Chris Southworth, Secretary General, ICC United Kingdom
We must applaud the UK-Singapore governments on the quality and depth of this agreement and the ambition behind it which is effectively limitless. The commitment and energy in this bilateral relationship is really impressive. The DEA has changed the game on future trade by setting a new precedent on the type of framework we need to drive modern trade. In short, it is everything we have been asking for.
The agreement covers a host of important areas – open and inclusive digital markets, data flows, consumer and business safeguards, digital trading systems, financial services, tech partnerships and information sharing. It’s also supported by deeper cooperation agreements on the UK-Singapore Fintech Bridge, digital customs, cybersecurity, digital identities, electronic trade documents and electronic invoicing.
Digital trade isn’t just about paperless customs processes, ecommerce platforms or the tech sector. It’s also about transforming and modernising the environment in which we trade so companies of all sectors and sizes benefit from a cheaper, faster and simpler trading system. This is vital for SMEs and supply chains where the pain of inefficiency and paper heavy processes is felt the most. It’s also about improving access to the working capital SMEs need to drive trade. 50% of the $1.7 trillion trade finance gap can be solved by simply digitalising commercial trade documents – bills of exchange, bills of lading, warehouse receipts and the like.
Remember the days when Microsoft and Apple were completely separate systems? Today’s trade system still operates like this. In comparison to our consumer lives where we can connect to almost everything through mobile apps and documents and information flow across whichever system we use, trade is at least 20-30 years behind and still operates on laws dating back to the 1800’s.
We have the technologies but we don’t yet have the environment in which they can operate at scale and connect up the myriad of fragmented systems between governments, shippers, financiers, insurers, traders, ports and everyone else in between. Technology platforms can’t connect to each other, information can’t flow because it’s in different formats and reams of paper documents are being shuffled from one party to the next to be checked and re-checked. All of this makes trade expensive, slow and unnecessarily complex.
A trade transaction can take 2-3 months to complete, cost up to £80,000 in time and cost and involve up to 27 different documents, 35 government agencies across 30 plus parties. Worldwide, there are 4 billion paper documents floating through the system at any given time. There are 40 different standards for e-invoices alone.
The whole system needs modernising and bringing into the 21st century. It is ripe for innovation and transformation and all the economic benefits this brings. The UK-Singapore DEA provides the conditions in which we can sweep all of this complexity away and dramatically cut the cost of trade – by 80% for a trade transaction. We can cut the processing time on cross border compliance from 25 days to 1 day and free up more working capital to finance SME trade. The opportunity is dramatic.
As big as these benefits are, the DEA is more than this. Crucially, it is a flexible framework that creates the space for dynamic dialogue so government and industry can evolve in real time to technological change. This is significantly different from the more traditional free trade agreement format. The latter suffers from being slow to negotiate and too rigid and static once negotiated which is one reason we still operate on WTO ecommerce rules dating back to the 1990s. A dynamic format addresses this issue which is vital in a world where technology is advancing far quicker than governments and regulators. It is fluid and able to respond in real time to keep up with the pace of technology.
This way of working isn’t without precedent. The financial centres of New York and London don’t operate under a static free trade agreement framework. Financial institutions, authorities and regulators have a constant dialogue that changes and adapts to the environment around them which is one of the reasons why we see so much financial services innovation from these two cities and responsiveness when that environment changes. The DEA is similar to this except it covers the whole spectrum of the trade environment. In my view, this is the future format for modern digital trade agreements.
The timing of the DEA is also interesting. We have seen a lot of activity and progress in digital trade across Asia but this is the first time we are seeing two G20 trade, finance, legal and technology hubs connect across East and West hemispheres. It’s also the first time we are seeing two governments setting out a scalable model for digital trade – technology agnostic, standards-led, open systems as opposed to having to choose specific technologies and use closed platforms. In other words, the focus is on enabling the market to grow and deliver technology solutions which is a model for digital trade that is more likely to be accepted across the western economies and beyond. The DEA, in effect, is providing a bridge that will connect modern trading systems east and west which is one of it’s most exciting aspects.
It’s also interesting that aside of the bilateral relationship, both governments are looking at the bigger picture and how to help improve the trading environment for all countries. For instance, partnering up to remove legal barriers to digitalisation at the World Trade Organization. If they are successful there, we will unlock digital trade across 80+ countries aligning legal systems. Inclusivity must be a top priority if we want to avoid a twin track world where some countries benefit but others do not. We also have The Commonwealth Heads of Government Meeting this year where there is another opportunity to do the same with 54 nations who already share the same underpinning legal system. The Commonwealth has the potential to modernise legal systems faster than any other network.