A vision: building the nervous system of the global economy
The technology currently available makes it possible to fully digitize global trade. To support this, technical standards must be created and rules and laws harmonized internationally. Public administrations should invest in digitalization to the same extent as trade and also the numerous service providers around trade. The result will be promising, but one success factor is close cooperation between the different actors.
The volume of goods and services produced worldwide has roughly doubled in the last 30 years and trade has more than tripled. Many areas of production and trade have been digitized, but in the absence of a universal concept for digital networking, isolated systems have been introduced that form countless “digital islands”. Data is still transferred between stakeholders’ computer systems on printed documents or as unstructured PDFs. This burden is caused by the lack of interoperability and must be overcome if the full potential of digitalization is to be realized and processes transformed to become safer, more reliable, sustainable and cost-effective. Addressing this challenge would also help prevent criminal or dubious business practices such as trade-related money laundering, fraud or sustainability claims that are difficult to verify. In addition, trade finance would become much more accessible to SMEs, helping to close the so-called “trade finance gap”, which would also promote sustainable economic growth.
In the same period, the last 30 years, information and communication technology has developed very dynamically. While in the early 1990s home computers were still expensive and mobile phones were luxury items, smartphones are now the global standard. Almost all performance parameters of these handheld computers exceed those of the supercomputers of the 1990s with drastically reduced energy consumption. The miniaturization and integration of circuits now makes it possible to connect networked sensors and actuators with machines and everyday objects, which are also increasingly available everywhere. This is the so-called Internet of Things (IoT). Machines “talk” to each other and also interact with people via smartphones, wearables or voice commands. Ubiquitous computing has become a reality. Data processing can now take place anywhere, anytime and for any purpose!
In the same period, the internet and mobile networks have developed just as quickly. While the focus at the beginning of digital mobile communication was still on voice transmission, today this is a quantitative marginal phenomenon, accounting for less than 1% of the data volume generated in the networks. Data transmissions predominate, connection speeds and data volumes per month are sold, the call minute as a billing unit has become obsolete. High-quality mobile networks have been put into operation worldwide. Satellite constellations are being launched into the sky and will supplement mobile phone networks to completely close existing connection gaps. Every point on the earth’s surface will be networked with high bandwidth and low latency. Production facilities in Germany, copper mines in Zambia, container ships in the middle of the Pacific and aircraft flying over China or Brazil will thus become participants in a continuous exchange of data.
This exchange of data, which takes place anywhere, at any time and for any purpose, can be called ubiquitous networking. Through the combination of ubiquitous computing and ubiquitous networking, endpoints for human interaction with processes modeled in software become available everywhere. Machine-to-machine interaction, or more precisely between the software processes running on it, also becomes possible everywhere and at any time.
Decentralized business networks, DLT, IoT, AI
The administration of foreign trade takes place in a multitude of systems, most of which are operated in the computer centres of the trading participants and their service providers. For data transfer between the systems, paper or paper substitutes with poorly structured data are still used in most cases. A PDF file is an example of a paper substitute. While this file is digitally generated and transmitted, it often only replaces slow mail and does not readily support programmed end-to-end processes. Enterprise resource planning (ERP) system providers have also not adequately addressed this challenge. While data records can be exchanged between sellers’ and buyers’ ERP systems, there seems to be a lack of technical standards or “neutral ground” in this scenario. Often data transfers have a legal background for which time stamps and a legally binding signature are desired. The development of distributed business networks characterized by a certain degree of decentralization and located between ERP systems could close this gap.
In the future, decentralized business networks will serve as a means to manage most complex business processes between stakeholders and service providers. Business transactions related to financial services, logistics services, insurance, customs clearance, inspection certificates, certificates of origin and other required services can be handled within these distributed systems. The required data is entered into and retrieved from these networks. This eliminates the need to re-enter data and increases data quality. For most service providers in supply chains, decentralized networks can become the primary point of sale.
Generally, the networks are supported by a distributed ledger that restricts system inputs to a consensus-based mode based only on pre-established, programmed rules. This creates “technical trust” and enables the automation of cross-organizational business processes on an unprecedented scale. Smart contracts set out the agreed rules and defined procedures for business processes in code and are programmed across organizational boundaries.
A number of technical standards and protocols already exist for exchanging data between different networks, the participants’ back-office systems and the IoT data sources and sinks in the environment. Others are in the design phase and are currently being developed. The consistent use of ISO standards and compliance with the recommendations of the United Nations Economic Commission for Europe (UNECE) are becoming an important quality feature of trading systems. Certification of the conformity of these systems to standards can become a service. Extensive data permeability between networks is being pursued, and zero-configuration scenarios may become possible through standardization. Efficient access to data facilitates the use of artificial intelligence and prescriptive and predictive analytics. Use cases could relate to fraud prevention, effortless regulatory compliance and enabling promising Big Data applications. Paper as a means of sharing data will be seen as old-fashioned and eventually become obsolete. Or even suspect. But what will wet ink signatures look like in this new world? How will a data transmission or a data-driven transaction become legally valid?
Digital identities for organizations, people, objects and software processes will be means to grant access rights to numerous systems and networks and to the transactions managed there. Directory services, which today assign role-based access privileges in software systems and regulate access to the resources and services of organizations, will gradually be replaced by external services for digital identities and thus migrate into the decentralized space between companies. Roles and privileges are thus made available to the outside world in a programmable and verifiable way, in a fabric of digitally delivered services.
Put simply, a digital identity consists of an identifier (or multiple identifiers) and multiple verifiable credentials associated with it. Both components have been comprehensively standardized by the W3C. Since the Legal Entity Identifier (LEI) is the globally unique identifier of an organization, it is well suited as the root of an organization’s identity. The verifiable legal identifier will allow the LEI to be complemented by verifiable credentials, some of which can grant an organization’s employees access to transactions in third-party systems. The verifiable credentials that grant access or certify facts will be digitally signed by those granting access or certifying facts and will therefore be programmatically verifiable by those involved in the relevant transactions using software processes. This can therefore be done automatically, reliably and audited.
An example from the field of digital identities illustrates this: In order to process a letter of credit, a bank must access several business networks in which the purchase order, commercial invoice, bill of lading and certificate of origin are digitally recorded. As soon as the buyer indicates in a B2B network or L/C network that he has instructed the bank to issue the L/C, the access rights to the respective transactions in these third-party systems are transferred to the bank’s digital identity in the form of verifiable credentials. The bank can then delegate the right to access these records to its employees involved in the process by transferring a corresponding verifiable credential into their personal digital identity. This allows the bank’s staff or even the bank’s autonomous software processes to act on its behalf.
The transaction carried out using a digital identity relies on an X.509 certificate, which is part of a chain of trust that ends at the root of trust. The authorization and authenticity of the transaction carried out in this way is cryptographically guaranteed and is expected to be covered in Germany by the eIDAS Implementation Act and the legal ordinances issued for it. Corresponding regulations in non-European jurisdictions would be necessary and should be invoked, developed and enacted.
Creating network effects
Similar issues of “legal congruence” arise in the use of electronic records for commercial documents. It is of little use if the exporting country legally allows the use of electronic records for bills of lading and waybills, while the importing country legally forces a resort to expensive and slow paper procedures. The legal basis for business in globally networked companies should be standardized. In 2017, the United Nations Commission on International Trade Law (UNCITRAL) presented a proposal to adapt national laws, the ML-ETR, which aims to provide globally harmonized legislation for the transfer of property titles evidenced in negotiable instruments of trade.
The vision of an internet of trade also requires significant joint efforts at the technical level to become a reality. Technical standards ensure interoperability and should be jointly developed and also mitigated where several existing standards compete for the same purpose. A technical commercial language with uniform vocabulary, semantics and syntax is desirable as it would greatly facilitate, cheapen and speed up the interconnection of the multitude of systems and networks. An example is the core business vocabulary in GS1’s EPCIS standard.
The trading parties and their service providers such as banks, insurance companies, logistics service providers and inspectors are facing major changes. These will affect the internal IT and process landscape, the skills of the staff involved in the trade processes and the products offered. Public administrations and customs authorities should take a leading role in this process and ideally provide global direction. Peppol is a European example of this.
The ICC has taken on the role of global convenor for the many standards bodies working towards this goal. The ICC Digital Trade Standards Initiative began its work in mid-2020.
The changes will be so profound that even large organizations and companies will not be able to make a difference on their own. To create a network of networks and realise the full potential of network effects, all stakeholders must work together in a joint effort. COVID-19 was not only an unfortunate misery for many, but also acted as an unprecedented accelerator for global digitization efforts.
Global trade will become almost completely digitized and networked over the next decade. Silo-like systems and paper-based documentation are increasingly taking a back seat and will soon be considered backward. From the convergence of different technologies, a nervous system of the global economy will emerge that will be woven ever more tightly.
The ability to participate digitally in commerce will become crucial and require businesses to adopt new processes and skills. Public administrations should seize the opportunity to rapidly advance their digitization efforts and promote technical standards. Global cooperation between the many actors around trade is needed.