Updated May 14, 2018
Blockchain and International Trade
Innovations in technology have the potential to enable and
international soybean shipment for Cargill using a platform
disrupt international commerce (e.g., online shopping and
that allows for repeated transactions between the parties.
drone delivery services). One such technology, called
blockchain, may change the conduct of international trade,
Such blockchain-based trade finance platforms may include
including how it is financed, how companies manage
smart contracts that automatically execute according to a set
supply chains, and how border officials vet imports.
of business rules. For example, seven European banks aim
Congress may face questions about the potential benefits
to create a cross-border finance platform to enable
and risks of this new technology and whether, or how,
international trade by small and medium enterprises
blockchain should be regulated.
(SMEs). The SMEs, shippers, and other firms in the
blockchain would be able to track individual orders and use
What Is Blockchain?
smart contracts to trigger payments automatically when
Blockchain is a distributed record-keeping system (each
specific conditions are met, such as receipt of a delivery,
user can keep a copy of the records) that provides for
without requiring manual intervention.
auditable transactions and secures those transactions with
encryption. Using blockchain, each transaction is traceable
Logistics and Supply Chain Management
to a user, each set of transactions is verifiable, and the data
A company may use a closed blockchain to manage supply
in the blockchain cannot be edited without each user’s
chains within a company. The company may use a separate,
knowledge. Compared to traditional technologies,
open blockchain to manage outside vendors and suppliers
blockchain allows two or more parties without a trusted
with permissions set according to a user’s role.
relationship to engage in reliable transactions without
relying on intermediaries or central authority (e.g., a bank
By improving workflow efficiency and visibility,
or government).
companies likely can better track goods, including inputs,
intermediate goods, and finished products. The blockchain
Blockchain technology could potentially yield time and cost
may include associated documentation, provenance, and
savings in tracking business transactions. It has the
payment information as products move through a complex
potential to simplify business processes, reduce transaction
global supply chain, decreasing the need for paperwork.
costs, and allow companies to compete more efficiently.
Some governments are seeking to use blockchain in similar
ways.
Tracking Conflict Diamonds
International Trade Uses
To reduce theft and counterfeiting, Everledger built a blockchain
platform to track and trace individual diamonds as they move
Finance
along the supply chain according to the Kimberley Process
Blockchain has many potential financial applications. For
Certification Scheme for conflict-free diamonds. Blockchain
example, blockchain is the technology underlying Bitcoin
partners include insurers, financial institutions, and diamond
and other cryptocurrencies that can be used to make
certification houses that are each able to track a diamond over
payments without banks or other third-party intermediaries.
its lifetime. The blockchain (shared ledger) operates according to
However, cryptocurrencies are not completely safe, as their
rules set by smart contracts, and regulators gain visibility into
exchanges have been compromised. Security concerns and
and provide oversight of the entire supply chain.
other issues have led to regulatory actions. In June 2017,
the Securities and Exchange Commission ruled that Initial
With blockchain, participants in the supply chain, from the
Coin Offerings (ICOs) with cryptocurrencies are considered
smallest vendor to the end consumer, can track and verify
securities and thus subject to applicable law and regulation.
specific goods. For example, IBM is working with Walmart
In contrast to the U.S. regulatory approach, China’s ban on
to track importation of pork from China into the United
ICOs led to the closure of some cryptocurrency exchanges.
States using blockchain, and with Maersk to manage and
track shipping containers and their cargo globally.
Traditional financial services firms are experimenting with
blockchain technology on a broad scale. Some observers
To monitor the quality of the goods, such as perishable
estimate that 80% of banks expect to launch blockchain
agricultural shipments, a blockchain could include data
pilots by the end of 2018. For example, by using blockchain
gathered by devices such as an embedded sensor in a
technology, banks could settle cross-border transactions in
shipping container to track location, and another sensor to
seconds, rather than days, with fewer steps and decreased
ensure that a good is not tampered with or to monitor a
complexity. Multiple banks have developed trade finance
shipment’s temperature. Being able to track individual
pilots using blockchain platforms. For example, HSBC
shipments could facilitate a recall, if needed, or could help
processed a letter of credit with ING Bank for an
authorities identify where along a supply chain a product
https://crsreports.congress.gov
Blockchain and International Trade
was potentially tampered with or where adulteration
Selected Policy Issues
occurred, but would not preempt the malicious action.
The growth in blockchain applications related to
international trade raises multiple questions of potential
interest to Congress, including on trade barriers for cross-
Examples/Goals of Blockchain Uses
border data flows, international standards, and potential
Supply chain management:
regulatory implications. Congress may also conduct
Quality control and efficiency
oversight to review how regulatory agencies are applying
existing laws and regulations to blockchain or to study how
Product or shipment tracing
other countries are applying and regulating the use of the
Fraud or tampering detection
technology.
Smart contracts (self-executing)
Finance:
Cross-Border Data Flows
Data localization requirements limiting the ability to move
Payments, settlement, and clearance
data across national lines can pose significant barriers for
Trade finance letters of credit and insurance
the success and growth of blockchain use in international
Real estate title transactions and registries
trade. Cross-border data flows are needed to share and store
Royalty payment for creative work distribution
blockchain data with global partners. Mandates to store data
within a country’s borders or otherwise limit cross-border
Regulators:
data flows could limit the application of blockchain.
Oversight of supply chain
Customs documentation
Under Trade Promotion Authority (TPA), Congress
established a U.S. trade negotiating objective to ensure that
Border enforcement
nondiscrimination principles apply to cross-border data
flows. Language included in the proposed Trans-Pacific
Customs and Border Control
Partnership, from which the United States withdrew in
Keeping supply chain information together in a blockchain
January 2017, would have prohibited localization
assists with tracking and compliance with regulatory
requirements, ensured cross-border data flows, and
reporting requirements. Regulatory authorities can review a
protected source code and encryption technologies.
blockchain that contains information about ownership,
Congress has held hearings on trade barriers to cross-border
provenance, authenticity, and price of goods. With the data
data flows, but not specifically with respect to blockchain.
in the blockchain, regulators can evaluate risk, target, and
track the flows of goods and/or funds. Electronic
International Standards
transmission allows officials to conduct risk assessments in
U.S. trade policy, and the WTO, has historically promoted
advance and speed border clearance. Compared to
the use of international standards to eliminate trade barriers.
traditional database technologies that rely on a central hub,
Public and private consortia and alliances aim to promote
using blockchain could increase speed and security of
interoperability and limit the use of disparate or local
gathering and tracking relevant information while
standards, but current blockchain applications lack global
decreasing costs and reducing fraud through heightened
standards or a common protocol. This may especially be a
transparency.
concern for SMEs that supply multiple companies, each
operating a separate blockchain.
Some see a potential for blockchain to facilitate trade flows,
enabling companies to more easily send—and regulators to
TPA negotiating objectives on regulatory practice include
receive—customs and other documentation as well as
seeking convergence of standards development processes,
payment of any fees before a shipment reaches the border.
global standards cooperation, and encouraging the use of
According to some observers, blockchain can help countries
international and interoperable standards. The European
implement the World Trade Organization (WTO) Trade
Commission has started to analyze blockchain and has set
Facilitation Agreement that entered into force in February
up the European Blockchain Observatory and Forum.
2017, including its provisions on transparency; the use of
automated rather than paper-based systems; and the
Regulatory Oversight
establishment of a single portal for traders to submit
Congress may conduct oversight or hold hearings on
documentation and other data requirements. Some port
regulatory uses of blockchain for increasing the efficiency
authorities, including the Port of Rotterdam, are testing
and security of customs and border control, food and
blockchain for managing cargo flows.
product safety supply chain traceability, or other blockchain
applications. Congress may review existing legislation to
U.S. Department of Homeland Security (DHS) Customs
identify barriers to implementation of blockchain, such as
and Border Protection (CBP) is considering several
statutory requirements for paper documentation that could
different use cases for applying blockchain, including for
potentially be replaced digitally with blockchain
international trade documentation processing and as an
technology.
alternative to paper-based official records. DHS is also
testing ways to better secure U.S. borders by piloting
Rachel F. Fefer, Analyst in International Trade and
programs to store data from cameras and other sensors
Finance
using blockchain technology to maintain data integrity even
IF10810
if devices become physically damaged.
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Blockchain and International Trade
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https://crsreports.congress.gov | IF10810 · VERSION 3 · UPDATED