Optimism Reigns as CBP Dives Into Lessons Learned From Blockchain Test

PALM SPRINGS, Calif. -- CBP recently began its “360 degree” assessment of lessons learned from its “proof of concept” on the use of blockchain technology for NAFTA and CAFTA certificates of origin, said Vincent Annunziato, director of CBP’s Business Transformation and Innovation office, at the Western Cargo Conference (WESCCON) on Oct. 19. A report on the test should be done in November, though there’s no word yet on how the report will be released.

The test worked by using a computer program’s algorithm to create a unique string of characters called a “hash” corresponding to each certificate of origin, said Tom Gould of Sandler Travis. Every time the same data elements from a given certificate are put into the program, the program spits out the exact same hash. But if any of those certificate data elements were changed it would create a completely different hash.

Those hashes can then be put together into a “block,” or a group of hashes, representing a set of hashes created around the same time, Gould said. Those “blocks” are in turn linked together into “chains” consisting of a series of blocks. By making this data available to all participants in the blockchain, each time data changes hands or otherwise needs to be verified it can be run back through the program to see if the hash is still the same.

For NAFTA and CAFTA certificates, the importer needs to have the certificate on file before they make duty preference claims. One question that had never been answered is how the importer is to prove to CBP auditors that a particular certificate has been properly signed hasn’t been changed from the one that was originally submitted, Gould said. Using blockchain, CBP would be able to instantly run the certificate through the algorithm to get proof that the document is authentic.

One concern that has been voiced is that importers will have to share their NAFTA certificates with everyone, Gould said. But participants would just be sharing a code, not a set of data, he said.

The proof of concept elicited a positive response from government representatives that participated, CBP’s Annunziato said. They “loved” that the certificate “came in at the front of the entry.” And verification was nearly instantaneous, eliminating the sometimes lengthy CBP Form 28 process. All in all, development for the proof of concept took four months for the private sector and the government, including initial testing.

CBP is working on several other areas where the technology could be used, including in the creation of unique identifiers that could eventually be used to verify identities and allow the use of “keys” to securely share sensitive data. Those new capabilities may finally allow the total elimination of remaining paper in the import process, such as Convention on International Trade in Endangered Species (CITES) certificates and other data that requires government-to-government communication.

Several concerns remain. Cybersecurity is one, given several instances where blockchains have been hacked, Annunziato said. CBP is still trying to figure out what data should be put on the blockchain, and what cannot, such as personal identifying information and trade secrets. Language barriers and the uneven spread of the internet around the world also throw up roadblocks.

The technology is “disruptive,” and it still remains to be seen what the effect will be on customs brokers. “It may change the way business is done,” Gould said. For example, brokers may no longer need to be involved in the lengthy and complex communications that usually follow a CBP request for information from an importer client. Large companies like Wal-Mart will likely take the lead in determining how the technology is put to use, and it will likely be determined by them how brokers will be involved in the process.

But there is also opportunity for brokers, Gould said. For example, using NAFTA certificates as an example, parties in the supply chain may not want to host the blockchain, so brokers could offer to host it as a new service offering.

According to Gould, the NAFTA/CAFTA proof of concept is just the tip of the iceberg. The technology could be extended to data from the beginning to the end of the supply chain. CBP and other participants in the proof of concept “started with a tiny, tiny little microcosm” of what’s possible, “and it’s going to expand,” Gould said. “All we’re looking at right now is NAFTA/CAFTA, but the plan is to expand it to everything.”