International commerce usually means jumping through hoops. There are different documents to be prepared and requirements to be met that are specific to each country's policies. If you use paper or conventional methods, your business will require a lot of time to complete the administration processes, and the costs will be much higher.
To avoid these challenges, different countries are adopting technological innovations to eliminate paper use while conducting international trade. These include digital administrative and documentation works.
But what are the legal implications, advantages, and applications of paperless international trades? Let’s look at these concerns and the effects of e-signatures in international trade in the following guide.
Legal basis of e-signatures in international trade.
For the paperless international trade system to run efficiently, the following legal foundations are already established.
Advantages of paperless international trade.
The adoption of paperless global commerce through e-signatures in international trade has several benefits for both stakeholders, i.e., government and traders, and these benefits directly relate to international trading practices. The following are some of the benefits of paperless operations you will get if you apply optimally and properly.
1. Benefits to the governments.
International trade has its fair share of complexities in administration. You can imagine how complicated it is to examine incoming and outgoing paper documents for administrative functions.
The back-and-forth operations involved with paperwork can hamper the trading process and eventually lead to massive business losses.
Implementing e-signatures for international commerce will make digital documents more secure and efficient. This is true because digital signatures are considered valid and legally binding even though they don’t need paper documentation.
Additionally, eliminating the need for paper documentation means that no physical storage is required. Trading documents can be digitally stored in the cloud, providing safety and ease of auditing.
International commerce that applies the use of digital signatures is ideal for various goods, especially items that can be easily damaged, like foodstuffs, and marine products, among others. The administrative and handling process is shortened, and the products can be shipped faster without delays and holding back using excessive red tape
2. Paperless international trade benefits to traders.
Digital signatures lead to streamlined business operations in export-import business and international commerce. These business models have been increasingly complex over the last two decades, but the introduction of digital documents and e-signatures has greatly simplified their process in the recent past.
Author credit: By Marc Ryckaert - Own work, CC BY 3.0, https://commons.wikimedia.org/w/index.php?curid=26638414
Going paperless in international trade processes by the traders will increase movement and speed up efficiency when handling administrative documents, such as inventory, purchases, certification, and storage.
A lot can be done quickly, with minimum costs and a much better processing speed, as compared to the traditional methods of paper-based processes that require wet ink signatures. Digital administration processes also enable workflow automation through an online platform allowing the company to operate with a reduced need for manual management of paper files.
The principle of paperless international trade using digital signatures.
The United Nations Commission on International Trade Law sets out different principles to be observed when implementing digital signatures for paperless international trade to allow for efficient operations across borders.
These principles include,
In addition to these principles, policies governing paperless international trade should be in line with the rules set by the Uniform Customs and Practice for Documentary Credits from the International Chamber of Commerce.
It is also vital to consider the principles governing data security and authentication processes, including sending and receiving digital files from other parties.
How digital signatures secure online international trade system.
As stated earlier in this post, e-signatures in international trade provide a high-level security system compared to conventional pen and paper signs. The digital identities of the parties involved will be private, and the risks of document forgery will be reduced.
But how do digital signatures ensure the security of the process and documentation? Check the section below for more.
a. The Hashing functions.
A hash is a series of numbers and letters generated from a mathematical algorithm on files, like messages, emails, documents, or documents, among others. Regardless of the size of the file, the hash number and hash strings are always the same.
The harsh series is always one way and unique, meaning there is no other sequence having the same combination of letters and numbers. Also, the specific hash series cannot be reversed to refer to a different file it was not created for.
Even when two copies of data are the same but differ slightly in one bit, the resulting hash combinations will still be different.
b. Cryptographic encryption.
The hash combinations that are generated from the digitally signed documents will be encrypted with a pair of keys known as private keys and public keys. The public keys can be accessed by both the sender and the receiver, while private keys can only be used by one person.
When you encrypt the files with the sender's private key, only the public key counterpart can decrypt it and vice-versa; therefore, only the intended parties are allowed to interact with the files. This further ensures stronger privacy and confidentiality of the document.
When the hash function of a file is activated, private keys change the hash function. If there is a change in the file, it generates a different hash function. In the end, even the slightest change in the document can be detected.
c. Public Key Infrastructure (PKI).
In cryptographic methods, an arrangement known as a Public Key Infrastructure links the key to the identity of each party to a person or an organization. This binding is created through registration and provision of a certification authority.
So, what is a public key infrastructure?
PKI is a set of systems, policies, roles, procedures, software, and hardware that are required to create, manage, use, distribute, store, and revoke e-certificates, perform identity and validity of an entity, and manage public key encryption.
The aim is to facilitate the secure transfer of digital information for several network activities, especially the ones that require the identity of the involved parties in the communication and the validity of the message or data transferred.
In online international trade transactions, these can be seen in the retail and banking sectors. Indeed, most companies currently use passwords to secure electronic information transfers. However, know that passwords are not an authentication method and are a weaker form of security considering the high risks of hacking.
Challenges faced by implementing paperless international trade.
Global commerce and digital signatures have their share of challenges. One of the problems is that they have not been completely implemented in all countries.
Most of the countries that have implemented paperless international trading with digital signatures are developed countries that have a strong infrastructure and a better understanding of technology.
In developing countries, the implementation of digital signature policies has not been exhaustively done as needed. Paperless trade challenges usually occur because of cultural and administrative service factors of a specific country.
Paperless trade can do well in developed countries, and some which already got access to a complete global commerce systems because they make outgoing and incoming data to integrate easily with documents of trade administration.
In a nutshell, the challenge facing international trade and digital signatures today is how to harmonize international trade policies, differences in regulations, and regulations that are domestic or specific to a single region.
Digital signatures are one of the significant technological drivers for achieving paperless international trade. When done appropriately, implementing e-signatures in international trade has many benefits both to the country and the trade.
It increases the speed of shipment, handling, and delivery processes for international traders, making it effective for products that can be easily damaged. Traders are sure that their business documentation is safe since there is an effective document management and cloud storage.