Report - A8-0407/2018Report
A8-0407/2018
European Parliament

REPORT on Blockchain: a forward-looking trade policy

27.11.2018 - (2018/2085(INI))

Committee on International Trade
Rapporteur: Emma McClarkin
Rapporteurs for the opinion (*):
Cristian‑Silviu Buşoi, Committee on Industry, Research and Energy
Ana Gomes, Committee on Civil Liberties, Justice and Home Affairs
(*) Associated Committees – Rule 54 of the Rules of Procedure

Procedure : 2018/2085(INI)
Document stages in plenary
Document selected :  
A8-0407/2018
Texts tabled :
A8-0407/2018
Debates :
Votes :
Texts adopted :

MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION

Blockchain: a forward-looking trade policy

(2018/2085(INI))

The European Parliament,

–  having regard to Articles 207(3) and 218 of the Treaty on the Functioning of the European Union (TFEU),

–  having regard to the General Agreement on Trade in Services (GATS),

–  having regard to the World Trade Organisation (WTO) Information Technology Agreement (ITA),

–  having regard to the WTO Work Programme on E-commerce,

–  having regard to the WTO Trade Facilitation Agreement,

–  having regard to the World Customs Organisation Revised Kyoto Convention,

–  having regard to its resolution of 26 May 2016 on virtual currencies[1],

–  having regard to its resolution of 5 July 2016 on a new forward-looking and innovative future strategy for trade and investment[2],

–  having regard to its resolution of 12 December 2017 entitled ‘Towards a digital trade strategy’[3],

–  having regard to its resolution of 16 May 2017 on the evaluation of external aspects of customs performance and management as a tool to facilitate trade and fight illicit trade[4],

–  having regard to its resolution of 12 September 2017 on the impact of international trade and the EU’s trade policies on global value chains[5],

–  having regard to the Joint Declaration on Trade and Women’s Economic Empowerment on the Occasion of the WTO Ministerial Conference in Buenos Aires in December 2017[6],

–  having regard to Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (the General Data Protection Regulation or GDPR)[7],

–  having regard to the Commission proposal on horizontal provisions for cross-border data flows for personal data protection (in EU trade and investment agreements),

–  having regard to the Commission report to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the implementation of the Trade Policy Strategy ‘Trade for All’: Delivering a Progressive Trade Policy to Harness Globalisation (COM(2017)0491),

–  having regard to the 2016 report of the Chief Scientific Adviser of the UK Government Office for Science on ‘Distributed Ledger Technology: beyond blockchain’[8],

–  having regard to the 2018 White Paper of the United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT) on the technical applications of blockchain,

–  having regard to the declaration of 10 April 2018 by 21 EU Member States and Norway on the establishment of a European Blockchain Partnership[9], after which five more Member States joined the Partnership, bringing to 27 the current number of signatory countries,

–  having regard to the Commission’s launch of the EU Blockchain Observatory and Forum on 1 February 2018[10],

–  having regard to the Council conclusions of 19 October 2017[11],

–  having regard to Rule 52 of its Rules of Procedure,

–  having regard to the report of the Committee on International Trade and the opinions of the Committee on Industry, Research and Energy and the Committee on Civil Liberties, Justice and Home Affairs (A8-0407/2018),

A.  whereas in this report blockchain will be considered, unless otherwise stated, as a private, permissioned distributed ledger technology (DLT), comprising a database made up of sequential blocks of data that are added with the consensus of network operators;

B.  whereas various case studies and industries will derive different utility from a mixture of private/public, permissioned/permissionless blockchains;

C.  whereas each block on a blockchain contains a hash that verifies the data on previous blocks, thereby enabling separate parties to engage in transactions with enhanced trust and accountability, given that data stored on a ledger cannot be easily falsified;

D.  whereas open-source blockchain technology is the bedrock of the rise of permissioned blockchains worldwide, helping to raise the level of participant trust in a given business-related network;

E.  whereas blockchain could enable certain administrators to clearly define participants’ roles, responsibilities, levels of access, and rights of validation;

F.  whereas global trade is based on an estimated EUR 16 trillion supply-chain sector in which the high transactional costs and burdensome paperwork lead to a complexity of processes and systems susceptible to error;

G.  whereas pilot initiatives have been launched with promising potential to reduce transport costs, make the industry more environment-friendly and boost economic performance;

H.  whereas there are at least 202 government blockchain initiatives in 45 countries around the world and economies in regions of Asia-Pacific, the Americas and the Middle East, in particular, are investing in blockchain technologies for trade;

I.  whereas blockchain can enhance and improve EU trade policies, such as Free Trade Agreements (FTAs), Mutual Recognition Agreements (MRAs), particularly of Authorised Economic Operators (AEOs), data adequacy decisions and trade defence measures;

J.  whereas blockchain has great potential to improve transparency and traceability throughout the supply chain, raise the level of participant trust in a given network, streamline customs checks and regulatory compliance, reduce transaction costs, strengthen the immutability and security of data and function as a tool to combat corruption; whereas the potential benefits are accompanied by several challenges, such as cybersecurity;

K.  whereas blockchain can provide a framework for transparency in a supply chain, reduce corruption, detect tax evasion, enable the tracking of unlawful payments and tackle trade-based money laundering (TBML); whereas there are risks associated with the use of unpermissioned blockchain applications for criminal activities, including tax evasion, tax avoidance and TBML; whereas the Commission and the Member States must monitor and address these issues as a matter of urgency;

L.  whereas blockchain is still evolving in the area of international trade and therefore needs an innovation-friendly, enabling and encouraging approach that provides legal certainty, while at the same time promoting consumer, investor and environmental protection, increasing the social value of the technology, reducing the digital divide and improving the digital skills of citizens;

M.  whereas blockchain technology may provide all parties involved in trade, be they public or private, with permanent real-time access to an immutable, time-stamped database holding documents pertaining to transactions, thus helping to build confidence, avoid compliance issues and tackle the use of counterfeited goods or fake documents;

N.  whereas some regional and metropolitan areas of the EU have already started developing this technology through specific projects and programmes, based on their own characteristics, and creating networks to spread best practices;

EU trade policy

1.  Recognises that despite previous trade successes, EU FTAs have large untapped potential and have yet to be fully utilised with, on average, only 67 % of EU exporters and 90 % of EU importers making use of the preferential tariffs in both the EU and its partner countries or regions, and supports analysis of technical solutions that may increase FTA utilisation and exports; notes that exporters could upload all their documents to a public authority application underpinned by blockchain, and demonstrate their compliance with preferential treatment granted by an FTA, such as qualification for preferential rules of origin, sanitary and phytosanitary (SPS) rules, and Trade and Sustainable Development (TSD) provisions; believes that blockchain could enhance provisions for cumulation in FTAs;

2.  Views the procedures for obtaining certification for both preferential and non‑preferential rules of origin to be costly and cumbersome for businesses; considers that, in the case of preferential rules, blockchain can assist in establishing the economic nationality of a good; considers furthermore that, in the case of non-preferential rules, blockchain could assist the Union’s proportionate use of trade defence instruments by providing transparency over the provenance of goods entering the European market and an overview of the influx of imports to ensure a more level playing field for businesses;

3.  Stresses that blockchain has the potential to support the TSD agenda by providing trust in the provenance of raw materials and goods, transparent production processes and supply chains, and in their compliance with international rules in the field of labour, social and environmental rights, considering the particular relevance to conflict minerals, illicit trade in cultural goods, exports control and corruption; stresses that blockchain could contribute to the sustainability work of companies and promote responsible business conduct;

4.  Believes that MRAs of AEOs enable businesses to diversify their supply chains through reduced time and costs associated with cross-border customs; notes that there are implementation issues to be addressed; believes that blockchain offers the potential to reduce the uncertainty associated with implementing MRAs of AEOs, through a seamless exchange of data;

External aspects of customs and trade facilitation

5.  Strongly welcomes the Trade Facilitation Agreement (TFA); views the TFA as a foundation for WTO members to explore further ways to ease trade, including through blockchain; welcomes the EU’s efforts to maintain and strengthen the WTO and its commitment to a rules-based trading system in order to ensure a level playing field and enforce global trade rules;

6.  Considers that blockchain could enable customs authorities to automatically obtain the required information for a customs declaration, reduce the need for manual verification and paper trails, and provide a precise update on the status and characteristics of goods entering the EU to all relevant parties simultaneously, thereby improving track‑and‑trace capabilities and transparency;

7.  Believes that digitisation will enable the exchange of information to be more efficient and transparent; considers that blockchain can enable producers, laboratories, logistics operators, regulators and consumers to have access to, and share, all necessary information regarding, for example, provenance, testing, certification and licensing; notes that blockchain could also assist in the appropriate issuing of e‑certificates; views digitisation and the use of applications along supply chains to be both a prerequisite for, and a complement to, blockchain’s full functioning; notes that there exist substantial differences between Member States as regards digitisation;

8.  Believes that the adoption of blockchain technologies throughout the supply chain can increase the efficiency, speed and volume of global trade by limiting the costs associated with international transactions and assisting business to identify new trading partners, and can lead to increased consumer protection and confidence in digital trade;

9.  Underlines the application of blockchain, notably in the following ways:

a.  strengthening the certainty of both the provenance and the intellectual property rights of goods, thereby reducing the risk of illicit goods, including fake and counterfeit goods, entering the supply chain,

b.  providing authorities with precise information as to when a good may have been damaged/tampered with on supply chains,

c.  improving transparency and traceability by enabling all participants to record their transactions and share this information in the network,

d.  upholding consumer protection and trust by providing consumers with detailed information on goods and contributing to the sustainability work of businesses,

e.  reducing the costs of supply‑chain management by removing the need for intermediaries and their associated costs, along with the physical requirement to produce, transport and process paper documentation,

f.  improving the application of correct duty and VAT payments and revenue collection within trade policy, and

g.  reducing the total time goods are in transit by automating tasks that are typically accomplished through manual means; notes the associated benefit, in particular to just-in-time supply chains, in reducing both the costs and the carbon footprint of the logistics industry;

10.  Notes that criminals can manipulate legitimate trade to mask their illicit activities, such as TBML, by tampering with the necessary documentation by means of false reporting, such as overvaluation or undervaluation of the good concerned; believes that blockchain can enable customs and other authorities to take necessary actions in a timely, prompt and coordinated manner to expose illicit financial flows;

Cross-border data flows and data protection

11.  Recognises cross-border data flows as an integral function for international trade in goods and services, and the design of blockchain architecture;

12.  Highlights the scope of blockchain for validating transactions across an international supply chain by defining levels of access and validation procedures for participants;

13.  Notes the connection between blockchain and cross-border data flows for trade; notes that a private permissioned inter-ledger network can provide trust between platforms by integrating data from multiple sources; recognises the importance of cross-border data flows for growth and jobs; highlights the distinction between personal and non-personal data on blockchains;

14.  Recognises the challenge posed by the relationship between blockchain and the implementation of the GDPR; highlights that the implementation of blockchain should be compliant with all existing and future EU legislation on data protection and privacy rules; underlines that blockchain technology can provide solutions for the ‘data protection by design’ provisions in GDPR implementation on the basis of their common principles of ensuring secured and self-governed data; emphasises the limited effect of the GDPR on commercial transactions due to the absence of personal data on private permissioned blockchains; acknowledges, however, the need for necessary safeguards and regulatory oversight; underlines that the GDPR applies only where personal data are concerned; invites the Commission to look further into this issue;

15.   Acknowledges the need for blockchains to be designed in compliance with the right to be forgotten and notes that verified users of blockchain and blockchain applications should at all times have access to all data related to transactions in which they are involved, in accordance with their access rights;

16.  Reiterates its call for provisions allowing for the full functioning of the digital ecosystem and for the promotion of cross-border data flows in free trade agreements; notes, in this regard, that adequacy decisions do not advance the free flow of non‑personal data; calls, therefore, on the Commission to negotiate binding and enforceable commitments on data transfers in FTAs, including on non-personal data;

17.  Underlines that blockchain represents a new paradigm of data storage and management that is capable of decentralising forms of human interaction, markets, banking and international trade; emphasises that the rise of blockchain presents both opportunities and challenges in terms of data protection, transparency and financial crime, as the data is immutable once it has been input and is shared with all participating parties, which also ensures its security and integrity; requests that everything possible be done, including at national level, to guarantee the non-falsifiable and immutable character of the technology and to ensure that the fundamental right to data protection is not put at risk;

18.  Recognises the challenge posed by the relationship between blockchain technologies and the implementation of the EU data protection framework, namely the General Data Protection Regulation (GDPR), and recalls that, as a result, this relationship could reveal a clash between the protection of fundamental rights, on the one hand, and the promotion of innovation, on the other; suggests the need to ensure that blockchain fully conforms with the EU’s data protection framework and fully respects the principles set out in EU law, particularly in relation to the processing of personal data as a fundamental right under Article 8(1) of the Charter of Fundamental Rights of the European Union and Article 16(1) of the Treaty on the Functioning of the European Union;

19.  Stresses, furthermore, that blockchains, partly as a result of the clash described above, by no means automatically support data sovereignty, and must therefore be specifically designed to do so, given that they can also present risks to data protection;

20.  Underlines that, if adequately designed, blockchain technology should be in line with the principle of ‘data protection by design’, which serves to give data subjects more control over their data, in line with the GDPR; stresses, moreover, that personal data in a blockchain is normally not anonymous, thereby bringing it within the scope of the GDPR; insists that blockchains should be fully compatible with EU law, including when they are used to process personal data; recommends, in this respect, that blockchains and applications should integrate mechanisms that ensure that data can be fully anonymous, thereby guaranteeing that they store only data that does not relate to an identified or identifiable natural person;

21.  Underlines that future blockchain applications should implement mechanisms that protect personal data and the privacy of users and ensure that data can be fully anonymous; calls on the Commission and the Member States to fund research, in particular academic research, and innovation on new blockchain technologies that are compatible with the GDPR and based on the principle of data protection by design, such as zk-SNARK (zero-knowledge succinct non‑interactive arguments of knowledge);

22.  Takes the view that, in order to prevent the infringement of the fundamental right to the protection of personal data, blockchain technology should not be used for the processing of personal data until the user organisation concerned is in a position to guarantee compliance with the GDPR and to specifically ensure that the rights to the rectification and erasure of data are protected;

23.  Highlights the fact that blockchain users may be both data controllers, for the personal data that they upload onto the ledger, and data processors, by virtue of storing a full copy of the ledger on their own computer;

24.  Notes that, in cases where the blockchain contains personal data, the immutable nature of some blockchain technologies is likely to be incompatible with the ‘right to erasure’ set out in Article 17 of the GDPR;

25.  Notes with concern that, in cases where the blockchain contains personal data, the proliferation of copies of data in a blockchain is likely to be incompatible with the data minimisation principle set out in Article 5 of the GDPR;

26.  Invites the European Data Protection Board to issue guidelines and recommendations to ensure that blockchain technology is compliant with EU law;

27.  Notes with concern the lack of any reference to the serious implications of how blockchain technology is applied, particularly in areas such as the fight against money laundering, tax evasion and the financing of terrorism; deems that any utilisation of blockchain technologies should be anticipated by delineating what will be stored on and off the chain, with personal data stored off the chain;

Small and medium-sized enterprises (SMEs)

28.  Believes that innovation and promotion regarding blockchain can create economic opportunities for SMEs to internationalise and to overcome the costs associated with exporting, by making it easier to interact with consumers, customs authorities, international and domestic regulatory bodies, and other businesses involved in the supply chain; adds that blockchain infrastructure can help to quickly and inexpensively bring products and services to market;

29.  Highlights the benefits blockchain could bring to SMEs by allowing peer-to-peer communication, collaboration tools and secure payments, increasing the ease of doing business and reducing the risk of non-payment and legal procedure costs of contract fulfilment through the use of smart contracts; recognises the need to ensure that the development of blockchain in international trade includes SMEs; highlights that, at the moment, smart contracts may not be sufficiently mature to be considered legally enforceable within any sectoral regulation and further assessment of risks is needed;

30.  Acknowledges the opportunities, including for SMEs, deriving from the introduction of blockchain technology as part of the EU’s trade policy, which could bring, among other benefits, lower transactional costs and greater efficiency; acknowledges, furthermore, that blockchain technology offers the potential to improve trust and confidence in the current trade system by providing an immutable record of transactions; recognises, however, that in cases that fall outside the scope of the EU’s trade policy, the application of this technology may present risks of money laundering and facilitate the financing of organised crime;

Interoperability, scalability and interactions with related technologies

31.  Considers the scalability challenges associated with the implementation of blockchain systems, in the context of expanding international trade networks;

32.  Notes the proliferation of different blockchains anchoring data for a transaction into separate private and public ledgers; recognises that there is an increasing need to develop global interoperability standards to integrate transactions across blockchains around the movement of an item along a supply chain to encourage interoperability between systems, including legacy operation systems; calls on the Commission to enhance collaboration with ISO and other relevant standardisation bodies;

33.   Considers the possible interactions of blockchain technologies with other international trade innovations; underlines the need to analyse the opportunities and challenges connected with developments in blockchain technologies; calls for further research into their applicability to the digital transformation and automation of international trade, as well as the public sector, in particular under the Digital Europe Programme;

Conclusions

34.  Calls on the Commission to follow developments in the area of blockchain, in particular the ongoing pilots/initiatives in the international supply chain, and the external aspects of customs and regulatory processes; invites the Commission to produce a horizontal strategy document involving relevant DGs on adopting blockchain technologies in trade and supply‑chain management as well as in the area of intellectual property and in particular regarding the fight against counterfeiting; invites the Commission to assess the judicial and governance aspects of blockchain and whether blockchain offers better solutions to existing and emerging technologies that can address current challenges in EU trade policy; calls on the Commission to follow developments in the area of blockchain, in particular the ongoing pilots/initiatives in the international supply chain; invites the Commission to produce a strategy document on adopting blockchain technologies in trade and supply‑chain management; believes that the aim must be to win the support of blockchain players for projects and initiatives in the international supply chain and to pursue projects on a joint basis, incorporating the identity, provenance and data storage of a variety of partners;

35.  Calls on the Commission to develop a set of guiding principles for blockchain application to international trade, in order to provide industry and customs and regulatory authorities with a sufficient level of legal certainty that encourages the use of blockchain and innovation in this area; stresses that legislating the technology forming the basis of the applications would limit innovation and the creation of new applications; underlines the importance for the EU, and especially for European industry, of showing leadership and ownership in the field of blockchain technologies and of ensuring a level playing field regarding global competition and in the areas of development and the regulatory environment; underlines the importance of dialogue and exchange of practices, as well as the building of competence and digital skills; calls on the Commission to work with the Member States to launch and supervise pilot projects using blockchain technology in international trade, in order to test its benefits;

36.  Encourages the Commission to work with Member States towards simplifying and enhancing the flow of information related to trade facilitation, by, amongst other measures, adopting suitable information and communication technologies;

37.  Calls on the Commission to set up an advisory group within DG Trade on blockchain and to develop a concept note for private permissioned pilot projects on the end-to-end use of blockchain in the supply chain, involving customs and other cross-border authorities, and taking into account intellectual property rights and the fight against counterfeiting; recognises that blockchain technology is still in the early stages of development, yet there is a need for an industry strategy on the effective implementation of blockchain;

38.  Calls on the Commission to examine ways in which blockchain could support trade and sustainable development; recalls Parliament’s position that measures supporting an EU digital trade strategy should be fully in line with, and contribute to, the realisation of the Sustainable Development Goals (SDGs), including SDG5 on gender equality and women’s empowerment; recalls Parliament’s position on the importance of promoting female participation in STEM (science, technology, engineering and mathematics) and of closing gender gaps in access to, and the use of, new technologies;

39.  Calls on the Commission to conduct policy investigations into how blockchain can modernise the Union’s trade defence policies to strengthen their legitimacy and enforcement;

40.  Calls on the Commission to assess the optimality of blockchain architecture that keeps private data off the chain;

41.  Calls on the Commission to assess how to increase trade facilitation and security by means of blockchain technology, including the concept of AEOs;

42.  Encourages the Commission to collaborate with, and contribute to the work of, international organisations and feed into current projects on producing a set of standards and principles to underpin regulation aimed at facilitating the use of blockchain;

43.  Calls for the European Union and its Members States to play a leading role in the process of standardisation and security of blockchain, and to work with international partners and all relevant stakeholders and industries to develop blockchain standards, including terminology, development, and deployment of the technology in trade and supply‑chain management; stresses that cybersecurity is critical for blockchain applications, including for international trade; calls on the Commission to explore security challenges, to assess technological risks such as quantum computing and to undertake actions to address them;

44.  Calls on the Commission to work with relevant stakeholders in order to review and develop a framework for addressing challenges to interoperability and compatibility between blockchain systems;

45.  Welcomes the launch of the EU Blockchain Observatory and Forum and encourages it to study applications aimed at facilitating international trade; hereby requests that the Commission explore the possibility of expanding the mandate of the EU Blockchain Observatory and Forum and involve relevant local and global stakeholders to address upcoming challenges and foster the support of decision-makers;

46.  Calls on the Commission to take the lead in the assessment and further development of blockchain technologies, including in specific sectors, such as those covered by the EU’s trade policy, and to set up an advisory group on blockchains, which should include experts on anti-money laundering, tax evasion, data protection and organised crime;

47.  Reminds the Commission that the EU has an opportunity to become a leading actor in the field of blockchain and international trade, and that it should be an influential actor in shaping its development globally, together with international partners;

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48.  Instructs its President to forward this resolution to the Council and the Commission, the Vice-President of the Commission / High Representative of the Union for Foreign Affairs and Security Policy, and the EEAS.

EXPLANATORY STATEMENT

Whilst the European Union has taken important and welcome steps towards developing uses for blockchain in the single market, it must also focus on how blockchain can be harnessed to enhance international trade policies and supply chain management. Recent studies estimate that blockchain could potentially save 20 per cent of total physical transportation expenses, cutting costs by up to $1 trillion in global trade. Moreover, the reduction of barriers within global supply chains through the widespread implementation of blockchain is estimated to increase global trade by almost 15 per cent.

Blockchain technology allows separate parties to engage in secure transactions, without the need for an intermediary. Key features of blockchain include mechanisms that allow separate parties to securely determine the date and origins of data entries on each block in the chain. In addition, records of data on blockchain are immutable, which means that data cannot be altered or deleted once it is written on the chain. Users also have verified access to blockchain, and blockchain systems contain automated functions to execute smart contracts once certain criteria have been met.

Blockchains are a category of distributed ledger technologies (DLTs), which are types of databases that record transactions and store them as immutable records. The ledger is distributed because there are multiple copies of the blocks in the chain. These copies are kept on different systems, known as nodes. Moreover, the copies are updated by using a consensus algorithm which ensures that all copies remain consistent. This algorithm decides how a block can be added to the chain.

Blockchain therefore comprises a database of sequential data ‘blocks’ that have been added to each of the multiple copies of the ledger. Each block contains a ‘hash’, or cryptographic fingerprint, that can be used to verify the content of the previous block.

Although blockchain has prolifically been associated with cryptocurrencies since the first concept paper for this technology published by Satoshi Nakamoto in 2008, blockchains can vary from being permissionless to permissioned, public to private. Within the scope of this report, the term blockchain will refer solely to private permissioned networks. The information stored on private permissioned networks is only available to specific participants, determined according to governance mechanisms underpinned by the principle of consensus, which can vary from one blockchain to another. Unlike public permissionless blockchains, private permissioned blockchains contain variations of governance controls overseen by network operators to enhance security and determine access. Consequently, private permissioned networks have largely been implemented in real-life commercial use cases and pilot projects. For example, the Korean Customs Service is currently testing an e-commerce customs clearance platform underpinned by blockchain to streamline processes by automating the generation of import clearance reports to authorities.

This report recognises the recent proliferation of research and investment in both the public and private sectors to implementing blockchain in variety of use-cases. Therefore, a measured and rational approach is required to investigate exactly where blockchain can offer tangible benefit.

To this end, blockchain technology has enormous potential for reducing barriers within global supply chains. The purpose of this report is to highlight the current sub-optimal issues in supply chains, EU trade policy and customs procedures, to identify the plausible benefits derived from widespread blockchain implementation, and to recommend achievable and gradual policy steps to the European Commission and Member States to enable this technology to function.

Blockchain has the potential to reduce the costs of transactions between parties by removing the need for physical paperwork, in addition to the inspective and administrative hurdles posed by intermediaries. This is due to the enhanced trust that blockchain instils in transactions between parties, which in turn improves transparency and strengthens the certainty of provenance of goods. Moreover, blockchain can facilitate and strengthen the security of data flows to prevent the use of fraudulent documentation and counterfeit goods in supply chains. As testament to these potential benefits, several commercial pilot projects have already been implemented in the logistics industries to underpin supply chains with blockchain either partially or end to end.

These use-cases for blockchain are not confined to large multinational companies. SMEs have the potential to be one of the greatest beneficiaries of blockchain. The technology could make it significantly easier for SMEs to interact with customs authorities and other businesses along their supply chain to grow and increase their exports by reducing transactions costs. The necessary credit checks and verification measures can be streamlined by the automation that blockchain systems provide to supply chains. For example, documents that require frequent amendments and verifications along different stages of the supply chain could benefit from greater certainty, as blockchain automatically registers documents and chronologically stores data without amending previous entries. This could allow SMEs to easily confirm verifications and changes to documents, reducing the cost of doing business.

These streamlining effects of blockchain have significant potential for facilitating further transactions on the supply chain, and thereby increasing global trade. For commercial transactions, it is important to note that businesses will naturally be averse to sharing sensitive data on the blockchain. This report will therefore solely consider the use of private permissioned blockchains that contain governance mechanisms controlling user access to data on the chain.

This report highlights the specific potential of blockchain for enhancing EU trade policy. EU FTAs are largely underutilised by businesses and the Commission has previously noted that this is in part due to difficulties in understanding the rules for obtaining preferential origin, in addition to burdensome procedures for obtaining the documents required to benefit from preferential treatment. To this end, blockchain has significant potential to benefit exporters through the ability to upload all relevant documents on to a single application underpinned by blockchain that would prove their compliance with preferential treatment granted by a FTA. Moreover, blockchain can assist the Union’s trade defence instruments by providing transparency over the provenance of goods entering the European market.

This report will also take into account the connection between blockchain and cross-border data flows, and between blockchain and the GDPR. The encryption and immutability features of blockchains could be useful for implementing GDPR requirements yet also raise questions about data transparency.

Furthermore, the report highlights the dual challenges to interoperability between blockchains, and the issues facing the scalability of blockchain systems. First, interoperability between blockchains refers to the ability to integrate transactions across different blockchains. For example if different blockchain systems were to be used along the same supply chain for a single good, it would be useful for data to be transferable between systems. There is currently a long way to go before several blockchain systems would be implemented along a single commercial supply chain, however this is an emerging issue that the Commission must be cognisant of when looking into policy options.

The scalability of blockchain systems represents another key challenge to widespread blockchain implementation. As blockchain systems expand within international trade networks, the capacity of the technology and resilience of its governance mechanisms must remain robust.

In view of these developments, the Rapporteur therefore recommends that regulatory hurdles to widespread blockchain implementation need to be addressed. The European Commission must actively engage with Member States to closely follow developments in the area of blockchain, in particular the ongoing pilot projects and commercial use-cases that implement blockchain-based systems in international supply chains. Finally, the European Commission must feed in to ongoing international initiatives to develop standards and principles that underpin regulation for facilitating the use of blockchain.

OPINION of the Committee on Industry, Research and Energy (8.11.2018)

for the Committee on International Trade

on blockchain: a forward-looking trade policy
(2018/2085(INI))

Rapporteur (*): Cristian-Silviu Buşoi

(*) Associated committee – Rule 54 of the Rules of Procedure

SUGGESTIONS

The Committee on Industry, Research and Energy calls on the Committee on International Trade, as the committee responsible, to incorporate the following suggestions into its motion for a resolution:

A.  whereas distributed ledger technology (DLT) is a general-purpose technology which could have great potential for trade transactions through appropriate encryption and control mechanisms; whereas blockchain is one of several types of DLTs, which could potentially have a disruptive impact on multiple industries;

B.  whereas DLTs, and in particular blockchain, a technology characterised by automatic tracing, recognition, verification and supervision, could optimise transparency and traceability, build confidence, foster competitiveness and capacity for innovation, and develop new patterns of cooperation in the EU; whereas the potential benefits are accompanied by several challenges, including energy consumption and cybersecurity;

1.  Supports the principles of technology neutrality and business model neutrality when dealing with emerging technologies such as DLTs in the area of trade and supports an innovation-friendly ecosystem that provides flexibility; stresses that legislating for the technology on the basis of its applications would limit innovation and the creation of new applications;

2.  Notes the potential of the integration of DLTs with other technologies such as the Internet of Things, Artificial Intelligence and quantum computing, and calls for further enhanced collaboration with relevant stakeholders to foster research into their applicability to the digital transformation and automation of international trade as well as the public sector, in particular under the Digital Europe programme;

3.  Notes that blockchain is becoming an important tool across various sectors and industries, notably in the financial sector, and in supply chain modelling;

4.  Underlines that smart contracts can be a key enabler of decentralised applications in international trade operations, but warns that, at the moment, this technology may not be sufficiently mature to be considered legally enforceable within any sectoral regulation, and that further assessment of risks is needed; encourages the development of technical standards for smart contracts and for mutual recognition of digital signatures throughout the EU;

5.  Notes the important role that this technology could play in the completion of the EU energy union; recognises the challenge that energy consumption poses when using this technology; notes that blockchain could provide part of the solution by using more efficient algorithms, improving the efficiency of energy exchanges, enhancing the design and use of energy grids and decentralised energy production and contributing to the transformation of energy markets;

6.  Stresses the potential of DLTs in global trade to monitor the origin of goods and their manufacturing conditions, reduce the costs of transactions, insurance and logistics, remove intermediaries, increase trust between transacting parties, and combat contraband and the entry of illegal goods; notes that the majority of applications that employ DLTs in trade to date are based on permissioned ledgers; calls on the Commission to explore best practices and collaborate with Member States’ customs and tax authorities in coordinated actions using DLTs to improve monitoring, control, security and verification mechanisms in order to fight unlawful payments, facilitate anti-money laundering policies and detect misappropriation of assets; calls on the Commission to consider the role of blockchain in the development of smart IP rights; notes that the technology can provide an alternative to the central supervisory authority in models where this authority cannot be trusted;

7.  Urges operators to ensure that DLT consensus mechanisms are environmentally friendly and energy-efficient; emphasises that DLTs are data sensitive and that GDPR provisions should be applied;

8.  Stresses that cybersecurity is critical for DLT-based applications, including for international trade, and notes that technological developments can introduce new challenges; calls on the Commission to explore security challenges, assess technological risks and undertake actions to address these challenges; calls for advances to be made on quantum cryptography;

9.  Underlines that efficiency in international trade requires the setting of global standards and interoperability between DLTs, as well as between DLTs and legacy operating systems; calls on the Commission to enhance collaboration with the International Organisation for Standardisation (ISO) and other relevant standardisation bodies and to further promote international programmes to educate the EU’s trading partners;

10.  Highlights the fact that the rise of a new industry around blockchain comes with potential for high efficiency and increased productivity; underlines the potential benefits of blockchain, such as a reduction of administrative burdens for SMEs and the creation of new employment opportunities in industry; calls for measures to encourage SMEs and start-ups to explore the use of DLT to improve international trade operations and the development of an innovation ecosystem that reduces entry barriers and facilitates access to financing;

11.  Emphasises the fact that blockchain can be used in applications of regulatory technologies (RegTech), significantly reducing compliance costs;

12.  Welcomes the launch of the ‘EU Blockchain Observatory and Forum’ and encourages it to study applications aimed at facilitating international trade; hereby requests that the Commission explore the possibility of expanding the mandate of the EU Blockchain Observatory and Forum and involve relevant local and global stakeholders to address upcoming challenges and foster the support of decision-makers.

INFORMATION ON ADOPTION IN COMMITTEE ASKED FOR OPINION

Date adopted

5.11.2018

 

 

 

Result of final vote

+:

–:

0:

46

1

4

Members present for the final vote

Zigmantas Balčytis, Bendt Bendtsen, José Blanco López, Jonathan Bullock, Cristian-Silviu Buşoi, Jerzy Buzek, Jakop Dalunde, Pilar del Castillo Vera, Ashley Fox, Theresa Griffin, Rebecca Harms, Seán Kelly, Jeppe Kofod, Jaromír Kohlíček, Peter Kouroumbashev, Miapetra Kumpula-Natri, Paloma López Bermejo, Edouard Martin, Tilly Metz, Dan Nica, Morten Helveg Petersen, Miroslav Poche, Carolina Punset, Massimiliano Salini, Neoklis Sylikiotis, Dario Tamburrano, Patrizia Toia, Evžen Tošenovský, Vladimir Urutchev, Kathleen Van Brempt, Lieve Wierinck, Anna Záborská, Flavio Zanonato, Carlos Zorrinho

Substitutes present for the final vote

Amjad Bashir, Mario Borghezio, Rosa D’Amato, Jens Geier, Benedek Jávor, Werner Langen, Marian-Jean Marinescu, Rupert Matthews, Gesine Meissner, Clare Moody, Markus Pieper, Sofia Sakorafa, Giancarlo Scottà, Davor Škrlec, Pavel Telička

Substitutes under Rule 200(2) present for the final vote

Michael Gahler, Ulrike Rodust

FINAL VOTE BY ROLL CALL IN COMMITTEE ASKED FOR OPINION

46

+

ALDE

Gesine Meissner, Morten Helveg Petersen, Carolina Punset, Pavel Telička, Lieve Wierinck

ECR

Amjad Bashir, Ashley Fox, Rupert Matthews, Evžen Tošenovský

EFDD

Rosa D’Amato, Dario Tamburrano

ENF

Mario Borghezio, Giancarlo Scottà

PPE

Bendt Bendtsen, Cristian-Silviu Buşoi, Jerzy Buzek, Pilar del Castillo Vera, Michael Gahler, Seán Kelly, Werner Langen, Marian-Jean Marinescu, Markus Pieper, Massimiliano Salini, Vladimir Urutchev, Anna Záborská

S&D

Zigmantas Balčytis, José Blanco López, Jens Geier, Theresa Griffin, Jeppe Kofod, Peter Kouroumbashev, Miapetra Kumpula-Natri, Edouard Martin, Clare Moody, Dan Nica, Miroslav Poche, Ulrike Rodust, Patrizia Toia, Kathleen Van Brempt, Flavio Zanonato, Carlos Zorrinho

VERTS/ALE

Jakop Dalunde, Rebecca Harms, Benedek Jávor, Tilly Metz, Davor Škrlec

1

-

EFDD

Jonathan Bullock

4

0

GUE/NGL

Jaromír Kohlíček, Paloma López Bermejo, Sofia Sakorafa, Neoklis Sylikiotis

Key to symbols:

+  :  in favour

-  :  against

0  :  abstention

OPINION of the Committee on Civil Liberties, Justice and Home Affairs (15.11.2018)

for the Committee on International Trade

on blockchain: a forward-looking trade policy
(2018/2085(INI))

Rapporteur (*): Ana Gomes

(*) Associated committee – Rule 54 of the Rules of Procedure

SUGGESTIONS

The Committee on Civil Liberties, Justice and Home Affairs calls on the Committee on International Trade, as the committee responsible, to incorporate the following suggestions into its motion for a resolution:

1.  Underlines that blockchain represents a new paradigm of data storage and management that is capable of decentralising forms of human interaction, the markets, banking and international trade; emphasises that the rise of blockchain presents both opportunities and challenges in terms of data protection, transparency and financial crime, as the data is immutable once it has been inputted and is shared with all the participating parties, which also ensures its security and integrity; requests that everything possible be done, including at national level, to guarantee the non-falsifiable and immutable character of the technology and to ensure that the fundamental right to data protection is not put at risk;

2.  Acknowledges the opportunities, including for SMEs, deriving from the introduction of blockchain technology as part of the EU’s trade policy, which could bring, among other benefits, lower transactional costs and greater efficiency, and offers the potential to improve trust and confidence in the current trade system by providing an immutable record of transactions; recognises, however, that in cases that fall outside the scope of the EU’s trade policy, the application of this technology may present risks of money laundering and facilitate the financing of organised crime;

3.  Welcomes the fact that INTA’s draft report recognises the challenge posed by the relationship between blockchain technologies and the implementation of the EU data protection framework, namely the General Data Protection Regulation (GDPR), and recalls, that as a result, this relationship could reveal a clash between the protection of fundamental rights, on the one hand, and the promotion of innovation on the other, an issue that must be addressed in the final report; suggests the need to ensure that blockchain must fully conform with the EU’s data protection framework and fully respects the principles set out in EU law, particularly in relation to the processing of personal data as a fundamental right under Article 8(1) of the Charter of Fundamental Rights and Article 16(1) of the Treaty on the Functioning of the European Union;

4.  Stresses, furthermore, that blockchains, partly as a result of the clash described above, by no means automatically support data sovereignty, and must therefore be specifically designed to do so, given that they can also present risks to data protection;

5.  Underlines that, if adequately designed, blockchain technology should be in line with the principle of ‘data protection by design’, which serves to give data subjects more control over their data in line with the GDPR; stresses, moreover, that personal data in a blockchain is normally not anonymous, which brings it within the scope of the GDPR; insists that blockchains should be fully compatible with EU law, including when they are used to process personal data; recommends, in this respect, that blockchains and applications should integrate mechanisms that ensure that data can be fully anonymous, thereby guaranteeing that they only store data that does not relate to an identified or identifiable natural person;

6.  Underlines that future blockchain applications should implement mechanisms that protect personal data and the privacy of users and ensure that data can be fully anonymous; calls on the Commission and the Member States to fund research and innovation, in particular academic research, on new blockchain technologies that are compatible with the GDPR and based on the principle of data protection by design, such as zk-SNARK (zero-knowledge succinct non-interactive arguments of knowledge);

7.  Takes the view that, in order to prevent the infringement of the fundamental right to the protection of personal data, blockchain technology should not be used for the processing of personal data until the user organisation is in a position to guarantee compliance with the GDPR and to specifically ensure that the rights to the rectification and erasure of data are protected;

8.  Highlights the fact that blockchain users may be both data controllers, for the personal data that they upload onto the ledger, and data processors, by virtue of storing a full copy of the ledger on their own computer;

9.  Notes that the immutable nature of some blockchain technologies is likely to be incompatible with the ‘right to erasure’ set out in Article 17 of the GDPR, in cases where the blockchain contains personal data;

10.  Notes with concern that the proliferation of copies of data in a blockchain is likely to be incompatible with the data minimisation principle set out in Article 5 of the GDPR, in cases where the blockchain contains personal data;

11.  Invites the European Data Protection Board to issue guidelines and recommendations to ensure that blockchain technology is compliant with EU law;

12.  Notes with concern the lack of any reference to the serious implications, of how blockchain technology is applied, particularly in areas such as the fight against money laundering, tax evasion and the financing of terrorism; deems that any utilisation of blockchain technologies should be anticipated by delineating what will be stored on and off the chain, with personal data stored off the chain;

13.  Calls on the Commission to take the lead on the assessment and further development of blockchain technologies, including in specific sectors, such as those covered by the EU’s trade policy, and to set up an advisory group on blockchains, which should include experts on anti-money laundering, tax evasion, data protection and organised crime.

INFORMATION ON ADOPTION IN COMMITTEE ASKED FOR OPINION

Date adopted

15.11.2018

 

 

 

Result of final vote

+:

–:

0:

36

3

1

Members present for the final vote

Asim Ademov, Heinz K. Becker, Monika Beňová, Malin Björk, Michał Boni, Caterina Chinnici, Agustín Díaz de Mera García Consuegra, Tanja Fajon, Raymond Finch, Romeo Franz, Kinga Gál, Brice Hortefeux, Filiz Hyusmenova, Eva Joly, Dietmar Köster, Cécile Kashetu Kyenge, Roberta Metsola, Claude Moraes, József Nagy, Péter Niedermüller, Ivari Padar, Soraya Post, Judith Sargentini, Giancarlo Scottà, Birgit Sippel, Csaba Sógor, Helga Stevens, Bodil Valero, Marie-Christine Vergiat, Harald Vilimsky, Josef Weidenholzer, Kristina Winberg, Tomáš Zdechovský, Auke Zijlstra

Substitutes present for the final vote

Miriam Dalli, Barbara Spinelli, Axel Voss

Substitutes under Rule 200(2) present for the final vote

Karine Gloanec Maurin, Patricia Lalonde, Julia Pitera

FINAL VOTE BY ROLL CALL IN COMMITTEE ASKED FOR OPINION

36

+

ALDE

Filiz Hyusmenova, Patricia Lalonde

ECR

Helga Stevens

ENF

Giancarlo Scottà

GUE/NGL

Malin Björk, Barbara Spinelli, Marie-Christine Vergiat

PPE

Asim Ademov, Heinz K. Becker, Michał Boni, Agustín Díaz de Mera García Consuegra, Kinga Gál, Brice Hortefeux, Roberta Metsola, József Nagy, Julia Pitera, Csaba Sógor, Axel Voss, Tomáš Zdechovský

S&D

Monika Beňová, Caterina Chinnici, Miriam Dalli, Tanja Fajon, Karine Gloanec Maurin, Dietmar Köster, Cécile Kashetu Kyenge, Claude Moraes, Péter Niedermüller, Ivari Padar, Soraya Post, Birgit Sippel, Josef Weidenholzer

VERTS/ALE

Romeo Franz, Eva Joly, Judith Sargentini, Bodil Valero

3

-

EFDD

Raymond Finch

ENF

Harald Vilimsky, Auke Zijlstra

1

0

ECR

Kristina Winberg

Key to symbols:

+  :  in favour

-  :  against

0  :  abstention

INFORMATION ON ADOPTION IN COMMITTEE RESPONSIBLE

Date adopted

20.11.2018

 

 

 

Result of final vote

+:

–:

0:

31

0

7

Members present for the final vote

Laima Liucija Andrikienė, Maria Arena, Tiziana Beghin, David Borrelli, David Campbell Bannerman, Daniel Caspary, Salvatore Cicu, Santiago Fisas Ayxelà, Christofer Fjellner, Eleonora Forenza, Christophe Hansen, Heidi Hautala, Nadja Hirsch, Yannick Jadot, France Jamet, Elsi Katainen, Jude Kirton-Darling, Danilo Oscar Lancini, Bernd Lange, David Martin, Emma McClarkin, Anne-Marie Mineur, Sorin Moisă, Alessia Maria Mosca, Franck Proust, Godelieve Quisthoudt-Rowohl, Marietje Schaake, Helmut Scholz, Joachim Schuster, Joachim Starbatty, Adam Szejnfeld, William (The Earl of) Dartmouth, Iuliu Winkler

Substitutes present for the final vote

Nicola Danti, Paul Rübig, Jarosław Wałęsa

Substitutes under Rule 200(2) present for the final vote

Karin Kadenbach, Rupert Matthews

FINAL VOTE BY ROLL CALL IN COMMITTEE RESPONSIBLE

31

+

ALDE

Nadja Hirsch, Elsi Katainen, Marietje Schaake

ECR

David Campbell Bannerman, Emma McClarkin, Rupert Matthews, Joachim Starbatty

EFDD

Tiziana Beghin, William (The Earl of) Dartmouth

NI

David Borrelli

PPE

Laima Liucija Andrikienė, Daniel Caspary, Salvatore Cicu, Santiago Fisas Ayxelà, Christofer Fjellner, Christophe Hansen, Sorin Moisă, Franck Proust, Godelieve Quisthoudt-Rowohl, Paul Rübig, Adam Szejnfeld, Jarosław Wałęsa, Iuliu Winkler

S&D

Maria Arena, Nicola Danti, Karin Kadenbach, Jude Kirton-Darling, Bernd Lange, David Martin, Alessia Maria Mosca, Joachim Schuster

0

-

 

 

7

0

ENF

France Jamet, Danilo Oscar Lancini

GUE/NGL

Eleonora Forenza, Anne-Marie Mineur, Helmut Scholz

VERTS/ALE

Heidi Hautala, Yannick Jadot

Key to symbols:

+  :  in favour

-  :  against

0  :  abstention

Last updated: 6 December 2018
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