Blockchain might be the answer to Brexit’s customs predicament

As the speculations surrounding Brexit take center stage in the parliamentary affairs of the United Kingdom, the logistical nightmares that a “no-deal Brexit” would bring forth have to be taken into account. The U.K. ports are arguably at the epicenter of trouble, as customs officials would have to contend with remarkably long queuing at the border, as cross-border shipments will have to produce declarations post-Brexit.

Though electronic means of submitting customs declarations are possible even before the cargo touches the U.K. shores, it still would be a crippling burden on the customs department – as concerns erupt on it being understaffed to face the impending documentation tsunami post-Brexit. The lengthened processes could spiral into severe backlogs, as officials would have to check documents for authenticity – even if they are submitted electronically.

Several reports have surfaced detailing the issues that customs declaration processes could bring forth, the most important of which are the long waiting times at the border and stressful red-tape procedures. Meg Hillier, a Labour Co-operative politician, was quoted last year that such delays could cause queues that stretch over 112 miles from the port of Dover.

However, in the aftermath of a hard-Brexit, there might be hope through blockchain technology. Last July, the U.K. government released a whitepaper about its intent to explore “how machine learning and artificial intelligence could allow traders to automate the collection and submission of data required for customs declarations.”

Blockchain’s inherent ability to establish a traceable trail of documents for freight – from its point of origin to its movement through several nodes within the supply chain – is helpful as it would not only smooth the customs process, but would also stop people from evading customs duty. Cross-border smuggling is a ubiquitous problem – for instance, smuggled and counterfeit cigarettes cost the country €10 billion a year in lost revenue.

The risk of losing customs revenue is very real, and the U.K. government is leaving no stone unturned to make sure it streamlines payment in a way that is impossible to bypass. This was fairly evident from the cryptically worded mention of a certain “chain of transactions” in its whitepaper – a phrase that has blockchain written all over it. That apart, Philip Hammond, U.K. Chancellor of the Exchequer, also made a suggestion last year about using blockchain to initiate frictionless trade across the Irish border post-Brexit.

To create a bankable documentation system that runs over the blockchain, it is essential to define a framework of open standards within the ecosystem that can be commonly used by every stakeholder. Blockchain in Transportation Alliance (BiTA) is one such consortium that is looking to rope in players from different nodal points within supply chains, to effect an end-to-end system that would help standardize the way blockchain is used in the future.  

Nonetheless, it is important to not look at blockchain as an all-pervasive solution to every problem that is associated with customs declarations. Though blockchain can hold information that is immutable, the onus is still on the officials to make sure it is appropriately implemented. Bad actors can game the system by switching labels or reusing old labels – something that blockchain could not control.

To circumvent such issues, goods that are prone to smuggling could be etched with permanent tracking stamps, making them impossible to tamper with. Internet of Things (IoT) could also be experimented with, as technology has shrunk chips to the size of a grain of salt and therefore they can be stuck to crates and cartons without issue.

The U.K. government is not the only entity mulling over a possible blockchain application in trade transactions. Blockchain company Nexus surveyed 200 U.K.-based medium and large businesses, finding that more than half of the companies queried were hoping to adopt blockchain in a post-Brexit environment to combat fraud, cut operational costs and improve supply chain efficiency.

“With Brexit on the horizon, it’s abundantly clear that many companies are planning to boost use of blockchain technology to reduce risk and create a more accountable working environment,” said Alex El-Nemer, director at Nexus. “The research also indicates that company leaders see blockchain as a vital tool in preparing for a potentially uncertain economic climate.”