Paperless Trade Powers Developing Countries’ Access To Global Supply Chains – Analysis

By Kati Suominen

Trade costs have fallen globally in the past 200 years on the back of reductions in tariffs and non-tariff barriers, trade facilitation initiativesand lower transport and communications costs. This has facilitated the rise of regional and global supply chains that have enabled companies, even in poorer East Asian countries, tosupply large multinationals, increase sales and drive economic growth and development.

Yet one important cost and barrier remains — thepaper-based trade documents required at borders by government agencies, freight forwarders and logistics providers. Many nations have yet to provide electronic documents with the same legal standing as their paper-based counterparts.Nor have theyfully implemented the WTO’s Trade Facilitation Agreement, which is essential for ensuring fast border clearance processes required to operate supply chains across many countries.

Sub-Saharan Africa, South Asia, the Middle East and North Africa are furthest behind.By 2023, countries in these regionshad adopted, on average,fewer than66percentof the trade facilitation and paperless trade practices mapped by the UN. Eight of 14 East and Southeast Asian economies still trail developed nations in the adoption of paperless trade and trade facilitation measures.

The payoffs from paperless trade and digitisation of border processes are especially beneficial forsmall businesses in developing nations. These businesses have limited capacityfor complex and time-consuming manual paperwork and currently depend on access to supply chains and e-commerce for their growth.

Estimates suggests that globalshipping costs woulddecreaseby 18 per centand exports couldincrease by 13 percenta year if trade documents were digitised.Another study found that a 10 per cent improvement in paperless trade implementation in the Asia Pacific region would result in asix percent reduction in trade time.

A digitised border process would multiply these trade gains. In Costa Rica, investments in an electronic single-window system — allowing traders to submit data to a single agency — generated US$16 in economic gains for every US$1 invested. Trade processed through the single-window systemgrew1.4 per centmorethan trade subjectedto the paper-based alternative.

Digitising bills of lading would remove further friction from world trade — using paper-based bills of ladingadds US$11 billionto the logistics industry’s operating costs each year. Additionally, e-invoicing would cut trade invoice management and processing timesfrom 40 to 13 minutes.

By eliminating physical documents and storage requirements and facilitating document verification, paperless trade would alsomaketrade proceduresgreener. For example, the United Nations Economic and Social Commission for Asia and the Pacific found that full digitisation of trade documents could save up to13 million metric tonsof paper, equivalent to planting over a billion trees globally.

Digitised trade documents would alsopromote transparencyin supply chains and transactions through the development of standardised datasets. This would help authorities, as well as logistics and financial service providers, detect anomalies and pre-empt duplicate invoicing and fraud.

Once documents are digitised, they need to be adopted across businesses and jurisdictions. According toa recent surveyby the International Chamber of Commerce and theWTO, more than 60 unevenly adopted standards are used in international trade, including for purchase orders, shipping documents and commercial invoices.

Luckily, the digitisation and standardisation of trade transactions is progressing. In 2021, the G7 adopted the United Nations Commission on International Trade Law’s 2017 Model Law on Electronic Transferable Records (MLETR). This legislative instrument confers legal recognition to electronic transferable records and provides electronic trade documents, such as electronic bills of lading, with the same legal standing as their paper-based counterparts.

The G7 economies are takingpractical steps towardMLETR. In 2023 the United Kingdom adopted MLETR in itsElectronic Trade Documents Billand Germany, France and Japan areworking towardsitsadoption.

The G7’s commitment to digital trade documents is globalising—it was endorsed by South Korea, Australia and smaller jurisdictions like Bahrain, Abu Dhabi, Kiribati, Belize, Papua New Guinea, Peru and Paraguay. Singapore and Abu Dhabi carried out the world’s first MLETR-enabled transaction in November 2021.In addition,Singapore’s Infocomm Media Development Authority launched Trade Trustas a digital set of globally accepted standards and frameworks to enable the exchange of digital trade documents.

Another post-COVID-19 digital trade milestone was in the realm of payments and trade finance. The October 2021 publication of theUniform Rules for Digital Trade Transactions(URDTT)established a framework for participants in digital trade transactions, whereelectronic records are used to evidence the underlying sale and purchase of goods or services.

To transform world trade, paperless trade, MLETR, URDTT, standardised electronic bills of lading (eBL) and trade documents must be adopted by the main traders, intermediaries and corridors covering the bulk of world trade. If adopted by the G7, Australia, the Netherlands, Belgium, South Korea, Mexico, Singapore and China, 58 per cent of world trade would be covered. In many countries,MLETR adoption is in progressand could help overcome some governments and businesses’ concerns about the validity of eBLs and security and help move to a standardised global legal framework that recognises and enforces eBLs. URDTT’s adoption is shackled by corporations’ aversion to change existing workflows and documents. By adopting paperless and standardised trade transactions,developing countries would add to this total and significantly change their destinies inglobal supply chains.

Paper-based trade documentation and a lack of standardisation have too long compounded the costs of shipping goods betweencountries. This issue is now exacerbated by mismatches in the supply and demand for shipping services and inflationary pressures in the global economy.Paperless trade and digital standards would go a long way in ensuring transparent and secure trade transactions, particularly benefiting countries where trade still involves piles of paper, stamps and handwritten signatures.

• About the author: Kati Suominen is Founder and CEO at Nextrade Group, Adjunct Professor at UCLA Anderson School of Management and Adjunct Fellow at Center of Strategic and International Studies.
• Source: This article was published by East Asia Forum