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How can the EU harness blockchain for a forward-looking trade policy?

Submitted by on 07 Jan 2019 – 12:55

Emma McClarkin, rapporteur on Blockchain in the European Parliament’s International Trade committee writes about her own initiative report.

There is little doubt that blockchain is the buzzword of 2018. From the bitcoin bubble to the proliferation of new blockchain applications, politics and industry are abuzz with the hype that blockchain will be the next transformative wave of the digital revolution.

This is indeed an incredibly exciting field, within which innovations are emerging on a daily basis.To this end, I am encouraged to see my fellow members of the European Parliament are quite rightly becoming increasingly aware of blockchain’s widespread potential beyond cryptocurrencies.

As the rapporteur on my Own Initiative report on “Blockchain: A forward looking trade policy” in the European Parliament’s Committee on International Trade, I hope to continue to raise much needed awareness about the opportunities and challenges of this emerging technology and expand understanding of how this technology works.

My report has come at the perfect time to explore the uses and applications of blockchain and distributed ledger technologies to international trade. There is tremendous potential for blockchain to revolutionise the way businesses trade and exchange information, goods and ideas.

However, while we are right to extol the opportunities blockchain has to offer, I believe as politicians we must proceed with a rational and laser-like focus on the challenges and current limitations to this technology. Blockchain is not a silver bullet that can solve all the world’s problems and given this, I was careful to focus on specific applications of blockchain to international trade within my report.

For example, my report focuses on the role of permissioned blockchains in international trade, as opposed to permissionless blockchains. Permissioned blockchains are akin to conventional databases, in that the contents of the ledger are only available to selected users through a rules-based control mechanism. It is the extra element of control of users, in addition to the secure level of access on permissioned blockchains, which explains why I believe there is greater scope right now to examine its application to international trade.

My report focuses on several areas in which blockchain has the potential to improve the trading environment, and provide businesses and consumers alike with trading confidence.

First, my report investigates how the EU’s trade policies could be strengthened by incorporating blockchain into its operations. We often discuss the underutilisation of the EU’s Free Trade Agreements, owing to various reasons, although one of which is the complex rules to benefit from preferential access. Blockchain can ease the process for proving origin and compliance and simplifying administrative burdens, thereby boosting exports.

Second, my report focuses on the application of blockchain to external aspects of customs and trade facilitation. Blockchain can improve transparency throughout supply chains, strengthening the certainty of the provenance of goods, upholding consumer protection and improving trust and business stability. Moreover, the reduction of barriers in supply chains through the implementation of blockchain is estimated to boost global trade by up to 15 percent.

There are several exciting pilots within the logistics industry that have already demonstrated the potential of blockchain to reduce transportation costs, make the industry more environmentally-friendly, and boost economic performance overall. For example, IBM have worked extensively on integrating blockchain into supply chains, from collaborating with Walmart and Maersk on reducing tracking times along the supply chain. Within the public sector, the South Korean government has launched a permissioned blockchain platform to facilitate cross-border trade by enhancing collaboration between customs authorities and regulatory agencies.

My report also recognises that SMEs could be one of the greatest beneficiaries of blockchain. The technology could make it significantly easier for SMEs to interact with customs authorities and other businesses along the supply chain, to enable them to internationalise their exports. Blockchain could facilitate peer-to-peer communication and collaboration tools that could significantly ease how SMEs do business.

Despite this abundant potential, there are still a number of challenges to blockchain implementation that will need to be addressed. To this end, my report also investigates the importance of secure data flows for preventing the use of fraudulent documentation and counterfeit goods entering the supply chain. Enabling the free flow of cross-border data is integral to both trade and the blockchain architecture.

Furthermore, my report also recognises the need to further investigate the relationship between blockchain and the implementation of the EU’s General Data Protection Regulation (GDPR). I am positive that blockchain can provide solutions for GDPR implementation, as both initiatives are underpinned by common principles of ensuring secured and self-governed data. Nonetheless, it is essential that the Commission continues to look in to maximising compliance in the design of blockchain systems.

My report also looks at two further challenges to blockchain implementation: interoperability and scalability. The interoperability of different blockchain systems is vital for creating an ecosystem through which supply chains and public bodies can harness the benefits of blockchain.

It is important the EU create an environment for start-ups to design new systems that are compatible with other blockchains and existing digital applications. In addition, the scalability challenges associated with the implementation of blockchain systems, particularly with regard to expanding international trade networks, must be considered as pilot projects start to flourish.

So with the opportunities there to grasp, my report outlines several recommendations to the European Commission. It is essential the Commission build on its existing progress by closely engaging with developments in the area of blockchain, in particular the ongoing pilots implemented in the international supply chain.

The Commission should develop a set of guiding principles tailored to industry to provide a level of certainty and encourage innovation, working closely with stakeholders to address interoperability and scalability challenges. These are just some of the recommendations that need serious consideration.

We must ensure Europe remains a global leader in blockchain, as countries across the world are launching innovative initiatives and pilots daily. This applies not just to the development of regulation and policy, but to the technology itself. The digital technology revolution is here.