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UN/CEFACT whitepaper on Blockchain for trade facilitation open for comments until 21 July

How could blockchain technology be used to facilitate trade? What do government decision-makers who deal with information technology need to be aware of? And how could UNECE contribute to the development of this technology as a trade facilitation tool? 

UNECE’s United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT) is at the forefront of these discussions and needs your input for the development of a new whitepaper.

The international supply chain can be characterised as a set of three flows - of goods, funds and data.  Goods flow from exporter to importer in return for funds that flow in the reverse direction. The flow of goods and funds is supported by a bidirectional flow of data such as invoices, shipping notices, bills of lading, certificates of origin and import/export declarations lodged with regulatory authorities.

At the same time, an essential requirement for each of these flows is trust. Where there is no trust at all, there will be no flow of goods, funds and related data.

Establishing the minimum level of trustworthiness for carrying out trade can be done in a number of ways. Traditionally, this was done through personal knowledge and relationships with a trading partner – and this is still the case today, under specific circumstances. At the same time, over the last century, larger urban environments with vast populations, increased international trade and e-commerce have made it more and more difficult to base trade on personal relationships. As a result, personal trust has been gradually replaced with the use of trusted intermediaries and legal guarantees (enforced by state-sponsored intermediaries) who we could call “guarantors of trust”. Each of these guarantors of trust must make a living and so their “trust services” have a cost, and each international trade transaction uses multiple guarantors, ranging from banks to insurance companies to notaries and certification bodies.

Reducing the delays and costs created by the use of trust services has been one of the focuses of trade facilitation which seeks to increase the transparency and efficiency of international trade processes. At the same time, business, legal and other constraints have limited the ability of trade facilitation measures to reduce the costs and delays created by trust services.

Today, an innovative technology called “blockchain”, or Digital Ledger Technology (DLT), has the potential to provide the trustworthiness that traders need, at a much lower cost and using fewer trust guarantors.

Blockchain is best known as the technology underlying Bitcoin. It allows the sellers and purchasers of bitcoins to be sure that their bitcoins are “originals” (i.e. are not copies) and are spent only once, their ownership being passed from the purchaser to the seller after a transaction.

This ability of blockchain technology to create electronic “originals” can be used for more than creating original “coins”, it can also be used to “notarize” any electronic document or agreement (with a time stamp and a “guarantee” that no changes have been made since that time). As a result, it can be used to create original electronic documents such as contracts, certificates, licenses, etc. 

In its Bitcoin application, blockchain also creates a record, going back to the creation of a bitcoin, of every transaction that a bitcoin has been used in (that is how it knows who owns the bitcoin). Because of the use of cryptography, the bitcoin network does not know the identities of the participants in these transactions, but it knows they took place and when.

This same property, depending upon the design of an individual blockchain and associated applications, can be used to automatically create audit trails, even for complex, multi-party, multi-location transactions which are spread out over time. This possibility is already being tested for tracking and tracing the origin of various food products such as meat, wine, coffee and coconuts. In a few years, it may be commonplace to be able to identify which farm in Colombia or Ethiopia your coffee came from.

Others are looking at how to use one or both of these functionalities in order to support a range of other trade processes including the creation of “original” electronic trade documents and their transfer (for example, bills of lading); the submission and registration of documents for letters of credit; as well as a wide range of areas linked to the prevention of fraud (for example preventing the use of fraudulent test certificates or export licences).

UNECE’s United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT), which has played a fundamentally important role in the development, promotion and implementation of trade facilitation, is following these developments closely and working to help governments understand and use their potential.

As part of this work, UN/CEFACT is developing two white papers to address the following questions:

  1. What is the impact on existing UN/CEFACT electronic business standards and what gaps could be usefully addressed by new UN/CEFACT specifications?
  2. What opportunities do these technologies present for improving e-business, trade facilitation and the international supply chain?

The draft of the first whitepaper on standards work under UN/CEFACT is available for public comment until 21 July 2018, at the following address: https://uncefact.unece.org/display/uncefactpublicreview/Public+Review%3A+Blockchain+Whitepaper.

The UN/CEFACT secretariat strongly encourages countries to review and comment on this document before the deadline. All comments which are officially submitted will be reviewed and considered for the final version.  

The second whitepaper on the opportunities for trade facilitation and e-commerce will be available for comment this autumn.