Updated June 25, 2019
Blockchain and International Trade
Innovations in technology have the potential to enable and
specific conditions are met, such as receipt of a delivery,
disrupt international commerce (e.g., online shopping and
without requiring manual intervention. These platforms
drone delivery services). Along with emerging technologies
may also open up new markets, including in developing
such as artificial intelligence and the Internet of Things,
countries where trade finance is not as readily available.
blockchain may change the conduct of international trade,
Logistics and Supply Chain Management
including how it is financed, how companies manage
A company may use a closed blockchain to manage supply
supply chains, and how border officials vet imports.
chains within a company. The company may use a separate
Congress may face questions about the potential benefits
blockchain to manage outside vendors and suppliers with
and risks of this new technology and whether, or how,
permissions set according to a user’s role. “Permissionless”
blockchain should be regulated.
blockchains, in contrast, are open to any user.
What Is Blockchain?
By improving workflow efficiency and visibility,
Blockchain is a distributed record-keeping system (each
blockchain enables companies to better track goods,
user can keep a copy of the records) that uses encryption to
including inputs, intermediate goods, and finished products.
provide for auditable transactions. Using blockchain, each
A blockchain platform can also include associated
transaction is traceable to a user, each set of transactions is
documentation, like certifications, provenance, and
verifiable, and the data in the blockchain cannot be edited
without user’s knowledge
payment information as products move through a complex
. These blockchain features allow
global supply chain, with greater fidelity than with current
two or more parties without a trusted relationship to engage
technologies. With blockchain, participants in the supply
in reliable transactions without relying on intermediaries or
chain, from the smallest vendor to the end consumer, can
central authority (e.g., a bank or government).
track and verify specific goods.
Blockchain technology could potentially yield time and cost
Tracking Conflict Diamonds
savings in tracking business transactions. It has the
potential to simplify business processes, reduce transaction
To reduce theft and counterfeiting, Everledger built a blockchain
costs, and allow companies to compete more efficiently.
platform to track and trace individual diamonds as they move
Some governments are similarly seeking to use blockchain.
along the supply chain according to the Kimberley Process
International Trade Uses
Certification Scheme for conflict-free diamonds. Blockchain
partners include insurers, financial institutions, and diamond
Finance
certification houses that are each able to track a diamond over
Blockchain has many potential financial applications. For
its lifetime. The blockchain (shared ledger) operates according to
example, blockchain is the technology underlying Bitcoin
rules set by smart contracts, and regulators gain visibility into
and other cryptocurrencies that can be used to make
and provide oversight of the entire supply chain.
payments without banks or other third-party intermediaries.
While cryptocurrencies potentially could create a more
efficient payment system, they involve risks (there have
To monitor the quality of the goods, such as perishable
been instances of compromised exchanges) and security
agricultural shipments, a blockchain could include data
concerns. Certain federal agencies have claimed regulatory
gathered by devices such as an embedded sensor in a
authority over aspects of the cryptocurrency industry, but
shipping container to track location, and another sensor to
the patchwork regulatory regime involving multiple
ensure that a good is not tampered with or to monitor a
agencies at times creates regulatory ambiguity.
shipment’s temperature. Being able to track individual
shipments could facilitate a recall, if needed, or could help
Traditional financial services firms are also experimenting
authorities identify where along a supply chain a product
with blockchain technology. For example, Fidelity’s new
was potentially tampered with or where adulteration
digital assets division will provide custodial services for
occurred, but would not preempt the malicious action.
cryptocurrency trading. By using blockchain technology,
banks could settle cross-border transactions in seconds,
For example, the Walmart Food Traceability Initiative,
rather than days, with fewer steps and less complexity.
launched in September 2018, tracks the firm’s supply of
fresh leafy greens. Walmart aims to increase consumer trust
Multiple banks have developed trade finance pilots using
and food safety for a product that has been the subject of
blockchain platforms. For example, 14 European banks
multiple U.S. foodborne illness outbreaks. The company
built a trade finance platform to offer services to enable
plans to expand its blockchain efforts to other food products
international trade by small and medium enterprises
sourced both domestically and internationally. Walmart is
(SMEs). These blockchain-based platforms may include
part of an industry consortium seeking to align the
smart contracts that automatically execute according to a set
blockchain infrastructure (e.g., establishing common data
of business rules. The SMEs, shippers, and other firms in
elements), to create scalability for suppliers such as small
the blockchain would be able to track individual orders and
farmers distributing products to multiple companies.
use smart contracts to trigger payments automatically when
https://crsreports.congress.gov
Blockchain and International Trade
Selected Policy Issues
Examples/Goals of Blockchain Uses
The growth in blockchain applications related to
Supply chain management
international trade raises multiple issues of interest to
Quality control and efficiency
Congress, including trade barriers for cross-border data
flows, international standards, privacy and security
Product or shipment tracing
concerns, and regulatory implications. In a letter to the
Fraud or tampering detection
Administration, several Blockchain Caucus Members
Smart contracts (self-executing)
encouraged building a national blockchain vision even as
Finance
some states move forward with their own policies.
Cross-Border Data Flows
Payments, settlement, and clearance
Data localization requirements limiting the ability to move
Trade finance letters of credit and insurance
data across national lines can pose significant barriers for
Real estate title transactions and registries
the success and growth of blockchain use in international
Royalty payment for creative work distribution
trade. Cross-border data flows are needed to share and store
blockchain data with global partners. Mandates to store data
Regulators
within a country’s borders or otherwise limit cross-border
Oversight of supply chain
data flows could limit the application of blockchain.
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
Customs and Border Control
flows. Obligations in the proposed United States-Mexico-
Canada Agreement (USMCA) enable nondiscriminatory
Keeping supply chain information together in a blockchain
data flows, protect encryption, and support development of
assists with tracking and compliance with regulatory
privacy regimes. USMCA provisions on a single-access
reporting requirements. Authorities can review a blockchain
window system to enable electronic submission and
record that contains information about ownership,
transparency procedures support the use of blockchain for
provenance, authenticity, and price of goods. With the data
global supply chains. Ongoing WTO negotiations on e-
in the blockchain, regulators can evaluate risk, target, and
commerce provide a forum for these issues.
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, have 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
Some see a potential for blockchain to facilitate trade flows,
operating a separate blockchain.
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-setting processes, global
payment of any fees before a shipment reaches the border.
standards cooperation, and encouraging the use of
According to some observers, blockchain can help countries
international and interoperable standards. The WTO, G-20,
implement the World Trade Organization (WTO) Trade
and similar forums present opportunities to establish
Facilitation Agreement (TFA) that entered into force in
international guidelines for interoperability and data
February 2017, including its provisions on transparency; the
governance structures. Capacity building under TFA could
use of automated rather than paper-based systems; and the
help developing countries build policies for the free flow of
establishment of a single portal for traders to submit
data to enable blockchain, while safeguarding information.
documentation and other data requirements. Some port
Regulatory Oversight
authorities are testing blockchain for managing cargo flows.
Congress may conduct oversight or hold hearings on
U.S. Department of Homeland Security (DHS) Customs
regulatory uses of blockchain for increasing the efficiency
and Border Protection (CBP) is considering several options
and security of customs and border control, food and
for applying blockchain, including for international trade
product safety supply chain traceability, or other
documentation processing and as an alternative to paper-
applications. Congress may also conduct oversight to
based official records. One CBP blockchain effort aims to
review how regulatory agencies are applying existing laws
protect intellectual property rights and facilitate trade by
and regulations to blockchain or to study how other
tracking and authenticating licenses, while another project
countries are applying and regulating the use of the
tracks oil through the pipeline to ensure it qualifies for free
technology. Congress may review existing legislation to
trade agreement preferences. DHS is also testing ways to
identify barriers to the technology, such as statutory
better secure U.S. borders by piloting programs to store
requirements for paper documentation.
data from cameras and other sensors using blockchain
technology to maintain data integrity even if devices
Rachel F. Fefer, Analyst in International Trade and
become physically damaged.
Finance
IF10810
https://crsreports.congress.gov
Blockchain and International Trade
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https://crsreports.congress.gov | IF10810 · VERSION 4 · UPDATED