TY - JOUR AU - Elias,, Adalberto AB - Abstract This article fleshes out a proposal made during the fourth International Secured Transactions Colloquium, held in March 2017, for United Nations Commission on International Trade Law (UNCITRAL) to develop a model legal framework for warehouse receipts. It argues that most developing economies have sufficient warehousing infrastructure and secondary markets but lack a modern warehouse receipts law. To support this argument, it includes a summary of the recent projects funded by various agencies to promote the warehousing of goods and, in particular, agricultural commodities. It describes the recent efforts to create a model framework for warehouse receipts and provides guidance on the establishment of a warehouse receipts system by entities such as the Organization of American States, the World Bank Group, and the Food and Agriculture Organization (FAO). Furthermore, the article analyses the work of UNCITRAL in the field of negotiable documents and concludes that such work has not addressed many aspects typically regulated by warehouse receipts laws. The analysis also focuses on the emerging practice of issuing electronic warehouse receipts, their trading through commodity exchanges, and the utilization of emerging technologies, such as blockchain, to dematerialize warehouse receipts. Finally, the article explores the most common modalities of warehousing services, the parties involved in warehouse receipts transactions, the characteristics of warehouse receipts in different jurisdictions, and the benefits of electronic systems, identifying the areas that ought to be covered in a model warehouse receipts framework. I. Introduction Warehousing has a long history and was the precursor to many commercial transactions. Warehouses where cattle, grain, and precious metals were deposited for storage thousands of years ago provided the basis for modern banking functions, including deposit taking, account keeping, payments, and custodial services.1 In ancient Egypt, depositors of grain in warehouses issued written orders for its withdrawal, creating one of the earliest forms of paper money, vestiges of which remain in today’s warehouse receipts.2 Legislation governing warehouse receipts has been in place in many countries for more than a century.3 For instance, Mexico enacted provisions governing negotiable warehouse receipts as early as 1889,4 and the Uniform Warehouse Receipts Act was available for adoption by US States in 1906.5 Much of this legislation remains in place today. Lacking warehouse receipts legislation, many countries in Eastern Europe and Central Asia began enacting laws in this area in the 1990s after the collapse of the Soviet Union.6 Among these countries were Bulgaria, Kazakhstan, Hungary, Slovakia, and Moldova.7 Countries in Africa and Asia followed; at least 15 warehousing initiatives—many of which included a warehouse receipt legislation component—were active in both regions during the past decade.8 However, legislation on its own is insufficient to stimulate commercial activity in the absence of actual warehousing infrastructure, which some developing economies still lack.9 In addition to warehousing infrastructure, the existence of secondary markets for warehoused goods is equally crucial.10 Both of these elements may be found today even in less developed economies, such as Malawi, which has warehousing infrastructure that supports two commodity exchanges for the trading of warehouse receipts—that is, secondary markets.11 Recent reform efforts, funded by donors as well as governments themselves, have focused not only on modernizing the legal framework but also on upgrading the warehouse infrastructure and increasing the liquidity and efficiency of secondary markets.12 These ‘warehousing reforms’ complement reforms of secured transactions and insolvency laws, giving confidence to lenders relying on warehoused goods as collateral for loans. Banks in developing economies have ample liquidity but remain constrained by limited lending opportunities.13 The International Finance Corporation (IFC) has found that improving the warehouse receipt system allows the credit supply and demand to match better, particularly in rural areas.14 According to a 2009 study published by the FAO, warehouse receipts are ‘a proven instrument for allowing farmers, traders, processors, and exporters to obtain finance secured by goods deposited in a warehouse.’15 The commercial—and especially financing—benefits of warehouse receipts can only be reaped if an adequate legal framework is in place. A joint study by the FAO and the European Bank for Reconstruction and Development (EBRD) concluded that a supportive legal framework is a common precondition for confidence in and acceptance of warehouse receipts for producers, credit providers, and market participants.’16 Other benefits of implementing enabling legislation on warehouse receipts include the following: (i) it fosters the participation of smallholder farmers in the commodity market by allowing them to consolidate their crops in a warehouse and sell them jointly; (ii) it reduces postharvest losses for smallholder farmers; (iii) it improves quality of agricultural commodities by subjecting them to mandatory quality standards; (iv) it promotes agricultural trade through organized market transactions and, if warehouses are linked to a commodity exchange, improved exchange trading; (v) it lessens high-season price fluctuations (by storing agricultural commodities until after the harvest season); and (vi) it provides information to government authorities about agricultural commodities stored in the country, which aids in forecasting food shortages.17 Accordingly, warehouse receipts have uses and provide benefits beyond access to finance. Warehouse receipts are one of the pillars of a functional and efficient warehouse receipts system; adequate warehousing infrastructure accompanied by secondary markets and effective supervision being the other two. In this article, we deal only with the legal framework governing warehouse receipts, assuming that a State considering the enactment of a modern legislation has some warehousing infrastructure and supervisory framework. Still, it should be noted that, aside from commercial law rules, a modern warehouse receipts law would provide further reinforcement to the supervisory framework. II. Modalities of warehousing There are two types of warehouse arrangements: (i) depositors deliver goods to a public warehouse and (ii) depositors effectively remain in physical possession of goods (that is, private warehousing). For public warehouses, the depositor may generally need to transport the goods to a public storage place, or, at times, a third party may set up a warehouse at the depositor’s place of business under field warehousing and collateral management agreements. In public warehousing, third parties directly operate an independent warehouse that they either own or lease and offer storage services for a fee. Under this type of operation, warehousing services are provided to the public at large, and warehouses are usually licensed by a governmental authority. In many countries, public warehouses are considered financial institutions and are regulated in a manner similar to banks.18 Other countries delegate the responsibility for supervising public warehouses to (their) ministries of agriculture, trade, or industry.19 Supervision of warehouses seeks to protect depositors, as well as any holder of a warehouse receipt, by ensuring the integrity and solvency of warehouses. The most common conditions a warehouse must satisfy to obtain and retain a license are minimum capital requirements, minimum storage capacity, performance guarantees, insurance against major natural disasters such as fire, earthquakes, and flood, and periodic reporting requirements.20 Additional authorization and supervision is required for warehouses that are eligible to store and deliver goods under warehouse receipts and commodity contracts traded at exchanges, such as the Malawi AHCX or the Chicago Mercantile Exchange. Warehouses are also subject to periodic inspections. It should be noted that many countries, including Colombia, India, Paraguay, and Mexico, restrict the issuance of valid warehouse receipts to licensed warehouses.21 In other words, a warehouse receipt issued by an unlicensed entity will not be treated as a negotiable document under the relevant legislation but, rather, as a mere storage receipt evidencing the undertaking of a person to deliver goods on request.22 Field warehousing is a variant of public warehousing.23 In field warehousing, a warehouse operator obtains temporary control of the facilities of the depositor, usually leasing them for a nominal fee.24 These facilities are generally located close to the depositor’s farming, trading, or manufacturing operations. It is common for the operator of the field warehouse to post prominent signs giving notice to the public that the area is controlled.25 Compared to public warehousing, field warehousing is considered to be more flexible and adaptable to the needs of borrowers.26 It is also considered to be a suitable device for short-term financing of inventory.27 However, it is quite expensive to set up and operate and, thus, not suitable for most borrowers, for whom the cost would be prohibitive. With the increased familiarity of bankers with Uniform Commercial Code (UCC) Article 9 and collateral management practices, it is only sparingly utilized in the USA.28 Implementation of the 2016 UNCITRAL Model Law on Secured Transactions may be expected to have a similar impact in the mid-term. Regulated field warehousing is a common practice in many Latin American jurisdictions (generally known as bodega habilitada, almacén de campo, or almacén habilitado).29 In such settings, a public licensed warehouse operator issues warehouse receipts (either negotiable or non-negotiable) against deposits of goods in the field warehouse. Regulated field warehouses are periodically inspected by the same authority that oversees public licensed warehouses. In 2015, Mexico had a total of 19 public licensed warehouses. Public warehouse operators directly owned 366 storage facilities and controlled a total of 1,491 facilities in the form of field warehouses.30 In the same year, 56 percent of the total warehouse receipts issued in Mexico were backed by goods stored in field warehouses.31 Field warehousing is a particularly common practice when dealing with sophisticated depositors.32 For instance, in 2013, 90 percent of ‘warrants’ (that is, negotiable warehouse receipts) issued by the largest licensed warehouse in Paraguay were backed by agricultural commodities stored in field warehouses owned by large companies.33 Under collateral management agreements (CMAs), companies that specialize in managing collateral operate either their own or a third party’s goods storage facility.34 This type of operation is prevalent in countries with insufficient warehousing infrastructure and with an inadequate or non-existent warehouse receipt legal framework.35 Collateral management companies (CMCs) execute a tripartite agreement with the depositor/grantor and the secured creditor, under which the CMC commits to possessing, on behalf of the secured creditor, the depositor’s goods, which are used as collateral for a loan.36 CMAs only involve non-negotiable warehouse receipts.37 The fee structure of CMAs is prohibitive for most small- and medium-sized enterprises.38 Another similar contractual agreement for the monitoring and management of collateral is a stock monitoring agreement (SMA). Under a SMA, an inspection entity provides periodic monitoring of inventory levels and (usually) quality of commodities.39 However, unlike a CMA, in a SMA, the inspection entity does not exercise any control over the commodities, nor does it guarantee their continued presence or quality.40 SMAs are less expensive than CMAs, but they provide a lower level of security.41 Also, the inspection entity does not issue any warehouse receipts. Private warehousing is quite different from the three previously analyzed warehousing operations. Under this arrangement, the depositor does not relinquish possession of its goods to a third party. The primary business of the company controlling the warehouse is not warehousing but, rather, manufacturing, wholesale, or retail, and the warehouse is operated as part of its overall business.42 Due to the close relationship between the warehouse and the owner of the stored goods, private warehousing is considered riskier than other types of warehousing services when lending against the stored goods.43 Since the grantor is effectively and legally in possession of the collateral, delivery of such warehouse receipts to the secured creditor might not make the security right effective against third parties. The secured creditor would also assume a number of business risks associated with the relative ease with which the grantor can remove and dispose of the goods in the private warehouse. III. Warehouse receipts characteristics and parties involved Depositors, warehouses, insurance companies, buyers of stored goods, purchasers of warehouse receipts, and secured creditors all constitute parties to a typical warehousing operation. Depositors can deposit anything of value at a warehouse including metals, grain, live cattle, manufactured goods, and seafood (mostly frozen) and obtain a warehouse receipt.44 A warehouse receipt shares many characteristics with the bill of lading issued by carriers upon receipt of goods for transportation. When the law gives warehouse receipts the status of negotiable documents, encumbrances over the deposited goods must be created by transferring the warehouse receipt. Warehouse receipts can be issued as negotiable and non-negotiable in both civil and common law jurisdictions. Negotiability means that if certain legal requirements are satisfied, the transferee acquires its interest free from adverse claims and free from most defences that could have been raised by the original obligor (that is, the warehouse). The right to delivery of goods is reified in the negotiable warehouse receipt, so that an interest in the goods may be transferred by delivery of the receipt. That is not the case with non-negotiable warehouse receipts, which can be transferred only by assignment, and the delivery of the negotiable receipt does not transfer any rights to the goods covered thereunder. The raison d’être of non-negotiable warehouse receipts is the protection of warehouses and secured creditors against fraud (for example, a person attempting to claim delivery with a fraudulent warehouse receipt).45 Even though many warehouse receipts issued today are non-negotiable, negotiable warehouse receipts are expected to displace non-negotiable ones in the future due to the continued implementation of electronic systems.46 In most common law jurisdictions, a negotiable warehouse receipt is issued as a single document that may be used to transfer ownership and create security rights in the underlying goods.47 Conversely, in most civil law jurisdictions, a negotiable warehouse receipt consists of two documents: (i) a certificate of deposit and (ii) a pledge bond or warrant.48 The certificate of deposit is a contract of deposit between depositor and depository that represents ownership rights over the commodities stored in the warehouse. The pledge bond creates a security right. While civil law countries have historically viewed extra-judicial enforcement with suspicion, they have carved out some limited exceptions from the general prohibition on self-help, including the right of the holder of the pledge bond, upon the debtor’s default, to the extrajudicial sale of the stored goods described in the certificate of deposit. Typically, warehouses in civil law countries issue a certificate of deposit and a blank pledge bond. If the holder of the certificate and the pledge bond applies for a loan, the holder ‘issues’ (that is, fills in the required information, complies with other legal formalities, endorses and delivers) the pledge bond to the secured creditor. Although certificates of deposit and pledge bonds can be transferred either together or separately, in practice, they rarely circulate separately. Generally, a single document system is simpler and a more convenient tool for commercial transactions.49 Acknowledging this, some civil law jurisdictions with a two-document system now do not allow the circulation of pledge bonds for certain transactions in public exchange markets (for example, Colombia)50 or are in the process of completely eliminating the pledge bond (for example, Mexico).51 It should be noted that there are already civil law jurisdictions with a single document warehouse receipt system.52 In addition, a single document system is already in place in countries like Colombia and Mexico for other types of documents of title, such as bills of lading.53 This form of regulation of bills of lading is a common trait of civil law jurisdictions. IV. From paper to electronic The UNCITRAL instruments and some domestic laws governing negotiable documents (for example, the US UCC Article 7) or security rights in negotiable documents (for example, the Guatemalan law on secured transactions) contemplate a dual regime where negotiable documents can be issued not only in paper but also electronically. Such laws would ease a transition into a fully electronic system. A few years ago, the cost of technology to design and implement a robust fully electronic system for warehouse receipts was prohibitive, especially in economies with smaller warehousing markets.54 Since then, the expected cost has gone down and could be further reduced by designing the warehouse receipts system on distributed ledger technology (DLT). Electronic warehouse receipts (EWRs) provide greater security than paper warehouse receipts against potential fraudulent activity. The most common fraud is the duplication of paper warehouse receipts, which are then pledged with multiple financial institutions.55 This constitutes one of the arguments supporting the transition to EWR systems.56 EWRs offer other advantages including: (i) increased transparency; (ii) easier determination of the actual holder of an EWR; (iii) elimination of a number of formalities, such as physical endorsement; (iv) the centralization of information on EWRs, eliminating the need to supply data to several government-run registries designed to track information generated during the EWR issuance process; (v) increased EWR transferability; and (vi) the effective enforcement of security rights.57 Additionally, EWRs are more liquid and marketable than paper receipts, especially when a country has established a public exchange for the trading and pledging of EWRs in real time.58 Ethiopia59 and Malawi60 are two African nations that operate such exchanges.61 In contrast to traditional commodity exchanges in which futures and options contracts are traded and EWRs exchanged only occasionally when such contracts are physically settled, EWRs are actually traded in these African exchanges and all trades are settled by the delivery of EWRs.62 EWRs are issued by warehouses themselves63 (licensed by the exchange in Malawi) or by a central depository using information communicated by warehouses (owned by the exchange in Ethiopia).64 V. Efforts to create a model framework Several international organizations have analysed and proposed methods to address challenges in the implementation of warehouse receipts legislation. Among these organizations are the World Bank Group, the EBRD, the FAO, and the Organization of American States (OAS). The products formulating these recommendations include legislative guides, working papers, and guiding principles. At the moment, no international or regional organization has adopted a model law on warehouse receipts, resulting in a lack of harmonization and ad hoc approaches. In 2016, the World Bank Group published a legislative guide on warehouse receipts reform entitled Guide to Warehouse Receipt Financing Reform: Legislative Reform.65 The Guide’s main goal is to be ‘the baseline for WRS legislative reform for developing countries’.66 The objective of legislative reform for warehouse receipts is to improve the system’s security, thus increasing the market’s confidence to freely trade and finance warehoused goods.67 Necessary features of a successful warehouse legislation include: (i) a clear and comprehensive formulation of the rights and obligations of all actors; (ii) an independent agency to license, supervise, and inspect warehouses; (iii) clear and simple procedures for the transfer of warehouse receipts; (iv) the creation of a public registry of warehouse receipts for transparency; and (v) a simple and speedy enforcement process.68 Under the topic ‘Model Law and Content,’ the Guide also presents a list of 18 subjects that should be taken into consideration by a new warehouse receipt legal regime.69 These subjects are: (i) administration; (ii) fees and penalties; (iii) suspension and revocation of licenses; (iv) dispute resolution and arbitration; (v) title to goods under a warehouse receipt; (vi) posting of licenses and bonds; (vii) publicity for violations; (viii) licensing requirements; (ix) insurance requirements; (x) standards of care for particular products; (xi) warehouse charges; (xii) inspections of licensed warehouses; (xiii) reporting of casualty losses; (xiv) licensing of inspectors, graders and weighers; (xv) standards and grades of agricultural commodities; (xvi) form of warehouse receipts; (xvii) printing of paper warehouse receipts; and (xviii) electronic warehouse receipts.70 Equally, in 2015, the FAO published a working paper entitled ‘Designing Warehouse Receipt Legislation: Regulatory Options and Recent Trends’.71 It became apparent to the FAO that ‘comprehensive guidance for the design of legislation governing warehouse receipts systems was missing’ after it (together with the EBRD) provided assistance to countries undertaking reform in this area.72 The objective of the FAO publication is to fill a gap and provide countries with guidance on how to develop enabling legislation on warehouse receipts.73 According to the FAO, there are three basic approaches that may be used when implementing enabling legislation: (i) creating a comprehensive warehouse receipt system law; (ii) creating two separate laws, one on warehouses and another on warehouse receipts; or (iii) placing the warehouse receipt system reform into the general commercial or civil code.74 In addition, the FAO considers that there are 10 core elements of warehouse receipt legislation: (i) scope of the law and definitions; (ii) administration; (iii) licensing and oversight of warehouses; (iv) performance guarantees for warehouses; (v) contractual rights and obligations of parties; (vi) warehouse receipts’ legal status, format, detail, form, and registration; (vii) negotiation and transfer of warehouse receipts; (viii) rules on settlement and release of stored goods; (ix) execution and priority of obligations; and (x) offences and penalties.75 Furthermore, in 2016, the OAS adopted its Principles for Electronic Warehouse Receipts for Agricultural Products (OAS Principles).76 The purpose of the OAS Principles is twofold: first, to underscore the importance of warehouse legislation reform to OAS Member States77 and, second, to promote development in the area of warehouse receipts without precluding future work on modern legislation for EWRs.78 The OAS Principles are limited to storage of agricultural products and do not preclude the issuance of warehouse receipts in their classical dual nature (that is, the use of a pledge bond to create a security right). VI. Work of UNCITRAL in the area of negotiable documents UNCITRAL has developed a number of instruments to facilitate cross-border use of bills of lading. The UNCITRAL Model Law on Electronic Commerce and the United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea (Rotterdam Rules) provide for the issuance and transfer of transportation documents in electronic form. The two instruments also contemplate conversion of an electronically issued transportation document into paper and vice versa. However, the scope of these instruments is limited to negotiable documents issued by carriers for the purpose of transporting goods. The 2016 UNCITRAL Model Law on Secured Transactions (Model Law) contains asset-specific rules for negotiable documents used as collateral. However, given its nature focusing on taking security rights in movable assets without prescribing specific regulation for those assets, it defers to the domestic law on a number of issues, including: (i) which documents are negotiable; (ii) who may issue warehouse receipts; (iii) rights and duties of parties to a warehouse receipt; and (iv) rights of buyers of warehouse receipts and products covered by them. Many economies, especially those characterized as developing, lack any warehouse receipt legislation or have outdated legislation. Both the Model Law and the 2007 UNCITRAL Legislative Guide on Secured Transactions (Secured Transactions Guide) were prepared against the background of negotiable documents issued in paper form. This is not surprising as, at the time of finalization of the Secured Transactions Guide in 2007, the issuance and transfer of negotiable documents electronically was not the norm but, rather, an emerging practice. Ten years later, the situation is different. The Secured Transactions Guide expressly highlights that ‘the failure to address electronic negotiable documents of title should not be interpreted as discouraging the use of electronic equivalents of paper negotiable documents.’79 Under the UNCITRAL secured transactions texts, a security right in negotiable instruments or negotiable documents can be made effective against third parties by registration of a notice in a registry of security rights or by possession, and possession is defined in Article 2(z) of the Model Law to mean ‘actual possession of the tangible asset’. No reference is made to the fact that ‘control’ has become the primary mechanism for outright transfers and third party effectiveness of security rights in ‘electronic assets’, especially warehouse receipts, which are increasingly issued electronically. The Secured Transactions Guide points out that ‘in view of the particular difficulty of creating an electronic equivalent of paper based negotiability’, if an enacting State ‘wishes to address this matter [it] will need to devise special rules’.80 No such ‘special’ rules are provided in the Model Law or the Secured Transactions Guide. The Model Law on Electronic Transferable Records, adopted by UNCITRAL in July 2017, provides a general framework for the issuance and transfer of electronic records, including EWRs.81 While it would supplement the Model Law in providing a mechanism to transfer and create security rights in EWRs, it was not designed to address many aspects typically regulated by warehouse receipts laws. VII. Legislative reforms on warehouse receipts In the last decade, at least 15 warehousing reform initiatives were active throughout Africa (10), Asia (4), and Latin America (1). This section will provide an overview of some recent initiatives in Mexico, Senegal, Indonesia, and Republic of Benin. Since 2015, Mexico has been engaged in transitioning into an EWR system. It is expected that the EWR bill will be approved in 2018. This law reform effort enjoys the backing of the private sector and is spearheaded (and sponsored) by Mexico’s Ministry of Economy (MOE), with no outside donor assistance. Besides migrating warehouse receipts into a purely electronic environment, the bill also changes the current two document system to a single document system, thus eliminating the pledge bond. In addition, the MOE is determined to utilize DLT in the design of the platform in which EWRs will be issued and transferred. This platform should be operational in the first half of 2018. In Senegal, the IFC sponsored a three-year (2014–17) legislative reform project on warehouse receipts.82 The project focused on the development of a legal and regulatory framework for warehouse receipts (including a warehouse receipt authority) as well as on the design of warehousing quality operational guidelines (that is, inspections, grading, and commodity standards) and capacity building.83 In addition, the project involved an assessment of existing storage infrastructure to determine the investments necessary to rehabilitate or build new warehouses that meet warehouse receipt systems requirements.84 In Indonesia, the IFC sponsored the introduction and implementation of a formalized warehouse receipt system.85 The law governing warehouse receipts was enacted in 2006 and was later amended in 2011.86 During the period of 2009–13, a total of 98 warehouses were built in Indonesia.87 Other donor-funded projects have focused mainly on the development of physical warehousing infrastructure. For instance, from 2011 to 2017, the World Bank supported a US $50 million project in the Republic of Benin, with the objective of restoring and improving ‘productivity and value addition for selected value chains’.88 Under this project, 25 warehouses were constructed to support the bulk marketing of cashew nuts.89 VIII. Recommendations and content of a model law on warehouse receipts In light of the increasing number of recent projects, a model law on warehouse receipts is not only desirable but also necessary, particularly for developing economies. Already, many economies are contemplating the implementation of electronic equivalents to paper-based warehouse receipts and could benefit from harmonized guidance.90 Even among economies that have adequate warehousing infrastructure and secondary markets, many still lack a modern law on warehouse receipts. The need is most evident in those economies that rely on agriculture to sustain economic growth. In addition, as developing economies mature and their actors get connected to global supply chains, warehouse receipts will play an increasingly important role in cross-border transactions. Coupled with the possibility of trading warehouse receipts internationally, modern secured transactions laws also increase their attractiveness to foreign lenders. The liquidity of warehouse receipts is further enhanced if the economy has established a commodity exchange for the trading and financing of EWRs. UNCITRAL is well positioned to take the lead and formulate a concrete model text that builds on the work of other international agencies. Indeed, many international organizations, as well as the UNCITRAL Secretariat, have clearly identified the elements of a model warehouse receipts law, including both commercial and regulatory rules.91 Such a model law would govern the rights and duties of warehouse operators and the parties affected by their activities (for example, secured creditors, holders of warehouse receipts, and buyers of goods stored in warehouses).92 It would also delineate rules that allow for the safe and secure utilization of EWRs, especially rules on their issuance, transfer, and negotiability. In conjunction with a modern secured transactions law, a warehouse receipts model law would provide a solid basis for the financing of goods stored in warehouses. Without an effective legal regime for warehouse receipts, the negotiable documents provisions of the UNCITRAL Model Law on Secured Transactions would not facilitate such financing. A model law on warehouse receipts also provides a framework for the establishment of commodity exchanges for EWRs, the cost of which is within reach due to the proliferation of DLTs. Footnotes 1 Jason Donaldson, Giorgia Piacentino, and Anjan Thakor, ‘Warehouse Banking’ (2016) Washington University in St. Louis Working Paper, 1 accessed 26 June 2017. 2 Warehouses (and warehouse receipts) continued to play an important role in the development of banking. In seventeenth-century Japan, rice storage facilities began the practice of fractional reserve banking. Additionally, in eighteenth-century Virginia, tobacco warehouses were instrumental in the creation of banking and payments, where warehouse receipts were ultimately made legal tender. See Donaldson (n 1) citing Sydney Crawcour, ‘The Development of a Credit System in Seventeenth-Century Japan’ (1961) 21 Journal of Economic History 342; see also Donaldson (n 1), citing Glyn Davies, A History of Money (University of Wales Press, Cardiff 1994). 3 It has been argued that rules governing grain receipts were codified in the Code of Hammurabi as early as thirteenth century BC. See Nicholas Budd, ‘The Use of Warehouse Receipts to Assure Title, Control, and Value of Commodity Collateral’ (October 1998) accessed 26 June 2017. 4 Código de Comercio [Commerce Code], DOF 07/10 – 13/12 de 1889, arts 340-357 accessed 12 June 2017. The core structure of warehouse receipt law in Mexico has not changed since 1889; the same principles and rules are still relevant today. 5 Victor R. Henley, ‘Uniform Laws in California’ (1951) 39 California Law Review 68 accessed 12 June 2017. 6 FAO Investment Centre, ‘The Use of Warehouse Receipt Finance in Agriculture in Transition Countries’ (2009) FAO Working Paper, 7 (FAO Working Paper). 7 Ibid 37. 8 For instance, in Africa: Ghana (2011), Guinea-Bissau (2014), Cote d’Ivoire (2013), Senegal (2014), Ethiopia (2005–2012), Kenya (2005–2011), Uganda (2002–2010), Tanzania (1998–2011), Zambia (2007–2011). Asia/Central Asia: India (2010), Indonesia (2011), Kazakhstan (2012), Philippines (2011), Sri Lanka (2012). 9 Henry Deeb Gabriel, ‘Warehouse Receipts and Securitization in Agricultural Finance’ (2012) 17(1–2) Uniform Law Review 369. 10 Ibid 374. 11 See further, Christopher Jimu, ‘Malawi Moves to Enact Warehouse Receipt Bill’ The Nation (19 December 2014) accessed 26 June 2017; AHCX, ‘Warehouse Receipt Financing’ accessed 26 June 2017. 12 See Section IV of this article. 13 International Finance Corporation, Warehouse Finance and Warehouse Receipts Systems: A Guide for Financial Institutions in Emerging Economies (IFC, Washington 2013) 2-4. 14 Ibid. 15 FAO Working Paper (n 6) 7. 16 FAO Investment Centre, ‘Designing Warehouse Receipt Legislation: Regulatory Options and Recent Trends’ (2015) FAO Working Paper, ix. 17 Ibid x. 18 Superintendencia Financiera de Colombia, accessed 26 June 2017; Law no 18690 (1988), art 3 (Chile) accessed 26 June 2017; Superintendencia del Sistema Financiero de El Salvador accessed 26 June 2017; Ley General de Organizaciones y Actividades Auxiliares del Crédito [LGOAAC] [General Law of Organizations and Activities Related to Credit], as amended, 10 de enero de 1985, art 17 (Mex.) accessed 26 June 2017; Law No 215/70, art 7 (Paraguay) accessed 26 June 2017. 19 FAO Investment Centre (n 17) 56-152. 20 Ibid 30. 21 World Bank, ‘Potential and Constraints of Using Warehouse Receipts Financing in Cambodia’ (2014) Technical Working Paper 98881, 48 accessed 26 June 2017. 22 For a distinction between negotiable and non-negotiable warehouse receipts, see section II.2 above. 23 Tibor Tajti, ‘The Resurrection of Field Warehousing’ (2014) 55(3) Acta Juridica Hungarica 191. 24 World Bank, A Guide to Warehouse Receipt Financing Reform: Legislative Reform (World Bank 2016) 14; International Finance Corporation (n 13) xii. 25 Nicholas Budd, ‘Field Warehousing: A Security for Developing Countries and the New Market Economies’ (March 1995) International Business Lawyer 120. 26 Tajti (n 24) 191. 27 Ibid. 28 Budd (n 26) 121. 29 Ley no 734 (Nicaragua) art 58 accessed 26 June 2017; Ley General de Organizaciones y Actividades Auxiliares Del Crédito (Mexico) art 16 accessed 26 June 2017; Decreto No. 1746 (Guatemala) art 5 accessed 26 June 2017; Resolución SBS No. 040-2002 (Peru) art 3(c) accessed 26 June 2017. 30 Presentation by Lic. José Luis Luz Lara, National Banking and Securities Commission (CNBV), Disposiciones de Carácter General para Almacenes Generales de Depósito 2015’ at the seminar ‘Warehouses and the Financial Reform’ hosted by the Mexican Warehouse Association (3-5 June 2015) (on file with authors). 31 Ibid. 32 Sebastien Lahaie, ‘Rolling Out Warehouse Receipts Financing: Pioneering a New Product’ Financing Agriculture Forum 2013: Investing in Agriculture (19–23 August 2013, Colombo, Sri Lanka) 7 accessed 6 June 2017. 33 Ibid. 34 World Bank (n 25) 14. 35 International Finance Corporation (n 13) 42. 36 Ibid. 37 Ibid. 38 Ibid 2. 39 Ibid xii. 40 Ibid xii. 41 Ibid 42 42 FAO Working Paper (n 6) 17. 43 Ibid 7; see also World Bank (n 25) 14. 44 It should be noted that some jurisdictions restrict the issuance of electronic warehouse receipts to a closed list of dry agricultural commodities. 45 FAO Working Paper (n 6) 26. Consequently, an electronic warehouse receipt obviates the need for non-negotiable documents because forgery is highly unlikely in an electronic environment. 46 Ibid. See also Arizona Revised Statutes § 47-7104(a), which provides that a document of title is negotiable if ‘by its terms the goods are delivered to bearer or to the order of a named person.’ 47 In the Canadian province of British Columbia, a negotiable warehouse receipt is defined as ‘a receipt which states that the goods specified in it will be delivered to bearer or to the order of a named person.’ See Warehouse Receipt Act, RSBC 1996, c. 481(1) (Can.). In India, a negotiable warehouse receipt is defined as a document ‘under which the goods represented therein are deliverable to the depositor or order, the endorsement of which has the effect of transfer of goods represented thereby and the endorsee for which takes a good title.’ See Warehousing (Development and Regulation) Act, No. 37 (2007) (India); In the United States, the relevant Arizona statute defines a document of title as ‘a record that in the regular course of business or financing is treated as adequately evidencing that the person in possession or control of the record is entitled to receive, control, hold and dispose of the record and the goods the record covers; and that purports to be issued by or addressed to a bailee and to cover goods in the bailee’s possession that are either identified or are fungible portions of an identified mass. The term includes a…warehouse receipt’ See A.R.S. § 47-1201(16). 48 In Colombia, two documents are used: (i) a certificate of deposit and (ii) a pledge bond, which incorporates a security right over the goods described in the certificate of deposit. See Decreto 410, marzo 27, 1971, Diario Oficial [D.O.] (Colom.). In Mexico, two documents are used: (i) a certificate of deposit and (ii) a pledge bond, which represents the creation of a security right over the goods described in the certificate of deposit. See Ley General de Títulos y Operaciones de Crédito [GLSCO] [General Law of Securities and Credit Operations], art 229, as amended, Diario Oficial de la Federación [DO] 27 de agosto de 1932 (Mex.). 49 Vlado Kovačević and others, ‘Electronic Warehouse Receipts Registry as a Step from Paper to Electronic Warehouse Receipts’ (2016) Economics of Agriculture 3/2016, 801, 804 accessed 27 June 2017. 50 ‘[C]ertificates of deposit can be subject to Repo operations if the following conditions are satisfied…[the certificate of deposit] contains an express declaration providing that…the pledge bond has been cancelled.’ Reglamento de Funcionamiento y Operación de la BMC Bolsa Mercantil de Colombia S.A. (24 de enero de 2017) art 3.8.2.1.2 (6) accessed 27 June 2017. 51 See section IV below. 52 According to art 15 of the Ecuadorian Law No. 37 RO/345 only warehouses are authorized to issue certificates of deposit. Warehouses must issue two copies of a certificate of deposit; a negotiable copy that must be delivered to the bailor and a non-negotiable copy that remains with the warehouse for record-keeping purposes. Furthermore, art 27 of Ecuadorian Law No. 37 RO/345 provides that negotiable certificates of deposit can be subject to two different types of endorsement: (i) ‘in ownership’ endorsement and (ii) ‘in pledge’ endorsement. See Law No. 37 RO/345 of 27 March 1968 accessed 27 June 2017. Article 17 of the Panamanian Law No. 6 of 19 January 1961 provides that whenever the certificate of deposit is pledged it must be marked as such and the pledge must be notified and recorded by the warehouse. See Law No. 6 of 19 January 1961(Panama) accessed 27 June 2017. 53 Rules for creating a security right (pledge) over a Colombian bill of lading do not require the issuance of a pledge bond. See Código de Comercio [Code of Commerce], arts 644 and 659 (Col). Similarly, rules for creating a security right over a Mexican bill of lading do not require the issuance of a pledge bond. See Ley General de Titulos y Operaciones de Credito [General Law of Securities and Credit Operations], first sentence of art 334(VI). 54 Gabriel (n 9) 372. 55 See Melanie Burton, ‘Two Years after Qingdao Scandal, LME Bets on Electronic Tracking of Metal’ Reuters (Melbourne, 1 June 2016) accessed 27 June 2017 (Fraud in China to the tune of USD$3 billion involving the duplication of warehouse receipts); Alberto Barranco, ‘Covadonga: Fraude del Siglo’ El Universal (25 de marzo de 2011) accessed 27 June 2017. Another type of fraud is the issuance of warehouse receipts that do not correspond to any goods, or their issuance for a quantity in excess of what the warehouse operator receives. 56 Adalberto Elias, ‘Recent Electronic Warehouse Receipts Developments in Mexico’ (2016) 33 Arizona Journal of International and Comparative Law 199. See also Burton (n 56). 57 Note that computer illiteracy among farmers is a major issue when implementing EWR systems. Proposals to overcome this issue have focused on the development of capacity building programs and the establishment of call centers. See International Finance Corporation (n 13) 2–4. 58 See Gabriel (n 9) 372, who notes ‘warehouse receipts could serve the important function of providing the basis for developing market exchanges.’ 59 Ethiopia Commodity Exchange accessed 27 June 2017. 60 AHCX accessed 27 June 2017. 61 Abenet Bekele Haile and others, ‘Creating Agricultural Markets: How the Ethiopia Commodity Exchange Connects Farmers and Buyers through Partnership and Technology’ (April 2017) EMCompass Note 37 accessed 27 June 2017. It has been argued that the success of the Ethiopian Commodities Exchange (ECX) is due to the government’s policy of requiring all trades of some agricultural commodities (e.g. coffee) to be made through the ECX platform. 62 Rules of the Ethiopian Commodities Exchange, art 9.5.2.4 (a)(iii) accessed 27 June 2017. 63 ACE Warehouse Receipt System Rules and Regulations, rule x. 64 Rules of the Ethiopian Commodities Exchange (n 63) arts 9.1.6, 9.1.7, and 9.2.1. 65 World Bank (n 25). 66 Ibid iii. 67 Ibid 52. 68 Ibid 57–58. 69 Ibid. 70 Ibid. 71 FAO Investment Centre (n 17). 72 Ibid vii. 73 Ibid. 74 Ibid 1. 75 Ibid 14. 76 OAS Inter-American Juridical Report, ‘Electronic Warehouse Receipts for Agricultural Products’ (OAS, 27 September 2016) accessed 27 June 2017. 77 Ibid 2. 78 Ibid. 79 UNCITRAL, Legislative Guide on Secured Transactions (United Nations, Vienna 2007) ch I, para 121. 80 Ibid 459. 81 See Report of UNCITRAL, Fiftieth Session (3–21 July 2017), A/72/17, 21–22 accessed 25 September 2017. 82 Organisation for Economic Co-operation and Development (OECD), ‘2017 Aid for Trade - Case Story Template’ (OECD, 2017) accessed 23 June 2017. 83 Ibid 2. 84 Ibid. 85 FAO Investment Centre (n 17) 90. 86 Ibid. 87 Rahayu Fery Anitasari, ‘The Developments of Warehouse Receipt System And Obstacles Faced’ (2015) 6(4) International Journal of Business, Economics and Law 105. 88 World Bank, Benin: Agricultural Productivity and Diversification Project: Project Appraisal Document (World Bank, 2010) accessed 25 September 2017; see also World Bank, Benin - Agricultural Productivity and Diversification Project: Additional Financing Data Sheet (World Bank, 2017) 26 accessed 27 June 2017. 89 Ibid. 90 Drew L. Kershen, ‘Warehouse Receipts in the United States Law – Summary for the Pacific Rim’ (2016) 33 Arizona Journal of International and Comparative Law 179. 91 UNCITRAL Secretariat, ‘Possible Future Legislative Work on Security Interests and Related Topics’ A/CN.9/913, 13 (20 April 2017). 92 See further Nicholas Budd, ‘Untying the Gordian Knot: Farmers, Banks, Insurers, Warehouse Receipts, Commodity Exchanges, Collateral Managers, and Access to Credit’ in Frederique Dahan (ed), Research Handbook on Secured Financing in Commercial Transactions (Edward Elgar, Cheltenham 2015) 167. Author notes Both authors are thankful for the feedback received during the fourth International Colloquium on Secured Transactions Law organized by UNCITRAL (15–17 March 2017, Vienna), the insightful comments of the reviewers, and suggestions from Chikezie Anachu of NatLaw. © The Author (2017). Published by Oxford University Press on behalf of Unidroit. All rights reserved. For Permissions, please email journals.permissions@oup.com TI - A proposal for UNCITRAL to develop a Model Law on Warehouse Receipts JF - Uniform Law Review/Revue De Droit Uniforme DO - 10.1093/ulr/unx042 DA - 2017-12-01 UR - https://www.deepdyve.com/lp/oxford-university-press/a-proposal-for-uncitral-to-develop-a-model-law-on-warehouse-receipts-CaBtsEgN4M SP - 716 VL - 22 IS - 4 DP - DeepDyve ER -