Unlocking the value of Blockchain for Electronic Certificate of Origin

More and more countries are digitalizing the issuing of non-preferential Certificates of Origin (CO). Digitalizing is a necessary evolution as more and more Customs and logistic processes are running electronically. A non-preferential CO has by its nature been a paper document. The existence of bilateral agreements between exporting and importing countries on non-preferential origin or (electronic) CO is rare. The Revised Kyoto Convention urges the use of information technology but offers no concrete examples how to do so. Even though World Customs Organization (WCO) is a committed advocate of paperless Customs procedures, including Certificates of Origin, it has found it extremely hard to introduce the idea of electronic CO across its members. Often, what we today call an electronic CO (eCO) is in reality a certificate issued via a web-based application that has been printed by the exporting firm. There should be no doubt that a printed CO is not an electronic certificate.

The Present

New developments on digitization are taking place at a rapid rate. The common procedure for issuing eCO is that the applicant applies for and receives the CO online and then prints on its own premises the document with stamp and signature of Chamber of Commerce. The exporter still feel the need to print the CO with the lack complete automation in CO issuance and approval. Certificates are shared between the relevant parties as paper documents, which are then shipped by courier leading to plenty of delays and errors.

The Logistics industry has many stakeholders such as manufacturers, customers, suppliers, auditors, and many more. Blockchain technology can potentially benefit everyone in this value chain. It enables the tracking of products by customers and traces the end-to-end value chain of product manufacturing. Blockchain empowers auditors to easily verify and crosscheck any transaction. No piece of information stored in a blockchain can ever be altered or changed by a third party, which enhances the security of this technology beyond that of any existing solution.

In a recent study conducted by World Customs Organization (WCO), the average cost of CO issuance by chambers of commerce globally is $23.50. And according to the International Chamber of Commerce, the average issuance fee for certificates is $25. Although a certificate of origin is only required systematically for import into a few countries, it appears to be causing some extra costs in doing business. While the certificate of origin issued by the Chambers of Commerce continues to be the leading type of non-preferential proofs of origin, according to the 2013 survey, it is noteworthy that it incurs extra cost for trade, compared to the cases where government authorities issue the certificate of origin or where no certificate is required by the importing country.

Is 100% digitisation possible and how?

While coping with these challenges at the same time one needs to anticipate to new developments as blockchain and artificial intelligence. With pandemic situation and need to cloud-based online platforms for trade, it is imperative to for both regulatory bodies and stakeholders realise the importance of technology driven systems to change the dynamics of International Trade. Today, technology has become imperative for trade facilitation in micro as well as macro level.

Blockchain

The introduction of new technologies, such as distributed ledger technology (commonly referred to as blockchain technology), can support both the origin certification and origin verification procedures. The common challenge with certification and verification procedures is, that only the producer/exporter is in possession of the detailed and necessary information about the originating status of the goods. This information is needed by the issuing authority in order to issue certificates of origin on an informed background and by the authority in charge of the subsequent verification of origin.

A blockchain is a growing list of records, called blocks that are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Blockchain technology could, thus, contribute to solving the knowledge gap without disclosing confidential information contained in for instance a bill of materials, reduce risks and costs and enhance compliance, supply chain visibility and trust between the different stakeholders. It may not replace or challenge the provisions on origin certification and verification included in a given origin legislation, but the platform could be used as a basis for the issuance and verification of proofs of origin by unlocking and reviewing immutable information.

An important point to note when it comes to certificates of origin is that authentication from competent authorities in general does not attest to the true origin of the product, leading some to argue that such authentication would, in reality, not be truly necessary. Blockchain would not change this state of affairs. Arguably, the benefits of a blockchain-based system when issuing certificates of origin would be limited to proving that the certificate is authentic – i.e. that it has been delivered by the competent authority – and has not been tampered with.However, if blockchain traceability becomes more widely implemented, certification of origin could rely on blockchain data to be determined directly at the border, without the need for a certifying authority.

Embracing Digitisation

Digitization in the issuance of CoO comes with various benefits. The digital certificate makes the process – from order to completion – transparent and efficient. Some of them other benefits are

• Promoting paperless trade- Documentation chores comes down with digitization, the need for paper too reduces. All processes can be performed online and shared to all stakeholders in few clicks in receivable formats.
• Faster Processing Time- Document submission is automated. Errors in the document goes for a check and then gets validated. Hence, no scope for data inaccuracy.
• Reusing Data – The shipment data entered once can be reused and cuts the manual efforts and reduces the possibility of error
• Improves Productivity and Efficiency- Chambers are often challenged with a large pile of applications to be validated and approved. Just by validating this data, their productivity improves gradually i.e. in few minutes, this digital system will enable them to issue
• Zero Error Ratio- With a proper mechanism for validation ensuring data accuracy, the error ratio reduces considerably.
• No Delays/Misses- A proper mechanism will ensure manual chores are automated and they will enable zero delays at the export as well as the destination country so that the freight reaches the concerned entity on time.

Regulatory authorities are pushing for digitization furthermore to ensure 100 percent automation in the entire process. Yet, only a few Chambers and Exporters are promptly adhering to digitization norms. This is due to lack of awareness among the stakeholders on its benefits. Added to this, coordination among agencies have been limited due to insufficient amount of human resources to take it forward. In a nutshell, the regulatory authorities before proposing a new way of cross-border trade, should conduct a readiness assessment and promote services accordingly.