By Naveera Perera
Digitalisation is a process of growing importance almost in any industry today. Especially since COVID-19, the need to streamline trade processes through digitalisation efforts and to integrate emerging technologies such as Artificial Intelligence (AI), blockchain, the Internet of Things (IoT), and other industry 4.0 technologies within international trade has been a significant trend. Digitalising trade results in many benefits, including improving the public’s trust in supply chains and contributing towards the prevention of trade trafficking, the reduction of trade costs and the optimisation of processes which promote the flow of goods across borders. This overall picture is what the concept of ‘TradeTech’, a term introduced by the World Economic Forum (WEF) and the World Trade Organisation (WT0) in 2022, promises.
Simply put, TradeTech refers to the innovative ways digital technology can respond to trade problems and challenges to make international trade more sustainable, efficient and inclusive. This article will explain the main areas requiring policy implementation to promote digital trade effectively.
How It All Started: The WEF Global Survey
From June to September 2022, the WEF conducted a global survey within the business community to understand what technologies companies find to have the most significant impact on international trade. A few fundamental technologies recognised were digital documentation, digital platform, digital payment, cloud computing, IoT, digital services and 5G. The survey also found that integrating robotics, AI, 3D printing and virtual reality (VR) is expected to affect trade in the long term. In making such technologies accessible to all nationals, however, a later report, co-published by the WEF and WTO, noted that one major challenge that stands in the way of digital trade is the lack of international policy coordination and coherence. The WTO specifically recognises the vital role trade agreements and plurilateral initiatives can play in this regard. It considers some key areas that need to be discussed for policy adoption.
The 5G’s of TradeTech
The research published by the WEF and WTO focuses on five building blocks in supporting trade digitalisation worldwide. While trade has adopted digital platforms and practices throughout the years, leading to certain agreements being interpreted in light of such modern trade practices with no problem, the following five are points where no proper policy or regulatory frameworks exists. Hence by working on introducing policies in the below five areas, digital trade can be made accessible to all nations.
Global Data Transmission and Liability Frameworks
What accounts for legal data transmission across borders may differ according to each jurisdiction. Many countries adopt a ‘data localisation’ policy whereby data within a country is restricted to its borders. Countries that have adopted this require companies to store data locally and request them to apply for individual or governmental consent when data needs to be transferred outside its borders. Therefore, the need to introduce a legal framework that enables data transmission across borders in a trusted manner is considered pivotal. With the different standards of data and privacy protection laws, having a standardised liability framework is essential.
Only after the enactment of such a framework can countries focus on implementing reliable, affordable and fast digital connections. One challenge in this respect is implementing robust ICT infrastructures. This is because there is a massive digital divide in terms of access to internet connectivity, bandwidth and skills. As per the latest statistics of the International Telecommunication Union, only 27 per cent of least-developed countries (LDC) have access to the internet. Hence, modes to strengthen the competition in developing nations to strengthen the quality of international bandwidth that could be made available to LDCs are integral.
Cybersecurity concerns have also increased in the past few years, with various Technical Barriers to Trade notifications being raised at the WTO. They specifically deal with cybersecurity concerns on a national and personal level in IoT, 5G technology, 3D printing devices, drones and autonomous vehicles. To remove such fears, the report highlights the need to introduce a certification and labelling scheme to enable a compliance system in using such technologies.
Global Legal Recognition of Electronic Transactions and Documents
There are many documents businesses are expected to carefully keep records of to carry out international trade. Some of the most important documents include a certificate of origin, a bill of lading, a bill of exchange, an insurance policy certificate, and an inspection certificate. These are usually required in physical documentation, making trade documentation paper-intensive and time-consuming.
According to an article by McKinsey & Company, trade documentation for a single shipment can require up to 50 sheets of paper that are exchanged with 30 different stakeholders. It further notes how simply making the bill of lading an electronic document could save approximately USD 6.5 billion in direct costs and enable between USD 30 billion and USD 40 billion in global trade volume. In addition to the enormous costs of storing physical documentation, it is also not the most secure. For instance, they can easily be forged, and even if notary services can verify them, the time and cost incurred in that respect inconveniences all. A digitalised system can easily remove such costs whilst incorporating AI, machine learning and natural language processing can streamline the documentation process and provide hidden insights without anyone needing to over analyse a document. Hence, fraud patterns can easily be detected. Blockchain technology can also contribute towards ensuring the information exchanged is accurate, helping stakeholders increase trust in the supply chain.
All this leads to the need to introduce a legal framework which supports the cross-border legal recognition of electronic trade documents and transactions. Requiring electronic files to be digitally signed is one approach governments can implement when recognising what form of digital documents are considered valid. While authenticity remains a concern even in digital documents, the report recognises that taking a step to implement a global framework more welcoming of electronic trade documents and transactions provides the opportunity to think of better measures that can be put in place.
Global Digital Identity of Persons and Objects
An important point of digitalising trade concerns the digital identity of natural and legal persons and physical and digital objects. In terms of the digital identity of persons, this refers to exclusively digitalising the identity of supply chain actors. Verifying a person’s identity is important for various reasons, be it to form contracts between parties, exchange data, form partnerships, for accountability, gain custom clearance and more.
Currently, one’s digital identity would be in different registries not recognised outside its system or across borders. As a result, companies have to apply for and gain multiple digital identities, which, similar to the trade documentation process, can be time-consuming. Some examples of global digital identity registers include the World Customs Organization (WCO) and the Global Legal Entity Identifier. This creates multiple data silos, which, although does guarantee one’s identity, makes it extremely costly to manage the number of identities and commercial costs involved in the process. An easier mode of verifying counterparts in onboarding suppliers is, thus, an important part of establishing trust in trade.
Technologies such as Blockchain and DLT bring a new dimension to digital identities, allowing physical and legal persons to manage their own identities. Such companies limit the number of instances of sensitive information being shared. The Sovrin Network by British Colombia and Ontario Verifiable Organisation Netform is one such application. It is important to note that digital identities are viewed with much contention, leading some organisations to look at this sceptically.
In terms of the digital identity of physical and digital objects, technology plays a vital role in tracing their history, distribution, location and more. The use of IoT by supply chains worldwide can help in this respect by increasing transparency efforts.
Global Interoperability of Data Models for Trade Documents and Platforms
While international trade has a range of technical terms, digital trade will introduce a range of new terminology. Sometimes, these words can be as simple as a common digital term, like describing what a digital document is. To ensure the definition of such terms in the context of international trade remains consistent, there is a need for standard definitions and structures of data to be established. This helps to ensure interoperability between platforms.
As a starting step, it is beneficial to consider the semantic libraries introduced by the United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT) and the WCO. Increasing efforts to inform key players in international trade of the existence of such libraries is important as “global data models and globally agreed methods of communicating and sharing data” can be developed. While the development of such platforms should be encouraged, the platforms must remain interoperable. Hence, instead of creating isolated platforms, connecting platforms or developing common cross-sectional or cross-jurisdictional approaches can help improve the flow of electronic data and documents. To do so, standardised methods of exchanging data using APIs should be developed.
Global Trade Rules Access and Computational Law
Businesses often need to keep track of various international agreements in addition to their contractual obligations. With every passing year, economic integration policies or, at times, devolution policies increase the number of legalities one must follow, thereby making it very hard for an organisation to function properly. Due to this, most often, businesses find themself in breach of some type of market access rule. Hence, having a platform that automates the process of notifying one of all global trade rules would ensure adherence to all policies and principles integral to international trade.
An essential aspect of such a system is also automating the legal analytical process. This refers to computational law, a branch of legal informatics that deals with the automation of legal reasoning (Genesereth, 2021). Hence, computer systems that can assess, facilitate, and enforce compliance with rules and regulations can enormously help key players in global trade. Here, the software uses natural language rules expressed in conditional programming to provide legal answers related to international trade. The European Commission’s Rules of Origin Self-Assessment (ROSA) tool is one example of computational law used in practice. It is worth noting that such systems are currently in the process of being perfected. A common challenge has been the difficulty in gaining a definitive answer when it is hard for the algorithm to translate the legal text accurately.
As the role of computational law is set to increase, efforts must also be taken to create standardised documents related to privacy regulations, intellectual property management and more.
How Soon Can the Global World Harness Digital Trade?
Whether trade digitalisation will fully be achieved is up for contention. As the policies discussed are broad, present discussions centre on agreeing on whether it is safe for humans to drastically rely on a digital system for international trade. Hence, while issues of privacy, cybersecurity and the digital gap are challenges that slow trade from being digitalised, harnessing digital trade is expected to become a real possibility at some point in the future.
The views and opinions expressed in articles submitted to the Comparative Advantage Blog are those of the author and do not necessarily reflect the views of The Moot Court Bench