The digitalisation of trade documents and processes

3. What is the state of play in the regulatory and policy environment needed for going paperless?

3.1. Key pillars of the enabling regulatory and policy environment

The enabling regulation underlying the implementation and operationalisation of the going paperless ecosystem – involving the digitalisation of trade-related documents (both commercial and official documents) and trade-related processes – spans a wide range of areas. It can usefully be broken down (and summarised in Figure 2) into three categories and their underlying elements:

• Frameworks for conducting transactions electronically. This includes the policy and regulatory environment relevant for electronic transferrable records, e-authentication, e-signatures, e-payments, or e-invoicing.

• Digitalising border processes. These are trade facilitation elements such as pre-arrival processing of trade-related information, automated risk management, electronic payments of duties and charges, and digital trade Single Windows. Digital tools for border agency co-operation, such as coordination of computer systems and data requirements, are also of relevance.

• Cross-border exchange of data. The exchange of data between different actors which can be affected by policies on data storage, retention, and archiving, cross-border data flows, and cybersecurity.

Progress across the areas covered in this conceptual framework can be tracked using OECD policy databases such as the OECD Trade Facilitation Indicators (TFIs), the Digital Services Trade Restrictiveness Index (DSTRI) and the new Index of Digital Trade Integration and Openness (INDIGO).

Figure 2. Key pillars of the enabling regulatory environment for going paperless

Source: Authors’ elaboration.

Box 1. OECD indicators relevant for going paperless

OECD Trade Facilitation Indicators

The eleven TFIs are each composed of several specific, precise, and fact-based variables related to existing administrative processes at the border and their implementation in practice (e.g. the average time between publication and entry into force of new or adjusted trade-related regulations, the proportion of trade transactions that can be processed in advance to the arrival of goods at the border, or the coverage of certified trader programmes). The indicators are available since 2012 and range between 0 and 2, with 2 being the best performance that can be achieved. The TFIs selected for the analysis in this paper are available for 163 economies and include:

• TFI (G) Automation – aspects such as the electronic exchange of data and use of automated risk management.

• TFI (F) Documents – harmonisation and simplification of trade-related documents, in accordance with international standards.

• TFI (H) Procedures – aspects such as the streamlining of border control (inspections, clearance), implementation of trade single windows, or certified trader programmes.

• TFI (I) Internal border agency co-operation – institutional frameworks, mechanisms, and IT systems for domestic co-operation between various border agencies.

• TFI (J) External border agency co-operation – institutional frameworks, mechanisms, and IT systems for co-operation between various border agencies with neighbouring economies and other trading partners.

OECD Digital Services Trade Restrictiveness Index

Digital STRI captures cross-cutting barriers that affect cross-border digital trade activities. It is organised under the following policy areas: infrastructure and connectivity, electronic transactions, payment systems, intellectual property rights, and other barriers affecting trade in digitally enabled services. The Digital STRI is available since 2014 for 100 economies and ranges between 0 and 1, with 1 being the highest level of restrictiveness.

The DSTRI areas selected for the analysis in this paper are:

• Infrastructure and connectivity. This area covers measures related to communication infrastructures essential to engaging in digital trade. It maps the extent to which best practice regulations on interconnections among network operators are applied to ensure seamless communication. It also captures measures limiting or blocking the use of communications services, including Virtual Private Networks or leased lines. Lastly, this area covers policies that affect connectivity such as measures on cross-border data flows and data localisation.

• Electronic transactions. This area covers issues such as discriminatory conditions for issuing licenses for e-commerce activities, the possibility for online tax registration and declaration for non-resident firms, deviation from internationally accepted rules on electronic contracts, measures inhibiting the use of electronic authentication (such as electronic signature), and the lack of effective dispute settlement mechanisms.

• Payment systems. This area captures measures that affect payments made through electronic means. It includes measures related to access to certain payment methods and assesses whether domestic security standards for payment transactions are adopted in line with international standards. Lastly, it also covers restrictions related to Internet banking not covered in other areas.

OECD Index of Digital Trade Integration and Openness (INDIGO)

TAD/TC/WP(2024)8/FINAL details the method underlying the OECD Index of Digital Trade Integration and Openness (INDIGO) which tracks progress in international trade and non-trade discussions that matter for digital trade. The proposed scope of issues covered is based on a combination of ongoing and concluded digital trade discussions. This includes existing digital trade provisions in RTAs, discussions at the WTO, including at the JI on e-commerce, and elements covered in emerging DEAs.

INDIGO-i captures progress on non-trade related international instruments while INDIGO-t identifies trade related discussions. INDIGO is available since 2010 and ranges between 0 and 1. For any given year, a country will score full points, 1, in its INDIGO if it has fully binding agreements or hard commitments across all areas with all partner countries. It will score zero if it has no agreement with any country. This bilateral method of aggregation enables capturing both the depth and the spread of digital trade discussions. It is also readily interpretable as the distance to full integration and openness to digital trade.

INDIGO is available for 193 economies and covers five broad “Policy Areas”:

• Enabling e-commerce: including issues related to electronic transaction frameworks, electronic authentication and electronic signatures, electronic contracts, electronic invoicing, electronic payments, digitalising border processes and paperless trading.

• Openness and e-commerce: including commitments on customs duties on electronic transmissions, access to the internet, telecommunications, ICT goods and open government data.

• Trust and e-commerce: including online consumer protection, unsolicited commercial electronic messages, personal data protection, source code, cryptography, and cybersecurity.

• Cross-border data flows and data localisation: including cross-border data flows and location of computing facilities.

• Wider digital economy issues: including competition in the digital economy, digital inclusion, digital identities, artificial intelligence, taxation and FinTech.

3.2. Progress on frameworks for conducting transactions electronically

The OECD DSTRI highlights that, at the global level, barriers affecting digital trade have increased by 25% since 2014. This has been driven by several measures relevant for going paperless such as those affecting communication infrastructure and connectivity (see Section 3.3) or electronic payments (Figure 3). The latter includes challenges in relation to accessing payment settlement methods; standards for national payment security not always being aligned with international standards; and restrictions on internet banking or insurance, all affecting the digitalisation of trade processes.

In contrast, the domestic regulatory environment has become increasingly supportive for electronic transactions over the last decade (Figure 4). This includes progress on specific domestic regulations relevant to the conditions for licenses to engage in e-commerce, national contract rules for cross-border transactions that are progressively following international standards, laws or regulations explicitly protecting confidential information, and laws or regulations affording electronic signatures equivalent legal validity with hand-written signatures.

Figure 3. Barriers affecting electronic payments are growing

Note: The DSTRI takes values between 0 and 1, with 1 being the highest level of restrictiveness.

Source: OECD DSTRI Database, 2024.

Figure 4. In turn, the domestic regulatory environment is becoming increasingly supportive for electronic transactions

Note: The DSTRI takes values between 0 and 1, with 1 being the highest level of restrictiveness. The figure includes data for 100 economies.

Source: OECD DSTRI Database, 2024.

The international policy landscape related to electronic transaction frameworks is also increasingly open, with a number of discussions in trade agreements and beyond (Figure 5). Non-trade related discussions (Figure 5a) include developments in the adoption of UN Conventions and Model Laws for electronic transactions frameworks, electronic authentication and electronic signatures, electronic contracts, electronic invoicing, and electronic payments. It also reflects continued advances in the legal framework for electronic transferrable records in recent years (through the adoption of the UNCITRAL Model Law on Electronic Transferrable Records), as well as regional instruments (such as the 2016 Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific, the 2021 G7 Digital Trade Principles, and the 2023 G20 High Level Principles on the Digitalization of Trade Documents).

Trade-related discussions reflect the entry into force of the WTO Trade Facilitation Agreement (TFA), which was a key driver of the initial efforts in paperless trading (Figure 5b). These also include developments in RTAs, as well as recent DEAs and DTAs, with customs automation and paperless trading increasingly covered under such agreements.

Wider digital economy issues are increasingly relevant for the frameworks supporting electronic transactions and automation of border processes. This includes aspects such as digital identity and AI. Figure 6 shows an important spike in INDIGO for wider digital economy issues, which reflects agreements on AI at the G20, the OECD and UNESCO. Developments regarding digital identity and standards, interoperability or mutual recognition are largely taking place in trade-related discussions through RTAs, DEAs and DTAs.

Figure 5. The international policy landscape is also gradually supportive of electronic transaction frameworks

Note: The method underlying INDIGO is described in TAD/TC/WP(2024)8/FINAL. For any given year, a country will score full points, 1, in its INDIGO if it has fully binding agreements or hard commitments across all areas in ‘enabling e-commerce’ with all partner countries. It will score zero if it has no agreement with any country. This bilateral method of aggregation enables capturing both the depth and the spread of digital trade discussions.

Source: Based on OECD INDIGO, TAD/TC/WP(2024)8/FINAL.

Figure 6. Wider digital economy issues are increasingly relevant for electronic transaction frameworks

Note: The method underlying INDIGO is described in TAD/TC/WP(2024)8/FINAL. For any given year, a country will score full points, 1, in its INDIGO if it has fully binding agreements or hard commitments across all areas in ‘enabling e-commerce’ with all partner countries. It will score zero if it has no agreement with any country. This bilateral method of aggregation enables capturing both the depth and the spread of digital trade discussions.

Source: Based on OECD INDIGO, TAD/TC/WP(2024)8/FINAL.

3.3. Progress on digitalising border processes

The OECD TFIs highlight that, while automation of border processes has improved significantly since the onset of the COVID-19 pandemic, it remains the most challenging area in terms of streamlining formalities at the border (Figure 7). Improvements in automation have been driven by the introduction of tools such as automated pre-arrival processing, automated risk management, electronic payments of duties and charges, and digital Single Windows for trade.

It is, however, difficult to undertake border process automation without simplification of documentary requirements and streamlining of processes. The worldwide average for simplifying documentary requirements is now higher than that for automation, driven by a gradual alignment with international standards globally, as well as reviews of documentary requirements leading to simplification.

That said, progress in streamlining border processes has been more modest in recent years compared to the other two areas. This reflects challenges in the implementation of tools such as Authorised Operators (AOs), post-clearance audits and Single Windows, as well as the still low coverage in practice of transactions by pre-arrival processing and simplification of release from clearance.

Figure 7. Progress has been achieved in key areas of trade facilitation

TFIs database averages for areas of automation, documents and procedures, 2012-22

Note: The TFIs range between 0 and 2, with 2 the maximum performance that can be achieved.

Source: OECD TFIs database, 2023.

Improvements in different mechanisms for collaboration – from risk management systems, coordinated inspections, to certified trader programmes – have driven improvements in border agency co-operation (Figure 8). Digital tools for border agency co-operation, such as coordination of computer systems and data requirements, are also being enhanced. However, many of the areas that require sharing of data – such as shared risk management systems and interconnected computer systems – are among those with the lowest levels of implementation.

Figure 8. Mechanisms for border agency co-operation face challenges in implementation

Share in total economies (%), TFIs database, 2022

Source: OECD TFIs database, 2023.

3.4. Progress on cross-border exchange of data

The digital exchange of trade-related documents and the streamlining of processes underlying that exchange rest on the cross-border exchange of data, either B2B for commercial documents, B2G for official documents, or G2G in the context of co-operation amongst border agencies. The DSTRI data show that barriers related to interconnection on communication infrastructures and restrictions impacting connectivity (e.g. measures affecting cross-border data flows) are increasing (Figure 9). This is driven by limitations on cross-border data flows, data localisation requirements, and lack of pro-competitive regulations on interconnections across communications networks.

Figure 9. Barriers affecting infrastructure and connectivity are increasing

Note: The DSTRI takes values between 0 and 1, with 1 being the highest level of restrictiveness.

Source: OECD DSTRI database, 2024.

In addition to domestic regulations, discussions are taking place internationally, through bilateral arrangements, regional fora, or trade agreements. Aspects fostering trust such as those relating to personal data protection, source code, and cybersecurity or concerning cross-border data flows are increasingly being covered by regional fora (e.g. OECD, G7, European Union, APEC, ECOWAS, OAS, etc.), while also being covered in RTAs signed over the last five years (Figure 10).

Figure 10. Discussions affecting cross-border exchange of data are taking place across various fora

Note: The method underlying INIDIGO is described in TAD/TC/WP(2024)8/FINAL. Trust and e-commerce include aspects concerning personal data protection. Cross-border data flows and data localisation cover aspects concerning cross-border data flows and location of computing facilities. For any given year, a country will score full points, 1, in its INDIGO if it has fully binding agreements or hard commitments across all areas in ‘enabling e-commerce’ with all partner countries. It will score zero if it has no agreement with any country. This bilateral method of aggregation enables capturing both the depth and the spread of digital trade discussions.

Source: Based on OECD INDIGO, TAD/TC/WP(2024)8/FINAL.

As the digitalisation of trade documents and processes relies largely on cross-border flows of non-personal data (NPD)1, it is important to note the linkages to this fast-evolving governance domain.2 Ongoing OECD analysis on NPD highlights that, at the centre of debates on access to and free flow of NPD are issues of trust. For example, while governments might require access to NPD to ensure that when goods and services enter domestic markets these meet regulatory requirements, they can foster trust by ensuring that, when transferred by the private sector, NPD is appropriately safeguarded. To enable trusted transfers, they should include transparent provisions clarifying what protections will be afforded to the transferred data.

The same applies with respect to transfers of NPD between governments, which includes customs and border agencies. Key TFA provisions that facilitate NPD flows include Article 1, which requires members to publish and ensure easy access to customs procedures and trade-related regulations, and Article 7, which sets out procedures for the electronic processing of customs documents and promotes the use of NPD to expedite goods clearance. Article 10 further encourages the smooth exchange of data to complete import, export, and transit formalities, while Article 12 focuses on international co-operation between customs authorities, ensuring the secure exchange of information while maintaining confidentiality. Outside digital trade chapters in RTAs, there are many provisions in trade agreements which encourage or mandate sharing of NPD between Parties, including throughout customs co-operation chapters.

3.5. What are the benefits of going paperless?

Understanding the role that different going paperless policies can play in enhancing trade can help inform policy discussions. Existing empirical analysis has largely focused on the impact of specific elements of this evolving landscape.3 For instance, (Carballo et al., 2022[10]) estimate the effects of the electronic Single Window in Costa Rica utilising highly disaggregated firm-level export data and taking advantage of gradual phase-in of the system across groups of products; the system is estimated to have increased exports by 56%. (OECD, 2023[11]) estimates that automation of border processes, supported by the implementation of the WTO TFA, has contributed to reducing trade costs and enhancing trade since the Agreement’s conclusion in 2013 and entry into force in 2017. UNESCAP (2023[4]) estimates that a 10% increase in the implementation of reforms relating to paperless trade covered by CPTA is associated to a 0.8% reduction in trade costs. Drawing on information from the UN Digital and Sustainable Global Trade Facilitation Survey (Duval and Utoktham, 2024[12]) show that digitalising trade documents and processes in several areas beyond the TFA – such as laws and regulations for electronic transactions, electronic exchange of certificates of origin, or electronic exchange of SPS certificates – could increase global trade flows by approximately 8%.

This section aims to provide a more comprehensive and holistic analysis of the impact of different regulatory reforms on trade. Using a structural gravity model of trade (Box 2), policy indicators covering aspects of border processes, frameworks for conducting transactions electronically and the cross-border exchange of data (described in Sections 3.1-3.4), are introduced with a view to quantifying their impact on trade. The USITC ITPD-E gravity database is used to enable greater coverage of economies at different levels of development, while incorporating both domestic and international trade flows in the gravity model (see Annex A for details on the econometric specifications).

Box 2. Using the structural gravity model for trade analysis

The gravity model has become the workhorse for international trade analysis. Since its first use in Tinbergen (1962[13]), the gravity model has been the subject of numerous theoretical underpinnings, most notably by Anderson (1979[14]), Eaton and Kortum (2002[15]), Anderson and Van Wincoop (2004[16]) and Arkolakis, Costinot and Rodriguez-Clare (2012[17]) (see also Head and Mayer (2013[18]), Yotov et al. (2016[19]), and Yotov (2022[20]) for a summary of the literature). These theoretically derived underpinnings are collectively referred to as the structural gravity model.

At its most basic, the gravity model stipulates that trade between two countries is proportionate to their economic mass, measured as their share in world GDP, and a set of trade costs, some of which are bilateral, such as distance or specific trade policies, and others multilateral, such as how remote an economy is from others (measured by multilateral resistance).1

A number of important lessons have emerged from the empirical application of structural gravity models. The early literature, motivated by theoretical underpinnings, underscored the importance of exporter‑year and importer-year fixed effects to control for multilateral resistances, and where possible country-pair fixed effects (to control for time invariant and unobservable trade costs between country pairs). Later, emphasis was placed on the use of Poisson Pseudo-Maximum-Likelihood (PPML) estimators to account for heteroscedasticity2 and zero trade flows (Santos Silva and Tenreyro, 2006[21]). More recently, focus has shifted towards the use of theory-consistent ‘domestic trade flows’ in the estimation process (see Yotov et al. (2016[19]).3

Notes

1. Multilateral trade resistance refers to the barriers to trade that each country faces with all its trading partners.

2. If the error terms in the usual log linear specification of the gravity equation are heteroscedastic, this violates the assumption that they are statistically independent of the regressors (i.e. dependent variables used) and suggests that the estimation method leads to inconsistent estimates of the elasticities of interest.

3. Domestic trade flows are important for a number of reasons [see Borchert et al. (2022[22]), Yotov (2012[23]), Yotov (2022[20])]. They provide solutions to the “missing globalisation puzzle”, which refers to the surprising finding that the volume of trade has become increasingly sensitive to distance. They also enable estimating the importance of international trade relative to domestic trade.

Digitalising border processes is found to matter across all sectors of the economy. First, the results emphasise that the impact of trade facilitation policies is higher not only when digitalisation of border processes is undertaken together with simplification of documentary requirements, but mostly when the underlying trade processes are streamlined and border agency co-operation is also enhanced. A 10% global improvement in the TFI average performance in these four areas4 is associated to an increase in global exports of 18% (Figure 11). This indicates that there is an exponential leap in the value of digitalisation when border processes are streamlined first.

Figure 11. Digitalising border processes and trade documents has an important effect on exports, with additional gains where documents and processes are streamlined

Impacts from a 10% improvement in the TFIs, by areas (%)

Note: The TFIs indicators are interacted with a border dummy. The specification including automation of border processes, streamlining of documents and procedures, and border agency co-operation also controls for the levels of DSTRI and INDIGO.

Source: Own calculations based on results in Table A B.1.

Second, there is also a strong case for domestic regulatory reform to enhance the effects of going paperless on export competitiveness. Controlling for reforms in the automation and streamlining of documents and border processes as captured by the TFIs, a 0.1-point reduction in the global DSTRI for electronic transaction frameworks, e-payments and connectivity – which depicts important domestic regulatory reforms5 – is associated with an increase in global exports of 37%.

Third, the results show that the international regulatory landscape in areas supporting electronic transactions, trust, and cross-border data flows also matters,6 given the important role of international co-operation in reducing frictions from regulatory differences. Against a backdrop of growing domestic barriers to digital trade, engagement in international regulatory co-operation on digital trade-related issues will also help advance the areas that underpin going paperless.

The results underscore that the regulatory environment underpinning digitalisation of trade facilitation at the border is increasingly important for the broader regulatory environment for digital trade. This highlights the importance of an enabling environment for going paperless across all types of documents and processes.

Notes

← 1.  Ongoing analysis on NPD highlights that there is no official and widely accepted definition of non-personal data (NPD). It is generally defined by exclusion as any information that does not relate to identified or identifiable individuals.

← 2.  These issues are explored in parallel work on cross-border flows of non-personal data, which maps emerging regulation affecting their flow.

← 3.  Existing analysis shows that elements of paperless trade have significant potential to reduce trade costs.

← 4.  Equivalent to the average global improvement during 2019-22.

← 5.  A 0.1-point change in the DSTRI can entail an important regulatory reform. For comparison, a 0.08 decrease captures a move from a more to a less restrictive approach to data transfers.

← 6.  Analysis using the bilateral INDIGO-t to capture international trade-related discussions affecting digital trade (as constructed in TAD/TC/WP(2024)8/FINAL) highlights that, while controlling for selected TFIs and DSTRI elements, a 10% increase in the indicator is associated with an export increase of 7.3%. This also entails important reforms, as a successful completion of the JSI discussions would increase digital trade integration and openness by 52% (INDIGO-t would go from 0.085 to 0.129) (see TAD/TC/WP(2024)8/FINAL for further details).