The internet revolution has exponentially reduced the barriers between the global and domestic markets. Due to this, there has been a significant rise in importing and exporting goods through the global trade market.
Ever since the rise of global trade in 2017, the exports of developing countries have started to grow. Now, the yearly export of developing countries lies at 30% while developed nations lie at 15%.
This has triggered more flow of goods with the national customs departments and has occasionally also resulted in onerous custom policies, additional duty collections, verifications, and time-consuming procedures.
However, blockchain offers a superior alternative for controlling the global customs systems and makes it possible for better administration for all parties concerned.
Blockchain in the Global Supply Chain and Customs
The customs system is a major part of global supply chain management. Since there is a daily volume of international trade in goods, customs duties are frequently assessed on imported items.
Blockchain technology revolutionizes the current centralized and manual customs system by intergrading decentralized ledgers and smart contracts to levy duties and collect payments.
Since all the supply chain data, certifications, and licenses are added to the ledgers, blockchain technology automatically finalizes the tariff while detecting any defective or adulterated goods. As the current customs are based on papers, it leads to several unnoticed blind spots which are streamlined with Blockchain.
Further, Blockchain and customs together resolve the over or under-levied duties. Other practices like international shipping, freight forwarders, thirds party logistics are also benefitted due to the efficient verification processes. It makes the global trading process transparent with all the information and certifications on-chain.
How Blockchain Combats the Current Customs Systems
Several experts and companies involved in daily global trade have shared a positive response toward the usage of blockchain for bettering the customs environment.
Some of the futuristic elements and promises that Blockchain aims to bring to the customs ecosystem are as follows:
The process of imports and exports is time-consuming, and the products must once more be kept at the national customs for several verification procedures. Blockchain disrupts this complex system by automating the verification and eases the workload of the customs department.
The single open-source of blockchain and distributed ledgers enables the custom verifications to be done fast on-chain rather than going back and forth with physical documentation for verifications.
Issues like losing trivial data or documentation within the customs ecosystem are resolved.
Risk assessment processes are made more accurate with real-time data, which shall reduce several possibilities of external and environmental hazards.
With accurate risk assessment also comes product safety.
Ensures all the documentation is right and that the trade is legally performed after paying VAT taxes.
Higher or lower custom payments from the traders can be avoided.
Identifies counterfeited or adulterated products and foods through the origination of goods.
Implementing Blockchain to Support the Customs Department
The import and export contracts between countries are growing, which is why some companies and governments have started implementing and trying out blockchain technology to enhance the custom and distribution processes.
1. Korean Customs Service (KCS)
South Korea is one of the few countries that have accepted blockchain with open arms. As a part of this, the KCS has implemented a permissioned blockchain to work on a smart custom project.
They have joined hands with Samsung SDS to bring in all the logistics documents under this permissioned blockchain to reduce fraud and simplify the processes.
During the pilot of the Smart customs project, KCS and SDS worked with 49 business participants to oversee their working structure. Features like clearance processes and cross-border data sharing were added in the later years.
2. Saudi Arabia’s Customs Service
Saudi Arabia departed their first cargo shipment backed by blockchain in May 2019 from Daman port. It left for the Port of Rotterdam in the Netherlands, and the containers were tracked till the truck reached the final destination - Belgium.
All the invoices and documents were uploaded on-chain and verified, which helped the customs brokers and traders to export easily. According to officials, integrating blockchain technology might help the country expand its services as it might aid the nation in becoming a major global logistics hub.
Trade Lens, a platform developed by the collaboration of Maersk and IBM, was used by the country to facilitate this Blockchain-backed cargo.
Trade Lens is also known for facilitating trade for many authorities, such as the Dutch customs administration, US customs, and border protection service, the Science and tech directorate of the US, etc.
3. CADENA Project
The Inter-America Development Bank (IADB) and Microsoft have introduced a Cadena project in the Mexico, Peru, and Costa Rica regions. It was brought in to manage custom administrations, enhance mutual recognition agreements (MRAs), and automate authorized economic operators (AEOs).
The project digitalizes these certificates, automates their documentation processes, and ensures data integrity and data access. This helps traders benefit while the approvals are completed instantly, reducing delayed supply chain processes.
As international trade has grown today, daily trade and trade relations between countries have been further augmented. Thus, it has become essential for nations and their customs departments to equip a data-driven system that reduces the time taken for processes.
Blockchain and customs are set to become more efficient as the technology solves impending issues. With more pilot programs becoming a success, blockchain is surely bound to shift the working structure of the global customs and trade systems.
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