International trade transactions are complex mechanisms where multiple parties are involved in completing a singletransaction. The time taken to deliver goods from the manufacturer in one country to the consumer in another country takes a long time. The high cost associated with international trade is high due to many reasons including heavy paperwork. According to International Chamber of Commerce (ICC), a typical trade transaction may involve up to 27 documents including 9 possession transfers, may need up to 3 months to process a transaction with a total of 4 billion document movement in the trade ecosystem. According to ease of doing business index, the process is much more complicated and lengthier in Bangladesh.
Multiple blockchain-based consortiums are formed to promote digital international trade. IBM describes ‘Blockchain as a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network’.Technologysimplifies international trade and finds major benefits like reducing risk, automated transactions and simplifyinginternational trade. A blockchain-based trade consortiumcan connect buyers, sellers, and banks. So, blockchain technology is seen as a good application to overcome traditional challenges faced by the international trade ecosystem.Prospective areas in international trade for adopting blockchain are Letter of credit (LC), Open account trade, Payment, Customs, Certifications and inspections. LC issuance, LC document checking and LC settlement blockchain could be a great application. Exporters, importers and banks will benefit by using blockchain application to process LC in real-time by reducing time and cost.
LC is the most widely used trade method in Bangladesh. LC method faces many challenges like old paper-based system, physical document exchange and several copies are transmitter by different parties which makes longer process to complete a trade transaction.A few financial institutions in Bangladesh have already started to adopt blockchain technology, such as Standard Chartered Bank, Prime Bank, HSBC Bank etc. Meanwhile, the Bangladesh-based banks executed a number of letters of credit (LC) transactions through blockchain in the recent years. On the other hand, bKash has made remittance transactions much faster, secure, and cost-effective using blockchain technology. It is the significant progresses made by Bangladesh in the field of blockchain technology.
Against the use of L/c, open account trade or transaction against contract is anarrangement between buyer and seller where goods areproduced and delivered before payment is executed andopen account is the most popular trade method globally. Nowadays, it take place around 80 percent of trade paymenttransactions. Only recently Bangladesh bank has issued policy to allow open account global transactions in international trade.Open account transactions arefeasible on blockchain where sales contract can be issuedon blockchain platform instantly which will be underlineddocuments for the subsequent transactions.
Most of the renowned global banks arealready tested the blockchain based payment process.EvenSWIFT platform is widely used for international tradepayment and SWIFT is also underpinning blockchain based platforms. Customs and ports are very crucial parts ininternational trade for any country. According to the WorldBank, greater corruption is correlated with the greatercomplexities of customs procedure, and which is dominantin the developing countries.
Hardcopy document is required in most all phase of international trade. For this, lengthy processes need to follow for any international trade transaction and cost associated with trade transaction is also high. In global trade, paper is a barrier for smooth business operation resulting high cost, high risk of forgery and annual loss over USD 19 trillion in goods in the global trade.
International trade requires different types of documents to complete a single transaction. Exporters, importers, banks, carriers and government bodies issued commercial, transportation, trade financing and regulatory documents from their end.Transport documents are one of thevital shipping documents used in international trade. some of the widely used trade documents are:export-import license, sales contract, commercialinvoice, LC, certificate of origin, Phyto-sanitary certificate, Bill of lading, insurance policy, custom declaration. The transport documents is Bill of Ladingwhich is a title of goods and issued in papers.In addition, hand-to-hand courier transmission of bill oflading is expensive, slow, risky, exposed to forgery anddocument loss. Transport documentsincluding Bill of Lading can be issued and shared withrelevant parties in blockchain application.
National single window in Bangladesh facilitating smooth and quick service for international trade. The Single Window environment can facilitate trade by improving speed and efficiency.Different chambers ofcommerce and organizations normally issue certificatesfor their members which could be issued on blockchainapplications. BGMEA and BKMEA etc issue different NOC, bond utilization certificate etc to their members. In addition, inspections from third party companies and government authority is required for maytrade transactions which also can be produced inblockchain platforms. So, to export fromBangladesh and to import in Bangladesh blockchain basedcertifications can be useful. The organization can use blockchain technology to improve their respective services.
The World Custom Organization revealed that the total loss of revenue due to customs related corruption is at least USD 2b. In Bangladesh, despite significant improvement in customs, business is still facing delays and higher cost while passing custom procedure. According to custom and port data, to release imported goods it requires up to 72 hours in 50 percent cases, 72 to 150 hours requires in 38 percent and between 150 to 275 hours are required for rest 12 percent cases. So blockchain applications can address this issue to make customs operation faster and more transparent.
Identification of beneficial owners is a major challenge in corrupt countries like Bangladesh. Blockchain can be helpful by strengtheningbeneficial ownership and client identity more effectively.Blockchain based KYC will enhance transparency oftransactions which can play significant role in preventingmoney laundering. Private blockchain is secured as everyone cannot get access the platform but who has access will receive all data unless special measurements are take place.
Blockchain technology for international trade transactions is not tested by most stakeholders in Bangladesh till now. Introducing blockchain applications intrade will reduce cost, time and improve the security indifferent parts of the trade ecosystem. Blockchain cantransform the traditional trade process, procedure andpractices including trade method, customs involvement, regulatory supervision and trade document management.
Letter of credit (LC), open account trade, Trade financing,trade payment, inspections, certifications, and transportdocuments are major areas where blockchain has amplescope to disrupt. However, disseminating andimplementing blockchain technology in the tradeecosystem will require sufficient skilled people,technological infrastructure, stakeholder’s engagement and timely policy.
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