Blockchain, a technology that can track goods from start to finish, could eventually contribute to retaining the open border between Northern Ireland and the Republic of Ireland. The technology is still in its early stages, and it will be years before it could be introduced at the scale necessary to control an international border. For blockchain to be included in the Brexit process, British and European negotiators would have to buy time for a customs system based on the technology to be developed, tested and implemented.
Representatives on both sides of the arduous Brexit talks are confronting their biggest challenge yet: the future of the Irish border. In December 2017, the United Kingdom and the European Union agreed that the border between Northern Ireland and the Republic of Ireland would remain an open one after Brexit was final, but that agreement was so vague that they are still working out the details of how to make that promise a reality.
As negotiators look toward innovative methods for maintaining the open border, a key facet of the Good Friday Agreement peace deal, they may decide that blockchain could contribute to a solution. The burgeoning technology, which underwrites popular cryptocurrencies like bitcoin and has the potential to transform all sorts of industries and processes, could be used to track the movement of goods over borders. But the process of developing, building and implementing a customs system based on blockchain would be long and expensive, and the political realities of the Brexit negotiations may simply not allow time or space for blockchain to enter the conversation.
An Impossible Problem
When U.K. voters elected to leave the European Union in 2016, they also — perhaps unwittingly — put the peace agreement between Northern Ireland and the Irish Republic at risk. That agreement assures the free movement of people and goods across the island's border. Maintaining the free movement of people will be relatively simple: The United Kingdom and Ireland could institute joint migration controls at the island's ports and airports, then allow people to move freely once they have entered the island. (Agreements allowing people to move freely within the British Isles date to the early 1920s, long before the United Kingdom and Ireland joined the European Union.)
(Stratfor)
But the movement of goods adds significant complications. The United Kingdom intends to leave the EU customs union, which establishes a common external tariff for all goods coming from non-EU states, so it can sign its own free trade agreements. But that departure would require border controls between Northern Ireland, which is part of the United Kingdom, and the Republic of Ireland, which will remain a member of the European Union. London has offered to sign a comprehensive free trade agreement with the Continental bloc, but free trade agreements include rules meant to identify products' countries of origin to ensure compliance. Even if the European Union and the United Kingdom signed a free trade agreement, they would both want customs controls so they could know whether a product crossing the Irish border is from the neighboring country or from a third country trying to circumvent tariffs.
The solutions that have been presented so far are all incomplete in one way or another. One option is for the United Kingdom to remain in the customs union, or at least to reach a customs agreement with the European Union. But while this probably would keep the Irish border open, it would also bind London to the bloc's trade deals, effectively preventing the United Kingdom from having an independent trade policy. A second option would be to emulate Norway, which does not belong to the customs union but applies only light controls — such as random border checks and cameras that track license plates — on the products coming from and going to neighboring Sweden. However, even light border controls would be hard to sell to the Northern Irish public. The third option — for Northern Ireland to remain in the customs union while the rest of the United Kingdom leaves it — is even less popular, among both unionists in Northern Ireland and large sectors of the British public; giving Northern Ireland a special status will be perceived by many as a prelude to its reunification with the Republic.
Enter Blockchain
So far in Brexit negotiations, there have been only passing mentions of using emerging technologies like blockchain, but it may become a centerpiece of the border conversation in the coming years. Distributed ledger technology, often referred to as blockchain, could be a useful tool for resolving the Irish border issue since it can track goods at any point along their journey from start to finish. The record of movement can be transparent and cannot be changed, and it could eventually include other operations as well, such as the execution of contracts.
Supply-chain managers are already seeing the potential for blockchain to revolutionize their industry by reducing the cost of shipping operations and streamlining exchanges at ports and across borders. Maersk and IBM recently established a joint venture looking to transform the global shipping sector through blockchain, and once the companies receive regulatory approval, they say their new processes could be up and running within six months. Several major companies, including DowDuPont, Inc., major ports in Houston and Rotterdam, and custom agencies in both the Netherlands and the United States have all worked with Maersk as part of pilot programs to use the technology. Nestle SA, Unilever NV and Walmart Inc. are working with IBM on similar pilot programs in the food industry. Perhaps most critically, IBM is also working on a platform to make blockchain easier to use, which it hopes will encourage widespread acceptance.
As blockchain makes goods easier to identify and track, it could help British and EU authorities enforce the rules of origin of a trade agreement, reducing (or completely eliminating) the need for customs controls at the Irish border.
The Pitfalls of a Promising Solution
The management of customs union flows, however, will be far more complicated than supply-chain management. And though blockchain technology is developing at a rapid rate, it is not yet ready to be applied on a widespread scale. One major issue is accessibility. While large exporters have the resources to adopt innovative technologies, smaller businesses will almost certainly struggle to incorporate blockchain. Even if the British and Irish governments subsidize implementation of the technology, the process could take years. Additionally, the fact that records of movement cannot be changed may make companies less willing to implement blockchain, because they could risk revealing proprietary information. Finally, while blockchain may provide a solution to the issue of goods crossing the Irish border, it doesn't address the future of the trade in services. This is an issue that is not connected to the customs union, but to the European Union's single market (where services move freely), and it would have to be negotiated in parallel to the discussions over the Irish border.
In order to pursue blockchain as a border solution, Brexit negotiators on both sides of the table would need a good deal of imagination, flexibility and trust in one another.
There are also plenty of other issues surrounding the Irish border question that blockchain can't necessarily solve, such as smuggling. Products such as tobacco, alcohol and fuel have been moved illegally across the border since long before Ireland and the United Kingdom joined the European Union in 1973, and the practice may well skyrocket after Brexit as tax laws and regulations begin to diverge. While blockchain's transparency is an asset for fighting the practice, it's impossible for the technology to track products that haven't encountered it in the first place.
The Political Future of Blockchain
From a political point of view, the idea of using blockchain to solve border concerns is limited primarily by time. Society is still five to 10 years away from unlocking blockchain's full potential for revolutionizing the movement of goods. In order to pursue it as a solution, Brexit negotiators on both sides of the table would need a good deal of imagination, flexibility and trust in one another, and they would also need to win over their respective populaces. British negotiators would have to convince British voters and politicians that blockchain technology could actually be implemented successfully, while EU negotiators would face the daunting task of getting 27 national governments on board.
Negotiators may simply not have enough time to allow for the development, testing and implementation of blockchain. The United Kingdom's departure from the European Union in March 2019 will be followed by an implementation period of roughly two years, during which time outstanding issues can be resolved. There is nothing preventing the parties from extending that period beyond 2021, but politicians often think in terms of months, not years. If the Conservative Party withdraws its support for the current British government before it reaches a deal with the European Union, it could appoint a new administration with a vastly different approach to Brexit. Even if that doesn't happen, the next general election in the United Kingdom will occur no later than May 2022 — and if a new government decides to negotiate different terms, blockchain could become a less practical or necessary solution.
Serious discussions about utilizing blockchain technology in Brexit negotiations would lay the groundwork for creative new approaches to the United Kingdom's trade relationship with the European Union. They would also establish a framework for future free trade agreements around the world that could increasingly rely on technology to enforce rules of origin and other provisions. But the mere fact that blockchain could be used to solve the border problem does not mean it actually will be. With an issue as sensitive as Brexit, approaches that make sense from an economic or logistical point of view may not be politically feasible. And though blockchain technology will probably be available well within the next decade, Brexit negotiators may be focused on devising more urgent resolutions.
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