There are clear economic and political imperatives to accelerating digital trade facilitation and legal reform for digitalisation, with potential total benefits of nearly US$1.2 trillion to Commonwealth trade by 2026.

This report attempts to quantify the potential impact of legal reform to enable the use of the so-called “transferable records” on Commonwealth trade. “Transferable records” are paper-based documents or instruments used in domestic or international trade and trade finance such as bills of lading, bills of exchange, promissory notes, warehouse receipts, guarantees and standby letters of credit. Since the beginnings of trade between individuals, companies and nations, these records have been manual; there are an estimated 4 billion paper-based documents that are being processed at any one point in time around the world according to the International Chamber of Commerce (ICC).

The research covers 54 diverse Commonwealth economies and presents a picture of the potential for cost reductions and trade increases as a result of the introduction of legal reform to enable the use of electronic transferable records across the Commonwealth.

It determines that costs will, on average, fall by around 75 per cent and for some costs as much as 81 per cent. This itself could enable as much as US$90 billion in additional trade across the Commonwealth. If combined with measures to use electronic transferable records in trade finance, the resulting multiplier effect could enable a total of nearly US$1.2 trillion in additional trade across the Commonwealth. In some countries where the costs of trade are disproportionately high relative to the revenues received, moving toward paperless trade will have the effect of creating trade where previously very little existed.

The following text is a summary report.

View the full report as a PDF here.

Benefits of Digital Trade Adoption

Digital trade adoption is the process of moving from paper-based trade documentation to electronic trade documentation. This is seen as having four primary advantages:

Reducing Pre-Border and Border Costs for Commonwealth Countries

Many Commonwealth countries face very high costs of exporting due to several factors that moving to paperless trade can help alleviate. The non- standardised and manual nature of a Bill of Lading makes border processes complex and costly for the exporter.

Lower levels of education or literacy mean that reams of manual documentation in customs and excise forms, identification requirements, rules of origin and Incoterms compliance present a major challenge for some groups.

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Graph showing average pre-border and border costs for Commonwealth countries

A Difficult Post-Pandemic Recovery

Many Commonwealth countries, irrespective of their state of development, are likely to struggle to recover quickly from the Covid-19 pandemic. Trade across the whole of the Commonwealth is likely to grow in 2026 by just 0.2 per cent annually over the next 5 years, which is modest, but of the 20 countries with the slowest growth projections for 2026, only seven are not SIDS and six of these are emerging African economies.

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Prohibitive Trade Costs as a Share of Trade Revenues

Trade costs are currently prohibitive for many countries across the Commonwealth. For four Commonwealth economies, costs are higher than 100 per cent of the revenues received from trade, while another 34 economies are burdened with costs that exceed 50 per cent of the revenues they receive from trade. These are considering just costs associated with border crossing and transport – adding raw materials, production, sales and distribution costs would potentially mean more Commonwealth countries would find the costs of exporting prohibitive.

Border and transportation costs are the easiest to address through Single Windows and electronic transferable records, suggesting that there would be real advantages from implementing the legal reforms to enable this as soon as possible.

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Benefits Of Adopting Electronic Transferable Records

It is not the most developed Commonwealth economies, such as the UK, Australia, New Zealand or Canada, who would feel the biggest benefits reduction in costs in trade terms. In these countries, production is at the higher end of the value and supply chain and so trade is less cost elastic meaning that at a country level, the total effect is smaller. Rather, it is in the market creation and enabling impact in Commonwealth LDCs and SIDS where the impact would be most felt. 

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Graph showing data for 2020-2026 reduction in trade costs from digitisation

Impact on Commonwealth Trade

The research set out to estimate the impact on Commonwealth trade of adopting electronic transferable records. The estimates are derived from qualitative assessments and represent a target from potential market creation, the inclusion of more diverse exporters, and the elimination or significant reduction in some of the non-trade barriers to trade.

For all Commonwealth economies, there will be a significant improvement in trade resulting from two factors:

  1. Reduction in trade costs, which enables more exporters to access trade routes;
  2. Improvement in access to finance, which has the effect of creating markets, especially for MSMEs who are currently excluded because they are unable to access traditional forms of trade finance because of due diligence costs involved.

By combining the impact of cost reductions and greater access to finance, there could be as much as a US$1.1 trillion increase in trade by 2026, assuming the upper bound of estimates by 2026.

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Sources

1. All sources and a full appendix and bibliography can be found in the PDF version of the "Quantitative Analysis of the Move to Paperless Trade": Download the report
2. International Chamber of Commerce, UK (2021): “Aligning National Laws to the UNCITRAL Model Law on Electronic Transferrable Records (MLETR): UK business case” and “Creating a Modern Digital Trade Ecosystem: Cutting the Cost and Complexity of Trade – Reforming laws and harmonising legal frameworks”