On April 10, 2020, eight departments including the Ministry of Commerce, the Ministry of Industry and Information Technology, and the China Federation of Logistics and Purchasing issued a notice on further improving the pilot work of supply chain innovation and application. The notice points out that modern supply chain management technologies and models such as blockchain and big data should be actively applied to accelerate the construction of digital supply chain public service platforms. On September 21, 2020, the General Office of the State Council issued the "Opinions on Leading the Accelerated Development of New Consumption with New Business Forms and Models". The opinion points out that we should promote the integration of technologies such as big data, cloud computing, artificial intelligence, and blockchain, and accelerate the application of blockchain in digital scenarios such as product traceability.

Cross border supply chains are crucial for the effective operation of the international trading system. Globalization has made cross-border supply chains more complex, involving stakeholders from around the world, resulting in issues such as low transparency, non-standard processes, data silos, and incompatible technology adoption. Blockchain based platforms can help combat fraud, and transparent, reliable, and auditable data can help eradicate counterfeit products. According to estimates from the World Economic Forum, reducing supply chain trade barriers can increase global GDP by nearly 5% and global trade by 15%. This article first analyzes the pain points of current cross-border supply chains and the driving forces behind deploying blockchain in supply chains. Secondly, it identifies the most valuable areas where blockchain provides cross-border supply chain management, as well as practical application cases of blockchain. On the basis of exploring the challenges faced by further promoting blockchain in cross-border supply chains, the main factors for the future development and utilization of blockchain in cross-border supply chains are summarized.

A pain point in cross-border supply chain

Global supply chain management depends on the unified management of four processes, namely commercial flow, logistics, information flow, and capital flow, which are interrelated and require unified planning, organization, coordination, and control. The transparency of cross-border supply chains is one of the most important and difficult areas to improve logistics and supply chain management. Although the digitization of the supply chain has utilized technologies such as cloud computing and the Internet of Things, there are still issues such as inconsistent or difficult to obtain data, a high proportion of paper document usage, high administrative and coordination costs, inability to optimize freight loading capacity, and low business efficiency. According to the Global Trade Facilitation Alliance, supply chain costs account for 2/3 of the final cost of goods trade, and document costs account for 7% of the global trade value.

In the process of cross-border trade, tracking and traceability of goods is a major challenge in the current supply chain, involving the identification, tracking, and traceability of goods in the manufacturing process and transportation links, especially in food, medicine, and luxury goods. The food supply chain spans multiple national borders, and on average, retailers delivering food to every end consumer in the global food supply chain have to collaborate with 27 intermediaries from 3-5 different countries, processing approximately 240 documents per batch of products. Due to the complexity of the current value chain, tracking food to its place of origin takes 7-14 days. The complex food supply chain creates blind spots, and members of the food value chain face difficulties in obtaining data, resulting in a lack of transparency and effective supervision in the food supply chain. Food fraud has increased by 60% in recent years.

The globalization of the pharmaceutical supply chain has increased the difficulty of combating the international trade of counterfeit drugs. According to a survey by the World Health Organization, the market for substandard and counterfeit drugs, including those imported without local approval, as well as the infiltration of inferior or counterfeit drugs into the grey market, has reached a scale of $75 billion per year, but may actually reach as high as $200 billion. Especially in emerging markets, up to 30% of drugs sold are counterfeit, and about one million people die each year due to counterfeit drugs. Cracking down on international counterfeit drug trade crimes requires a transparent drug supply chain. Due to the complexity of the drug supply chain, which involves different suppliers, regulatory agencies, pharmacies, hospitals, insurance institutions, and manufacturers cooperating in global manufacturing and distribution, it is difficult for regulatory agencies and distributors to find substandard drugs that have entered the system.

In the global economy, the illegal trade of counterfeit luxury goods has a negative impact on the sales and profits of companies, and has broader adverse effects on the economy. According to Bain&Company's global luxury market research, the luxury goods market grew by 5% in 2018, estimated to reach 1.2 trillion euros worldwide. Personal luxury goods performed better than the overall market, climbing 6% to reach a record high of 260 billion euros. In 2018, online luxury shopping continued to accelerate its growth, with a growth rate of 22% and a total amount of nearly 27 billion euros, accounting for 10% of all luxury goods sales. According to OECD data, counterfeit goods account for 5% to 9% of global trade. Online sales of luxury goods have attracted a higher proportion of counterfeit products. According to the 2018 Global Brand Counterfeit Goods Report, luxury brands have lost approximately $30.3 billion in sales from counterfeit products alone online.

The advantages of applying blockchain in cross-border supply chains

Blockchain is a tamper proof, decentralized distributed digital transaction record that is jointly maintained by multiple parties and uses cryptography to ensure transmission and access security. It can achieve consistent data storage and tamper proof accounting technology. As a new computing paradigm and collaboration model that establishes trust at low cost in an untrusted competitive environment, blockchain, with its unique trust building mechanism, is changing the application scenarios and operating rules of many industries. Blockchain improves the supply chain through its transparency, authenticity, trust and security, cost reduction, disintermediation, efficient operation, and waste reduction features (see Table 1). The characteristics of blockchain data traceability and anti-counterfeiting measures ensure the authenticity and traceability of supply chain data, becoming the foundation for product anti-counterfeiting and supply chain management. Deploying blockchain in the supply chain can not only improve efficiency and reduce costs, but also improve relationships among all stakeholders, establish trust, and simplify related business processes. Therefore, blockchain will provide tremendous assistance for the development of cross-border supply chains.

表1 供应链中使用区块链的收益

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Table 1 Benefits of using blockchain in the supply chain

Innovative application of blockchain in cross-border supply chain

The global supply chain system is highly complex and involves multi-party collaboration, providing rich scenarios for the application of blockchain. Blockchain can greatly improve the supply chain by enabling faster, more economical, and efficient product delivery, enhancing product traceability, improving coordination among partners, and increasing the credibility and transparency of business processes. The blockchain platform has real-time or near real-time data auditability, and can more easily trace the origin and composition of products, thereby improving the timeliness and accuracy of product recalls and the implementation of other public safety measures. The auditability provided by blockchain is also a powerful tool for anti-counterfeiting and intellectual property protection, helping to simplify compliance procedures, improve efficiency for supply chain extension and development, and thus save potential costs.

（1） Digitalization of Cross border Supply Chain

The integration of blockchain and cross-border supply chain promotes the digital development of the supply chain field, concentrating different participants in the cross-border trade supply chain in a low-cost and highly trusted supply chain collaborative network to complete value exchange, while meeting the principles of real-time, accuracy, and traceability. Blockchain enables efficient interaction between shipping companies, port and terminal operators, customs departments, freight forwarders, and logistics companies to obtain real-time shipping data and exchange trade documents such as certificates of origin and delivery notes. Blockchain has improved the efficiency of information transmission and data sharing, as well as the transaction execution efficiency between multiple entities in the supply chain environment. According to research by McKinsey&Company, companies can increase their annual growth rate of pre tax earnings by 3.2% and annual revenue growth rate by 2.3% through supply chain digitization.

At present, the large-scale cross-border logistics blockchain projects include Wave, TradeLens, and CargoSmart (see Table 2).

（2） Blockchain ensures cross-border supply chain product tracking and traceability

The current challenges faced by cross-border supply chains involve insufficient sharing of traceability information, easy tampering of traceability information, and difficulty in determining the responsible parties for traceability information. Blockchain operates by recording and storing each transaction in chronological order in an encrypted link block structure replicated by network participants, enhancing trust in data sources from multiple data streams to determine the origin and manufacturing process of products, ensuring the integrity, authenticity, and continuity of traceability data. Due to the threat posed by counterfeit products to consumers and companies' reputation and revenue, the importance of product traceability is increasing. Blockchain based systems can ensure the accuracy of product certificates and reduce the risk of fraud and adulteration. Therefore, the number of startups turning to blockchain to help track products and combat counterfeit products has been on the rise.

表2 区块链跨境物流数字化创新

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Table 2 Digital Innovation of Blockchain Cross border Logistics

1. Food tracking and traceability: strengthening trust in the origin and quality of food

Blockchain, with its decentralized, transparent, open, and tamper proof features, effectively prevents counterfeit transactions and is highly suitable for application scenarios in cross-border food supply chains. The value of blockchain systems in enhancing the food supply chain is reflected in three aspects. Firstly, it reduces the risk of the food supply chain. The blockchain system ensures data transmission on the food supply chain, improves data auditability, and enhances accountability for related interests. Secondly, it reduces the costs for stakeholders involved in the food supply chain. According to a 2019 research report by Cointelegraph Consulting, the integration of blockchain and the Internet of Things can improve trust, transparency, and coordination throughout the entire food supply chain, reduce food recalls, reduce $70 billion in cost expenditures for the global food industry, and create up to $47 billion in revenue growth. Thirdly, increase profits. A shared digital food supply chain driven by blockchain can help supply chain participants better collaborate with each other, thereby operating more efficiently and reducing waste. Blockchain technology prevents the sale of counterfeit and inferior food, improves the integrity, loyalty, and sustainability of the food industry, and enhances consumer trust.

Table 3 provides a detailed explanation of the operational mechanisms of JD Zhizhen Chain in China, Provence Blockchain in the UK, and IBM Food Trust Blockchain in the US.

表3 区块链食品溯源

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Table 3: Blockchain Food Traceability

2. Drug tracking and traceability: using blockchain to combat counterfeit drugs and simplify compliance

In order to combat counterfeit drugs, governments around the world have strengthened tracking requirements for drugs and medical devices to slow down the global flow of counterfeit products. Blockchain solutions bring substantial changes to cross-border pharmaceutical supply chains. At each stage of the process, drug barcodes are scanned and recorded in the blockchain ledger system, which records and creates audit trails for drug logistics. Universal shared data enables global manufacturers and distributors to jointly address key industry challenges, ensuring traceability and transparency of all goods logistics from producers to drug delivery locations. All supply chain participants (including wholesalers and patients) can access and update the database, and regulatory agencies can more accurately monitor to prevent counterfeit drugs from entering the supply chain. The complete transparency of the pharmaceutical supply chain and the inability to tamper with data in the distributed ledger system limit the possibility of fraud, enhance patients' confidence in drugs, and safeguard consumer rights. Blockchain technology has improved the efficiency of cooperation among participants in cross-border pharmaceutical supply chains, ensuring comprehensive auditing of data logs and reducing the number of intermediaries in transactions. Through supply chain optimization processes, logistics costs have been reduced.

At present, the three large-scale blockchain projects for drug traceability are MediLedger, Pharmaredger, and SAP Pharma. Table 4 provides a detailed explanation of the development and operation mechanism of drug traceability blockchain.

表4 药品溯源区块链

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Table 4: Drug Traceability Blockchain

3. Luxury tracking and traceability: enhancing brand through after-sales market

Blockchain will simplify and track every stage of the luxury goods value chain. On the blockchain, major stakeholders such as luxury goods manufacturers, merchants, banks, or insurance companies will be able to provide customers with a single version of authenticity proof to identify counterfeit products. Placing luxury goods certificates on the blockchain can prevent fraud and prove the origin of luxury goods. At the time of purchase, consumers will be able to receive certificates containing all product information using the brand's application. In addition to the authenticity of the product, blockchain will also ensure the safety of consumers' property. For example, if a stolen luxury item is resold, the owner will be able to track the location of the product through blockchain and notify relevant departments that the seller has illegally obtained the aforementioned item. Blockchain enables large-scale and reliable tracking and identity verification, combats luxury goods counterfeiting, and supports the growth of the online second-hand market. Table 5 analyzes three representative and influential blockchain projects for luxury goods traceability: Everledger, Aura, and Luxochain.

表5 区块链奢侈品真实性证明

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Table 5 Proof of Authenticity of Blockchain Luxury Goods

Challenges and Suggestions for Applying Blockchain in Four Cross border Supply Chains

Blockchain provides opportunities for cross-border supply chain innovation, including digital innovation in cross-border supply chains, innovation in cross-border food, medicine, and luxury goods traceability, which will have a significant impact on traders, financial institutions, and government agencies involved in cross-border trade. To maximize the role of blockchain technology, regulatory agencies and legislative bodies can collaborate across borders to coordinate legal and regulatory systems while managing potential risks, including monopoly and market manipulation issues. At present, the standardization and interoperability of blockchain technology are limited, which is clearly detrimental to the large-scale adoption in the supply chain and cross-border trade fields. Therefore, blockchain participants need to undergo review and approval, establish a trustworthy cooperation mechanism, and share data on the blockchain with participants.

（1） Blockchain adapts to regulatory and supervisory issues

The adoption of blockchain in many cross-border supply chain use cases requires adjustments to existing regulations and management processes, and the establishment of a favorable regulatory and supervisory framework. There are two types of legal issues raised by the use of blockchain: the legal status and jurisdiction of blockchain transactions, and specific issues related to the use of blockchain in specific cases. The legal status of blockchain transactions and smart contracts is still uncertain. In the current situation, smart contracts cannot be considered to have the same legal effect or enforceability as traditional contracts, nor can it be determined whether the information stored on the blockchain represents ownership or the authenticity of assets. Different countries and regions must meet different legal requirements in order to comply with domestic regulations, including regulations related to the way information is provided. Governments around the world are currently formulating legislation to recognize the legal validity of blockchain signatures, smart contracts, and financial instruments issued on the blockchain.

When blockchain crosses multiple jurisdictions, the issue of jurisdiction remains crucial. Blockchain, whether it is a permissioned or permissioned chain, spans multiple jurisdictions, which raises the question of which domestic law applies in the event of disputes or fraud. For public blockchain, nodes can be located anywhere in the world, and the anonymous nature of the platform makes it very difficult to identify and process entities and determine the location of disputed exchanges. In the case of licensed blockchain, although the information of participants is public, the issue of jurisdiction application remains crucial when the blockchain crosses multiple jurisdictions. At the same time, the use of blockchain has also raised issues related to the responsibility framework applicable to blockchain transactions, as well as mechanisms for resolving conflicts and technical issues. The blockchain distributed ledger technology, by its nature, has global deployment across jurisdictions and requires international consensus with regulatory authorities on blockchain technology.

In addition to regulatory uncertainty surrounding the use of distributed ledgers, large-scale deployment of blockchain may also face various standards and requirements implemented by national regulatory agencies, including regulatory obstacles such as data localization requirements and cross-border data flow barriers. More and more jurisdictions are enacting data localization laws aimed at keeping citizen data within their borders, requiring data to be stored or processed locally, or prohibiting any cross-border data transmission, which is incompatible with the characteristics of blockchain technology. The adoption of blockchain in many cross-border supply chain use cases also requires adjustments to existing regulations and management processes, requiring a regulatory framework that recognizes the legal validity of blockchain transactions, clarifies applicable laws and responsibilities, and regulates the way data is accessed and used.

（2） The interoperability challenges of blockchain

One potential obstacle to blockchain development in the supply chain environment is technical interoperability issues. Interoperability is the ability of computer systems to exchange and use information, as well as the ability to transfer assets between two or more systems, while maintaining the state and uniqueness of assets. The interoperability of blockchain platforms means that transactions involving parties or assets belonging to different blockchain platforms can be executed as if they belonged to the same blockchain platform. Blockchain solutions have already formed around existing smaller ecosystems, but global trade supply chains intersect with multiple ecosystems. Due to commercial sensitivity, different perspectives on technology selection, governance, and the characteristics of blockchain in its development stage, the timing for integration on a single platform is not yet mature. Interoperability is a crucial issue for the development of blockchain cross-border supply chains.

The application of blockchain in supply chain and international trade requires interoperability at three levels: business model, platform, and infrastructure. Firstly, the business model. To ensure the credibility of participants, a cautious governance model must be designed and agreed upon across different blockchain ecosystems. This requires the development of international standards, international cooperation in the standard setting process, and the establishment of clear legal frameworks. Interoperability cannot be achieved solely through technical feasibility. Secondly, the platform layer. To achieve interoperability between two blockchain platforms, it is necessary to consider the compatibility mode of their platform layers in terms of technology. Firstly, it is necessary to use blockchain platforms with the same consensus mechanism and smart contracts that use common code. At the same time, the interoperability methods of blockchain platforms must rely on cross authentication mechanisms, which can range from the storage of encrypted passwords to overlay user authentication on the blockchain platform. Thirdly, interoperability at the infrastructure level.

International organizations such as the International Chamber of Commerce, the International Organization for Standardization, the United Nations Centre for Trade Facilitation and Electronic Business, and the World Customs Organization have established working groups to study this issue and develop interoperability standards. Large technology supplier IBM SAP、 Microsoft and Oracle are also actively promoting solutions to support blockchain interoperability. Microsoft is collaborating with Nasdaq to create a solution for Nasdaq's financial framework, enabling Nasdaq customers to use different blockchains through a common interface.

（3） Challenges of Data Privacy and Protection

An important value proposition of deploying blockchain in the supply chain is to support collaborative commerce without the need for third-party intermediaries, improve supply chain transparency, asset trading, financial innovation, and enhance the accuracy of predictive information and collaborative planning, thereby achieving more efficient operations in the supply chain. However, the open and decentralized structure of blockchain poses risks to data privacy, with issues related to data protection and certain information confidentiality. When supply chain operators publish data on the blockchain, any participant can access this data. Balancing information sharing with data protection and privacy issues in an open network is a challenging task. Although collaborative planning in cross-border supply chains has always been the goal of optimizing supply chain operations, supply chain participants need to protect commercially sensitive data while also avoiding data protection compliance risks when considering blockchain solutions.

In order to maintain their current competitiveness and information advantage, supply chain partners will not share their commercially sensitive data with them. Due to the importance of commercially sensitive information, transactions in the supply chain ecosystem cannot achieve complete transparency. For example, in a supply chain ecosystem, participants will avoid sharing information on upstream supplier identities, downstream distributor payment prices, compliance status, actual demand levels and available inventory, as well as production process details. If trade secrets and other confidential information need to be disclosed to regulatory agencies (such as customs and supervisory agencies), the disclosure of these confidential information is only for compliance purposes and must be strictly kept confidential. Even if these data are aggregated without significant identification, the likelihood of analyzing trends and patterns to gain economic advantages is too high for most supply chain partners to consider this level of openness. Therefore, it is necessary to establish a mechanism that can securely share data while not disclosing sensitive information of supply chain partners.

There are three solutions for data privacy and data protection. Firstly, basic protection. As configured on/off chain, only hash data is stored on the blockchain. The simplest way to prevent data sharing on the blockchain is to not record the data from the beginning and selectively place it on the blockchain. Secondly, role-based access control. Role based access control on blockchain is used for selective data obfuscation, and the best solution is to place information on the blockchain while utilizing familiar security tools such as authentication. Thirdly, homomorphic encryption. Encrypt data before sharing on the blockchain, and analyze it without decrypting it. It is also possible to program chain codes and smart contracts, and run calculations on fuzzy data queried from the blockchain, but users can only see the decrypted results and not the underlying data itself. Supply chain partners using blockchain need to communicate effectively with trading parties on how to balance data confidentiality requirements and shared data confidentiality to improve their operational efficiency.

Five concluding remarks

Blockchain provides a neutral digital infrastructure for cross-border supply chains, creating an interconnected, shared, transparent, and data rich environment, promoting digital innovation in cross-border supply chains, improving efficiency, and enhancing traceability of cross-border food, medicine, and luxury goods. While developing new technologies and business models based on blockchain, enterprises with cross-border supply chains should continue to actively participate in industry standard setting to ensure that the solutions being developed meet industry-specific requirements. Research universities and companies should closely cooperate with government agencies to conduct in-depth research on the impact of blockchain on information protection, cross-border data flow, and other aspects. They should explore the regulatory issues of blockchain in the underlying core technology, middle-level application logic, and upper level information control, and further promote global trade on the basis of complying with trade laws and regulations. Determine the feasibility and technical and non-technical challenges of integrating blockchain into global trade from a government perspective, including network security, interoperability, and standardized integration, and develop appropriate and practical standards and effective methods. Regulatory agencies should closely monitor the development of existing blockchain use cases and create an ecosystem conducive to the wider development of blockchain, in order to promote the in-depth development of blockchain in the cross-border supply chain field.