Technology in international trade regulations

Our co-founder Ramin participating in the RegTech event.

Are Skilled Professionals Really Safe from Robots? This was the topic of discussion at a panel session hosted at the Digital Catapult Centre in London last week, organised by Balliol Knowledge Networks 1. We look at some of the implications of regulatory technologies for the future of international trade.

Startups, established companies and researchers around the world are applying techniques of big data, machine learning and AI to uncover regulatory compliance issues and new opportunities for firms to enhance revenue. In some cases these achievements come from brute force analysis of big data, although there was discussion of more recent algorithms that may not even need such massive training data sets of legal documents.

Where does this leave the role of people with skill, critical thinking and knowledge of the wider world? How much will machines support humans, and how much will they replace humans? Fighting back, panellists were asked whether the algorithms can properly deal with the problem that legal texts need knowledge that comes from outside the ‘four corners’ of the page.

RegTech is still a modelling exercise needing critical thinkers with subject matter expertise and technical skills applying good governance and ethics

These technologies are driving more standardisation of data to enable machine-understandable contract management and allowing increasing regulatory oversight and even nascent ‘smart contracts’. Our view is that there is a certain tension between that drive and the perennial need for understanding the broader context and moral and ethical considerations. Despite the new terminology, RegTech is still a modelling exercise that needs the involvement of subject matter experts with sufficient technical skills to avoid mis-using the tools.

At the event, Ramin talked about how Parkway Logic are building their own export technology to remove the frictions in cross-border trade by automating manual processes and bringing transparency to trade regulations and procedures, and pursuing their aim of making these tools accessible to SMEs as well as larger companies, banks and other industry participants.

Complex and changing regulations

Trading rules between nations are underpinned by the world’s myriad free trade, bilateral, sector and WTO rules written down in opaque legal agreements, cite. Whilst exporters need not understand the details of these rules in all industries and jurisdictions, they need to get to grips with them in any area they are active in as they are key to striking commercially viable and compliant deals with overseas counterparts.

Government filings require exporters to be compliant and therefore pay correct amount of tax / tariffs and make correct declarations 2 . Many companies rely on fast parcel couriers and freight forwarder, placing themselves at risk if they are not on top of these requirements. We often hear stories of non-compliance and retrospective action resulting from audit.

Even as cross-border trade rules and customs procedures have been slowly streamlining since the WWII, increasingly sophisticated practices have been arising from other parts of the landscape. They take shape as formalised due diligence activities like ‘KYC, AML/CTF’ and other areas of complexity that must also be navigated. Whether your’s is a large corporate or plucky SME, trade compliance remains vitally important.

How accessible is trade technology? is about providing accessible technology so trade is less about  the current model of laborious micro-management, gathering domain-specific information and consulting one-on-one with experts.

Centralised data management has been the traditional way for companies to reduce time and hassle, and to engage support more efficiently. Now new technologies like machine learning and blockchain / distributed ledger (DLT) promise lots of applications in this field. DLT is also perhaps surprising because on the surface it sounds like the opposite of centralisation.

While these technologies have not revolutionised business practices to date – especially for the smaller business – it is an area we are closely monitoring, as mentioned in our previous post 3, and we will share some further insights shortly.

Larger companies have traditionally held an advantage over the rest, by being able to avoid the higher transaction costs between firms (see Nobel prize-winning Ronald Coase’s brief but influential essay on the topic 4), for example reconciling the status of commercial contracts between parties. As new technologies become more accessible, decrease transaction costs and level the playing field, it could spell increasing numbers of smaller companies constituting a bigger share of the global economy.

Today’s trade landscape is changing

By removing key barriers particularly around getting to grips with formalities and rules, we are looking to unleash the latent global demand of SMEs to trade. We focus on destinations where technology provision is high, but also on high value destinations. Technology reduces the cost and improves access and this is where the use of machine learning (and analysis of big datasets) can play a role in disseminating the vital information for exporters – on rules, formalities, documentation and also trade origination, see ITC’s new trade opportunity tool.5

More advanced trade technologies are emerging, being developed by outward looking countries and also some surprising emerging/frontier economies. Signing of new trade deals is still happening (the EU-Japan agreement was widely publicised recently) despite media frenzy around the death of globalisation. And, of course, in the UK we will be striking out with our own bilateral and FTAs, including with the EU, at some point.

As mentioned at last week’s event, RegTech is becoming the new buzzword, but it builds on decades of gradual progress. At Parkway Logic we’ve been working on applying it to international trade for 2 years and building the next generation of trade technology for smaller international trading businesses.

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