U.S. Customs and Border Protection recently completed one test of a potential use of blockchain technology and is looking to conduct additional tests this year.

A blockchain essentially functions as a distributed ledger that records transactions in a verifiable and permanent way. Blockchain records are transparent to all who have access to the network (though specific documents in those records, such as certificates of origin, are not) but are decentralized across that network, making them virtually incorruptible. This security has made blockchain a promising technology for recording a wide range of activities, including customs and trade-related transactions. Companies and organizations around the world are testing how blockchain may aid international trade flows, including tracking cargo containers, transferring shipping documents, and confirming cross-border payments.

For several months in 2018 CBP tested the use of blockchain for the certifications of origin used to qualify goods for preferential treatment under NAFTA and CAFTA-DR, and a report on the agency’s conclusions is expected in the near future. According to press reports, CBP is now preparing to launch tests of several additional uses, including verifying the origin of raw materials, tracking oil imports, and dealing with intellectual property rights and e-commerce.

A CBP press release cites Vincent Annunziato, who directs CBP’s relatively new Business Transformation and Innovation Division, as saying these tests constitute a different approach for the agency. “What we are looking to do is invest a small amount of money to see how we can progress,” he said. “If we find something that doesn’t work, we don’t invest anymore. If we find that it does work, then we move forward with confidence. This is new ground for us.”

According to an American Shipper article, Annunziato also said recently that while CBP’s tests are currently focusing on trade facilitation, “blockchain will become an enforcement tool at some point.”

CBP’s Commercial Customs Operations Advisory Committee has been monitoring the agency’s blockchain tests and had been expected to submit related recommendations at its quarterly meeting in December, but that session was canceled when the federal government closed to mark the death of former President George H.W. Bush. The issue will likely be discussed at COAC’s next meeting in February.

In related news, the Department of Homeland Security is seeking from the private sector solutions that use blockchain to digitally issue and verify licenses, certifications, and other documents related to supply chain security and other issues. According to the DHS solicitation, the government believes blockchain “holds the potential for enhanced transparency and auditing of public service operations, greater visibility into multi-party business operations, and automation of paper-based processes to improve delivery of services to organizations and citizens.” Applications from those wishing to participate in this initiative are due by May 23.

For more information on CBP’s use of blockchain or how to participate in its tests, please contact Tom Gould at (213) 453-0897.

© [2019], Sandler, Travis & Rosenberg, P.A. Originally published in the [01/09/2019] issue of the Sandler, Travis & Rosenberg Trade Report. Reprinted by permission.