UK blockchain experiment could cut customs red tape

A business chamber in south-west England has certified an export consignment from an engineering company using blockchain.

Business West said its pilot certificate of origin on blockchain, issued to Renishaw, which supplies precision devices to several industries including aerospace and healthcare, is the second such project in the world following one in Singapore.

Certificates of origin, typically provided by chambers of commerce, are needed to prove where goods were made for customs purposes.

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If the UK after Brexit is no longer in a customs union with the EU, it will be subject to complex “rules of origin” and companies will need to show which part of which product was made where in order to benefit from preferential trade deals.

James Monk, commercial director of Business West, said his organisation issues 30,000 to 40,000 certificates of origin annually, a number that might rise sharply after Brexit. Such documents, and the many other requirements for exporting goods, could be digitised and shared through a blockchain.

“A standardised process could simplify and make it easier to check many parts of the supply chain including customs declarations, bills of lading [certifications of ship loads] and letters of credit,” he said.

The technology — which creates a “distributed ledger” spread across thousands of computers to verify transactions — should make the processes of sending goods abroad simpler and more transparent.

Currently, obtaining a letter of credit to send goods to some Middle Eastern destinations can involve up to eight people and a paper form hand-stamped, signed and sent by courier.

By contrast, Mr Monk said information on consignments entered in a blockchain remains there forever and can be tracked via a QR code. After being made, no blockchain entries can be changed, reducing the risk of false declarations to obtain lower tariffs. “It’s a lot easier to Photoshop a paper certificate of origin than to alter an entry in a blockchain,” Mr Monk said.

Mr Monk is keen to stress that the application of such technology to trade is in its infancy — the blockchain certificate of origin was issued alongside a conventional paper version — and there are many obstacles to its expansion.

In the UK, HMRC, the customs agency, is currently rushing to install a new customs declaration system ahead of Brexit. “HMRC have other things on their minds for a while, and to put the customs system on blockchain could take a decade,” Mr Monk said.

If the UK leaves the EU single market, the technology will also not remove the need for time-consuming product inspections at borders, though it will enable information from such checks to be shared more easily.

Nicolas Botton, a researcher at the European Centre for International Political Economy think-tank in Brussels, said that an unproven technology and lack of regulatory oversight could prevent blockchain’s widespread adoption in trade supply chains for decades.

“There’s a good chance that the UK will have had time to leave the EU, realise its mistake and rejoin it before blockchain sees any significant implementation within customs borders,” he said.

Adam Underwood of the managing director of the software company i2i, which created the information technology for Business West, said some companies have already adopted blockchain to monitor cargoes, such as the shipping group Maersk in association with IBM.

But he added: “The whole shipping process involves a great number of smaller traders and other players including chambers of commerce, whose processes need to be digitised to make the overall solution work.”

Mr Monk said that some private sector participants might resist having their operations made so transparent. “A freight forwarding company telling the client that the lorry just left with their cargo loaded on it may not welcome them being able to check whether it is still in the warehouse,” he said.

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