The hallmarks of innovation in international trade arguably are the creation of the bill of exchange for importers and exporters in 1555 ACE[i] and the introduction of shipping containers in the 1960s. [ii] Could the next innovation in global trade be blockchain technology? And if so, how should your business prepare to utilize the blockchain?
Source: IBM, “Blockchain 101 Infographic,” https://www-01.ibm.com/common/ssi/cgi-bin/ssialias?htmlfid=XI912346USEN&
How Blockchain can Change Global Trade
IBM in partnership with non-profit Stellar and payment company KlickEx, [iii] Spanish bank BBVA,[iv] India-based Axis Bank[v], and other organization have led the charge to introduce blockchain technology to various aspects of business and economy, including global trade. The blockchain would centralize the trade process into a digital ledger that is accessible to buyers, sellers, transporters, regulators, banks, and all other relevant actors.
Pilot programs of blockchain technology such as import-export transactions between Mexico and Spain,[vi] and China and Canada[vii] showcase the potential the blockchain has to improve global trade. The promise of the blockchain approach is three-fold.
First, blockchains aim to substantially reduce the time and cost associated with documentation and bureaucracy during transactions. Currently, each actor in the chain has their own set of documentation and forms to complete. Maersk, a Danish shipping company, found that a shipment of flowers from Mombasa to Rotterdam created, “dozens of documents and nearly 200 communications involving farmers, freight forwarders, land-based transporters, customs brokers, governments, ports and carriers.” [viii] Under the blockchain approach, a standardized workflow allows for all relevant documentation to be shared when appropriate, notify actors as the workflow progresses, and share communications in near real-time. This shared-record would reduce administrative costs and time.
Second, the blockchain process increases transparency and accountability. Blockchain platforms could utilize smart contracts, which are computer programs that automatically enforce terms of agreement such as releasing payments for a transaction as it progresses along the trade workflow.[ix] The centralized shared ledger will allow all parties to know whom they are interacting with throughout the entire chain. This is an important point that will be revisited later in the article.
Third, the blockchain can better secure transactions. For example, inspection certifications require a consensus for approval and a consensus is required to alter any documents that have been submitted.[x] Should discrepancies be found in the process all relevant actors are notified in near real-time. Further, the blockchain can be created to ensure that sensitive information and documents that are uploaded onto the blockchain are only shared with those on a need-to-know basis.
What is next for the Blockchain?
While there is great promise for the blockchain, the technology still faces considerable challenges. To date, pilot programs of the blockchain in trade and finance have been successful. However, these pilot programs have been conducted in controlled settings with a limited amount of transactions. The big question is whether the blockchain technology will handle all the documents, actors, and transactions involved in global trade. Wolfgang Lehmacher, head of supply chain and transport industries at the World Economic Forum told the Financial Times, “technical capabilities to handle very large transaction volumes remain unproven.” Lehmacher also notes that blockchain itself is secure, but applications that move data into the blockchain may be open to vulnerabilities.[xi]
Pilot programs planned for 2018 should provide clarity on the operational capacity of the blockchain. A promising sign for the technology is the collaboration between financial institutions and IBM[xii] and governments[xiii] to develop the blockchain platform.
Blockchain and Policy Developments in Thailand
Thailand is pushing to be an early adopter of blockchain technology. In addition to exploring the blockchain to facilitate global trade, Thailand is exploring how blockchains can be used in elections[xiv], to digitize financial transactions[xv], and as an energy-trading platform[xvi].
These developments come on the heels of Thailand’s “Thailand 4.0” announcement. Thailand 4.0 is an economic model to push Thailand toward a knowledge, innovative, value-based industry[xvii]. To achieve the four objectives of Thailand 4.0 – promoting economic prosperity, strengthening social well-being, raising human values, and protecting the environment – Thailand will peruse policies to promote knowledge based education programs, engage in private-public partnerships, and strengthen research and development processes. [xviii]
These policy developments indicate that Thailand is very eager to seek out partnerships that will increase innovation. This provides a tremendous opportunity for business to establish themselves in Southeast Asia and take advantage of future developments in the region.
International Solutions for Blockchain Opportunities with FAO Global
To prepare for the blockchain it is recommended that businesses visit IBM to learn about the courses and resources they provide. But preparing to use the blockchain to provide inputs is only half of the equation. It is important to know where blockchain technologies will be deployed, and how the blockchain will be increased transparency and accountability. FAO Global’s team of consultants and analysts conduct in-depth business intelligence and political analysis to provide you with information ranging from foreign legislative developments to identifying resources and opportunities to use blockchain technology. Understanding the intersection of geopolitics’ effect on foreign business activities relating to compliance with labor, financial, and information technology regulations is necessary in this global age. FAO Global will also provide insight and solutions to dealing with cross-border and cross-cultural developments that can hinder or promote the implementation of your blockchain solution.
For information on packages to meet the needs of your organization please contact us at DC@FAOGlobal.com.
About the Author: Audel Shokohzadeh is a Communications Advisor for FAO Global. He is also a Communications Specialist with the nonpartisan Stimson Center. Prior to this he was a staffer on Capitol Hill with a legislative portfolio that included U.S. foreign policy and immigration. He received his Masters of Public Policy from the University of Minnesota Humphrey School of Public Affairs and a dual Bachelor of Arts in Political Science, and Communications, from the University of Massachusetts Amherst.
References
[i] Tim Hartford, “Banking,” December 20, 2016, in 50 Things That Made the Modern Economy, produced by BBC, podcast, MP3 audio, 00:12:16, http://www.bbc.co.uk/programmes/p04kj3n5
[ii] Tim Hartford, “Shipping Container,” November 22, 2016, in 50 Things That Made the Modern Economy, produced by BBC, podcast, MP3 audio, 00:12:16, http://www.bbc.co.uk/programmes/p04g1ddh
[iii] John Russell, “IBM is using the blockchain to speed up and simplify cross-border payments,” TechCrunch, October 16, 2017, https://techcrunch.com/2017/10/16/ibm-cross-border-payments-blockchain/
[iv] “Against the Odds, a Few Blockchain Projects See the Light of Day,” PYMNTS, November 29, 2017, https://www.pymnts.com/news/b2b-payments/2017/blockchain-technology-beta-testing-launch/
[v] Ibid.
[vi] Luz Fernández Espinosa, “BBVA and Wave cary out the first block-chain based international trade transaction between Europe and Latin America,” BBVA, November 22, 2017, https:// www.bbva.com/en/bbva-and-wave-carry-first-blockchain-based-international-trade-transaction-europe-and-latin-america/
[vii] “Zim Completes Blockchain Pilot,” GlobalTrade, November 28, 2017, http://www.globaltrademag.com/global-logistics/zim-completes-blockchain-pilot
[viii] Adam Green, “Will blockchain accelerate trade flows?,” Financial Times, November 9, 2017, https://www.ft.com/content/a36399fa-a927-11e7-ab66-21cc87a2edde
[ix] Ana Irrera, “Commerzbank, other banks join UBS and IBM trade finance blockchain,” Reuters, October 4, 2017, https://www.reuters.com/article/us-blockchain-banks/commerzbank-other-banks-join-ubs-and-ibm-trade-finance-blockchain-idUSKCN1C90ST
[x] Elisabeth Stahl, “Where’s my new sweater really from?,” IBM, November 1, 2017, https://www.ibm.com/blogs/blockchain/2017/11/blockchain-provenance-wheres-my-new-sweater-really-from/
[xi] Adam Green, “Will blockchain accelerate trade flows?,” Financial Times, November 9, 2017, https://www.ft.com/content/a36399fa-a927-11e7-ab66-21cc87a2edde
[xii] Ryan Browne, “IBM has a new blockchain for banks to speed up cross-border payments,” CNBC, October 18, 2017, https://www.cnbc.com/2017/10/16/ibm-has-a-new-blockchain-for-banks-to-speed-up-cross-border-payments.html
[xiii] Jamie Lee, “20 banks likely to join frenemy trade pact between Hong Kong and Singapore,” Business Times, November 17, 2017, http://www.businesstimes.com.sg/government-economy/singapore-fintech-festival-2017/20-banks-likely-to-join-frenemy-trade-pact
[xiv] Sasiwimon Boonruang, “Every fibre of his being,” The Bangkok Post, January 6, 2018, https://www.bangkokpost.com/business/news/1391254/every-fibre-of-his-being
[xv] Sujha Sundararajan, “Thai Banks Taps IBM for Contract Management Blockchain Pilot,” CoinDesk, November 7, 2017, https://www.coindesk.com/thai-bank-taps-ibm-for-contract-management-blockchain-pilot/
[xvi] Power Ledger, “Power Ledger Signs Agreement with BCPG to Bring Distributed Renewable Energy Trading to Thailand!,” December 17, 2017, accessed January 6, 2018 https://medium.com/power-ledger/power-ledger-signs-agreement-with-bcpg-to-bring-distributed-renewable-energy-trading-to-thailand-cd68d09c23ac
[xvii] Royal Thai Embassy, “Thailand 4.0,” accessed January 6, 2018, http://thaiembdc.org/thailand-4-0-2/
[xviii] Ibid.
