Clifford Chance

What is digital trade?

The concept of "digital trade" does not have a universally recognised definition.  It is commonly used to refer to both the online trade in goods and services and the physical trade in goods that is enabled though digital means (such as electronic customs clearance technology, enterprise freight management software or blockchain).   For example, the OECD defines digital trade as "digitally enabled transactions of trade in goods and services that can either be digitally or physically delivered".

The digitalisation of trade is one of the defining economic changes of our time.  It has irreversibly changed buying methods for both consumers, businesses and the public sector, a development accelerated by COVID-19.  Even before then, the UK remotely delivered £326 billion worth of trade with the rest of the world - around one quarter of its total trade in that year.

The growth in digital trade has made the identification of, and compliance with, the laws applicable to specific transactions more challenging. At a policy level, changes in trade practices as a result of digitalisation are, in many cases, driving changes to legal frameworks. 

Online trade in goods and services – legal and regulatory

A broad range of laws are relevant to the provision of digital products and services.  Some of these are particularly important in relation to the provisions of digital goods and services (such as cyber security, data protection, content liability and intermediary liability, online harms and communications regulation).  Others would also apply to trade in physical goods - whether or not trade is digitally facilitated (such as international trade regulations, export controls, financial crime compliance, economic sanctions, customs and excise laws, as well as intellectual property, product liability, contract and consumer protection laws).

Around the world we are seeing political and regulatory attention on the legal frameworks relevant to digital services and products. For example, in the European Union (EU), as part of the European Commission's digital strategy, there has been a significant increase in the number of related legislative initiatives being introduced and laws passed, typically with extraterritorial reach. Recently enacted legislation including the Digital Services Act (which creates harmonised EU rules for the regulation of intermediary services and illegal online content), the Digital Markets Act (which seeks to ensure fair and contestable digital markets in the EU) and the Data Governance Act (which creates a framework for increased data availability and re-use in the EU). Further pending EU initiatives at various stages in the legislative process that will impact digital trade include the Data Act, the Cyber Resilience Act, the Artificial Intelligence (AI) Act, the AI Liability Directive, e-Privacy Regulations and a review of the Product Liability Directive.

The UK is also active in these areas, with examples of relevant regulatory reform including the proposals set out in the Online Safety Bill, the Data Protection and Digital Information Bill, the Product Security and Telecommunications Infrastructure Bill, and the issues being considered by the House of Commons Science and Technology Committee inquiry in relation to the governance of AI.  

Paperless trade – the physical trade in goods enabled though digital means

A key aspect of digital facilitation of physical trade in goods is the initiatives to support paperless international trade. Traditionally, much of international trade in goods is conducted via hard copy paper-based instruments which entitle the bearer to claim delivery of goods or the payment of a sum of money (which are referred to as transferable documents or transferable instruments). Transition to the use of electronic transferable records as an alternative to paper-based transactions could reduce the inefficiency, errors, cost and environmental impact arising from the use of paper-based instruments in international trade.

Disruption caused to supply chains by events such as the COVID-19 pandemic and Russia's invasion of the Ukraine has highlighted the gulf that now exists in many jurisdictions between what is technically possible and what is legally permitted or recognised in relation to the transferable records that underpin international trade.  Globally, efforts are being made to address the lag in legal recognition of electronic documents. For example, the G7 inter-governmental political forum agreed a framework to promote the use of digital alternatives through adoption of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Transferable Records (2017) (MLETR), a legislative instrument which confers legal recognition to electronic transferable records. 

A common thread across various international initiatives facilitating paperless trade is an attempt to address the issue of control or possession, which is so fundamental to the operation of trade documents. Some legislative efforts address this by seeking to identify a functional equivalent to possession that applies to electronic documents. An alternative approach is to expand the category of assets that are amenable to possession. Others bypass possession entirely and instead set out the circumstances in which a person is deemed to hold a document, and how that person is able to transfer specific rights or entitlements.

In the UK, for example, the recently introduced Electronic Trade Documents Bill is seeking to reform the current legislative framework so that electronic trade documents can be used as an alternative to hard copy trade documents, including by introducing changes that would make electronic trade documents capable of being possessed as a matter of law.

Looking ahead

The evolving legal frameworks related to digital trade – whether this concept is broadly or narrowly defined – will be as critical as the technological developments they seek to address when it comes to determining the degree to which trade is segmented along national and regional boundaries, as well as the level of complexity that businesses need to navigate in operating internationally.

This article was originally published as part of techUK's Digital Trade campaign week. Read the two other articles we produced as part of the campaign week: Data Flows in a Modern World and Beyond adequacy: working together to ease multi-jurisdictional privacy compliance