The World Trade Organization (“WTO”) recently published its report, entitled “Can Blockchain Revolutionize International Trade?” In the report, the WTO assesses the potential of blockchain technology to digitize global trade flows. The report explicitly acknowledges that blockchain technology is likely to revolutionize international trade processes. It also outlines a planning process for the WTO to address the regulatory challenges presented by the new technology.

Blockchain is a digital record of transactions — or ledger — that no single entity controls. Blockchain records, which are referred to more broadly as “distributed ledger technology,” are shared with all participants in the transactions. The ledger secures the transactions using cryptographic techniques and grows as transactions occur, forming “blocks” of records that are “chained” together. The result is a ledger that builds trust among transacting parties without a central authority or intermediaries but cannot be easily modified.

Several platforms currently exist employing Blockchain technology in international trade. Most recently, IBM and Maersk piloted a Blockchain-based platform, TradeLens, “to reduce the cost of global shipping, improve visibility across supply chains and eliminate inefficiencies stemming from paper-based processes . . . {and} bring global supply chains into the 21st century by digitizing them.” The WTO report estimates that the business value of Blockchain technology in international trade could reach more than $3 trillion by 2030 on a world-wide basis.

The report discusses four main areas where blockchain is likely to contribute most to the digitization of trade. The areas include: (1) the creation of paper-less trade, (2) improvement of trade in services, (3) the strengthening of intellectual property (“IP”) rights, and (4) enhancement of government procurement processes. The report points out opportunities for blockchain technology to reduce paperwork and associated costs by:

• automating trade finance functions, e.g., automation of letter of credit transactions;

• streamlining border procedures through smart contracts, including customs clearance of goods and collection of customs duties; and

• launching global trade platforms.

For trade in services, the report discusses how blockchain can improve cross-border payments and insurance schemes, particularly marine insurance, by:

• eliminating costly intermediaries of the international financial system;

• reducing costs related to policy verification, contract validity, handling claims as well as generating more informed pricing decisions; and

• decreasing fraudulent behavior and counterfeit goods in e-commerce transactions through increased transparency and automatic payment transfers.

Regarding IP rights, the report indicates that blockchain can simplify ways to establish proof of ownership and streamline patent registration. Furthermore, blockchain could create more efficient ways to monitor IP rights and, perhaps, open the door for managing IP rights globally. Lastly, according to the report, blockchain technology may improve the government procurement process by increasing transparency and automating procedures related to the bidding process.

While the report explains the various opportunities that blockchain technology provides by enhancing transparency and reducing trade costs, the report also identifies a number of challenges presented by the technology. Among other things, it is unclear whether blockchain technology has the scalability needed to handle the rapid growth in the number of transactions. Another challenge is the amount of energy blockchain technology consumes, which runs counter, of course, to global efforts to reduce the environmental impact of international trade. Further, the report points out that, although blockchain technology is considered highly resilient because of its use of cryptographic techniques, blockchain technology is not immune to data security challenges.

Other key issues are addressed in the report, including such as issues the standardization of the technology, the legality of blockchain transactions, the legal principles governing blockchain transactions, and the need for a system of governance for large-scale deployment of the technology. The WTO report recognizes, however, that implementation of the technology is in its early stages. Given the potential impact, the WTO report also acknowledges the need for a better understanding of the technology to help guide the international trade community into an era of digitized global trade.

Currently, discussions are ongoing regarding distributed ledger technology and the WTO’s role as an enabler and regulator of the technology. Importantly, these discussions and the release of the report signal the arrival of a significant shift towards digitization of trade flows, and the facilitation of global trade processes through distributed ledger technology.