Parliament
Opening Speech by Minister S Iswaran at the 2nd Reading of Electronic Transactions (Amendment) Bill
1 February 2021
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Mr Speaker, I beg to move, “That the Bill be now read a second time”.
Introduction
Sir, the Electronic Transactions Act, or ETA, was first enacted in 1998. Recognising the growing importance of electronic transactions, especially e-commerce, Singapore was the first country to adopt the Model Law on Electronic Commerce of 1996 (MLEC) by the United Nations Commission on International Trade Law, or UNCITRAL. The ETA has also facilitated the Government’s use of electronic documents in its engagements with businesses and citizens.
The ETA was repealed and re-enacted in 2010 to adopt the United Nations Convention on the Use of Electronic Communications in International Contracts (ECC). The ECC provisions were updated for application to Internet technologies and to harmonise international laws on electronic transactions.
Today, electronic transactions and e-commerce underpin the global economy. In 2018, the value of global e-commerce was estimated at US$26 trillion, equivalent to 30% of the global GDP that year1. The COVID-19 pandemic has given a further boost to global retail e-commerce, which grew by 37% in the first half of 2020, more than double the rate in 20192.
The digital economy is key to the next phase of Singapore’s growth, and our efforts to emerge stronger from the pandemic. Our strategies include enhancing our digital infrastructure and frameworks, strengthening our citizens’ and businesses’ digital capabilities, and collaboration with international partners. This Bill will ensure that our legal and regulatory infrastructure keeps pace with international trade law and the latest technological developments so that Singapore remains globally competitive.
The Bill was drafted after extensive consultations with stakeholders over several years. It aims to facilitate faster and more secure transactions while enhancing businesses’ and citizens’ trust in digitalisation.
Sir, the proposed amendments are guided by two main considerations:
a. First, to meet the digitalisation needs of citizens and businesses while introducing adequate safeguards; and
b. Second, to ensure the international harmonisation and technology neutrality of our laws relating to electronic transactions. (A) Meeting the digitalisation needs of citizens and businesses while introducing adequate safeguards
Overview of the MLETR
Clause 6 of the Bill introduces a new Part IIA to adopt the UNCITRAL Model Law on Electronic Transferable Records (or MLETR) with certain modifications. The MLETR enables the creation and use, domestically and internationally, of electronic forms of transferable documents or instruments, otherwise known as electronic transferable records or ETRs.
Transferable documents or instruments entitle the rightful holder to claim the performance of the obligation indicated, such as the delivery of goods or payment of money, and to transfer the right to performance by transferring the document or instrument.
These transferable documents or instruments are used extensively in international trade, in industries such as shipping, logistics and finance. Let me illustrate how an electronic bill of lading can enable faster transactions, lower cost, and importantly, foster greater trust amongst businesses.
Benefits of ETRs
A bill of lading is used in maritime trade as a transport document and as a document of title over goods in transit.
The seller will engage a carrier to deliver the cargo and will in turn receive a bill of lading from the carrier. The seller will generally only release the bill of lading to the buyer upon payment, and the buyer can only collect the goods from the ship by producing the bill of lading.
Often, financing is involved and the bill of lading will pass through many parties – from the seller to his export bank, then to the buyer’s import bank, and eventually to the buyer, who may even sell the cargo to a sub-buyer whilst the cargo is en route. The final buyer will have to produce the bill of lading to take delivery of the cargo at the port.
Sometimes, goods arrive at their port of destination before the documents have been processed. In such instances, there will be additional costs to either hold the cargo, or to secure a letter indemnifying the carrier for delivering the goods without a bill of lading. Fraud is a real risk because paper bills of lading can be forged. Significant resources are therefore required to process paper documents and verify their authenticity. This means considerable time and cost are attributed not only to the actual transportation of the goods, but also to the administrative cost of cargo holding and document processing.
With electronic bills of lading, the transmission of documents will be instantaneous, and time spent on verification and rectifying errors will be reduced. With digital authentication technologies such as digital signatures, centralised ledgers, or blockchain, electronic bills of lading also improve security against forgeries.
Commercially available technology solutions for an electronic bill of lading based on contractual frameworks already offer many of these benefits for shippers today. For example, last year, Singapore-based Ocean Network Express announced that it had issued an electronic bill of lading using the essDOCS system in a successful shipment of synthetic rubber from Russia to China3. While this contractual approach benefits the parties to such a contractual framework, it does not affect third parties that are not part of the framework. Clause 6 of the Bill addresses this gap by enabling the creation and use of an electronic bill of lading that is legally equivalent to a paper bill of lading, which will be legally effective beyond parties to such a contractual framework.
One commercial advantage in using an electronic bill of lading enabled by clause 6 is that a trade financing bank can obtain collateral security over the electronic bill of lading which is legally equivalent to a paper bill of lading. This may allow the bank to obtain regulatory capital relief in respect of its trade finance exposure, and to pass some of the benefits to its clients in the form of lower fees.
The Digital Container Shipping Association estimates that about US$4 billion would be saved annually, if just half of today’s container shipping lines adopt electronic bills of lading4. Ultimately, end consumers stand to benefit from the lower costs of legal documentation, transportation and trade financing.
Safeguards to ensure secure transfers with ETRs
As with any digital technology, we need appropriate safeguards to ensure that transactions can be executed with confidence.
The technological and legal challenges of establishing what constitutes an “original” document and its “possession” in an electronic environment are key impediments to the use of electronic versions of transferable documents or instruments.
Technological advancements have made it possible to meet these requirements, and to prevent the unauthorised duplication of an original document with strong safeguards. Existing commercial electronic bill of lading solutions, from providers such as BOLERO and essDOCS, as well as newer digital utilities such as IMDA’s TradeTrust, have demonstrated that stakeholders can use electronic bills of lading with trust, through the use of title registries, blockchain and advanced encryption standards and firewalls. These technologies help to reliably establish the control of the singular electronic bill of lading while ensuring document veracity. Indeed, the industry itself is confident of the use of these technologies as evinced by the International Group of Protection & Indemnity Clubs providing an equal level of marine liability cover for both paper bills of lading5, and carriage of cargo under certain electronic bills of lading systems.
With such technological solutions available today, it is timely to provide the enabling legal infrastructure through this Bill, to allow the creation and use of ETRs under the law, in a trusted and secure manner. Let me now address the key provisions of the Bill.
The principle of functional equivalence
The new sections 16F to 16I set out specific requirements that an electronic record must meet in order to be recognised under the ETA as the electronic functional equivalent of a paper transferable document or instrument. The functional equivalence rules apply to writing, signature, transferable document or instrument, and possession. The new sections 16J to 16L set out further functional equivalence rules for requirements relating to the use of ETRs.
Specifically, section 16H provides that an electronic record is the electronic functional equivalent of a paper-based transferable document or instrument if several specific requirements are met.
a. First, the electronic record must contain the information required to be contained in the paper transferable document or instrument.
b. Second, a reliable method is used to identify that electronic record as the authoritative electronic record constituting the ETR.
c. Third, that reliable method renders that electronic record capable of being subject to control from the time it is created until it ceases to have any effect or validity.
d. Fourth, that reliable method must retain the integrity of that electronic record. Together, these give effect to the singularity requirement which requires reliable identification of the ETR that entitles the holder to request performance of the obligation indicated in it, and avoids multiple claims.
Section 16I provides that a legal requirement for the possession of a transferable document or instrument is met with respect to an ETR if a “reliable method” is used — to establish exclusive control of that ETR by a person, and to identify that person as the person in control. Where this requirement is met, the person in control of an ETR will be in the same legal position as the person in possession of an equivalent paper-based transferable document or instrument.
General reliability standard
New section 16O also sets out a general standard to assess the reliability of each of the methods referred to in the functional equivalence provisions I listed earlier. In the event of a dispute, it is for the court to assess the reliability of the method in question, taking into account the non-exhaustive list of relevant circumstances set out in the same section.
With these amendments, Singapore will be one of the first countries to enact a legislative framework for ETRs based on the MLETR, giving a competitive edge to our key industries like shipping, and reinforcing our status as a leading maritime and trade hub.
Phased approach to remove items from Exclusion List
Sir, while the ETA gives electronically concluded contracts the same status as written contracts through a set of legal provisions, it does not apply to certain types of legal instruments or contracts as listed in the First Schedule of the Act, also known as the “Exclusion List”, as these were assessed to be not ready for the electronic medium at that time.
With the adoption of the MLETR in new Part IIA of the amended ETA, Clause 8 of the Bill will remove Item 2 relating to transferable documents or instruments from the Exclusion List.
The Government is studying the feasibility of removing the remaining items from the Exclusion List, bearing in mind the benefits that could accrue to our citizens and businesses. These items will be removed from the Exclusion List when the necessary legislative and regulatory frameworks, and corresponding safeguards, have been put in place.
(B) International harmonisation and technology neutrality
Let me now move on to how the proposed amendments will help ensure the international harmonisation and technology neutrality of our laws.
The MLETR is an internationally harmonised legal framework developed by UNCITRAL, the core legal body of the UN in international trade law. As a uniform model law recommended for adoption by all jurisdictions, the MLETR facilitates the cross-border use of ETRs especially when adopted broadly by countries. Moving forward, as more countries incorporate the MLETR into their domestic law, it will greatly promote cross-border transactions, and Singapore’s early adoption of the MLETR will strengthen our position as a global commercial hub. Given the tangible benefits to global trade, we will continue to work with our international partners to promote the adoption of the MLETR through our Free Trade Agreements and Digital Economy Agreements.
Non-discrimination of foreign ETR
In this bid to promote cross-border transactions, the new section 16P will facilitate the cross-border use of ETRs by supporting the principle of non-discrimination against the foreign origin or use of an ETR. It provides that an ETR is not to be denied legal effect solely on the grounds that it was issued or used outside Singapore. The question that then arises is what happens if a cross-border trade involves jurisdictions which do not yet support the use of ETRs?
Change of medium
Recognising that not every country would have enacted the MLETR, new sections 16M and 16N contain substantive provisions that enable the change of medium from a physical transferable document or instrument to an ETR and vice versa. A change of medium in accordance with the provisions of the Bill does not affect the rights and obligations of the parties. This provides parties with the confidence to use ETRs which are typically transferred multiple times, knowing that a subsequent transferee can choose to convert an ETR to physical form.
The principle of technology neutrality
Finally, regardless of changes in the technology related to electronic transactions, our laws must continue to be relevant in the long run. Consistent with the MLETR, the amendments introduced by the Bill abide by the principle of technology neutrality, which means that legislation should not impose the use of or otherwise favour any specific technology. In other words, the provisions are intended to accommodate the use of different technologies, such as traditional registries, tokens and distributed ledgers.
Conclusion
Sir, in summary, the amendments to the ETA will reinforce Singapore’s position as a world leader for electronic transactions and strengthen our status as a maritime and trade hub, by being one of the first countries to enact a legislative framework based on the MLETR for the creation and use of ETRs.
Coupled with our close partnerships with sectoral agencies like MPA, Customs, MAS and the industry to develop the ecosystem for ETRs, and efforts to promote global adoption of the MLETR through various Digital Economy Agreements, these amendments will further enhance Singapore’s position in the global Digital Economy, and bring opportunities and benefits to our businesses and our people. Mr Speaker Sir, I beg to move.
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1 Source: United Nations Conference on Trade and Development (UNCTAD) - ‘Global e-commerce hits $25.6 trillion – latest UNCTAD estimates’, 27 April 2020.
2 Source: Statista.com – ‘Coronavirus impact on retail e-commerce website traffic worldwide as of June 2020, by average monthly visits’, June 2020.
3 Source: ONE-Line.com – ‘Ocean Network Express Issues its First Electronic Bill of Lading and Selects essDOCS to Power its Global Bill of Lading Digitization Initiative’, Apr 2020.
4 Source: LedgerInsights.com - ‘DCSA sees $4 billion savings from electronic bills of lading. Promotes standards, blockchain’, May 2020.
5 Source: GTreview.com – ‘IGP&I approves a fifth electronic bill of lading system for its members’, Jan 2020.