Alexander Paetzold, COO Trade Technologies & MD Trade Technologies Germany GmbH

During the last couple of months, the discussion about how to proceed in the digitalization of global trade has largely focused on legal and regulatory reform to enable and promote the use of electronic forms and digital data in trade processes. One of the key aspects in this context is the adoption of the MLETR in further countries and legal frameworks. Although we all have seen progress in this topic, we are still rather far away from a globally harmonized legal framework that fully allows for a digital sharing of data and electronic documents.

Still, implementing legal and regulatory reform alone is not sufficient to drive digitalization. There is also a need for standards that allow for interoperability, digital trust and capacity building, as ICC Digital Standards Initiative (DSI) has rightly pointed out in one of their recent publications about interoperability and trust.

Data Standards allow for Interoperability

These days, companies’ supply chains can be complex, involving multiple parties across different countries, and are often digitally fragmented. In this context, the distinction between the financial and the physical supply chain helps to better understand the different ecosystems that have to work together to produce the goods that are shipped from the seller to the buyer and then to facilitate payment from the buyer to the seller. This includes corporates, banks, logistics players, insurance companies and many more. All of them have created somewhat isolated islands where, to some extent, the digital exchange of data and documents is possible, but only within the relevant ecosystem. Whenever data and documents need to be shared between different ecosystems, there is again a data redundancy and friction, which requires paper to overcome these challenges.

As ICC DSI demonstrated in their “Key Trade Documents and Data Elements (KTDDE)” framework, there are 36 key trade documents – whether commercial, transport, financial or compliance – that should be used as a starting point for establishing data standards across ecosystems. Interestingly, their further analysis showed that 21 out of 189 data elements are shared across more than 10 documents. Therefore, this clearly indicates that interoperability is possible at the data level.

As a result, the digitization of documents alone is not enough. If the data that is shown in the relevant document is not machine-readable, verified and traceable, a seamless exchange of this data between different systems becomes difficult.

How to move forward?

Driving the digital exchange of data and documents might be seen as a rather complex task that is not easy to achieve with the currently used systems and platforms. So, would it be best to first overhaul the relevant IT infrastructure before actually embracing digital trade and all its benefits? 

Of course, there is a better way to kick off digitalization immediately. This can be done by adopting a bridging strategy that allows for doing both in parallel – using the existing IT landscape to unlock the potential of digital trade and working on a mid-term strategy to drive interoperability and trust. This tactic can include using APIs for the digital exchange of standardized data (ideally following the KTDDE framework) and documents as well as using AI / OCR to extract structured data from any kind of digital document, whether it be a PDF or a scanned document. In case the overall transactional portfolio does not allow for scaling such solutions, it might be valuable to look for a partner that can support by leveraging a global portfolio and therefore benefit from economies of scale.

Digital Trust as Precondition for further Market Adoption

When it comes to the digital processing of trade transactions the most relevant questions are around how to trust the data to directly act on it – ideally without needing additional checks.

This is connected to several aspects such as:

• Who is generating the data and where is it processed?
• Who is sharing the data?
• Which channel is used to share the data?
• Etc.

To properly address these questions, there are several  possibilities, such as:

• Using a “Legal Entity Identifier” to share the information about the data processor
• Using external audits, such as SOC 2 and ISO, to confirm IT and Data Security Standards
• Using APIs to be integrated with parties that are to be considered as “Trusted Parties” almost by default, such as banks

Conclusion

Although, on a global level, the overall setup might still to some extent be considered a “work in progress”, the digitalization of global trade is already possible, and the last two years have marked a turning point.

Already today, economies that account for approximately one-third of global GDP are already aligned with MLETR, with another approximately one-third  actively working on legislative reforms for their alignment. 

In addition, both the underlying technologies, such as APIs or AI / OCR, are already available to be used, as well as methods to enhance digital trust.

Let us all work together to transform cross-border trade, which has long been a paper-based process with fragmented standards and siloed platforms, into a more digital, easy to use, and cost-effective system.