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How Will Blockchain Impact International Trade?

A decentralized, “trusted” ledger of transactions, blockchain stores transactions in a permanent and near-inalterable way. Here’s how it could help procurement streamline the international supply chains.

Most electronics buyers understand the aches and pains that go along with procuring from international business partners. Not only are the geographic divides wide and deep, but in most cases, there are also cultural barriers to bridge, different regulations to understand and comply with, and myriad other nuances that have to be considered for the buy to go smoothly.

And that’s why, assuming the World Trade Organization (WTO) is on target, blockchain’s impact on international trade could be downright revolutionary—both on the financial side of the transaction and in terms of product traceability across the global supply chain. Citing a recent World Economic Forum report, the WTO says that the removal of barriers due to blockchain could result in more than $1 trillion in new trade in the next decade.

Streamlining the International Supply Chain

A decentralized, distributed record or “ledger” of transactions in which the transactions are stored in a permanent and near-inalterable way using cryptographic techniques, blockchain relies on peer-to-peer networks that no single party can control. Because of this, trading partners who have no particular “trust” in one another can collaborate without having to rely on a single trusted third party.

“Blockchain therefore ensures immediate, across-the-board transparency, and as transactions added to the blockchain are time-stamped and cannot easily be tampered with, blockchain technology allows products and transactions to be traced easily,” international trade expert and WTO senior analyst Emmanuelle Ganne writes in “Can Blockchain revolutionize international trade?”

Ganne points to finance (including trade finance), customs and certification processes, transportation and logistics, insurance, distribution, intellectual property (IP), and government procurement as the areas of greatest potential for blockchain application right now. Here are three different ways it could benefit international trade: 

1. Help trade move closer to a “paperless” nirvana. “From trade finance to customs clearance, transportation, and logistics, trade in goods involves multiple actors and remains paper-intensive,” Ganne writes, noting that many people see blockchain as a tool for improving the efficiency of trade processes and for moving towards paperless trade. “An array of banks working with financial technology (fintech) startups and information technology (IT) companies are investigating the potential of the technology,” she adds. “Pilot projects are encouraging, but a number of technical and regulatory issues need to be addressed before the technology can be used on a wide scale.”

2. Trade finance should get easier (and less expensive). According to Trade Ready, the key benefits of applying blockchain to trade finance include:

  • No exchange rate. If everyone is using cryptocurrency, you’re all dealing in the same currency with the same value, without the constant hassle of monetary exchange.
  • Fast money movement. Cryptocurrency transactions are nearly instantaneous. The transfer itself posts immediately, and it takes only about 10 minutes for payments to be validated in the blockchain.
  • Secured payments. Users need to have the money available upfront, so there’s no chance of payments bouncing or credit transactions being canceled.
  • Lower taxes and fees. Because cryptocurrency is a peer-to-peer monetary system, there are no taxes that govern it, and transaction fees are almost nonexistent.
  • Detailed records. The blockchains created from cryptocurrency transactions create clear, secure records that can be tracked and verified. There’s also talk of tying contracts and shipments to transactions within the blockchain to make business and logistics easier to track.

3. Supply chain data will become more interoperable. Using blockchain, manufacturers, suppliers, distributers, customers, and vendors will all be able to share information and prevent delays along the chain and improve the tracing of products from the manufacturer level all the way to the shelves, Yasaman Kazemi reports in “The New Supply Chain: Four Ways Smart Leaders Can Shake Up Logistics.” She points to the big-box retailer that’s applying blockchain to its lettuce products in order to avoid future supply chain contamination (i.e., the recent E. coli outbreak). “The retailer would not even need to recall all the lettuce on the shelves anymore,” Kazemi writes. “Instead, the only products that would need to be pulled would be those that came from the contaminated source according to the shared blockchain ledger.”

More Than Just Technology

Assessing blockchain’s potential in the supply chain, Ganne says that the technology will only be able to work to its full potential if all aspects of cross-border trade transactions are digitalized—from trade finance to customs, transportation, and logistics—and if the semantics are aligned (i.e., what specific information is communicated by the data elements).

“The transportation and logistics sector, which constitutes a fertile ground for blockchain implementation due to the large number of actors involved,” Ganne writes, “is actively looking into ways to leverage the technology in order to develop trade platforms that could connect all actors along the supply chain, including banks and customs authorities.”

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