Experts Say CBP Blockchain Test Unlikely to Succeed
It's odd to be talking about blockchain in terms of regulatory policy, said Aaron Arnold, a fellow at Harvard University who studies trade controls to prevent proliferation of weapons of mass destruction. "The technology itself is meant to disintermediate actors," he said during a panel on blockchain and trade security at the Stimson Center, a Washington think tank that focuses on security.
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Jonathan Tame, a manager in Deloitte's technology practice, said the whole reason blockchain developed was to decentralize authority. But when a government institutes a blockchain verification system, that's inherently centralized.
Arnold gave an example of an instance in which a Massachusetts supplier sent pressure transducers to its Chinese subsidiary, and then an employee there falsified documents about the package's contents and sent the equipment -- used to enrich uranium -- to Iran. "Suppose for a moment these transactions were on a distributed ledger. Would this have stopped the transshipment to Iran? No, I don’t think it would have," he said. That's because the export control is designed to catch the U.S.-to-China transfer, which was perfectly legal. Iran certainly didn't care if the item was made in America and subject to export controls.
"I don’t want to imply that blockchain or distributed ledger technologies have zero applications in this space," he said. For instance, if there were a system where items subject to export controls were tagged in a way that can't be altered, and that item ends up in a country where it's not allowed, the seller would not be paid.
The CBP pilot designed to catch counterfeits (see 1805080023) has lower stakes than nuclear proliferation, but it would it would not close the routes that counterfeits take now into the U.S., Arnold and Tame believe.
Tame said, "I think government-sponsored systems, they won’t work, they’re not taking into account the behavioral economics of why these systems exist in the first place." He gave the example of a Louis Vuitton bag. There are people who want to know they're paying a premium price for the real thing, but there are others who want the brand cachet but cannot afford $1,000, and are happy to spend a tenth of that for a knock-off. That market doesn't go away just because block chain is there, he said. If CBP looks at a shipment of LV bags, and they don't have the right identifier, that could help with enforcement, but not every shipment can be checked. Blockchain doesn't stop mislabeled containers. Moreover, the panel acknowledged, some manufacturers who work for LV, and therefore have access to the right identifying code, also send bags to counterfeit sellers.