Earlier this week, the International Chamber of Commerce (ICC) raised concerns about the impact of the COVID-19 crisis on the functioning of the trade finance market. “ICC calls on all governments to take emergency measures to immediately void all existing legal prohibitions on the use of electronic trade documentation,” it said in a memo. The move could spur a shift to the enterprise blockchain trade finance platforms.
Specifically, most trade finance transactions require staff to review paper documentation, which is not viable if they’re required to work from home. Additionally, many postal services have been disrupted by the crisis.
A significant proportion of world trade relies on trade finance. The Bank for International Settlements (BIS) estimates the proportion is one third. So even if a business manages to stay operational during the current crisis, if the only bottleneck is trade finance, it’s enough to kill smaller businesses.
Legal impediments in some jurisdictions require trade documentation to be presented in paper format. That might include bills of lading, bills of exchange, promissory notes and commercial invoices. Hence the ICC is urging governments to take emergency measures to lift these restrictions.
As a subsequent step, it is asking governments to pass legislation to ensure that electronic versions of documents can have the same legal effect and enforceability. Additionally, industry standards should be adopted for verifying signatures on electronic records.
A Model Law on Electronic Transferable Records (MLETR) was drawn up in 2017 by the United Nations Commission on International Trade Law. The United Nations General Assembly unanimously adopted the instrument, but actual implementation has been low.
“Now is the time for its widespread adoption to ensure trade finance can be conducted in a paperless manner with a workforce working-from-home,” says the ICC.
Today we published a feature about Singapore trade finance platform dltledgers. They see this period as an opportunity to drive digitization, and one of their banking clients wrote a letter to its customers, encouraging adoption during this period.
The ICC memo was highlighted on LinkedIn by Chantal Van Haute of KBC Bank. Van Haute is also an Alternate Director of the we.trade trade finance startup backed by several banks. She highlighted that going digital isn’t just a cost reduction exercise, but also a matter of visibility and mitigating supply chain risk.