The International Chamber of Commerce (ICC) has multiple sets of rules to help businesses trade internationally using digital tools, but, unfortunately, there are existing challenges that must be addressed.
The three main rules––eUCP, eURC, and URDTT have been introduced at various points in time over the last several years but have not yet been widely adopted, with less than 1% of international trade transactions being made using the eUCP.
During a panel at ICC Austria’s Trade Finance Week, moderator Tomasch Kubiak, policy manager at the ICC Global Banking Commission, spoke with panellists Gabriele Katz, director of global transaction banking at Deutsche Bank; Angela Koll, senior business expert for trade and supply chain finance at Commerzbank; and David Meynell, owner of TradeLC Advisory and senior technical advisor to the ICC Global Banking Commission.
Three sets of rules: eUCP, eURC, and URDTT
While the eUCP, eURC, and URDTT all serve to facilitate digital trade, there are some critical differences between the ICC’s three primary rule sets.
These e-rule supplements are designed to accommodate the presentation of electronic documents under documentary credits and the collection of instructions.
While nothing was inherent in the original rules that prevented them from being used for digital transactions, they simply did not perform well in that role, which led the ICC to develop the supplements.
This is different from the Uniform Rules for Digital Trade Transactions (URDTT), which are standalone rules in their own right.
Meynell said, “The URDTT themselves do not supplement existing rules that are there for paper.
“They are purely digital, and they are the only set of ICC trade rules we have to only cater for digital.”
This means that if a digital trade transaction exists but is converted to paper during the process, that transaction is no longer covered by these rules.
Anticipated resistance to the URDTT
During the process, the URDTT drafting committee anticipated that there would be a degree of resistance to the new rules.
This is because, unlike most other ICC rules, the URDTT deviate from the traditional ‘bank-centric’ approach.
By remaining cognisant of and tailoring the rules to a broader array of non-bank participants, the drafting committee hoped that the rules would help break down some of the digital islands emerging in the marketplace.
By attacking these siloes from the outset and preventing digital separation in the trade finance marketplace, these rules will help the industry realise the full benefits of digitalisation and help bring these benefits to small and medium-sized enterprises (SMEs).
“The SMEs are the ones we’re really trying to help the most,” Meynell said.
The main targets of the URDTT
Angela Koll said, “To reach adoption, we need to approach technology providers to integrate the URDTT and spread the news about their advantages.
“The beauty is that the rules are technology agnostic, and they reach out to a wide array of participants like banks, corporates, buyers, sellers, and even non-financial institutions.”
This broad participation is critical since digitalising trade finance requires support from all value chain areas.
While the URDTT have only been around for a short time, first being introduced in September 2021, Koll remains optimistic that with the ICC name behind the initiative and sustained efforts to garner support and spread the benefits, they will be a critical step towards digitisation.
The eURC and challenges to digital adoption
When the COVID-19 pandemic first hit, many stakeholders were shocked and dismayed to learn just how reliant the industry is on paper documents.
Katz said, “There are billions of sheets of paper yearly shuffled back and forwards between exporters, banks, importers, in UCP and URC.
“But eURC has existed for more than a decade––which raised the big question around why we are not using it.”
While the reasons for this are multi-faceted, they essentially boil down to complexity and legislation.
The complexity comes from the vast number of actors needing to be involved and the historical lack of interoperability and standardisation in the market.
Without an industry-disrupting event like the pandemic, this complexity was enough to deter firms from investing the time, effort, and capital required to transition from the paper systems they were familiar with to new digital ones.
Legislative challenges have also impeded the digital transition in trade because stakeholders face legal ambiguity regarding digital documents in trade.
Lawmakers worldwide are progressing towards addressing these challenges and solidifying the legal landscape, but progress has been slow.
Despite this, Katz remains optimistic, saying, “Digital will be the future, and we all have to be ready.”
There is still work to do to reach this future, however.
Consistency in digital trade transaction frameworks
Meynell said, “We can finally say that we’re beginning to see synchronicity between technology, platform providers, market practice, law, and the ICC rules.”
These fall within the three primary elements of the framework for digital trade transactions, which are:
- Laws: i.e., Model Law on Electronic Transferrable Records (MLETR), Electronic Trade Documents Bill in the UK, free trade agreements, or digital economy agreements
- Standards: i.e., the World Trade Organization (WTO) or the ICC Standards Toolkit
- Rules: i.e., eUCP, eURC, or URDTT
Meynell added, “Of significant importance when we look at the URDTT is that these rules align with the framework for G7 collaboration on transferable electronic records.”
By ensuring that these international efforts are aligned to a common goal and standards, the industry can ensure that it is channelling all actions in a single direction.
“There is no digitisation without standardisation,” Koll said.
Meynell added, “It’s not just the rules, and it’s not just the standards––it’s the whole thing coming together.
“And I think we are going to see some real progress in the coming 18 months––more than we have in the last 20 years.”