A Proposal for UNCITRAL to Develop a Model Law on Warehouse Receipts

Marek Dubovec & Adalberto Elias

Abstract

This article fleshes out a proposal made during the Fourth International Secured Transactions
Colloquium, held in March 2017, for 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
warehousing of goods, and agricultural commodities in particular. It describes the recent efforts
to create a model framework for warehouse receipts and provide 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. Furthermore, the article analyzes 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


Marek Dubovec is the Executive Director of the National Law Center for Inter -American Free Trade
(NatLaw), and its delegate to UNCITRAL Working Group VI.
Adalberto Elias is a Supervising Research Attorney at NatLaw where, since 2015, he has led the
legislative reform project in Mexico on electronic warehouse receipts.
1
Jason Donaldson, Giorgia Piacentino & Anjan Thakor, ‘Warehouse Banking’ (2016) Washington
University in St. Louis Working Paper, 1 < https://apps.olin.wustl.edu/workingpapers/pdf/2016-06-
009.pdf > accessed 26 June 2017.
2
Warehouses (and warehouse receipts) continued to play an important role in the developmen t of banking.

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 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 U.S. states in 1906. 5 Much of this legislation remains in place to
day. Lacking warehouse receipts legislation, many soviet 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 may 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 that has
warehousing infrastructure that supports two commodity exchanges for the trading of
warehouse receipts exchanges i.e., 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 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.

In 17th century Japan, rice storage facilities began the practice of fractional reserve banking.
Additionally, in 18th century Virginia, tobacco warehouses were instrumental in the creation of banking
and payments, where warehouse receipts were ultimately made legal tender. See Donaldson (n 2) citing
Sydney Crawcour, ‘The Development of a Credit System in Seventeenth-Century Japan’ (1961) 21
Journal of Economic History 342; see also Donaldson (n 2) 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 13th Century BC. See Nicholas Budd, ‘The Use of Warehouse Receipts to Assure Title, Control, and
Value of Commodity Collateral’ (October 1998) < http://slideplayer.com/slide/6854954/ > accessed 26
June 2017.
4
Código de Comercio [Commerce Code], DOF 07/10 – 13/12 de 1889, arts 340-357 <
http://www.diputados.gob.mx/LeyesBiblio/ref/ccom/CCom_orig_07oct-13dic1889_ima.zip > 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 <
http://www.jstor.org.ezproxy1.library.arizona.edu/stable/pdf/3477727.pdf?refreqid=excelsior%3Aa05e89
eb42b182e3b101cbdb4dfab740 > accessed 12 June 2017.
6
FAO Investment Center, The use of warehouse receipt finance in agriculture in transition countries,
Working Paper, 7 (2009). [hereinafter “FAO Working Paper”]
7
Ibid 37.
8
For instance, in Africa: Ghana (2011), Guinea-Bissau (2014), Cote d’Ivoire (2013), Senegal (2014),
Etiopia (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) < http://mwnation.com/malawi-moves-enact-warehouse-receipt-bill/ > accessed 26
June 2017; AHCX, ‘Warehouse Receipt Financing’ (AHCX) < http://www.ahcxmalawi.com/warehouse-
receipt-financing/ > accessed 26 June 2017.
12
See Section IV of this paper.

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 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 Food and
Agriculture Organization (“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.

A. 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 (i.e., 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

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 Center, ‘Designing warehouse receipt legislation: Regulatory options and recent
trends’, Working Paper, ix (2015).
17
Ibid x.

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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 warehouses 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.
Field warehousing is a variant of public warehousing. 22 In field warehousing, a warehouse
operator obtains temporary control of the facilities of the depositor, usually leasing them for a
nominal fee.23 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. 24 Compared to public warehousing,
field warehousing is considered to be more flexible and adaptable to the needs of borrowers. 25 It
is also considered to be a suitable device for short term financing of inventory. 26 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 UCC 9 and collateral

18
Superintendencia Financiera de Colombia,
<https://www.superfinanciera.gov.co/jsp/loader.jsf?l Servicio=Publicaciones&lTipo=publicaciones&lFun
cion=loadContenidoPublicacion&id=11261&dPrint=1 > accessed 26 June 2017; Law No. 18690 (1988),
art 3 (Chile) < http://www.leychile.cl/Navegar?idNorma=30072 > accessed 26 June 2017;
Superintendencia del Sistema Financiero de El Salvador < http://www.ssf.gob.sv/index.php/temas/201-
educacion-financiera/618-flujo-en-los-almacenes-de-deposito > accessed 26 June 2017; Ley General de
Organizaciones y Actividades Auxiliares del Crédito [LGOAAC] [General Law of Orgniazations and
Activites Related to Credit], as amended, art 17, 10 de enero de 1985 (Mex.) <
http://www.diputados.gob.mx/LeyesBiblio/pdf/139.pdf > accessed 26 June 2017; Law No 215/70, art 7
(Paraguay) < http://www.cej.org.py/games/Leyes_por_Materia_juridica/BANCARIA/LEY%20215.pdf
> accessed 26 June 2017.
19
Designing warehouse receipt legislation: Regulatory options and recent trends (n 16) 56-152.
20
Ibid 30.
21
World Bank, ‘Potential and Constraints of Using Warehouse Receipts Financing in Cambodia ’ (2014)
Technical Working Paper 98881, 48 <
https://openknowledge.worldbank.org/bitstream/handle/10986/22510/Cambodia000Fin0e0receipts0finan
cing.pdf?sequence=1&isAllowed=y > accessed 26 June 2017.
22
Tibor Tajti (Thaythy), ‘The Resurrection of Field Warehousing’, Acta Juridica Hungarica 55, No 3, 191
(2014).
23
World Bank, A Guide to Warehouse Receipt Financing Reform: Legislative Reform (World Bank,
Washington 2016) 14; International Finance Corporation (n 13) xii.
24
Nicholas Budd, ‘Field Warehousing: A Security for Developing Countries and the New Market
Economies’ (March 1995) International Business Lawyer 120.
25
The Resurrection of Field Warehousing (n 22) 191.
26
Ibid.

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management practices, it is only sparingly utilized in the United States. 27Implementation 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).28 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.29 In
the same year, 56% of the total warehouse receipts issued in Mexico were backed by goods stored
in field warehouses.30 Field warehousing is a particularly common practice when dealing with
sophisticated depositors.31 For instance, in 2013, 90% of “warrants” (i.e., negotiable warehouse
receipts) issued by the largest licensed warehouse in Paraguay were backed by agricultural
commodities stored in field warehouses owned by large companies. 32
Under collateral management agreements (CMAs), companies that specialize in managing
collateral operate either their own or a third party’s goods storage facility. 33 This type of operation
is prevalent in countries with insufficient warehousing infrastructure and with an inadequate or
inexistent warehouse receipt legal framework.34 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.35 Collateral management agreements only involve non-negotiable
warehouse receipts.36 The fee structure of CMAs is prohibitive for most SMEs.37 Another similar
contractual agreement for the monitoring and management of collateral is a stock monitoring
agreement (SMA). Under an SMA, an inspection entity provides periodic monitoring of inventory
levels and (usually) quality of commodities.38 However, unlike a CMA, in a SMA the inspection
27
Budd (n 24) 121.
28
Ley No. 734 (Nicaragua) art 58 <
http://www.bcn.gob.ni/banco/legislacion/documentos/leyes_financieras/Ley_734_Almacenes_Generales
_Depositos.pdf > accessed 26 June 2017; Ley General de Organizaciones y Actividades Auxiliares Del
Crédito (Mexico) art 16 < http://www.diputados.gob.mx/LeyesBiblio/pdf/139.pdf > accessed 26 June
2017; Decreto No. 1746 (Guatemala) art 5
https://www.banguat.gob.gt/leyes/2013/ley_almacenes_generales_deposito.pdf > accessed 26 June 2017;
Resolución SBS No. 040-2002 (Peru) art 3(c) < https://www.depsa.com.pe/legislacion/regalmgendep.pdf
> accessed 26 June 2017.
29
Presentation by Lic. José Luis Luz Lara, National Banking and Securities Commission (CNBV)
imparted at the seminary ‘Warehouses and the Financial Reform’, hosted by the Mexican Warehouse
Association (June 3-5, 2015). Mr. Luz’s presentation was entitled ‘Disposiciones de Carácter General
para Almacenes Generales de Depósito 2015’. (on file with authors).
30
Ibid.
31
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 <
http://www.agrifinfacility.org/sites/agrifinfacility.org/files/lhinch/50/Sebastien%20Lahaie.pdf ;
https://www.youtube.com/watch?v=2rAr_pFKeS8 > accessed 6 June 2017.
32
Ibid.
33
A Guide to Warehouse Receipt Financing Reform: Legislative Reform (n 23) 14.
34
International Finance Corporation (n 13) 42.
35
Ibid.
36
Ibid.
37
Ibid 2.
38
Ibid xii.

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entity does not exercise any control over the commodities, nor does it guarantee their continued
presence or quality. 39 SMAs are less expensive than CMAs, but provide a lower level of security. 40
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 manufacturing, wholesale, or retail, and the warehouse is operated as part of its overall
business. 41 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.42 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.

B. 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.43 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 defenses that could
have been raised by the original obligor (i.e., warehouse). Non-negotiable warehouse receipts, on
the other hand, can only be transferred by assignment. The raison d'être of non-negotiable
warehouse receipts is the protection of warehouses and secured creditors against fraud (e.g. a
person attempting to claim delivery with a fraudulent warehouse receipt).44 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.45
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

39
Ibid xii.
40
Ibid 42
41
FAO Guide (n 6) 17.
42
Ibid 7; see also A Guide to Warehouse Receipt Financing Reform: Legislative Reform (n 23) 14.
43
It should be noted that some jurisdictions restrict the issuance of electronic warehouse receipts to a
closed list of dry agricultural commodities.
44
FAO Guide (n 6) p. 26. Consequently, an electronic warehouse receipt obviates the need for non -
negotiable documents because forgery is highly unlikely in an electronic environment.
45
Ibid.

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goods.46 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. 47 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” (i.e., 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.48 Acknowledging this, some civil-law jurisdictions with a two-document system now
do not allow the circulation pledge bonds for certain transactions in public-exchange markets (e.g.
Colombia),49 or are in the process of completely eliminating the pledge bond (e.g. Mexico).50 It
should be noted that there are already civil-law jurisdictions with a single document warehouse
receipt system. 51 In addition, a single document system is already in place in countries like
46
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 The 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).
47
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.).
48
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 <
http://www.ea.bg.ac.rs/images/Arhiva/2016/Broj%203/4%20EP%203%202016lq.pdf > accessed 27 June
2017.
49
“…certificates 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) < http://www.bolsamercantil.com.co/wp-
content/uploads/2015/04/Reglamento-BMC-3.pdf. > accessed 27 June 2017.
50
See Section IV of this article.
51
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 <

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Colombia and Mexico for other types of documents of title, such as bills of lading. 52 This form of
regulation of bills of lading is a common trait of civil-law jurisdictions.

C. From Paper to Electronic

The UNCITRAL instruments and some domestic laws governing negotiable documents (e.g. the
U.S. Uniform Commercial Code Article 7) or security rights in negotiable documents (e.g. 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.53 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 frauds are the duplication of paper
warehouse receipts, which are then pledged with multiple financial institutions, and the issuance
of receipts representing non-existing quantities of commodities. 54 This constitutes one of the
arguments supporting the transition to EWR systems. 55 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) 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) effective enforcement of security rights.56

http://www.sbs.gob.ec/medios/PORTALDOCS/downloads/normativa/ley_almacenenes_generales_deposi
to.pdf. > 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) <
https://www.gacetaoficial.gob.pa/gacetas/14328_1961.pdf > accessed 27 June 2017.
52
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 Operacioens de Credito [General Law of Securities and Credit Operations],
first sentence of art 334(VI).
53
Gabriel (n 9) 372.
54
See Melanie Burton, ‘Two Years after Qingdao Scandal, LME Bets on Electronic Tracking of Metal ’
Reuters (Melbourne, 1 June 2016) < http://www.reuters.com/article/us-china-metals-lme-
idUSKCN0YN5F3 > 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) < http://archivo.eluniversal.com.mx/columnas/88894.html > accessed 27 June 2017
(Fraud in Mexico to the tune of USD$144 million – exchange rate at the time the article was written –
involving the duplication of warehouse receipts); “Electronic system is safer because public warehouse
will be allowed to issue warehouse receipts up to the licensed capacity (electronic system will stop
issuing the warehouse receipt for any quantity over the licensed capacity). ” Kovačević (n 48) 805.
55
Adalberto Elias, ‘Recent Electronic Warehouse Receipts Developments in Mexico’ (2016) 33 Arizona
Journal of International and Comparative Law 199. See also Burton (n 54); LMEshield - Secure and
Effective Commodity Receipting (LME) < http://www.lme.com/en-gb/trading/venues-and-
systems/systems/lmeshield/ > accessed 27 June 2017.
56
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.

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 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. 57
Ethiopia58 and Malawi59 are two African nations that operate such exchanges. 60 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 delivery of EWRs. 61 EWRs are issued by
warehouses themselves62 (licensed by the exchange — Malawi) or by a central depository using
information communicated by warehouses (owned by the exchange — Ethiopia).63

II. Efforts to Create a Model Framework

Several international organizations have analyzed 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 (the “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 mo del 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”
(“Guide”). 64 The Guide’s main goal is to be “the baseline for WRS legislative reform for
developing countries.” 65 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. 66 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 war ehouses; iii) clear and simple
procedures for transfer of warehouse receipts; iv) creation of a public registry of warehouse
receipts for transparency; and v) a simple and speedy enforcement process. 67 Under the topic
“Model Law and Content,” the Guide also presents a list of 18 subjects that should be taken
57
See Gabriel (n 9) 372, who noted “…warehouse receipts could serve the important function of providing
the basis for developing market exchanges.”
58
Ethiopia Commodity Exchange < http://www.ecx.com.et/Home.aspx > accessed 27 June 2017.
59
AHCX < http://www.ahcxmalawi.com/ > accessed 27 June 2017.
60
Abenet Bekele Haile and others, ‘Creating Agricultural Markets: How the Ethiopia Commodity
Exchange Connects Farmers and Buyers through Partnership and Technology’ (IFC, April 2017) <
https://www.ifc.org/wps/wcm/connect/8e925b5a-94ff-476c-ba03-
e5fdfb4b9c85/EMCompass+Note+37+Ethiopia+Exchange+FINAL+April+27.pdf?MOD=AJPERES >
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 (i.e.,
coffee) to be made through the ECX platform.
61
Rules of the Ethiopian Commodities Exchange, art 9.5.2.4 (a)(iii) <
http://www.ecx.com.et/downloads/rules/ECXRuleAmharicEnglishFinal3.pdf > accessed 27 June 2017.
62
ACE Warehouse Receipt System Rules and Regulations, rule x.
63
Rules of the Ethiopian Commodities Exchange (n 61) arts 9.1.6., 9.1.7, and 9.2.1.
64
A Guide to Warehouse Receipt Financing Reform: Legislative Reform (n 23).
65
Ibid. iii.
66
Ibid 52.
67
Ibid 57-58.

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into consideration by a new warehouse receipt legal regime. 68 These subjects are: i)
Administration; ii) Fees and Penalties; iii) suspension and Revocation of licenses; iv)
Dispute Resolution and Arbitration; v) Title of 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. 69
Equally, in 2015, the FAO published a working paper entitled “Designing Warehouse
Receipt Legislation: Regulatory Options and Recent Trends” (“FAO Publication”). 70 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. 71 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. 72 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. 73 In addition, the FAO considers that there are ten 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 released of stored goods; ix) execution and priority of obligations; and x)
offenses and penalties. 74
Furthermore, in 2016, the OAS adopted its “Principles for Electronic Warehouse
Receipts for Agricultural Products” (“OAS Principles”). 75 The purpose of the OAS
Principles is twofold: first, to underscore the importance of warehouse legislation reform to
OAS Member States;76 and second, to promote development in the area of warehouse
receipts without precluding future work on modern legislation for EWRs. 77 The OAS
Principles are limited to storage of agricultural products and do not preclude the issuance of
warehouse receipts in their classical dual nature (i.e. the use of a pledge bond to create a
security right).

68
Ibid.
69
Ibid.
70
Designing warehouse receipt legislation: Regulatory options and recent trends (n 16).
71
Ibid vii.
72
Ibid.
73
Ibid 1.
74
Ibid 14.
75
OAS Inter-American Juridical Report, ‘Electronic Warehouse Receipts for Agricultural Products’ (OAS,
27 September 2016) < http://www.oas.org/en/sla/iajc/docs/CJI-doc_505-16_rev2.pdf > accessed 27 June
2017.
76
Ibid 2.
77
Ibid.

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III. 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 UNCITRAL Model Law on Secured Transactions (2016) (“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:
(a) which documents are negotiable; (b) who may issue warehouse receipts; (c) rights and
duties of parties to a warehouse receipt; and (d) rights of buyers of warehouse receipts and
products covered by them. Many economies, especially those characterized as developing
economies, lack any warehouse receipt legislation or have outdated legislation.
Both the Model Law and the UNCITRAL Legislative Guide on Secured Transactions
(2007) (“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 a s discouraging
the use of electronic equivalents of paper negotiable documents.” 78
Under the UNCITRAL secured transactions texts, a security right in negotiable
instruments or negotiable documents can only be made effective against third parties by
registration 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.” 79 No such “special” rules are provided in the Model Law or the Secured
Transactions Guide. The Model Law on Electronic Transferable Records provides a general
framework for the issuance and transfer of electronic records, including EWRs. 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.

78
UNCITRAL Legislative Guide on Secured Transactions (United Nations, Vienna 2007) ch
I, para 121.
79
Ibid 459, fn 13.

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IV. Legislative Reforms on Warehouse Receipts

In the last decade, at least 15 warehousing initiatives were active throughout Africa (10), Asia (4),
and Latin America (1). This section will provide an overview of some identified 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 during the next legislative session of Congress (September –
December 2017). 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 financial 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 quarter of 2018.

In Senegal, the IFC sponsored a three-year (2014 -2017) legislative reform project on
warehouse receipts.80 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 (i.e., inspections, grading, and commodity standards)
and capacity building.81 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.82

In Indonesia, the IFC sponsored the introduction and implementation of a formalized

warehouse receipt system. 83 The law governing warehouse receipts was enacted in 2006 and was
later amended in 2011.84 During the period of 2009-2013, a total of 98 warehouses were built in
Indonesia. 85

Other donor-funded projects have focused mainly on the development of physical

warehousing infrastructure. For instance, from 2011 – 2017, the World Bank supported a US$50
million project in the Republic of Benin, with the objective of restoring and improving

80
Organisation for Economic Co-operation and Development, ‘2017 Aid for Trade - Case Story Template’
(OECD, 2017) < https://www.oecd.org/aidfortrade/casestories/casestories-2017/CS-104-World-Bank-
Group-Senegal-Warehouse-Receipts-Financing-Reform-Initiative.pdf > accessed 23 June 2017.
81
Ibid 2.
82
Ibid.
83
Designing warehouse receipt legislation: Regulatory options and recent trends (n 16) 90.
84
Ibid.
85
Rahayu Fery Anitasari, ‘The Developments of Warehouse Receipt System And Obstacles Faced’,
International Journal of Business, Economics and Law, Vol. 6, Issue 4, 105 (April 2015)

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“productivity and value addition for selected value chains.”86 Under this project, 25 warehouses
were constructed to support the bulk marketing of cashew nuts.87

V. 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. 88 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 organization as well
as the UNCITRAL Secretariat have clearly identified the elements of a model warehouse receipts
law, including both commercial and regulatory rules. 89 Such a model law would govern the rights
and duties of warehouse operators and the parties affected by their activities (e.g. secured creditors,
holders of warehouse receipts, and buyers of goods stored in warehouses).90 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

86
World Bank, ‘Benin - Agricultural Productivity and Diversification Project: Project Appraisal
Document’ (World Bank, 24 February 2010) <
http://documents.worldbank.org/curated/en/690591468200934160/Benin -Agricultural-Productivity-and-
Diversification-Project > accessed 27 June 2017; see also World Bank, ‘Benin - Agricultural
Productivity and Diversification Project: Additional Financing Data Sheet’ (World Bank, 24 March 2017)
26 < http://documents.worldbank.org/curated/en/745621492394455915/pdf/BENIN-PAD-03282017.pdf
> accessed 27 June 2017.
87
Ibid.
88
Drew L. Kershen, ‘Warehouse Receipts in the United States Law – Summary for the Pacific Rim’ (2016)
33 Arizona Journal of International & Comparative Law 179.
89
UNCITRAL Secretariat, ‘Possible Future Legislative Work on Security Interests and Related Topics’
A/CN.9/913, 13 (20 April 2017).
90
See further Nicholas Budd, ‘Untying the Gordian Knot: Farmers, Banks, Insurers, Warehouse Receipts,
Commodity Exchanges, Collateral Managers, and Access to Credit’ in Frederique Dahan, Research
Handbook on Secured Financing in Commercial Transactions (Edward Elgar, Cheltenham 2015) 167.

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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.

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