Making trade more efficient with blockchain

International trade is of critical importance for economic and social development worldwide. A major cost of global trade is the regulatory requirement of submitting large volumes of information to governmental authorities to comply with import, export, and transit-related documents and certificates.

Trade Single Windows are flagship initiatives that reduce these administrative processes, allowing to submit standardized information at a single entry point. However, pain points and challenges including lack of interoperability among agencies, the persistence of outdated processes, and limited visibility and traceability of shipped goods, are preventing to unleash single windows´ full potential.

With the rise of technologies such as the internet of things and artificial intelligence, new opportunities to improve efficiency, transparency, and interoperability in the trade ecosystem are emerging.

In this context, the Integration and Trade Sector of the Inter-American Development Bank (IDB) and the Centre for the Fourth Industrial Revolution (C4IR) of the World Economic Forum (WEF) partnered in 2018 to develop a unique initiative, the Global Trade Single Window with Blockchain Project, as part of the WEF’s TradeTech Initiative.

We first agreed to work in the design of a policy framework to support governments across the world explore the potential value added of blockchain in single windows, while understanding the experimental nature surrounding this technology. The report, Windows of Opportunity: Facilitating Trade with Blockchain Technology, found that blockchain could help lower barriers to trade. And it will now facilitate governments to make informed decisions about how to operationalize this technology, encouraging the development of pilot projects.

A collaborative work

To drive the project and develop the framework, a team of trade, customs, and technology specialists from the IDB and the C4IR -and its Digital Trade Team- has worked both remotely and through live meetings in Washington, San Francisco, and Buenos Aires. Leveraging each other’s networks, we also built an expert community of over 80 members globally across various industry sectors, government agencies, intergovernmental organizations, academic institutions, and civil society.

Single Windows pain points

While they have delivered significant gains over time, single windows have yet to be fully implemented in many countries due to these and other challenges we have identified:

• Limited interoperability. Duplicates efforts, adds delays and increases lack of end-to-end visibility with the subsequent time and costs for companies to engage in trade.
• Persistence of paper and lack of automation. Creates inefficiencies in making and reconciling databases and customs duty and fee payments.
• Limited traceability of goods in supply chains. Impedes agencies’ ability to verify the origin of goods, trace goods in supply chains, and detect anomalies and fraudulent patterns.
• Concerns about data trustworthiness and security of commercial and financial data by companies, making them reluctant to use single windows.

Blockchain use cases

Blockchain could be a particularly useful solution, along with further complementary technologies and policy measures, to address some of the mentioned pain points. It can help stakeholders interoperate by enabling them to access the same data at the same time; smart contracts built on a blockchain can automate stakeholders’ compliance with various contractual obligations; and data on a blockchain are a stream of reliable information on past transactions, as they are immutable once entered. At the same time, the report considers the limitation of blockchain technology, and the challenges of analyzing blockchain’s potential in single windows.

Several potential use cases were identified through the design process. Interoperability among two or more national single windows and among border agencies within a country drew most interest by the expert community.

We found that blockchain has the potential to lower trade time and costs by helping to:

• Increase interoperability: Improve visibility to manage risks, recognize patterns, conduct pre-arrival processing, share data and improve user experience.
• Increase traceability: Enable more complete data on shipments, supply chains, and audit trails by bringing together single windows and/or private sector trade intermediaries on a common blockchain.
• Automate processes: Automate payments and reconciliation to accelerate revenue collection.
• Increase the trustworthiness of data: Make data immutable and provide single-window users with unique identities, enabling them to apportion relevant parts of their identities to third-party service providers.

Guidelines for using blockchain in single windows

To achieve these benefits, the report presents six key steps for using blockchain into single windows:

1. Create a grand vision and make the business case, ensuring high-level political support.
2. Create a governance structure, including for data, design, and implementation.
3. Build the technology architecture and integrate blockchain with existing systems.
4. Manage user identities and data, testing single, interoperable identity for single window users.
5. Measure impact developing and tracking Key Performance Indicators of single windows powered by blockchain and report on the progress and results.
6. Iterate the pilot considering ways to improve and scale it.

Next steps

We have found that blockchain has the potential to solve various pain points facing single windows and bring new efficiencies and capabilities to border agencies. However, benefits will critically hinge on the rigor of its implementation.

This framework aims to pave the way for blockchain pilots around the world. The IDB will soon be working to implement proof of concepts with governments in Latin America and the Caribbean (LAC). One objective is to build LAC governments’ capacity to understand and apply new technologies on border clearance and share lessons learned.

The IDB and WEF also look to work on further technologies in border clearance, to reap the immense and still largely latent economic gains from facilitating world trade.