Brexit, Blockchain And The Irish Border
Markets I focus on developments on economic and market aspects within Europe.
Of the many issues that are proving difficult for the EU and UK to overcome one of the most troublesome is the impasse regarding the Irish Border.
Britain and Europe Brexit.
There is the “backstop”, a form of assurance that the Republic of Ireland seeks in that the border with Northern Ireland (part of the UK) is kept completely open for the free passage of trade, people, and services.
Dublin insists on this, even if there is a hard or “No-Deal” Brexit. It is not too difficult to see why the Irish feel this way as the UK accounts for 16% of Irish exports and 39% of their imports. Any fetter to the freedom of trade would prove difficult for both sides.
Given the benefits both Ireland and the UK derive from the open border one wonders why it has become such a stumbling point in the extremely drawn out negotiations?
The EU and UK were on the same page as the first phase of Brexit negotiations were concluded in December 2017. Their common view was that if a settlement could not be agreed then there would be a system of regulatory alignment between both Ireland and Northern Ireland.
That plan was torpedoed below the water-line by the Democratic Unionist Party, (DUP), of Northern Ireland claiming they had not been consulted. Given their 10 Westminster MP’s provide the minority Conservative government of Theresa May with the votes to get key legislation through parliament they have a strong say over any policy that affects the island of Ireland.
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There was a need for fast and fancy footwork from Mrs May and to alleviate the DUP concerns that post-Brexit there would be no different treatment of Northern Ireland she assured them that she would never agree to a regulatory border running across Ireland or indeed set in the Irish Sea.
So far, this has proven to be a stumbling block for the Brexit talks as the UK is not looking to agree a deal whereby it stays in either the official singe market or a customs union. Nor, as the Prime Minister has stated will she oversee a divide in the UK.
There may, however, be a solution at hand if the EU and UK are willing to put faith in “Blockchain” technology.
One of the main areas where blockchain has gained traction of late is in “Trade Finance”. Several trial schemes are announced each week as banks and exporters/importers delve deeper into how the opportunities of blockchain technology in trade finance and supply chain management can be exploited.
What has emerged is that taking a limited view of the opportunities in a series of isolated or “stand-alone” scenarios is selling the process short. Wider reaching success and profitable opportunities could well emerge from a network approach to cover all stages i.e. parties in a trade or value chain. This would allow multiple transactions to be completed as subsets of the same chain as against having several discrete operations.
This could well prove to be the technological solution to the Irish border problem post-Brexit and the driving force behind this possibility is the UK Chancellor of the Exchequer, Philip Hammond.
Just last week at the Conservative Party Conference in Birmingham when he was asked a question about the Irish border and its impact on the UK economy he suggested
"…There is technology becoming available, … I don't claim to be an expert on it but the most obvious technology is blockchain. …"
It is too easy, even lazy to argue that given the only large-scale engagement of blockchain has been to underpin Bitcoin. There are an increasing number of companies that are finding ways to incorporate the blockchain into their businesses as a means of ensuring quality and quantity. Therefore, it is not unrealistic to suggest the immutable security of data stored in the blockchain is the best solution to address the border control problems.
The stored data is increasingly difficult to tamper with. As a result, would be thieves of goods or system hackers are giving up. Remember, amid all the scare stories over Bitcoin hacks, it was the exchanges that were the weak link, not the blockchain.
If the sceptics within the EU and UK need reassurance they should look at the example being set by Maersk and IBM who have set up a joint venture that seeks to transform global shipping. By making use of blockchain technology they are laying the foundations of a maritime trade model that will be running securely within six-months.
Maersk established it own pilot trial in conjunction with DowDuPont Inc whereby the technology has been adopted at the ports in Houston and Rotterdam. Adding legitimacy to the deal is the fact that the Custom Agencies in both the Netherlands and US have also come aboard. The IBM connection is found in the programmes they have pursued with Nestle SA, Unilever NV and Walmart INC.
The development has been seen to make the tracking of goods far more effective and efficient and is highly encouraging for eCommerce opportunities on a global basis.
Critics may well claim that the time, cost and sheer scale of building and implementing a customs system based on blockchain would be long and expensive. They will also point to the shifting sands of EU and UK politics in that what may be agreed to in 2019 could be undermined by a series of political changes in the EU and UK over the next five-years.
That is so short-sighted as this technology can offer a smooth solution to the issue of identifying products that would come into the EU via the UK to ensure compliance with EU regulatory standards.
It must be remembered that the EU, taken as a whole is the UK’s largest trading partner. In 2017, UK imports from the EU were £341 Billion or $447 Billion (53% of all UK imports). UK exports to the EU were £274 billion or $359 Billion (44% of all UK exports). These are large sums of money by any measure. Before EU/UK luddites shoot blockchain down they should seriously think about the economic damage that failing to agree a deal because of the Irish border will cause for both sides.
Even if, in the best possible outcome, the EU and the UK were able to sign a free trade agreement, they would rightly want to have protective customs controls to establish if a product crossing the Irish border is from the neighboring country or from a third-party nation that was seeking to circumvent tariffs.
Blockchain can be the economic watchman on the tower, it can break this stumbling block.
Written By: Stephen Pope, MarketMind
Photo credit: Getty