With blockchain opening up many avenues in international trade – from facilitating financing and customs procedures to tracking due diligence and sustainability compliance – countries and companies are looking for successful practices to scale up their efforts to maximize the potential of this new technology.
Blockchain technology promises to increase the reliability and security of trade transactions and to boost access to global value chains, including for smaller, innovative businesses. It also offers novel solutions for integrating and documenting the sustainability performance of companies operating along global and regional value chains. In other words: blockchain can help building transparent, open, innovative, sustainable and efficient value chains.
Nevertheless, successfully harnessing the potential of blockchain technology is a challenge for many countries, particularly developing and transition economies, and for many companies, including the small and medium sized ones.
For example, successful use of blockchain technology in international trade poses a host of new questions for regulators and policy makers: data localisation and privacy issues, identification of the applicable law and the allocation of liability, legal recognition and validity of blockchain-based information, and interoperability and standardisation across economic operators and regulatory frameworks.
Similarly, successful use of blockchain technology also requires a multitude of practical factors to be in place, technology and IT infrastructure being prime among them. It demands alignment of stakeholders’ interests: collaboration between all parties is required as the strength, and therefore the value of blockchain is determined by the data registered on the blockchain platform in which users have the lowest level of confidence. It also depends on traceability of such data and its automatized collection. And above all, to understand and implement blockchain, there is a need to build knowledge and skills.
To address these challenges, the five United Nations Regional Commissions (UNRCs), jointly with the United Nations Conference on Trade and Development (UNCTAD) launched a project on “Blockchains for facilitating trade and enhancing competitiveness” – to be implemented collaboratively. “New technologies demand cooperation between all partners. This project is important as it brings together regional expertise to support Member States in building up necessary ecosystems and fostering inclusive development through sustainable trade”, mentioned Mr. Adel Alghaberi, First Economic Affairs Officer at UN ESCWA, during the first coordination event in Geneva on 28 June 2022.
“Apart from the regulatory landscape that is needed to build a foundation for advanced technologies, we as Regional Commissions need to focus on an additional major challenge, namely bridging the digital divide. To reap the benefits from blockchain, every person, every entity and every company has to be on board, not only from developed countries, but also from developing and transition economies” said Ms. Elisabeth Tuerk, Director of Economic Cooperation and Trade Division at UNECE. These subjects will also be carried forward to UNECE’s 70th Commission session next year, where “digital and green transformations for development” will be the high-level theme, chosen by UNECE member States.
“It is our mission and our vision to meet these challenges in order to scale-up innovative solutions, so that institutions, companies and consumers can make more responsible and sustainable choices”, Ms. Tuerk continued.
This three-year project will strengthen national innovation, technological capacities and enable the regulatory and legal environment related to the use of blockchain technology in customs and trade operations in five selected developing countries (Lebanon, Kenya, Mexico, Mongolia and Uzbekistan). The work aims at increasing national awareness on the importance of blockchain in trade facilitation through tailored capacity building activities on how to effectively adopt and use this technology.
Once implemented, the technical support programs will significantly help spread blockchain innovation in the pilot countries and its use in international trade, drawing on the lessons learned from the development and implementation of this technology across the globe. The pilot countries, similarly, to most developing countries, cannot remain on the sidelines when it comes to increasing the quantity and quality of trade flows between countries in the region and with the rest of the world.
For instance, UNECE will scale-up the ongoing blockchain pilot for the cotton sector in Uzbekistan. This will build upon the UNECE initiative for enhancing traceability and transparency in global value chains, with a special focus on the garment and footwear industry.
Under this initiative, UNECE has developed practical solutions and tools: policy recommendations, implementation guidelines, a global standard, call to action, and a blockchain system which is currently piloted in both the textile and leather sectors.
These pilots aim to demonstrate the feasibility of end-to-end traceability, building on the identification and coding of data to be collected and exchanged by value chain actors at key data points across cotton and leather. This covers the full spectrum of value chain transactions from farmers, and cooperatives, to traders, tanneries, manufacturers, and brands across 18 countries.
It allows to track claims related to origin, the use of chemicals, material content (e.g. recycled, repurposed, organic) animal welfare, species conservation and responsible sourcing for products that represent some of the world’s most sold items in terms of volume, including jeans, cotton shirts, socks, shoes and bags.
In Uzbekistan, UNECE together with the International Finance Corporation (IFC) Tashkent office of the World Bank Group, is already using the blockchain technology to substantiate sustainability claims tracing forward the “real” life cycle of a T-shirt, from field to shelf, with support of DNA markers provided by Haelixa.
This work is of great relevance to the country since its agri-business sector accounts for 25 per cent of the GDP and promotes industrialization, exports and investments potential in the country and the whole region. Particularly, the cotton sector, as foundation of the entire textile industry, contributes to Uzbekistan’s participation in regional and global value chains and accounts for 30% of its exports.
Under the joint UNRCs project launched this week, UNECE will build capacity and provide technical assistance to support its sustainable, circular and digital transition based on good practices and lessons learned from the best use cases. In so doing, UNECE will support in the implementation of the wide set of relevant recommendations and standards, as well as through the findings of earlier studies. A recent White Paper on Blockchain in Trade Facilitation prepared by UN/CEFACT experts, a UNECE Subsidiary body, will further assist in scaling up such innovative solutions.