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HomeDigital Trade DocumentationImportance of MLETR in current and future trade environment

Importance of MLETR in current and future trade environment

The increasing use of electronic mediums across the industry allows for improved efficiencies through the reuse and analysis of data, while enhancing trade connections and creating new opportunities for accessing markets and parties that were hitherto considered remote.

Such electronic mediums bring together several parties that were far removed from the action previously, thereby playing a fundamental role in promoting trade and economic development both domestically and internationally.

In order to legalize the uses of these mediums and increase their legal value, the United Nations Commission on International Trade Law (UNCITRAL) created several texts. One such text is the Model Law on Electronic Transferable Records (MLETR). 

The aim of MLETR

The MLETR was adopted with the aim to enable the legal use of electronic transferable records both domestically and across borders and reduce the reliance on paper documents.

The MLETR applies to electronic transferable records that are functionally equivalent to paper-based documents or instruments such as bills of lading, bills of exchange, promissory notes, and warehouse receipts.

Transferable documents and instruments in paper form have been considered essential commercial tools and there has been a market realization that the availability of these documents and instruments in electronic form may be greatly beneficial for facilitating electronic commerce in international trade allowing for faster and more secure transmission.  

The availability of electronic equivalents of transferable documents and instruments can be especially useful in transport, logistics, and trade finance as it offers an opportunity for the industry to review existing commercial practices and introduce new and improved ones.

The MLETR is made up of 4 Chapters covering 19 articles that define transferable documents or instruments, and legal recognition of an electronic transferable record.

The MLETR is considered a critical piece of legislation to digitalize global trade using a uniform regulatory approach for the use of electronic trade documentation.

While this may be the case, it must be understood that MLETR is not unto itself and each country adopting MLETR has the option to align with the MLETR standards and integrate its concepts into their own local jurisdictions.

 So why is the MLETR important?

Through the enablement of the legal use of electronic documents such as bills of lading, bills of exchange, promissory notes, warehouse receipts, bank guarantees, letters of credit, and more, MLETR legally bestows customers and countries the ability to exchange transferrable, negotiable and other documents using digital channels such as SWIFT.

Such electronic data transfers are fully aligned with the rules under eUCP600 and eURC522 allowing exporters, importers, banks, financial institutions, and other related stakeholders within the Trade Finance ecosystem to speed up transactions and document transfers which in turn reduces costs and increases efficiencies.

Cross-border trade finance is by and large paper-based, making it vulnerable to fraud considering the transactional flow and the number of stakeholders involved in the transaction.

The adoption of MLETR into statute law will provide increased legal confidence and commercial predictability to parties in the transaction and also pave the way for a quicker, easier, and seamless transaction including the review, validation, and transfer of ownership on negotiable bills of lading in a digital format.

All stakeholders in the transaction can benefit from reduced operational costs, identification of fraud, and document verification.  

The practical impact of MLETR

COVID-19 while being a pain to many across the world, seems to have opened up opportunities in the digital space for many industries, albeit unwillingly.

The global trade industry has not been immune to the challenges of COVID-19 with one of the main issues being the customers’ and carriers’ inability to hand over and receive of negotiable and transferrable documents due to the stay-at-home orders from various governments.

Various shipping lines adopted various policies during these periods and there have been indications that some of these are still continuing in China for example where COVID lockdowns are still rampant affecting the quality of trade and on document transfers.

Aside from much needed goods especially “essential goods” not reaching its destination in time, the piling up of goods at the port resulted in customers paying additional demurrage and storage charges at ports also resulted in ports being congested for days and weeks on end.

The adoption of MLETR will avoid such uncertainties and also avoid additional costs to customers for no real fault of theirs.

It has been refreshing to see the practical usage of electronic trade documents in real life. In a world first, it has been reported that Singapore’s Infocomm Media Development Authority (IMDA), the Monetary Authority of Singapore (MAS) and the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM), in collaboration with commercial partners DBS Bank, Emirates NBD and Standard Chartered, successfully concluded the world’s first cross-border digital trade financing pilot. 

This pilot between MLETR-harmonised jurisdictions harmonises the legal recognition of digital trade documents across both jurisdictions and complements the larger global trade movement by compliant economies in adopting electronic transferable records in international trade.  

Singapore has been leading the way in the issuance of electronic bills of lading as well when the first ever electronic Bill of Lading (eB/L) transaction governed by Singapore law was issued in accordance with the Singapore Electronic Transactions Act.

It has been reported that this milestone was achieved on a container shipment carrying Nickel Matte (an intermediate product in the metallurgical processes with a nickel content varying between 30-60%) from Australia to China carried by ONE, the 7th largest container shipping line in the world.

Future of MLETR

The ICC had previously called on Governments and Central Banks to take expedient measures to void all existing legal prohibitions on the use of electronic trade documentation and removing requirements for key trade documents such as bills of lading, bills of exchange, promissory notes, and commercial invoices to be presented in paper format.

The ICC has also been encouraging governments to adopt the MLETR and this call has been boosted by the impending adoption of the MLETR by the UK Government and France’s decision to accelerate electronic trade documentation and trade finance.

With many banks unable to handle trade finance paper documents in person due to Covid-19, there is a growing risk that the underlying trade in goods could be disrupted,” says Olivier Paul, director of finance for development at the ICC. “ICC and its members are taking unprecedented steps to limit potential disruption to the processing of trade finance transactions – yet, with the use of electronic trade documents in many jurisdictions either prohibited, or their legal status unclear, urgent government intervention is also required.

Countries like Egypt have already gone the route of digitalising their customs documentation through the implementation of NAFEZA while it is also understood that discussions are being held at a ministerial level in Czech Republic and Slovenia for the implementation of the MLETR legislation into their national law.

With such encouraging signs, it seems the MLETR, and its adoption is being accelerated and the sooner the various governments, trade authorities, customs, ports, and other stakeholders adopt electronic trade document transfers, the better it will be for global trade.


 

risks and liabilities of paper trade documentationAbout the Author

 Patrick Vlacic is the Legal Advisor for CargoX. He is a legal expert in the fields of Transport Law, Maritime Law, Insurance Law and Obligations Law. Patrick is an Associate Professor at the University of Ljubljana, Faculty of Maritime Studies and Transport and also the former Minister of transport in the Government of the Republic of Slovenia.

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