Trade Finance, Customs Clearance Could Be Simplified by Blockchain, Study Says
Trade finance, customs clearance and country of origin verification are three areas where blockchain can “transform international trade” by making transactions faster, more efficient and more transparent, according to a recently published study from the Mercatus Center at George Mason University. The financial, trade and retail industries are currently testing or implementing blockchain technologies in each of these areas in an effort to explore the benefits of blockchain, though cooperation between the public and private sectors is necessary for the technology to mature, the study said.
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Blockchain could reduce the large amounts of paperwork and constant verifications that are part of the trade finance and insurance process, allowing all interested parties including banks, to monitor the shipping process and verify the completion of each step. Recently, in July 2018, “European banks launched a trade finance blockchain platform with at least nine major financial institutions,” the report said. Blockchain will also allow buyers and sellers to track merchandise as it changes ownership, providing a chain of custody and proving its country of origin. That could be used to help address the counterfeit goods trade, the report said.
The simplification of border processes via blockchain could have an economic effect similar to that of the Trade Facilitation Agreement, which is estimated to potentially reduce trade costs by more than 15 percent for low- and middle-income countries, the report said. But “cooperation between the public and private sectors is essential in order to effectively integrate blockchain technology into international trade processes,” it said. That cooperation may be difficult to achieve where there is rent-seeking behavior or corruption in the government bureaucracy, the report said.