Economy and Fair Work Committee

Meeting date: Wednesday, June 14, 2023

Official Report 600KB pdf

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Electronic Trade Documents Bill

Agenda item 2 is consideration of a legislative consent memorandum on the Electronic Trade Documents Bill. This United Kingdom Government bill, which was introduced in the House of Lords on 12 October, changes the law on devolved matters.

I welcome to the meeting Richard Lochhead, Minister for Small Business, Innovation and Trade. He is joined by Chris Nicholson, solicitor and head of the constitutional reform and external affairs branch, legal services directorate, and David Barnes, deputy director, trade policy division, international trade and investment directorate, both from the Scottish Government.

I invite the minister to make a brief opening statement on the Scottish Government’s position.

Thank you very much, convener, and good morning, committee. It is nice to join you this morning.

Thank you for the opportunity to discuss the LCM on the Electronic Trade Documents Bill. As you will be aware, the Government is committed to ensuring that Scotland is a successful trading nation, and we want to create the best possible conditions for our businesses to operate within.

One way of doing that is by harnessing advances in technology, so we are committed to taking advantage of technology-based improvements and to modernising trade processes and practices for Scottish enterprises and, in doing so, delivering benefits for the people of Scotland. It is therefore vital that the Scottish legal system is tailored to helping us to realise those ambitions, to providing a competitive platform on which our businesses can operate and to supporting the businesses of tomorrow that we want to create and ensuring that they are adapted to the modern world.

The Electronic Trade Documents Bill is designed to do just that. It brings trading processes into the 21st century by giving electronic documents used for trade purposes the same legal standing as paper documents. That simple and commonsense measure will immediately remove burdens for businesses that choose to operate in a more digital way and will create a more streamlined and modern trading system—something that Scottish businesses should be able to take advantage of in the future.

The bill has been brought forward by the Law Commission of England and Wales in recognition of the fact that this area of law is in need of reform. Not only has there been significant engagement with Scottish legal and academic stakeholders, but the bill has gone through an expedited process at Westminster, given its highly technical and uncontroversial nature. We, as a Government, therefore support and welcome the bill’s policy intentions, which align squarely with our ambitions for the future of the trading landscape in Scotland.

I should say that, unfortunately, despite our views on the bill’s policy intentions, the Scottish Government could not support it as introduced, due to the drafting of the delegated powers. As drafted, the bill conferred powers on UK ministers to make secondary legislation in areas of devolved competence and gave them the ability to, for example, unilaterally disapply parts of the bill’s regime in Scotland in devolved areas, so that paper documents would once again be needed. UK ministers would be required to consult Scottish ministers, who might express concern or disapproval but could not prevent the UK Government from legislating in devolved areas. Therefore, the Scottish Government has spent considerable time defending the interests of the Scottish devolved institutions and negotiating with the UK Government to secure amendments to the bill.

The process has been constructive, although it has also been a lengthy one, which led to a delay in lodging the LCM. I apologise to the committee for that delay. I stress that my officials and I recognise the important role that the committee plays in the LCM process. With the benefit of hindsight, had we known that it would take so long to conclude the discussions with the UK Government, we would have lodged an LCM much earlier.

I am pleased to report that amendments to the bill have now been tabled by the UK Government and we anticipate that they will be voted through in the coming days without any concerns being raised. Yesterday, therefore, the Scottish Government was able to lodge a supplementary legislative consent memorandum with the Scottish Parliament, recommending consent to the bill on the basis of those amendments. I am hopeful that those developments will enable us to secure the benefits of the bill: modernising our trade processes and delivering benefits to Scottish traders, those who trade with us and the economy overall.

Once again, I thank the committee for its time. We will do our best to answer any questions.

Thank you, minister. I will start with a couple of questions about the process. I welcome your recognition of the delay in lodging the LCM. That seems to be a feature of Parliament at the moment, and it is quite frustrating for committees not to get proper scrutiny. I accept your apology for the late lodging of the LCM.

You have indicated that, if you had realised that it would take so long, there might have been an option to lodge the LCM sooner. Have lessons been learned from the process and is that something that you might do in the future? There has been a discussion at the Conveners Group about the possibility of having interim LCMs or pre-LCMs as a way to enable committees to be involved earlier.

In answer to your first question, yes, we will do our best to learn lessons. The background is that we are dealing with a technical, uncontroversial bill, but there are issues of concern within it. There were constructive negotiations in order to sort that out, but that took some time to achieve. Clearly, we need to strike a balance between the fact that the bill is uncontroversial and technical and the concerns that we have. However, given that the bill was generally uncontroversial and not about the most highly political issue in the world, perhaps we could have just launched the LCM earlier in anticipation of negotiations being successful.

I am interested to hear that the Conveners Group has been discussing a kind of interim LCM. That could provide a potential solution in such a scenario.

Now that the Government has recommended acceptance of the LCM, some questions remain around the Scottish Parliament’s role in scrutinising future work or legislation that is attached to the LCM. Where are the opportunities for the Scottish Parliament to look at the proposals that are being made? I understand that the Scottish ministers will be able to introduce measures and that you would be consulted by the UK Government on measures that would affect Scotland, but where do the Scottish Parliament’s committees fit into that scrutiny process?

If secondary legislation were used, the process of scrutiny would involve the Parliament’s committees. There are also wider policy implications in relation to how we work with trade, moving from paper to electronic format. It is quite difficult to predict any scenarios.

The UK Government has said that it is unlikely to use the powers that it is retaining except in extreme circumstances. For instance, the amendments tabled by the UK Government are not perfect, although they move us much further forward in relation to a recognition of the role of Scottish ministers in devolved matters, but the UK Government has retained the ability to disapply certain parts of the bill in extreme circumstances. For example, if there were a cyberattack or if information technology systems were to fail and a decision was taken that we had to revert to paper for certain trade documents, the UK has said that it would use those powers—but only under those circumstances. We would have to respond to that at the time.

It is against that comforting background that we are not too concerned about there being many further interventions in terms of changes—but who knows?

09:45  

There would be instances when the UK Government would consult the Scottish Government but would not necessarily come to Scottish Parliament committees. You are suggesting that that is because that scenario would come around in extreme and rare circumstances.

That is what we anticipate and what we have been assured of by the UK Government. I will, of course, undertake to keep the committee informed should anything arise in relation to that.

Thank you.

If you had introduced an LCM earlier, do you think that you would have been in a position to say yes?

That is a good question, and I cannot give it a clear answer because we do not know how the negotiations would have gone if we had lodged the LCM at the time. What we are trying to convey is that it has been an extraordinary length of time. We could perhaps have envisaged a successful outcome to allow us to have lodged an LCM to give the committee the opportunity and an appropriate timescale to do its work. However, with the way that things have transpired, we are content to support the bill and lodge the LCM.

I am quite comfortable with the way in which you have done it. Even though it has taken a bit of time, you have arrived at a conclusion, everybody has got round the table and talked sensibly, changes have been made and you are now in a position to recommend that we accept it. That is a mature way of going about things. Will you explain to the committee what the main sticking points were, originally? I know that they have been ironed out, but it would good for us to understand them.

The main sticking point was the lack of recognition of the ability to give Scottish ministers delegated powers in devolved areas. That was, in essence, ignored so that UK ministers could override and intervene in devolved areas. Members will all be aware of examples where, for many other pieces of legislation, that has occurred much more controversially and with much more political argument. In this situation, we are dealing with law reform, and the reason why the bill has been expedited in the House of Commons is that Law Commission of England and Wales recommendations in relation to law reform are uncontroversial and technical. That is the background.

Thank you.

Good morning. There are two things that I want to ask you about. First, I want to get a bit of an idea of what documents might be included, whether there are any notable exceptions that might be included and how far the proposal goes. For example, does it include any health certificates that might be part of cross-border trade?

In the bill, there is a list of documents that are affected. I am just working through my papers to find the list—I thank David Barnes for handing it to me. In clause 1(2), there is a list of examples, which include

“a bill of exchange ... a bill of lading ... a ship’s delivery order ... a warehouse receipt ... a mate’s receipt ... a marine insurance policy ... a cargo insurance certificate”

and so on. Perhaps, from a legal perspective, Chris Nicholson would like to comment on how wide the list will go.

Private transactions are devolved but, clearly, a lot of this interacts with reserved areas. It is a very complex area because it has been built up over hundreds of years of commercial trading. One of the key points in supporting the LCM is that, if we were to get into an argument over what is devolved and what is reserved, we could be here for years. It would mean untangling hundreds of years of commercial trading to ascertain exactly what is reserved and what is devolved. That is why the bill recognises customs that have built up over time—custom and practice. As I said, Chris might want to talk about the technical detail.

It is important to note that the list in clause 1(2) is not exhaustive; it is there to give some examples. You will see from the way that clause 1(1) operates that the drafters are trying to apply quite a wide gloss in these circumstances. However, to answer the question, I would need to know what documents normally come with health products and then see whether they come within this definition. It might be the case that they do not and that there may be a simple contract whereby someone who wants to buy medical products just gets them in a straightforward way. Alternatively, it might be the case that, for larger supplies, certain documents might be required. I think that it might depend on the scale and what you might see customarily in relation to health products. If you have any particular examples in mind, we can look at them.

It really just comes back to the fact that, in the few years since we left the European Union, there have been a few examples of delays in trade because of paper documents having to be used. I was wondering how far down that goes and whether the bill affects things at the level of, for example, food exports. Some of that process has become digital over recent years, but I wonder whether such parts of the process would be digitised as standard now. I will look further into the issue.

Will there be a uniform approach across the UK single market, or is there potential for having different regulations and requirements within the UK?

The bill certainly smoothes trade. It makes sense for the same laws to apply in common trading areas. Removing the obligation to use paper is clearly in the interests of trade in Scotland, England, Wales and Northern Ireland, so it is a sensible option.

Picking up on Jamie Halcro Johnston’s question about different requirements within the UK, I would like to know where the Law Society of Scotland’s views fit into that. I think that it has made some comments about laws of possession not being identical and the fact that the law around intangible property does not apply in Scotland. Would it be for Scottish ministers to make the required changes in that area?

I will have to ask Chris Nicholson, with his legal mind, to come in again, but I think that the Law Society was keen to emphasise that some issues involved in this area are devolved, and those references to examples of devolved areas were made simply to explain its recognition that this is an area that crosses between devolved and reserved areas. People might think that trade is reserved, and many aspects clearly are—particularly in relation to maritime industries—but private transactions and other aspects, such as the ones that you have just highlighted, are devolved.

So, it would be the responsibility of the Scottish Government to make the changes in those areas, to come into line with this legislation.

Yes, and the bill has been amended to give delegated powers to Scottish ministers to intervene and act in devolved areas if they think that they have a reason to do so.

Does the Scottish Government have an idea of whether it is going to intervene and make changes in those areas?

Not at the moment, because the thrust of the legislation is to make a sensible move from paper to electronic trading, and it has been ensured that the interests of devolution are protected in the bill should something arise in the future whereby Scottish ministers feel that they have to intervene. We are not predicting any particular scenario at the moment, but it is important to protect the principle that, because parts of the trading environment are devolved, the Scottish ministers retain the legal right to intervene.

Chris Nicholson would like to add something.

On Jamie Halcro Johnston’s question and your follow-up, convener, I simply note that there will always be slight divergences between the jurisdictions in the UK about how the documents come to be used, because there are different courts and legal jurisdictions, which means that there will always be different rules and different ways in which the courts apply them.

That being said, as you can see, most of the documents listed are quite commonly known in the UK. Some are devolved for reserved purposes and some have been unified over time at UK level, such as bills of exchange and promissory notes. There is a form of alignment and understanding in the UK about what the documents are and what you are entitled to if you hold one of the documents. How they stand to be applied or interpreted in the jurisdictions sometimes diverges, but that has always been the case. As a result of that, there is not understood to be any need to change that at the moment.

The Law Society’s comments were about recognising the benefits of proceeding on a UK basis, so that there would not be divergence if you started to have two different regimes in place.

I understand the difference between the reserved and devolved aspects, but I was asking whether it is the Scottish Government’s intention to move towards electronic documents once the bill is passed.

We support the policy aim of moving towards electronic trading, and the bill sets the course for that to be legally possible. That is why we support it.

The bill will give Scottish traders the right to use digital when they want to—it will give them the choice. At the moment, the law says that, generally, the documents have to be on paper.

Okay. You support the policy intention of the bill, which means that you would encourage traders in Scotland to move towards electronic documents.

The final question is about consent. The committee has dealt with a number of LCMs, and the Government previously recommended not to give approval to some LCMs because of consent issues. Although there has been compromise on this legislation, it has not gone as far as introducing consent as a mechanism. What would you say is the reason for that, in this case? You explained that this LCM is technical, so has there been a consensus or a compromise reached on this LCM that will form a model for any future LCMs, or is this one too particular?

The committee frequently supports the Government in that approach, but in this instance we have been asked to compromise and not give consent the level of importance that it has been given when we have considered other LCMs.

All legislation has to be looked at on its merits, and—as I said in my opening remarks—this is a technical and uncontroversial issue, because no one thinks that it is a bad idea, in this day and age, to move to electronic trading from paper, given all the benefits of that. However, we clearly know that there are disputes in other areas, so each bit of legislation has to be treated on its merits. In this case, we are pragmatic and open to compromise. The amendments from the UK Government are not perfect, but they are good enough, and for that reason we were content to lodge the LCM.

I have not been here for as long as the minister, but is that how LCMs previously tended to operate—would the process have involved negotiation and consensus? We had fewer divisions on LCMs than we have had in more recent times.

I can speak only from previous experience in ministerial roles, when I dealt with many LCMs. Generally speaking, we listen to stakeholders, consider the impact of the LCM and judge each one on its merits.

In the past, I have supported many LCMs because it has made sense to allow the UK Government to take something forward. I have done that for a range of reasons. Sometimes it has been because there is no point in duplicating effort and the LCM has enabled benefits to be delivered more quickly, and sometimes it has been because we would have done the same thing anyway. There are different reasons, but clearly there are many disputes in other areas, because the Parliament ultimately has to defend devolution. I am sure that it is the view of the committee that there will be times when compromise is appropriate and times when it is not appropriate, because devolution has been undermined. It is dealt with on a case-by-case basis.

We recognise that the environment for LCMs has changed quite a bit in recent years.

The committee welcomes the evidence that we have heard this morning, and we will consider a report in due course. As no members have any other questions, I will bring this evidence session to an end. Thank you for attending, minister.

Thank you.

09:59 Meeting suspended.  

10:02 On resuming—