SIIA is a believer in blockchain’s potential as this Issue Brief makes clear and is interested in continuing the conversation we started with the Congressional Blockchain Caucus about how policy can be leveraged to promote blockchain-based solutions to real-world problems. Broadly speaking, blockchain should be seen as one of several technologies such as Artificial Intelligence and Quantum Computing that the U.S. government should promote as part of its overall foreign digital economic policy. Given the fact that much ink has been spilled about how blockchain can make supply chains more efficient and transparent, streamline trade finance, and help customs authorities, SIIA offers the following ideas for how policy could help advance blockchain adoption.
Include protection for blockchain in future trade agreements
One way of perhaps including such protection could be to include in future trade agreements the below language in yellow in the cross-border data flow provision found in USTR’s updated negotiating objectives for NAFTA.
Establish rules to ensure that NAFTA countries do not impose measures that restrict crossborder data flows, including data placed on distributed ledgers, and do not require the use or installation of local computing facilities.
“Distributed ledgers” would likely require a definition in any future trade agreement. Also, considerable work on providing reassurances to regulators that they will continue to have access to the data they need to meet their obligations will likely be necessary. Perhaps the reassurances provided to U.S. financial regulators in connection with the U.S. government’s financial services negotiating objectives for NAFTA could serve as a basis for discussions in this regard. With respect to cross-border data flows in the financial sector, the U.S. government’s goal reads as follows.
Ensure that the NAFTA countries refrain from imposing measures in the financial services sector that restrict cross-border data flows or that require the use or installation of local computing facilities.
Arguably, the cross border data flow goal for the NAFTA includes data placed on distributed ledgers, but it might be worthwhile making this explicit. It is also worthwhile recalling that blockchain has much broader potential application than just the financial sector. However, given that blockchain is being deployed in this sector first, including this language seems appropriate.
Intensify Customs Work on Blockchain
“Regtech” is something that many observers consider promising and it has promise on the trade side as well. See, for instance, this intriguing piece called “Could Blockchain Solve A Brexit Sticking Point?” The article is about whether blockchain could be used to track goods from start to finish and eventually contribute to retaining the open border between Northern Ireland and the Republic of Ireland. The answer is maybe. However, the article also posits: “Society is still five to 10 years away from unlocking blockchain’s full potential in revolutionizing the movement of goods.”
U.S. CBP is also looking at blockchain, including the Commercial Customs Operations Advisory Committee (COAC): “Catano explained that the working group is now assessing “blockchain,” a technology used by the financial industry to share information securely. “One of the areas we’re looking at is if blockchain can be used to secure certificates and licenses that are electronically submitted. A lot of licenses are generated by foreign governments and those documents have seals and signatures that have to be presented to customs when goods enter the country,” she said. “We want to make sure that the technology can prevent documents from being manipulated in any way.”
This World Customs Organization (WCO) Working Paper provides an intriguing description of how blockchain could help customs authorities. Specifically, it mentions blockchain’s potential for more data-driven customs administration; more integration with trading processes, thereby speeding up decisions; better cooperation between customs and tax authorities; and, and enhanced ability to combat financial crime.
Perhaps there may be a way to intensify work in this area and determine, for instance, how blockchain rules of origin solutions could be made to work bilaterally and/or multilaterally. At a minimum, SIIA urges global customs authorities to exchange information on how blockchain solutions might assist with meeting customs obligations.
Encourage Commerce to Coordinate with Treasury and Regulatory Agencies to Ensure that U.S. Fintechs and Companies offering Innovative Financial Products Operate under a Globally Competitive Regulatory Environment
CFPB’s Mick Mulvaney is reportedly working with CFTC to establish a U.S. regulatory “sandbox” for blockchain experiments. Given the fragmented nature of the U.S. financial regulatory system, such sandboxes may be worth encouraging given the regulatory sandbox competition from other jurisdictions with less fragmented financial regulation systems. Financial regulators in the United States are aware that sandboxes are being created in various jurisdictions around the world, most notably the UK’s Financial Conduct Authority (FCA) and Singapore’s Monetary Authority of Singapore (MAS). So they know that this is a legitimate competitiveness issue. Moreover, as noted in the data flows section of this blog, U.S. financial regulators participated in an interagency discussion about whether to include financial data in trade agreement data flows agreements. That discussion concluded in interagency agreement on including financial data. As a result, there is precedent for giving some weight to foreign economic policy and competitiveness rationales for regulatory agency conduct in this space.
Monitor Blockchain Standards Development and Encourage Multi-Stakeholder Developed Standards
The draft NISTIR 8202 report entitled “Blockchain Technology Overview” should be finalized and serve as the basis for what U.S. officials consider blockchain to be. The IEEE is doing a lot of work in the blockchain standards development area. Chinese activity in this space should be monitored and analyzed. The EU’s Blockchain “Observatory” is quite active and U.S. and EU policymakers should exchange perspectives on blockchain. The ITU is active here as well. ITU is often challenging for the U.S. government and U.S. stakeholders who view the ITU as frequently straying from its core mission, for instance in discussing over the top providers. In fact, SIIA made this point in an August 17, 2017 letter to the organization. So, especially, as the ITU October 29-November 16, 2018 Dubai plenipotentiary approaches, it will be important to ensure that ITU’s blockchain-related work is productive and consistent with the organization’s mission.
Blockchain is one of many technologies that have game changing potential. Artificial Intelligence is another such technology. They both have in common the fact that their scope of application is so potentially wide, i.e. straddles so many “domains,” that ex ante regulation of the technologies per se does not make sense. Instead, regulators should focus on specific challenges as they arise. For instance, is a token in some cases a security? In Europe, how can blockchain solutions be made consistent with the General Data Protection Regulation (GDPR)? For U.S. foreign economic policy, Commerce, State, USTR and other agencies should continue their successful broad promotion of digital economic goals, including the need for cross border data flows and data flow interoperability mechanisms. Success in these regards will help to maximize the potential deployment of innovative technologies such as blockchain.