Policy Briefs

Boosting Trade Efficiency through Digitalisation of Trade Processes

Digitalising trade processes

The cost of doing business is a key differentiator for trading economies and industry competitiveness. A major factor in determining the cost for trading entities in international markets is the time and manpower required in the cross-border movement of goods, both those coming into the country as an input as well as those going out of the country as an export product. As G20 economies represent about 75% of global trade, trade facilitation in the grouping assumes high priority.

Trade facilitation was prioritized under the World Trade Organization Trade Facilitation Agreement of 2017, which was accepted by all G20 countries. It has also been high on the agenda of B20 as it is seen as a crucial tool towards inclusive trade and global growth.

The WTO Trade Monitoring Report on G20 trade measures found that between May 2022 and October 2023, the number of trade restrictive measures introduced by the member states was higher than the number of trade facilitating measures. In particular, the trade restrictions imposed on food, fertilizer and feed were of concern for food security and hunger challenges. However, the value of trade facing restrictive measures continued to be lower than the value for trade facilitating ones.

Under B20 India, the task force on inclusive global value chains (GVCs) for resilient trade and investment agreed on digitalisation of trade processes and adoption of advanced technologies as a key factor in improving the efficiency and resilience of global trade. Digital processes such as Artificial Intelligence (AI), big data, machine learning and blockchain can help to greatly reduce trade costs, simplify processes and enhance participation of developing countries and small businesses in global trade. Accordingly, the task force called for G20 to encourage cross-border investments and facilitate investments in digital infrastructure in economies with low participation in global trade.

Another important issue is digitalisation of border procedures and implementing cross-border paperless trade measures. Streamlining of digital trade transactions can be encouraged through interoperability in standards and protocols of digitizing and exchanging data, while appropriate legal frameworks are required to keep pace with technological advancements.

B20 Brasil carries forward this recommendation in calling for digital document standards for customs clearance, accelerating cross-border flow of electronic information regarding trade transactions and facilitating interoperability of standards and protocols for data exchange.

Global initiatives

The data flow for trade presents integration challenges across borders. It is generated by traders, then passed on to waybills of freight forwarders, going on to manifests, master waybills, consignment notes and bills of lading and so on, which are shared among the different nodes in the logistics chain. A seamless data and document transfer facility will thus alleviate the hurdles in trading across borders.

Several global organizations are working on the digitalisation of trade facilitation.

The UN Centre for Trade Facilitation and Electronic Business (UN/CEFACT), a subsidiary intergovernmental body of the UN Economic Commission for Europe, has produced and maintains the only global standard for electronic data interchange which has been updated and used through new formats of internet and cloud computing. This has developed several data models along with technical and legal standards and can serve as an international public good for mapping multimodal digitalisation.

The digitalised trade portal of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), along with International Chamber of Commerce, maintains a database of projects and services on cross-border trade digitalisation, legal instruments including implementation status of the Model Law on Electronic Transferable Records (MLETR), and implementation instruments for developing trade facilitation measures.

ICC’s Digital Standards Initiative on Key Trade Documents and Data Elements helps to promote the interoperability of trade electronic documents and the definition of their core elements.

Current status of G20 economies

The UN Global Survey on Digital and Sustainable Trade Facilitation brought out the Trade Digitalization Index on parameters related to paperless trade within a country and cross-border paperless trade regarding legal frameworks and data movement for trade across borders. In addition to 10 measures on paperless trade, the index covers 6 measures related to digitalisation of cross-border trade processes:

i. Laws and regulations for electronic transactions
ii. Recognized certification authority
iii. Electronic exchange of Customs Declaration
iv. Electronic exchange of Certificate of Origin
v. Electronic exchange of Sanitary and Phytosanitary Certificate
vi. Paperless collection of payment from a documentary letter of credit

The report assesses the digital trade facilitation readiness of 160 economies. The index for G20 economies is given below.

Table: G20 Economies’ Trade Digitalization Index 2023 for Cross-Border Paperless Trade

Economy	Cross-Border Paperless Trade Score (%)	Overall Trade Facilitation Score (%)
Australia	83.33	96.77
Brazil	83.33	83.87
Canada	66.67	87.1
China	72.22	91.4
France	55.56	79.57
Germany	72.22	90.32
India	66.67	93.55
Indonesia	61.11	87.1
Italy	55.56	84.95
Japan	77.78	93.55
Republic of Korea	83.33	94.62
Mexico	77.78	88.17
Russia	55.56	87.1
Saudi Arabia	77.78	94.62
South Africa	n.a.	n.a.
Türkiye	50	87.1
United Kingdom	72.22	88.17
United States	n.a.	n.a.

Source: https://www.untfsurvey.org/economy South Africa and the US are not covered in the report

G20 ‘High Level Principles on Digitalization of Trade Documents’

Under G20 India, the Trade and Investment Ministers’ Meetings brought out High Level Principles on Digitalization of Trade Documents as an annex of the Outcome Document and Chair’s Summary. It recognized the challenges to the transition towards paperless trade, including lack of digital infrastructure and connectivity, high costs in adopting digital tools, and digital skills gap. It proposed the below principles:

1. Neutrality: Immutability and interoperability of data for seamless communication and exchange across diverse systems
2. Security: Robust encryption and other security protocols
3. Trust: Transparent domestic rules and procedures
4. Interoperability: Enable use of a variety of technological systems, standards, document formats and frameworks
5. Data privacy: Share minimum data necessary
6. Reliability: Ensure authenticity, immutability and validity of electronic trade documents
7. Voluntary sharing of data: Informed consent of economic operators
8. Collaboration: Use of same electronic trade documents by governments and other authorities.
9. Traceability: Comprehensive audit trail of transaction/s
10. Scalability: Handle extensive data volumes and transaction numbers

Actioning these principles would contribute to building digital processes for facilitating trade.

Best practices

SADC: The UN report on Digital and Sustainable Trade Facilitation 2023 provides a glimpse of some recent best practices in digitalisation of trade. The Southern African Development Community (SADC) in September 2022 implemented the electronic Certificate of Origin (eCoO) under its trade facilitation programme. The eCoO includes online applications and real-time tracking. It has advanced security measures such as optical watermarking that would help to reduce fraud at borders. Replacing the manual SADC CoO, the implementation of eCoO is expected to contribute to seamless flow of intra-regional trade. Certificates are to be issued through a system, with authorization, including registration of exporters, stamps and signatures, all being done electronically.

Australia: Australia, one of the top performers in the Trade Digitalisation Index (TDI), brought out its Digital Trade Strategy in April 2022, which includes trade facilitation. In the TDI, it scores 100% on laws and regulations for electronic transactions, recognized certification authority, and paperless collection of payment from a documentary letter of credit. It displays over 60% achievement on electronic exchange of Customs Declaration, certificate of origin and SPS certification. Australia has also entered into a collaboration with Singapore for a blockchain trial towards building digital supply chains.

Conclusion

Digitalisation of trade procedures is a complex and challenging process, even for advanced nations. While a country may be able to make its own trade systems largely electronic and enhance efficiency, the systems of different countries employ different software and processes. Thus, these systems are unable to ‘speak’ to each other, causing excess time and effort in meeting obligations across borders.

The G20 countries can enhance their participation in digitalisation of trade processes and work with international organisations to build interoperable systems that promote trade while ensuring data security and privacy. At the same time, they must ensure access to digital infrastructure and digital skills for all traders, including in particular small and medium enterprises to boost inclusive trade and growth for all.