Uncitral and the Draft Model Law on Legal Aspects of Edi and Related Means of Communication

views updated

UNCITRAL AND THE DRAFT MODEL LAW ON LEGAL ASPECTS OF EDI AND RELATED MEANS OF COMMUNICATION

In the old days, international trade relied exclusively on paper documents, and over the years an international consensual framework evolved to facilitate trade by this means. However, with the development of sophisticated information technology—and particularly the Internet—international commerce was forced to readjust itself to accommodate a new technological and economic environment. The growth of electronic data interchange (EDI) as a means of transmitting data—transaction specifications, contracts, order forms, legal documents, and so on—between companies across borders necessitated an international legal consensus. The United Nations Commission on International Trade Law (UNCITRAL) was charged with establishing such a framework.

WHAT IS UNCITRAL?

Based in Vienna, Austria, UNCITRAL is the primary United Nations organization devoted to international trade issues, with a mission to harmonize and unify the laws of international commerce. UNCITRAL coordinates and encourages cooperation between organizations operating in specific areas of international trade; prepares and encourages recognition of its model laws; and promotes universal interpretations and applications of international standards including its own model laws.

Established by the UN General Assembly in 1966, UNCITRAL's original purpose was to smooth out inconsistencies between national commercial and trade laws to facilitate a more unified global economy as a way for the United Nations to play a more active role in this field. The commission is comprised of 36 member states chosen by the General Assembly for a term of six years to adequately represent all the world's regions and major economic and legal systems. Each of UNITRAL's three working groups performs the bulk of its work at annual sessions in New York and Vienna, where the commission members as well as non-member states and interested international organizations devise a framework for future policies through participatory sessions.

HISTORY

UNCITRAL launched its EDI working group to devise a Draft Model Law in 1991. UNITRAL began work on the topic the following year, before the onslaught of e-commerce, and thus limited its activities to electronic data interchange considerations. The first version of the Draft Model Law was produced in October 1994, at which point UNCITRAL began considering criticisms and shortcomings of that draft and devising draft guidelines for the eventual implementation of the model law. In the mid-1990s, as the Internet hit critical mass and other forms of electronic transactions achieved prominence, UNCITRAL realized that the original Draft Model Law wasn't significant enough to address the emerging international e-commerce environment.

In 1996 UNCITRAL completed work on a Model Law on Electronic Commerce to update international trade law so as to facilitate global e-commerce. The e-commerce Model Law augmented the Draft Law on EDI by including not only EDI but also electronic mail and other electronic, optical, and other non-paper exchanges in one seamless whole. UNCITRAL deliberately left the final structure of the Model Law on Electronic Commerce open-ended and flexible so as to remain a living and valuable document in light of future technological developments.

Through the mid-and late 1990s, UNCITRAL's EDI working group was devoted to smoothing the legal transition from paper-based transport documents—such as bills of lading—to their electronic format. International trade law regarding transport documents was often complex and convoluted, but many payment and transport schemes depend on the physical presentation of shipping documents, according to Project & Trade Finance. Bills of lading, moreover, are particularly useful in international maritime commerce to transfer ownership rights to merchandise while en route overseas.

However, the paper format for the extensive information and legal documentation involved in international commerce adds up to enormous costs per transaction. Project & Trade Finance reported the results of a European Commission Study from the mid-1990s that found that up to 15 percent of international commercial transport costs can be attributed to documentation, while the simple acts of processing and correcting all such documents accounts for 10 percent of the finished products' total cost. Obviously, then, in addition to the enhanced overall efficiency of electronic documentation and its harmony with emerging e-commerce and information-technology infrastructures, companies were eager to adopt EDI as a way of limiting their basic operating costs.

THE DRAFT MODEL LAW

The Draft Model Law on Legal Aspects of EDI and Related Means of Communication rendered the use of EDI equally valid a means of data transmission as paper documents, particularly for the purpose of establishing contracts. The Draft Model Law is divided into three chapters.

Chapter one sets forth the general provisions stating the breadth of the law's application, limiting it specifically to commercial law, and spelling out the definitions of the law's terms.
Chapter two draws out the legal requirements of electronic communications in commercial law. This chapter prohibits the denial of legal effectiveness of electronic documents that meet the Draft Model Law's requirements; in other words, it bars parties from discriminating against electronic documents.
Chapter three deals with the technicalities of electronic communications, such as when—from a legal standpoint—a message is deemed to have originated or been received, and from what physical location the message was sent and to where it was received.

To iron out any legal ambiguities over document reception using EDI, the Draft Model Law took special pains to resolve lingering uncertainties over the legal considerations stemming from when and where a document was received. Since electronic networks are more fluid, dispersed, and decentralized than physical data transmissions, the Draft Model Law expressly stated that a data transmission is considered legally received at the location of the recipient's business, or unless mutually agreed to the contrary, at the location within the business that is most directly related to the transmission's content. The transmission is, moreover, considered received as soon as the data enters the recipient's system. In the event that the message requires decryption or some other form of decoding, it is legally received once this process is complete.

The Draft Model Law was intended to prohibit organizations or jurisdictions from denying legal validity to documents or information transmitted electronically, and to harmonize the legal environment between physical and electronic media. In this way, international e-commerce and other forms of electronic data exchanges carry equally legal weight, and governments and companies couldn't discriminate unduly against specific media.

A number of key legal issues arose as commercial transactions moved to the electronic realm. Among the most pressing were the following questions: Are signatures or any other key aspects of transaction documents required to appear in writing? If not, what forms of electronic substitutes are legally binding? In legal proceedings, can electronic documents be used as evidence? Given the extensive legal dealings of firms engaged in international transactions, UNICTRAL saw addressing questions such as these as among the primary goals of the Draft Model Law.

Article 5 of the Draft Model Law specifically addresses these concerns, and is the heart of UNCITRAL's rules governing EDI and other electronic communications used in commercial transactions. The article reads as follows: "Where a rule of law requires information to be in writing or to be presented in writing, or provides for certain consequences if it is not, a data message satisfies that rule if the information contained therein is accessible so as to be usable for subsequent reference." The same article, however, also leaves room for exceptions, particularly in its allowance that certain national laws may trump this ruling in certain circumstances. In addition, the Draft Model Law's wording allowed room for the adoption of digital signature technologies as a legally valid means of authentication and verification of the documents' integrity.

Importantly, however, the Draft Model Law carried no legal weight on its own terms; rather, the rules contained therein grew teeth only as nations adopted them into their own trade laws. UNCITRAL's work is designed primarily to set an example of a collaborative framework that harmonizes existing and prospective national and technological capabilities and structures. UNCITRAL's work—and the Draft Model Law on Legal Aspects of EDI is no exception—has a track record of enjoying widespread adoption.