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Using E-signatures for International Trade

By Mike Faden

Using e-signatures for business transactions can potentially streamline domestic and international trade by eliminating waits while paper documents are signed and transported between parties.1 Digital signatures are already recognized by law as valid in many countries, including the U.S., the U.K., the European Union, and Australia. But some experts say that for cross-border transactions, the picture is less clear, due to factors such as a lack of conformity between the laws in different countries.

According to a World Economic Forum (WEF) report, "Divergent domestic rules on e-transactions, e-signatures and authentication make cross-border digital activities more complex and raise the cost of doing business in multiple markets." The WEF also said that differences in legal frameworks can reduce confidence in e-commerce, since buyers may be unsure which laws apply to their transactions.2

 

This article summarizes various types of e-signatures, legal approaches used by some countries, and initiatives that aim to simplify international trade by enabling mutual recognition of e-signatures.

 

E-signature Challenges in International Trade

 

Digital B2B transactions continue to expand rapidly, with global B2B e-commerce sales reaching an estimated $22.4 trillion in 2015, according to the United Nations Conference on Trade and Development (UNCTAD).3 The organization considers e-transaction laws that recognize the legal equivalence between paper-based and electronic documents to be essential for conducting commercial transactions online.4 Roughly 77 percent of countries have implemented such laws, which typically address the use of e-signatures, and a further 10 percent have draft legislation;5 in 2014, that included roughly 98 percent of developed economies and 46 percent of developing economies, according to UNCTAD.6

 

The United Nations Commission on International Trade Law has made several attempts to increase the uniformity of these legal rules by introducing model legislation that countries can use as a guide when developing their own laws, the WEF report notes. These include the 1996 Model Law on Electronic Commerce (MLEC), which has been enacted by more than 70 nations, and the 2001 Model Law on Electronic Signatures (MLES), enacted by more than 30. There is also a legally binding treaty signed by 18 countries, the 2005 United Nations Convention on the Use of Electronic Communications in International Contracts (ECC)7; however, its impact has been limited in part because it has not yet been fully adopted by major international trading nations such as the U.S. and China, according to the WEF report.

 

Despite these efforts, regional legal disparities in e-signature laws persist for cross-border traders. When using the U.N. model laws, "A government may choose to enact elements it likes, and discard the others," according to WEF; several countries have enacted the MLES without referring to its provisions for cross-border recognition of e-signatures, for example. "Consequently, e-commerce businesses confront a plethora of different laws and regulations to which they must comply" when attempting to trade across borders.

 

An additional challenge is that legal frameworks change more slowly than technology, particularly when it comes to international trade. Some frameworks haven't kept up with the rapid evolution and proliferation of technologies for exchanging contractual information and authenticating documents, according to WEF.

 

Types of E-Signatures

 

Experts distinguish between two or more types of e-signatures with confusingly similar names:

 

  • An electronic signature is generally regarded as any electronic process that indicates acceptance of an agreement.8 This includes a very broad range of identifiers and technologies, including email addresses, scanned copies of handwritten signatures, and clickable "I accept" boxes.9
  • A digital signature is a specific type of electronic signature that involves the use of encryption; it aims to provide greater security and verification by requiring the signer to authenticate their identity using a certificate-based digital ID. The certificate is typically issued by an independent Certificate Authority (CA).10

Types of Legal Frameworks

 

Experts generally group national e-signature legal frameworks into one of three categories:

 

  • Minimalist or permissive laws tend to accept all forms of electronic or digital signatures as equivalent to handwritten signatures. Usually, parties consent in advance to using e-signatures. The minimalist approach is considered business-friendly; benefits include flexibility, ease of use and adaptability to new technologies. A disadvantage is that in the case of a dispute, the validity and appropriateness of the selected method is only judged after the fact.11 Minimalist laws have been adopted in countries including the United States, Canada, New Zealand, Australia and Singapore.12
  • Prescriptive laws usually require parties to use a specific method or digital signature technology to sign documents electronically, in order for those documents to be legally recognized. Indonesia, for example, recognizes only digital signatures created through a specific certificate provider. Governments may adopt this approach to increase security and trust in a country's digital economy, according to the WEF report; however, it may be difficult for companies located outside the country to use for international trade.13,14
  • Two-tier or hybrid legal frameworks use a mixed approach: countries may accept all e-signature methods but accord greater evidentiary weight to specific methods such as digital signatures. Recently enacted pan-EU legislation follows this approach.15

National E-Signature Frameworks

 

The U.S. minimalist legal framework includes two laws: Electronic Signature in Global and National Commerce Act (ESIGN) and Uniform Electronic Transactions Act (UETA). These acts overlap in scope; they allow the use of e-signatures for most types of agreements, with some exceptions such as real property transfers and some consumer legal notices.16 UETA was developed in 1999 by the nonprofit Uniform Law Commission, which works to provide U.S. states with uniform draft legislation. It has been enacted by 47 states, the District of Columbia and the U.S. Virgin Islands.17 ESIGN is a Federal law enacted in 2000; it used some of the language of UETA.18 Both acts specify that a contract or signature may not be denied legal effect or enforceability solely because it is in electronic form.19

 

Australia has a minimalist approach similar to the U.S. The Electronic Transactions Act (1999) established that electronic signatures can take the place of handwritten signatures for nearly all documents, despite certain exclusions such as wills and powers of attorney.20,21

 

EU Aims to Smooth International Trade

 

The EU adopted in 2014 new legislation designed to provide, for the first time, a consistent single market for the cross-border trade use of e-signatures across the EU, smoothing cross-border e-commerce and reducing red tape for businesses.22 Some experts say that the existence of a uniform set of rules across Europe may also help increase digital transactions between EU and U.S. companies.23

 

The regulation on electronic identification and trust services for electronic transactions in the internal market (eIDAS) mandates mutual recognition of e-signatures across Europe. Online public services must be able to accept electronic identification from other countries by September 2018. The U.K. enacted legislation based on eIDAS in 2016, The Electronic Identification and Trust Services for Electronic Transactions Regulation 2016.24

 

eIDAS replaced an earlier EU e-signature directive that had been implemented in different ways by individual member states; in practice, many would not recognize each other's e-signature laws and e-signatures were not applicable across the EU, according to the WEF report.25 According to the European Commission, the diverging national frameworks made it "de facto impossible to conduct cross border electronic transactions."26

 

eIDAS is a hybrid approach that defines three categories of e-signatures: Basic electronic signatures, advanced and qualified. All are legal, enforceable and admissible in evidence, but there are important differences. The advanced category are digital signatures that allow unique identification and authentication of the signer, typically via a digital certificate issued by a CA. Qualified signatures are similar, but with additional requirements. For example, the certificates must be issued by a CA accredited and supervised by EU member states; the certificates must also be stored on a device such as a smart card or hardware security module.27 Only qualified signatures are deemed to be legally identical to handwritten signatures and must be mutually recognized by all EU member states.28,29

 

The

Takeaway:

Most countries have implemented laws that recognize e-signatures as valid in e-commerce contracts and other business documents. However, differences between national legal frameworks can still increase the complexity and cost of international trade. Recently adopted EU legislation may smooth cross-border trade among European nations and between the EU and other countries such as the U.S.

Mike Faden - The Author

The Author

Mike Faden

Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.

Sources

1. Making Deals in Cyberspace: What’s the Problem?, World Economic Forum; https://www.weforum.org/whitepapers/making-deals-in-cyberspace-what-s-the-problem
2. Ibid.
3. Information Economy Report 2017, United Nations Conference on Trade and Development; http://unctad.org/en/PublicationsLibrary/ier2017_en.pdf
4. “E-transactions Legislation Worldwide,” UNCTAD; http://unctad.org/en/Pages/DTL/STI_and_ICTs/ICT4D-Legislation/eCom-Transactions-Laws.aspx
5. Ibid.
6. “Global mapping of cyberlaws reveals significant gaps despite progress,” UNCTAD; http://unctad.org/en/pages/PressRelease.aspx?OriginalVersionID=238
7. “United Nations Convention on the Use of Electronic Communications in International Contracts,” U.N.; https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=X-18&chapter=10&clang=_en
8. A Global Overview of Electronic Signature Law, Adobe Systems; https://acrobat.adobe.com/content/dam/doc-cloud/en/pdfs/adobe-global-overview-of-electronic-signatures.pdf
9. Making Deals in Cyberspace: What’s the Problem?, World Economic Forum; https://www.weforum.org/whitepapers/making-deals-in-cyberspace-what-s-the-problem
10. A Global Overview of Electronic Signature Law, Adobe Systems; https://acrobat.adobe.com/content/dam/doc-cloud/en/pdfs/adobe-global-overview-of-electronic-signatures.pdf
11. Ibid.
12. Ibid.
13. Ibid.
14. A Global Overview of Electronic Signature Law, Adobe Systems; https://acrobat.adobe.com/content/dam/doc-cloud/en/pdfs/adobe-global-overview-of-electronic-signatures.pdf
15. Making Deals in Cyberspace: What’s the Problem?, World Economic Forum; https://www.weforum.org/whitepapers/making-deals-in-cyberspace-what-s-the-problem
16. Global Guide to Electronic Signature Law, Adobe Systems; https://acrobat.adobe.com/content/dam/doc-cloud/en/pdfs/document-cloud-global-guide-electronic-signature-law-ue.pdf
17. “Uniform Electronic Transactions Act,” Wikipedia; https://en.wikipedia.org/wiki/Uniform_Electronic_Transactions_Act
18. “Why Enact UETA? The Role of UETA After E-SIGN,” Uniform Law Commission; http://www.uniformlaws.org/Shared/Docs/Why%20Enact%20UETA.aspx
19. Global Guide to Electronic Signature Law, Adobe Systems; https://acrobat.adobe.com/content/dam/doc-cloud/en/pdfs/document-cloud-global-guide-electronic-signature-law-ue.pdf
20. Electronic Signatures in Australia: Legal considerations and recommended best practices, Adobe/Norton Rose Fulbright; https://acrobat.adobe.com/content/dam/doc-cloud/en/pdfs/esignatures-best-practices-au.pdf
21. “eSignature Legality in Australia,” DocuSign; https://www.docusign.com/how-it-works/legality/global/australia
22. “What Is eIDAS and What Does It Mean for My Business?,” GlobalSign; https://www.globalsign.com/en/blog/what-is-eidas/
23. “The New eiDAS Regulation in Europe and its Impact on North America,” DocuSign; https://www.docusign.com/blog/the-new-eidas-regulation-and-its-impact-in-north-america/
24. Electronic signatures and trust services guide, U.K. Government; https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/545098/beis-16-15-electronic-signatures-guidance.pdf
25. Making Deals in Cyberspace: What’s the Problem?, World Economic Forum; https://www.weforum.org/whitepapers/making-deals-in-cyberspace-what-s-the-problem
26. “Digital Agenda: new Regulation to enable cross-border electronic signatures and to get more value out of electronic identification in Digital Single Market,” European Commission; http://europa.eu/rapid/press-release_IP-12-558_en.htm
27. Global Guide to Electronic Signature Law, Adobe Systems; https://acrobat.adobe.com/content/dam/doc-cloud/en/pdfs/document-cloud-global-guide-electronic-signature-law-ue.pdf
28. Ibid.
29. Making Deals in Cyberspace: What’s the Problem?, World Economic Forum; https://www.weforum.org/whitepapers/making-deals-in-cyberspace-what-s-the-problem

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