then there are likely to be some seemingly dark times ahead. News of failures and consolidations will reach the media and the once utopian narrative will steadily dissipate. However, the narrative is just that: a story. The real, underlying potential and value will remain hidden between the pages, growing stronger with each passing day. This growth, however, will not come without nurturement. Decision makers, investors, and industry experts need to continue to devote the time and resources to developing DLT for the trade space, despite the media facilitated fog of disillusionment that will come. Only by seeing the truth behind the hype will these key stakeholders have the confidence to persevere with their endeavours. The technology is here and the industry is ready, but only the people within can determine how the future will look.

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Trade Finance Global has partnered with TradeIX to bring you a free whitepaper on Blockchain and Trade Finance in 2019. Including a map of the networks, key players and technology providers, how we got to where we are today, as well as the key challenges of DLT in trade finance, you can read the full guide for free here

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