A few years ago, the World Trade Organisation (WTO) together with the World Customs Organisation (WCO) conducted a study to find out what role advanced technologies play in cross-border trade. One of the main findings was that customs authorities are already working with various technologies. The advantage of using big data, data analytics and artificial intelligence lies particularly in risk management, fraud detection and ensuring better compliance. However, there is still a need to develop an optimised data strategy to ensure enhanced data management and quality. One solution to this issue is blockchain technology.
Blockchain provides immutable security. Quite simply, once data or documents are on a blockchain they cannot be manipulated. This increases trust across the supply chain, but importantly also with authorities. For logistics, one of the big advantages is that increased trust means less interventions by authorities, and more easily exchangeable data between logistics service providers.
Blockchain is a technical solution for managing data from transactions agreed upon between users in a distributed infrastructure in a transparent and tamperproof manner. Blockchain enables the trustworthy and transparent verification of transactions without a central authority1.
Globally, many customs authorities already use blockchain technology or are planning to do so within the next three years. Only Argentina and Uruguay have fully deployed this technology so far; other countries have only implemented individual projects. This shows the interest in expanding the use and the confidence in the benefits that blockchain can bring to customs authorities in achieving their objectives and supporting cross-border trade. The main obstacles to the full adoption of blockchain are existing laws, systems, costs and standardised datasets as it is very difficult to agree on common data across a large number of countries. ‘Currently, it is very difficult to see any blockchain solutions at the moment being accepted in more than one country,’ reports Michael Douglas, Consultant for Customs Technology Services at ALS Customs Services and the Open Logistics Foundation. If implemented properly, blockchain technology could reduce customs clearance times to a third of the previous duration.
The few already existing blockchain solutions for customs activities have a cost for shipping companies since governments usually implement these solutions together with commercial cargo providers. This means that a company that wants to ship goods to another country has to feed its customs documents into a blockchain that is tailored only to the needs of that freight provider or that one government. Otherwise, the usual procedure is still to carry customs documents – either in electronic or printed format. It is also common for one country to require a particular piece of information such as a five-digit letter code, while another country may require a nine-digit numerical sequence for the same information in its customs documents. This inevitably prolongs the process of cross-checking documents and unnecessarily complicates customs clearance while also making it easier to manipulate customs documents. Most customs fraud is caused by changing a tiny piece of information, such as the weight of the goods, the value or the country of origin – in an attempt to reduce customs import duties. As the data on the blockchain is immutable, its use can help to accelerate the processing of customs formalities and simultaneously stop fraud attempts.
This doesn’t mean that it’s necessary to put all data that is connected to the goods being cleared into a blockchain. A few years ago, a pilot project between the UK and Australian customs authorities showed that only a few data fields of the blockchain code are important when it comes to reducing border delays. Contrary to the widespread belief that a comprehensive and complex blockchain is needed, successful customs clearance can also be achieved with a very small dataset. That is when the Open Logistics Foundation came up with the idea of developing a reduced dataset function in blockchain to simplify and speed up customs activities.
The Open Logistics Foundation is a neutral and non-profit association of various logistics service providers who have jointly set themselves the goal of developing open-source solutions and thereby easing logistics problems along the supply chain. As one of its projects, the organisation has established Open Customs Blockchain with the aim of providing open-source solutions and hence digitalising customs processes in order to reduce the delays and interventions that customs processes often cause at borders.
‘Our philosophy is to seek progress, not perfection. That is why we have come up with a key dataset that generates a Goods Passport ID which is unique for one seller and the corresponding specific invoice number,’ explains Michael Douglas. This Goods Passport ID (GPID) is the blockchain identification number for the key dataset of a given invoice. With this GPID, the corresponding key dataset can be found and accessed on the blockchain. Like a passport, it contains fundamental customs information that is required at various stages in an export or import process and that is needed repeatedly, e.g. the value, the country of origin and the description of the goods, by multiple stakeholders (such as customs authorities, forwarders, buyers and sellers). If details in the blockchain are found to be incorrect, this can only be as a result of incorrect initial entry or generation. Subsequent changes to the GPID are not possible.
The overall goal of using a Goods Passport ID that is based on open-source software is to simplify data exchange and increase transparency in cross-border supply chains. At the same time, the use of open-source software will help to reduce the risk of fraud, customs evasion and undervaluation, and potentially also alleviate delays at borders, e.g. between the EU and the UK after Brexit.
The use of open-source software allows all stakeholders to achieve a common goal without the expense normally associated with commercial solutions. The open-source components allow all users to benefit from the basic functions, whilst allowing the addition of more focused features as desired. Also, the GPID itself offers some advantages for all parties involved. The exchange of customs data will be much more efficient and decrease delays for the buyer when it comes to the import declaration. Furthermore, as a tamperproof way of storing and sharing data, blockchain allows parties to verify or double-check the information of the GPID. The blockchain technology also enables stakeholders to add relevant documents as well as verification of their integrity by a third party. If the data of the customs declaration matches the information stored in the blockchain, fewer checks are necessary.
In short, with the Goods Passport ID, it is possible that authorities only need to compare the GPID with the declared goods and not also have to verify the export or import invoice. Because the underlying blockchain technology is not driven by individual companies but by the government, participants will have increased trust in the process, which in turn will reduce additional controls and will speed up the entire process of cross-border customs clearance.
And here is how it works in actual practice: first, the seller enters the key data of the exported goods into an open-source blockchain application – for each individual invoice. This creates an immutable record issued with a GPID which is added to the declaration documents by the export declarant. Thus, when the export declaration is submitted, the authorities can check that the key data fields match those on the blockchain – identified by the GPID. At the destination, the GPID is added to the import declaration and checked by the customs authorities in the importing country as well as cross-checked with the goods. If everything is correct, the goods can be imported and the customs clearance is completed. Not only does this mean less effort for customs staff – the client also gets their goods more quickly as a result of this optimised process.
Even though there have already been a number of attempts to implement blockchain-based solutions in the customs sector in the last few years, none of these solutions have yet been able to be implemented on a permanent basis. This was either because these solutions were only offered by a single cargo provider and thus could not be used broadly or because they were commercialised and there was a lack of interest due to the resulting costs. The ‘Open Customs Blockchain’ project of the Open Logistics Foundation aims to be widely implemented and therefore it targets all interested parties involved in customs clearance: authorities, exporters, importers, customs brokers and logistics service providers. The solution to this is not only the use of open source, but also the collaborative work on this project and thus the facilitation of a common realisation and implementation.
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