If the Electronic Trade Document Bill trade bill is passed this year, digital documents will be recognised under UK law, which could prove pivotal for global trade. Could blockchain hold the key to a painless and secure switchover to a digital-first trade world?
Many people in the trade industry are eagerly awaiting the passing of the Electronic Trade Document Bill, which could pave the way for the mainstream adoption of digital bills of exchange, promissory notes, bills of lading, and warehouse receipts in both the UK and the Commonwealth.
This could mean that from as early as 2023, trade and export companies in the UK and across the former commonwealth can start switching over to electronic forms of generating and keeping records.
As soon as the agreement is ratified, it will kickstart a revolution for an industry that has been dominated by paper and plagued by fraud.
A study conducted by the Stimson Center reveals that distributed ledger technology (DLT), of which blockchain is a subset, can be used to facilitate export control implementation in digital form without compromising data integrity or security.
Improved security and reduced fraud
In the export control and customs space, blockchain technology can help to prevent the proliferation of falsified documents and various customs-related certificates.
One of the main advantages of blockchain technology is that it protects data from hacking, theft, or fraud, which are currently big problems in the export-import industry.
Blockchain employs functions like time-stamping and hashes (assigning each transaction a unique digital fingerprint) to ensure data integrity and provenance without the need for a third party
Furthermore, its decentralised storage system means that hackers do not have a single point of entry, nor can they access entire repositories of data if they do manage to ‘break in’.
This combination makes blockchain ledger systems highly tamper-resistant.
Not only does this help to corroborate the authenticity of digital documents such as export end-use certificates; but it also guarantees that export and import licenses and permits issued by authorities have not been falsified.
Increase traceability of sensitive materials or substances during shipping
When it comes to aiding customs authorities, blockchain applications can also help to increase the traceability of controlled and dangerous substances such as nuclear material, medical supplies, and dual-use chemicals during shipping and transportation.
Strengthening export controls around these types of sensitive cargo has become an international obligation under the UN Security Council Resolution 1540.
Here, additional layers of security, made possible via the creation of security ‘keys’ and digital identities, means that blockchain technologies have the potential to better detect diversion, discover data breaches, and limit unauthorised access, increasing trust between various parties in high-level security fields like customs.
The gap between policy and implementation
Although largely welcomed by most quarters, many are wondering how an electronic trade policy will actually work in practice.
Many governments have already started developing their own systems in response to the COVID-19 pandemic, which nearly brought the industry to a halt, affecting worldwide supply chains.
Countries like Bahrain and Singapore, for example, have chosen to adopt digital trade systems modelled on conventions developed by the United Nations Commission on International Trade Law, otherwise known as UNCITRAL.
However, the major concern for many is that every country will end up developing its own system and that these may not end up being compatible.
Many see blockchain technology as holding the key to developing a secure and robust system of digital documentation.
Ideally, this is a system that is not only useable and accessible by multiple countries, but also provides the essential features needed to maintain data integrity, ensure cybersecurity, and protect information against things like fraud and theft.
Reduce processing and authentication times
One of the challenges faced by both customs and export authorities, as well as trade financing institutions and insurance companies, is to verify the authenticity of documentation typically associated with import and export control applications efficiently.
Currently, the system is paper-heavy and does not allow for swift distribution to all the parties needed to process insurance applications, finance proposals, or vet cross-border trade transactions.
Many think that digitalising the system will speed up the rate at which transactions can be securely processed, which, in turn, has the potential to unlock a further $1.2 trillion of exports.
Unlike traditional IT systems, the data on the ledger is decentralised, which means that it is stored across the entire network, rather than in one single location or server.
Each transaction is linked in a chain to previous transactions, which means that any information added to the ledger is stored across the network, enabling users to access the same information in real-time.
This makes it possible to process paperwork and transactions much faster.