Blockchain Seen as Promising, Though Many Legal Questions Remain

March 11, 2019 by Tim Warren|Top News

There's a consensus that CBP's Proof of Concept (POC) for blockchain using NAFTA and CAFTA certificates of origin showed that the technology deserves further consideration, said Emily Beline, senior attorney at FedEx, which participated in CBP's test through the company's customs brokerage, FedEx Trade Networks. Despite the enthusiasm, it's clear there are also many regulatory and legal issues that will need exploration, some of which were discussed in CBP's assessment of the POC (see 1903060043). Beline and others discussed blockchain as part of a March 8 panel at the International Trade Update at the Georgetown University law school (see 1903070025).

There was "universal support" from the trade for CBP to continue forward in the blockchain realm after the POC, Beline said. Other industry participants included UPS, DHL, Smucker's, Raytheon, Hershey's and Walmart, Beline said. During the POC, FedEx uploaded correct and purposely incorrect information about the certificates of origin, which was then immediately reviewable by CBP, she said. "It's not a substitution for [Customs Forms 28 and 29]," because "that's going to be a legal question," she said.

Currently, companies have up to 30 days to respond to Customs Forms 28 and 29 requesting more information about "what the NAFTA claim is for and then there is another 30 days to get all the backup information" behind the certificate, said Vincent Annunziato, director of CBP’s Business Transformation and Innovation Division. Within the blockchain, that process is nearly instantaneous, he said. "So if we put out a request" to Walmart, for example, and "Walmart sends us the information, guess who's notified? The government, the broker, Walmart, they're all notified." Asked how that differs from the current Document Imaging System, Annunziato said DIS isn't "distributed" and he doesn't "even want to do scans anymore." Straight data is preferable because a document requires someone to "look at it," he said. "I don't have to look at anything when I have digital data."

The blockchain should also help reduce the number of times the data needs to be re-entered, which can be as many as 16 or 17 times, Annunziato said. "You send it in from your warehouse or from your supplier, it's sent one time," he said. "They don't have to worry about storage anymore, which is your DIS system, because it's on the blockchain" and "stored on the servers it's coming across." Annunziato noted that one concern raised by the trade is that "the government would know too quickly there was a problem."

Blockchain could eventually give the government a whole new level of visibility in the supply chain. "I'm not a policy guy, I'm an innovation guy so everything I talk about is hypothetical," Annunziato said. Among the remaining issues, though, is whether "legally, can we ask for" that information, he said. "I don't have to worry about those legal questions right now," Annunziato said, while noting that would make his CBP staff cringe.

An audience member said there's a potential that a blockchain could create new documentation expectations that aren't legally required. The panel moderator, Barnes Richardson lawyer Lawrence Friedman, agreed there's some concern "as I think about my clients." It's a question whether the ability to provide the data from the "ground up" about a product could then "create the obligation to do so," he said. CBP is still examining how to go forward when weighing the "efficiencies gained," Annunziato said. One first step could be a trusted trader scenario "where if someone wants to gain a benefit" they would need to use a blockchain, he said. "But then you have to start looking" at what happens where that benefit isn't applied, he said. The policy and legal offices "are starting to talk about blockchain in context with this," he said. "There may be scenarios where what we can do is keep it in a situation where it's not required but its optional if available."

FedEx already has its own blockchain built in, Beline said. Using that internal system, FedEx has been able to find where specific problematic mangos from Mexico came from in seven minutes, she said. FedEx sees some major benefits as possible from blockchain and is a founding member of the Blockchain in Transport Alliance and the Blockchain Research Institute, along with express industry competitors. Beline described the cooperative efforts between the competitors as "coopetition."

The data itself within the blockchain isn't necessarily better because it is in a blockchain, said Christine McDaniel, senior research fellow at George Mason University's Mercatus Center. "The integrity of the data is as strong as the weakest link of the participants," she said. Annunziato said CBP is also working with the Department of Homeland Security on a test of "verifiable credentials."