Blockchain, Trade, and the Global South: Entrenching Supply Chain Roles

The wealth of the imperialist nations is also our wealth. […] In concrete terms Europe has been bloated out of all proportions by the gold and raw materials from such colonial countries as Latin America, China, and Africa. Today Europe’s tower of opulence faces these continents, for centuries the point of departure of their shipments of diamonds, oil, silk and cotton, timber, and exotic produce to this very same Europe. Europe is literally the creation of the Third World. The riches which are choking it are those plundered from the underdeveloped peoples.

—Frantz Fanon1

Abstract

Blockchain is increasingly viewed as the solution to many trade facilitation problems, but discussions regarding its implementation with respect to Global South raw material producers often overlook the human cost of bypassing systemic poverty issues in favor of reducing supply chain risk through electronic measures. This article examines these problems through the dual lens of digital colonialism and the colonial model of resource extraction, and argues that since Global North countries stand to benefit more from the exportation of raw materials than from growing competition from industries in Global South countries, the use of blockchain risks entrenching supply chain roles that keep Global South countries as raw material exporters and undermines the potential for these countries to explore manufacturing or processing opportunities that would provide greater economic benefit. Technological solutions such as blockchain are often presented as a means of achieving sustainable development, which at its core remains a concept easily shaped to benefit Global North consumers and investors to the detriment of the Global South. Legal instruments such as the WTO Trade Facilitation Agreement fall short in providing mechanisms to address concerns of Global South countries with respect to technological and raw material exploitation. As this article argues, the application of blockchain in supply chain logistics in a way that benefits both the Global North and the Global South requires making blockchain technology accessible to Global South participants and implementing measures such as price floors on raw materials to reduce the potential for exploitation by Global North corporations and consumers.

Introduction

Blockchain is all over the news these days—from cryptocurrency to NFTs, everyone seems to be engaging with blockchain-driven technologies without much understanding of what that entails. Similarly, global supply chains have been in the news since the beginning of the COVID-19 pandemic, as consumers have dealt with shortages driven by supply chain disruptions. Behind global supply chains lies trade facilitation, and blockchain, which extends far beyond cryptocurrencies and the like, offers a means of improving transparency in global supply chains, thus facilitating trade. But as with most new technologies, the uncritical embrace of blockchain by proponents in the context of supply chain management overlooks potential systemic issues that need to be addressed through legal and policy reforms before the technology is fully adopted. This article examines some of the potential drawbacks of the use of blockchain in global supply chains through the dual lens of digital colonialism and the colonial model of resource extraction.

Colonialism did not end in the 20^th Century with the formal end of Western domination over much of the Global South. It instead took on new guises that have allowed it to flourish into the 21^st Century in the form of neocolonialism. From intellectual property (IP) rules that impose Global North regimes benefiting Global North companies onto the countries of the Global South2 to continued extraction of raw materials from Global South countries for the benefit of Global North producers and consumers,3 neocolonialism diminishes the sovereignty of Global South states and limits their opportunities to develop economically. In addition to more traditional forms of neocolonialism, the Global South is now facing a new form of colonialism: digital colonialism.4

While blockchain has potential in mitigating supply chain issues and as a means of facilitating cross-border trade, it poses issues of digital colonialism with respect to the gathering, use, and analysis of data from parties that are unable to participate in its monetization, and with respect to more traditional frameworks of post-colonial understanding, namely the continued exploitative relationship between Global North manufacturers and consumers and Global South raw material producers. Both of these framings are relevant to the ongoing debate over sustainable development between Global North industrialized nations and Global South agricultural nations, in which these exploitative relationships are particularly important to acknowledge and to confront.

The cornerstone of the legal framework applicable to supply chain issues is the Trade Facilitation Agreement (“TFA”) which came into effect in 2017, the first new multilateral trade agreement under the WTO umbrella since the establishment of the WTO in 1995.5 Trade facilitation is closely linked to issues relating to cybersecurity. This raises important questions of how to enhance and facilitate trade while maintaining security and protecting information that might be vulnerable to abuse. Trade facilitation measures also require recognizing and addressing the significant technological gap between Global North countries and Global South countries, while working towards achieving sustainable development goals.

Blockchain has been touted as the solution to many trade facilitation problems, and even broader poverty problems, particularly for Global South countries, by scholars, policy makers, and international organizations.6 Defined as “a distributed ledger network using public-key cryptography to cryptographically sign transactions that are stored on a distributed ledger, with the ledger consisting of cryptographically linked blocks of transactions,”7 blockchain preserves data privacy and protects data from vulnerability to cybersecurity attacks. This article argues that blockchain, for all of its potential positives, risks entrenching supply chain roles that keep Global South countries as raw material exporters and undermine the potential for these countries to explore manufacturing or processing opportunities that would provide greater economic benefit for their population and allow for sustainable development in a meaningful sense. In this sense, blockchain is the latest example of an innovation in the international trade and finance space that does less to innovate and more to reaffirm the status quo. Like the CFA franc, which was touted as a way for former French colonies in Africa to benefit from regional integration and a close trade relationship with France, but in fact has operated as a way for French industries to entrench their roles as preferred suppliers to these African markets,8 blockchain, without any regulatory constraints, may serve a similar purpose in entrenching the roles of Global South countries as raw material exporters.

The logistical challenges for Global South countries to implement blockchain for trade facilitation purposes are significant and unlikely to be achieved without considerable investment from Global North countries, which are in turn unlikely to invest if the Global South countries in question intend to use blockchain to facilitate domestic manufacturing and processing of raw materials. Global North countries stand to benefit more from the exportation of raw materials than from growing competition from infant industries in Global South countries. In the guise of environmental protection, the debate over what sustainable development means in practice reflects this unwillingness by Global North countries to support the industrial development of Global South countries.

This article first provides some background on blockchain, supply chain logistics, and trade facilitation. In section two, the article establishes the framework for its analysis with an overview of the colonial model of resource extraction and digital colonialism, and a look at how the concept of sustainable development has been interpreted in international discourse. Finally, the article examines the relationship between blockchain, trade facilitation and the Global South, offering a case study of the cocoa industry in Western Africa to illustrate the challenges of raw material exporting countries, and emphasizing the need to balance the development needs of Global South countries with the economic desires of Global North-based corporations, governments, and consumers.

I. Blockchain, Supply Chain Logistics, and Trade Facilitation

Blockchain and trade: a primer

Blockchain is often misconstrued as being inherently linked with cryptocurrencies like Bitcoin. In fact, blockchain is a much broader concept with far greater potential. At its core, blockchain is a distributed ledger technology (“DLT”) which consists of separated nodes that individually store information regarding the transaction. There are non-blockchain technologies, but the most commonly used and tested DLT is blockchain.9 Key to blockchain’s cybersecurity is that the blocks which hold the data cannot be edited or deleted without all subsequent blocks also having to be changed. For new data to be added, it must be verified, which once verified adds a new block to the blockchain.10 Each block has a hash, a cryptographic fingerprint that uniquely identifies the data, which is almost impossible to reverse engineer the data from, if that is all the information a party possesses.11 All transactions must be validated using a consensus algorithm, which will differ depending on whether the distributed ledger is public or whether it requires permissions.12 Bitcoin is an example of a permissionless or public blockchain, where anyone can join. With permissioned blockchains, access is restricted and must be granted by some authority.13 Importantly, more than 50% of systems in the network must be hacked in order for the hacking to be successful.14 This makes Blockchain exceptionally secure, since there is no single point of failure or vulnerability.15

In addition to (and as part of) DLTs, smart contracts play an important role in providing secure avenues for transactions to take place. Smart contracts are not contracts in a traditional sense; instead, the phrase describes “the code being used to facilitate the exchange of financial means or assets and properties with certain values.”16 Smart contracts have also been described as “automated self-executing computer programs designed on a blockchain, that are triggered by defined circumstances.”17 The triggering events are based on the “if…then…” logic—if X happens, then funds are transferred.18 They are particularly useful for automatic electronic payments that are triggered after a certain event takes place.19

How, then, does blockchain potentially impact international trade, and trade facilitation in particular? Much of the focus on the interaction between cybersecurity and international trade has been on data security and digital trade, with e-commerce, national security, data localization, and the role of the General Agreement on Trade in Services (“GATS”) in regulating digital commerce being at the center of much of the academic literature.20 But that is only one side of the trade and cybersecurity coin. The other side relates to the supply chain concerns. As Huang et al. have noted, cybersecurity concerns in international trade “should not be considered as only a regulation compliance issue, but also as a supply chain risk and geopolitical issue,” recognizing that different countries have significantly different understandings of cybersecurity.21

Here, we must first understand a little bit about supply chain logistics. Global value chains (“GVCs”) are a key element of contemporary international trade, with more than 50% of trade in goods being in intermediate inputs.22 GVCs, or global supply chains, are complex and require detailed tracking and documentation, since what is being traded is not predominately final products, but rather inputs that will be used to manufacture the final product.23

Trade facilitation “constitutes those policies that deal with the entry of goods into a country and with the transparency and provision of information relating to the entry of goods.”24 Sometimes described as the plumbing of international trade, trade facilitation is critical for improving the efficiency of trade and thus reducing cost. Much of the recent focus in implementing trade facilitation measures has been on reducing the paperwork involved and moving towards a paperless, digital environment, with recent regional trade agreements in particular including provisions relating to paperless trade that are more comprehensive than the provisions in the TFA.25 Trade facilitation is closely interlinked with supply chain management, since customs and border measures require extensive documentation and constitutes a step in the supply chain process.

With GVCs, there are multiple steps, each of which requires verification—“when merchandise is transported from the factory or farm to a warehouse, when it is moved from the warehouse to a container, when the container is loaded onto a ship, when the ship is underway (to confirm that conditions are appropriate), when the container is unloaded from the ship at port, and when the merchandise is transported from the port to the end consumer.”26 This requires intermediaries to ensure the steps are properly managed. One of the biggest challenges to trade facilitation and supply chain logistics is the resultant delays from the paperwork required at each step of the authentication process. Customs processes, particularly in developing countries, are notorious for causing significant delays at borders.27

As laid out by Emmanuelle Ganne, there are four main categories of documentation required in the course of international trade transactions: (1) documents relating to the commercial transaction itself (this includes sales contracts and commercial invoices), (2) documents relating to trade financing (this includes letters of credit), (3) transport documents (such as bills of lading), and (4) documents for border procedures (certificates of origin, health and conformity certificates, export or import licenses as required, customs declarations and customs inspection documents).28 All of these documents are required for different steps in the GVC process. Trade facilitation in a narrow sense focuses primarily on transport documents and documents for border procedures, but all of the documents are required in order for goods to be exported. Trade facilitation understood more broadly requires viewing GVCs holistically and recognizing that each step of the process should be made as transparent and efficient as possible in order to reduce costly delays.

For many countries, a lack of infrastructure, both digital and physical, can result in customs and border measures becoming a critical point of delay when exporting goods. Blockchain can help streamline a number of areas, and offers a means of improving the speed and accuracy of the trade facilitation process. Beginning with revenue taxation, blockchain offers the possibility of simpler and more accurate auditing for tax collection purpose, as well as rapid tax collection through automation.29 Customs and excise measures can benefit from blockchain in that customs officials gain the ability to approve greater volumes of freight, whether through making supply chain data directly available to customs, or through using blockchain to enable the mutual recognition of Authorized Economic Operators (“AEOs”).30 This would improve the reliability of information regarding contents of shipments.31 Blockchain can also help with the enforcement of compliance, since it allows for easy verification of the contents of shipments and the sources of raw materials or finished products.32

The combination of using DLTs such as blockchain with smart contracts has the potential to improve transparency, which is a goal of the Trade Facilitation Agreement.33 Further, the use of DLTs and smart contracts can greatly reduce the number of intermediaries, which can improve efficiency and reduce costs, as well as reduce risks to purchasers.34 The aim of trade facilitation is to achieve greater transparency, accountability, efficiency, and traceability, and blockchain technology can significantly contribute to achieving this. Applying blockchain technology to customs administration would result in a more data-driven customs procedure, where customs may become more embedded within trade processes, thus potentially resulting in automatic clearing of goods. Further, blockchain can enhance revenue compliance and cooperation between tax and customs and help customs combat financial crimes.35

The partnership between IBM and the Danish shipping company Maersk provides an example of a permissioned supply chain blockchain in the context of trade facilitation.36 In 2014, Maersk began tracking certain goods to determine the actual costs of compliance and intermediation, finding that the cost of documentation could be greater than the cost of actually transporting the shipping containers.37 In particular, they found that transporting a single shipping container from Africa to Europe “required nearly 200 communications and the verification and approval of more than 30 organizations involved in customs-, tax-, and health-related matters.”38 In partnering with IBM, Maersk has developed a global trade digitalization platform that is designed to reduce these documentation-related costs. Launched in 2018, TradeLens is designed to apply blockchain to the global supply chain, and includes port and terminal operators, global container carriers, customs authorities in a number of countries, customs brokers, and freight forwarders, transportation and logistics companies.39 Since launching, two other major marine cargo carriers, CMA CGM and MSC, have joined TradeLens, meaning that now nearly half of the world’s ocean container cargo data is handled by the joint venture.40 In order to obtain the participation of these two companies, each company will have substantive involvement in the venture, in particular acting as carriers by running nodes on the network and validating transactions across the network.41 The more parties participate in a blockchain, the more effective and secure it will be, and TradeLens promises to have significant impact on marine cargo transport, with new ports and terminals also joining the platform since its launch.42

Because of the scale of maritime transport and the documentation requirements inherent in that sector, there are significant benefits to the implementation of blockchain technology in this area. Maritime transport carries over 80% of global trade by volume, accounting for more than 70% of the value of global trade.43 By sharing data on digitized trade, shipping documents, and financial instruments, all parties will be able to access this information which will significantly reduce the cost associated with the documentation required for each step of the process.44 Okazaki has argued that blockchain “will transform the business model of freight transportation by sea,” with every phase of trading and financial flows “becoming integrated into a harmonized ecosystem.”45 Currently, the IBM/Maersk partnership is the best example of a functioning permissioned supply chain blockchain that operates on a truly large scale, with global impact.

Blockchain is not a panacea to all supply chain and trade facilitation problems, however, and there are challenges—technological, logistical, and legal, in moving to a fully digitized trade environment implemented through blockchain.

Challenges relating to blockchain implementation

Blockchain, despite its cryptographic strength that allows it to foil most hacking attempts, has some potential limitations, like all technologies. If all parties in a supply chain use a single blockchain, this will provide the requisite security; however, if there are multiple blockchain technologies being used across a supply chain, this will reduce the security and efficiency of the blockchain. Blockchain works most effectively where all of the entities using it operate within the same network—within a broader blockchain ecosystem, rather than as part of multiple different blockchain systems.46 Each different blockchain may be secure and function effectively when viewed in isolation, but when interacting with other blockchains, there will be a risk of “frustration, confusion and a large erosion of the deliverable value.”47 Issues of interoperability will likely arise as a result of the many different blockchain projects currently underway and the absence of standards to ensure that these platforms can communicate with each other seamlessly.48

Many of the positives of blockchain also pose challenges. While blockchain makes it nearly impossible to edit past transactions without the users in the network approving, it does not prevent false information from being inputted.49 Further, blockchain is most effective where the verified inputs occur as early in the supply chain as possible, which allows for verification of data and the ability for downstream final products to be certified (e.g. Fair Trade or organic certification).50 If blockchain is only deployed midway through the process, rather than at the origins of the raw materials, the accuracy of the inputted data will be more difficult to determine. This is particularly important where upstream raw materials are later used to produce composite products, whether furniture, or food and beverages.51 Blockchain networks additionally lack centralized oversight functions, which reduces the overall resilience of the system in the event of a problem, since there is no designated party to respond to the crisis.52

Technologically, there are some areas of blockchain that may be vulnerable to cyberattacks. Most networks run the same code, which means that if a cyberattack were to find a vulnerability, the entire system would be at risk.53 Just because to date there have been limited successful cyberattacks on blockchain (particularly outside of digital currencies), does not mean that such attacks might not be feasible in the future, particularly with the likely advent of quantum computing.54 With the Internet of Things (“IoT”) at the heart of much of the supply chain-related technology, the security implications even when in combination with blockchain are magnified, since any vulnerability has potentially catastrophic real life, physical consequences.55

Blockchain is only as good as its weakest link, with the strength and value of a blockchain “determined by the data registered on the Blockchain in which users have the lowest level of confidence, just like the strength of a chain is determined by its weakest link.”56 This has implications for developing countries—they will likely be the weakest link in the security process, which will continue to exacerbate issues between the Global South and the Global North. The proper implementation of blockchain depends on certain infrastructural assumptions, particularly regarding the availability of stable internet and reliable electricity supply, which are often lacking in Global South countries.57 Some of these concerns may be alleviated by the development of blockchain applications for mobile phones, which have far greater penetration in rural areas of developing countries than grounded infrastructure like telephone lines, electricity lines, wired internet, and sewage.58

There is a broader issue regarding the data that is acquired and put in the hands of the operator of the platforms or technologies in question. In the case of commodities trading, for example, access to blockchain ledgers could potentially offer information that could be used by parties to manipulate commodity prices or to drive speculation. This type of insider trading would be difficult to identify and easy to cover up. This is perhaps an issue with any situation involving access to confidential financial information, but as blockchain technology is new, how these scenarios may play out in the context of blockchain-driven supply chain management remains to be seen. On a separate but related point, liability issues could arise from the use of information by customs obtained from blockchain-based global trade platforms, where the existence of multiple stakeholders with the ability to input information would make identifying a single declarant impossible.59

These potential vulnerabilities in blockchain technology mirror some of the systemic concerns with technology, data, and the role big technology companies play in the Global South in particular, which will be discussed in the next section.

II. The Colonial Model of Resource Extraction, Digital Colonialism, and Sustainable Development

The colonial model of resource extraction, the problem of digital colonialism and the debate over sustainable development are three separate issues that overlap and help provide a framework for understanding some of the challenges and pitfalls of applying blockchain technology to facilitating trade in the Global South. This section first lays out the colonial model of resource extraction, before turning to the modern form of digital colonialism. Finally, the section examines sustainable development and some of the promises and drawbacks of this framing in approaching technological solutions to trade problems.

The colonial model of resource extraction

Industrialization in the Global North was driven by and dependent on the extraction of natural resources that was a hallmark of colonialism.60 As Frantz Fanon wrote in the 1960s, “European opulence […] was built on the back of slaves, it fed on the blood of slaves, and owes its very existence to the soil and subsoil of the underdeveloped world.”61

Utsa Patnaik and Prabhat Patnaik have argued that the core fallacy in David Ricardo’s theory of comparative advantage is that the theory depends on the notion that all countries could, in theory, produce all goods.62 In fact, tropical regions have the ability to produce many goods that colder temperate regions cannot, resulting in colonizing powers from Europe sitting on “a gold mine: [they] not only got goods [they] could never produce, completely free for [their] own use, [they] also got such goods free to exchange against imports from sovereign temperate lands, all as the commodity-equivalent of taxes raised from the colonized population.”63 Capitalism, in the words of Fanon, “in its expansionist phase, regarded the colonies as a source of raw materials which once processed could be unloaded on the European market. After a phase of capital accumulation, capitalism has now modified its notion of profitability. The colonies have become a market. The colonial population is a consumer market.”64 At the same time, “[t]he colonial system […] was only interested in certain riches, certain natural resources, to be exact those that fueled its industries.”65

Understanding that the Industrial Revolution required colonial resource extraction helps explain the poverty dynamic between the Global South and the Global North that continues today; where the Global North has continuously extracted wealth from the Global South without concern for Global South development. Jason Hickel suggests based on the economic data that “[r]ich countries aren’t developing poor countries; poor countries are effectively developing rich countries—and they have been since the late 15^th century.”66 For former colonies, structures favoring Global North industries, built on or continuing upon systems that existed at the time of independence, have made industrialization elusive. In Africa, for instance, many of the former French colonies remain within the CFA franc zone, a colonial currency that allows French industries to continue as preferred suppliers to these African markets.67 Today, developing countries across the world send much more money out of their borders than they receive, much of that in the form of interest payments.68

The process of colonial resource extraction has had a transformative effect on former colonies, through “the alienation of natural resources and the imposition of new forms of centralized political authority over land and resources that previously had been controlled by more localized institutions.”69 These structural changes created systemic inequalities that in many cases were continued in the post-colonial era, as former colonial powers continued to influence the political and economic paths of newly independent nations, often through the continued exploitation of natural resources and the conditioning of financial aid necessitated by such exploitation. Neoliberalism has encouraged the unsustainable use of natural resources, and has entrenched domestic control in the hands of ruling elites, who have reaped the benefits of inequitable business relationships with industries in the former colonial powers.70 Unfettered natural resource exploitation and the consequent commodification and privatization of the environment, which will be further discussed in the section on sustainable development, remains one of the leading drivers of global inequality.71

Digital colonialism

Digital colonialism is defined as “a structural form of domination” that is “exercised through the centralized ownership and control of the three core pillars of the digital ecosystem: software, hardware, and network connectivity, which vests the United States with immense political, economic, and social power.”72 Put differently, digital colonialism “designates the decentralised extraction of data from citizens without their explicit consent through communication networks developed and owned by Western tech companies.”73

In the literature, digital colonialism is most often discussed in the context of Big Tech (Facebook, Amazon, Google, Uber, Netflix, Microsoft) and their data collection and monetization of such data from users in the Global South.74 It is, however, not limited to social networking platforms, search engines, operating systems, and streaming services, but extends to cloud infrastructures and services more broadly, including IBM.75

Data colonialism, as defined by Nick Couldry and Ulises Mejias, includes “the vast areas of economic life where internal data collection has become normalised as corporations’ basic mode of operation, for example in logistics.”76 In Couldry and Mejias’s formulation, data colonialism applies to humanity as a whole, which they view as “currently undergoing a large-scale transformation of a social, economic and legal order, based on the massively expanded appropriate by capital of human life itself through the medium of data extraction.”77 Couldry and Mejias’ broader understanding is essential in understanding the profound effects of this new development, wherein “human life becomes, as it were, present to capital without obstruction,” and where “human life itself, including its relations to technology, becomes a direct input to capital and potentially exploitable for profit.”78

This article’s analysis of digital colonialism draws from the research of Couldry and Mejias while focusing on the ways in which the Global South is affected by the actions of Global North, particularly US, tech companies. While data colonialism as conceptualized by Couldry and Mejias is a global phenomenon, it is still important to differentiate how data collection affects different regions of the world. Here, using the term digital colonialism serves as a useful narrowing of the global problem of data colonialism, which in its broadest sense is outside the scope of this paper.

Abeba Birhane’s scholarship on algorithmic colonization and algorithmic injustice is relevant in understanding where the power imbalance lies. As Birhane writes,

[Traditional colonial power] declares control of the social, economic, and political sphere by reordering and reinventing social order in a manner that benefits it. In the age of algorithms, this control and domination occurs not through brute physical force but rather through invisible and nuanced mechanisms such as control of digital ecosystems and infrastructure. Common to both traditional and algorithmic colonialism is the desire to dominate, monitor, and influence social, political, and cultural discourse through the control of core communication and infrastructure mediums.79

Across the Global South, and particularly in Africa, this digital colonialism can be seen in the control by Western tech companies of digital infrastructures and the way their exploitations are presented as ways to liberate, connect the unconnected and help the unbanked, which reflects “the same colonial tale but now under the guise of technology.”80 Beyond the financial exploitation resulting from the data gathered from the monitoring, tracking, and surveilling of people and places, digital colonialism “simultaneously impoverishes development of local products while also leaving the continent dependent on its software and infrastructure.”81

With blockchain, digital colonialism occurs where the Global North providers of blockchain technology dominate the digital architecture of the Global South. The monetization of Big Data which is one piece of the risk— the other is the monopoly of Global North tech companies over these sectors to the exclusion of locally developed technologies. Further, the Global South is being used as a testing ground for new technologies—efforts to create and monitor digital identities, for instances, that Global North populations might oppose for privacy or stability reasons.82 Many of these risks are more present in cryptocurrencies, with blockchain in the context of trade offering less immediate risks of speculative financial or identity loss. However, even where blockchain is used more benignly—to facilitate trade—the neocolonial elements are present in the exclusion of those who produce and extract resources from the management and governance of the technology, thus continuing colonial traditions of resource appropriation from the Global South.83 As Michael Kwet has argued, “digital colonialism is about entrenching an unequal division of labor, where the dominant powers have used their ownership of digital infrastructure, knowledge, and their control of the means of computation to keep the South in a situation of permanent dependency.”84

Sustainable development85

Digital colonialism and the development narrative associated with the introduction of technology to the Global South is echoed in the development narrative surrounding sustainable development.86 The World Commission on Environment and Development’s 1987 report Our Common Future (also known as the Brundtland Report) provided an early definition of sustainable development:

Sustainable global development requires that those who are more affluent adopt life-styles within the planet's ecological means—in their use of energy, for example. Further, rapidly growing populations can increase the pressure on resources and slow any rise in living standards; thus sustainable development can only be pursued if population size and growth are in harmony with the changing productive potential of the ecosystem.87

The economist Herman Daly took a different approach to defining sustainable development, finding that it “necessarily means a radical shift from a growth economy and all it entails to a steady-state economy, certainly in the North, and eventually in the South as well.”88 This definition is reflected today in the degrowth movement and its acknowledgment that economic growth in the Global North has its foundations in colonialism, and that even the concept of growth through the “greening” of industry “presuppose[s] the perpetuation of colonial arrangements.”89 Global South countries must be free to break from exploitative cycles of resource extraction in order to achieve meaningful sustainable development in ways that are not merely centered around the economic needs of the Global North.90

The tension within the sustainable development debate lies in the dichotomy between the desire for continued economic growth and the need for a reduction in carbon emissions, and in how these conflicting goals are imposed upon the Global South. As Ruth Gordon has argued, “[s]ustainable development appears to address what is essentially an enigma without meaningfully challenging existing power structures or the impact that the modern quest for a higher material standard of living has had on the natural world.”91 The Global North continues to consume the vast majority of global goods, resulting in “unsustainable development” on the part of the Global North.92 It is the Global South countries which have contributed the least to climate change and which are disproportionately experiencing its effects that are viewed by the Global North as needing to keep their emissions in check—all the while, Global North countries proceed with unsustainable growth goals that depends on continuing extractivist practices.

In 2015, the United Nations adopted seventeen Sustainable Development Goals (“SDGs”) aimed at bringing countries together to end poverty and to protect the planet.93 Many scholars and activists have pointed out the contradictions inherent in these goals, which on the one hand focus on protecting the environment, while on the other hand continuing to call for economic growth.94 Balancing the social, environmental, and economic aspects—the three pillars—of sustainable development is a particular challenge.95 While the SDG goals show promise in addressing social concerns, with eleven of the goals focusing on the most marginalized populations, their commitment to ecological issues is more limited.96 Despite eleven of the goals addressing environmental concerns, much of the commitment in those goals is growth-focused, centering on technology transfer and scientific solutions.97 To achieve both the growth targets and the environmental targets set forth in the SDGs is not feasible, as it would require a sustained combination of a significant annual reduction in resource use combined with an increase in efficiency at rates significantly higher than ever seen before.98

Blockchain could play an important role in facilitating trade in the context of SDGs. The United Nations Centre for Trade Facilitation and Electronic Business has identified potential areas where the increased traceability provided by blockchain could serve to identify and work towards accomplishing the SDGs, in particular noting that it could be used for identifying SDG 1 (no poverty), SDG 6 (clean water and sanitation) and SDG 12 (responsible production and consumption).99 By tracing items back to their source, it is easier to prove that the materials have been produced without using child labor or by paying workers a living wage, which may help alleviate poverty. Knowing where and how inputs were produced, and being able to trace the operations to determine if they were operating in an environmentally friendly manner may help deter businesses from overusing and polluting water supplies. Finally, illegal logging is a major problem, both with respect to the export of lumber and in relation to the production of raw materials for which protected forests have been illegally destroyed to make way for more agricultural land. This speaks to the responsible production and consumption of resources. Blockchain could also be used to achieve SDG 2 (zero hunger) by reducing transaction costs which in turn could reduce food prices, as well as by improving food safety through enhanced traceability.100

The journey from colonial means of resource extraction to digital colonialism reflects capitalism’s continuing need for growth. As blockchain becomes more readily available as a means of monitoring supply chains, the likelihood that digital colonialism through deployment of such technology and sustainable development in the form of Global North production-centric initiatives will overlap increases. The intersection of sustainable development and digital colonialism risks further entrenching development narratives that are not born out in practice and that leave Global South countries as resource-intensive raw material producers.

III. Blockchain, Trade Facilitation, and the Global South

To understand how blockchain may impact trade facilitation in the Global South, and to see the ways in which digital colonialism may entrench supply chain roles and limit sustainable development goals, we begin with an example—that of the cocoa industry in Côte d’Ivoire—before turning to a broader analysis of blockchain and trade facilitation.

The case of the cocoa industry

The cocoa industry in West Africa provides an instructive example of neocolonial resource extraction, as well offering a glimpse into how digital colonialism might arise in relation to the application of blockchain solutions to supply chain issues pertaining to the cocoa industry.

Côte d’Ivoire and Ghana are the world’s leading producers and exporters of cocoa beans.101 Most of the cocoa beans in Côte d’Ivoire are grown by small farmers, with 600,000 farmers involved in cocoa production, and 6 million people working in the cocoa industry as a whole.102 The fluctuation in global cocoa prices has resulted in deforestation, as impoverished small cocoa farmers move search out new land to expand their farming operations.103 This gives rise to significant sustainable development issues. Climate change stands to play an ongoing negative role in cocoa bean yields, yet Côte d’Ivoire remains economically primarily reliant on cocoa beans, which make up 40% of its total exports.104 With the average cocoa farmer in Côte d’Ivoire making $0.97 per day (for comparison, the international poverty line is $1.90 per day), child labor is a significant problem, with well over a million children estimated to be working in cocoa production.105 For Western consumers of chocolate, ethical sourcing for their chocolate is increasingly important, and the labor and environmental conditions in Côte d’Ivoire pose ethical consumption problems for much of the chocolate produced globally.

The use of blockchain in the context of supply chain management would provide reassurance that the provenance of the cocoa beans in consumers’ chocolate is ethical from growth to export and beyond. However, lack of internet access across Côte d’Ivoire means that considerable investment would need to be made in digital infrastructure, even if blockchain is to be used primarily through mobile devices. Investment in this infrastructure is likely to come largely from Global North chocolate-producing countries and from the handful of large cocoa bean exporting firms, all of which are Global North-based.106 At the same time, there are efforts from within Côte d’Ivoire to process more cocoa beans and even to manufacture chocolate, with economists and experts in the region recognizing that there is very little value-added revenue for the economy from exporting raw cocoa.107 As the government of Côte d’Ivoire has recognized the value of processing the cocoa beans domestically, cocoa trading companies have begun opening cocoa processing plants in the country.108 Recent data from Côte d’Ivoire and Ghana shows that 26% and 29%, respectively, of cocoa exports by weight from those countries was in the form of processed cocoa products (butter or paste).109 The majority of cocoa beans, however, continue to be exported raw.110 With the money for technological investment coming primarily from outside Côte d’Ivoire, the financial benefits of blockchain are unlikely to be realized unless Côte d’Ivoire remains primarily a raw cocoa bean exporter, with the profits falling to the large cocoa exporting and chocolate manufacturing companies.

Sustainable development also features in the complexities of the cocoa industry. In Côte d’Ivoire and Ghana, there have been a number of multinational sustainability schemes implemented with the goal of helping development.111 With limited domestic use value in those countries, diversification away from cocoa would likely have a greater impact on development than finding ways to improve the productivity and sustainability of cocoa farming.112 As Michael Odijie notes, however, “multinational confectionery companies relying on cocoa beans as their raw material can apply the flexible language of sustainability to ensure a secure supply of raw material if factor mobility (i.e. diversification away from cocoa) threatens their raw-material source.”113 Industry rhetoric pertaining to such sustainability schemes often uses language with humanitarian overtones to mask the “anxiety over the security of cocoa-bean supply” that actually drives these initiatives.114

The West African cocoa industry highlights the colonial structures of resource extraction that have continued into contemporary times. The cocoa industry is controlled by a small number of cocoa trading companies, which, with the exception of the American firm Cargill and the Singapore-based firm Olam, are almost all European. Unsurprisingly, French companies hold an outsized influence in the West African cocoa sector, continuing France’s economic influence over its former colonies. At the same time that the cocoa industry is an example of classic colonial resource exploitation whereby the Global North profits from the products of the Global South, it is also at the forefront of sustainability efforts relating to supply chain governance and sourcing. These efforts, a result of consumer concerns regarding the ethics of chocolate production, require a level of transparency in order to be effective that has yet to be met,115 but that could be met through the application of blockchain to facilitate oversight of the supply chain. The question, however, is whether such oversight would have long-term beneficial consequences for Côte d’Ivoire and Ghana, or whether they would primarily benefit large chocolate companies, cocoa traders, and ultimately, Global North chocolate consumers, while relegating the West African cocoa producers to the continued role of raw material providers to the Global North.

The following section looks at some of the potential problems and pitfalls in applying blockchain to supply chains, and the ways in which digital colonialism may arise in well-meaning efforts to reduce corruption and facilitate trade.

Customs, blockchain, and development

It is perhaps unsurprising that customs procedures are one of the most significant sources of corruption, particularly for developing countries.116 As a recent World Bank report on corruption noted, “[c]orrupt practices easily materialize in a working environment where officials enjoy discretionary powers over important decisions, and where risk-based systems of control and accountability are absent or easily breached.”117 In particular, where there are high tariffs and complex regulations, there are “significant incentives for traders to try to reduce import charges and speed up transactions by bribing customs officials to undervalue or under-declare goods.”118 Costs of corruption to the exporter include direct monetary payments in the form of bribes, and the loss of product quality and decline in price that results from the delay of shipments if bribes are not paid.119

For the Global South, blockchain has been promoted as a means of reducing corruption and building trust by replacing the “need for institutional and personal intermediation” which brings with it “accompanying opportunities for corruption.”120 This approach is inherently problematic, since it bypasses systemic problems of corruption within the country, instead outsourcing the operations to automated technologies. Rather than asking why there are problems of corruption and how these problems could be addressed, blockchain removes the problem of fallible people altogether through automation. This may make trade more transparent, efficient and cost-effective, but it primarily benefits foreign companies and consumers. All of the instances of corruption that affect people’s day-to-day lives in these countries will remain, and in removing the role of middlemen and intermediates, there will be job losses amongst local populations. Viewing blockchain the way most international organizations and corporations have viewed it perpetuates a lack of concern for sustainable development as a means of obtaining concrete benefits for the people of the exporting countries.

This is not to suggest that blockchain should not be used in the Global South. Indeed, the use of blockchain in relation to trade facilitation offers solutions to many pervasive problems that need resolution, from verification of sourcing and content to reducing costs resulting from border delays. The question is not whether to implement blockchain technology, but rather how to do so in a way that does not simply exploit or overlook Global South countries in a scramble to increase profits for multinational corporations and reduce costs for Global North consumers. In a February 2020 policy brief on trade facilitation and blockchain in developing countries, the United Nations Conference on Trade and Development (“UNCTAD”) posited that:

Governments in developing countries will need to actively design policies to promote knowledge building and skills development in blockchain technology to ensure that they are not left behind. Governments need to have research that is ongoing in the application of blockchain and related emerging technologies, while remaining measured in building critical infrastructure on blockchains to allow for technical maturity and regulatory clarity.121

Although the UNCTAD policy brief emphasizes the importance of capacity-building in developing countries by international organizations, suggesting that UNCTAD could play a role as an implementation partner to ensure that “developing countries are fully aware of, and prepared for, the emerging technology of blockchain and how it can support technologically driven trade facilitation reforms in the twenty-first century,” it offers no substantive suggestions as to how these goals could be achieved.122 The overarching questions remain: where will the money come from in order to design these policies, and how will any development assistance be conditioned?

In the Global South, digital technologies have often arrived before the government institutions and legal regulations necessary to address challenges arising from these technologies could be established.123 This is, of course, also true of the Global North, where legal regulations have long lagged woefully behind technological advances. The difference lies in the hardware rather than the software—in the gradual development of digital technologies in the form of mobile phones and the internet in the Global North after more than a century of physical phone-based infrastructure as compared to the rapid introduction of mobile and digital technology to the Global South without the infrastructural investments into wired, physical technologies.124 This has had an impact with respect to cybersecurity protections in the Global South as compared to more robust cybersecurity measures in the Global North. It is also important to recognize the heavy hand of digital colonialism in these Global South efforts, as primarily Global North tech companies benefit from this rapid deployment, with data protection laws lagging behind.

Nagelhus Schia has argued that digital development must include digital security, which “will require core development assistance focused on improving and securing the digital systems as well as the analogue foundations for digital technology, including governance, knowledge, information, education, employment and appropriate institutions.”125 He views blockchain as a way to mitigate some of the vulnerabilities that arise from inadequate cybersecurity infrastructure in the Global South, recognizing that challenges to its implementation exist, including the additional bandwidths required for its operation.126 He also acknowledges the potentially contentious nature of combining cybersecurity with development assistance, but emphasizes that a legal regime that recognizes cybercrime and that has law enforcement mechanisms to address cybercrime is necessary to keep cybercriminals at bay.127 While there is undoubtedly a need for robust cybersecurity measures to be implemented across the Global South, the concept of linking development assistance with cybersecurity assistance can only be successful if it focuses on building the domestic institutional and human resources necessary to identify and address cybersecurity problems.128

In countries where the rule of law is weak and there is widespread corruption, efforts to build institutional capacity to address cybersecurity issues may be more challenging. As Kshetri has noted, “[i]n some [Global South] economies, the rule of law is disregarded and not respected by corrupt politicians, government officials and other powerful groups. These groups sometimes expropriate the incomes and investments of poor people or create an uneven playing field.”129 Despite much focus by Global North economists and policy-makers on corruption in the Global South, however, commercial tax evasion by Global North corporations is a far greater source of corruption, and of illicit outflows in particular.130 In a 2020 report on illicit financial flows in Africa, UNCTAD found that between 2013-2015, an estimated $88.6 billion, or 3.7% of African GDP, left Africa as illicit capital flight.131 Capital flight includes trade mis-invoicing, transfer mispricing and other balance-of-payment transactions.132 These illicit financial flows are the responsibility of both developed and developing countries, with many of the flows leaving developing countries and arriving in developed countries. The report notes that digital technologies have “expanded opportunities for cybercrime and offered platforms to trade illegal goods and services by offering a wide range of features that facilitate the illegal transfer and use of money.”133 While an in-depth discussion of illicit financial flows is outside of the scope of this paper, it is important to note the multi-faceted nature of cybersecurity concerns with respect to trade flows, both legal and illegal. For development assistance to be more than a means for Global North countries and corporations to open new avenues for foreign investment in Global South countries requires balancing the need for robust cybersecurity architectures with the broader requirements for achieving sustainable development goals in Global South countries.

Legal and policy solutions

Looking at existing international legal instruments, particularly the Trade Facilitation Agreement and the recent Framework Agreement on Facilitation of Cross-Border Paperless Trade in Asia and the Pacific, it is unclear that they provide adequate support for a Global South-centric framework of blockchain implementation, at least in terms of trade facilitation.

The Trade Facilitation Agreement contains detailed and novel special and differential treatment (“S&DT”) provisions unlike those found in the other WTO Agreements.134 These provisions center on the provision of assistance and support for capacity building from developed country members to developing country and least developed country (“LDC”) members.135 Developing country members are to self-designate their trade facilitation measures as falling under one of three categories: Category A provisions, which require the shortest time for implementation, Category B measures, which have a longer implementation time, and Category C measures, which require additional capacity building using support to be provided by developed countries.136 Additionally, the TFA offers two procedures for aiding developing countries and LDCs in implementing rules: a protocol for the establishment of an Expert Group to examine situation where developing country members are unable to implement provisions under Categories B and C, and an annual dedicated session by the Committee to discuss any problems regarding implementation relating to capacity building.137

While these mechanisms may seem impressive, and to date, 95 developing country WTO members have requested assistance and support for capacity building for a total of 1249 measures,138 only 5% of developing countries that requested technical assistance and capacity building have announced that they have arrangements in place with donor developed country members.139 There is no accountability mechanism in the TFA for donor countries. The TFA has requirements for donor countries to provide information concerning the assistance they provide in order to aid transparency, but offers no mechanism to hold donor countries accountable for failure to assist the developing countries with capacity building.140 Although it is too early to draw conclusions regarding the long-term effectiveness of the TFA’s S&DT provisions, while the wording of the provisions impose binding obligations on the part of developing countries to notify the WTO regarding implementation measures, the language describing the requirements for donor countries are much more aspiration. “Donor Members agree to facilitate the provisions of assistance and support for capacity building to developing country and least-developed country Members,” “targeted assistance and support should be provided to the least-developed country Members,” and “Members shall endeavor to apply the following principles for providing assistance and support for capacity building” are examples of such language found in Article 21 of the TFA on the provision of assistance and support for capacity building (emphasis added).141 The imbalance between Global South and Global North remains, and even though the TFA makes significant strides with respect to considering developing country needs, it is inadequate for large-scale infrastructural needs as would be required for implementing blockchain for customs and border measures.

The recent Framework Agreement on Facilitation of Cross-Border Paperless Trade in Asia and the Pacific (“Framework Agreement”), which in 2019 was opened for signature by the 53 members of the United Nations Economic and Social Commission for Asia and the Pacific (“ESCAP”) is committed to digitalizing trade processes.142 It builds on the TFA by focusing on the move to paperless trade facilitation, which is only addressed in a limited fashion in the TFA, and is the first multilateral treaty to provide legal prescriptions regarding the topic.143 Article 7(1) states that “[t]he Parties shall endeavour to facilitate cross-border paperless trade by enabling exchange of trade-related data and documents in electronic form, utilizing the existing systems in operation or creating new systems.”144 As was discussed earlier, the approach of creating new systems, if applied to blockchain, could give rise to interoperability issues and reduce the security inherent in blockchain. However, where no electronic system for facilitating cross-border paperless trade exists, new systems would need to be created. Other provisions of the Framework Agreement would be most effectively implemented by the use of blockchain. Article 8, for instance, requires parties to provide for mutual recognition of trade-related data and documents in electronic form originating from other parties “on the basis of a substantially equivalent level of reliability.”145 A “substantially equivalent level of reliability” is a standard that would be most easily facilitated by the implementation of blockchain technology. The Framework Agreement does contain a capacity-building provision acknowledging the challenges for some countries to implement paperless trade, but the language is aspirational, with the phrasing indicating that the parties “may cooperate,” “may collaborate,” and “may invite.” Given that 11 of the 53 ESCAP members are LDCs146 and with a large majority of the members qualifying as developing countries, this would appear to lay the burden of implementation mostly on the shoulders of developing country members.

The challenges of implementing blockchain technology in developing countries are unlikely to be met through either the TFA or the Framework Agreement, neither of which specify concretely enough how capacity building is to occur. While the introduction to the Framework Agreement in the e-book published by ESCAP mentions sustainable development as a strategic focus, the Framework Agreement itself does not mention sustainable development, nor does the TFA.147

If blockchain technology were to be appropriately implemented in a way that emphasizes the sustainable development component of trade facilitation, it could have a positive impact in guaranteeing that the supply chain is operating as it should. This could ensure that the inputs are coming from workers who are paid a living wage, and that middlemen aren’t taking more than their share as the raw materials make their way through the supply chain. Who ultimately benefits, though? When the focus is on exporting raw materials from Global South countries, this risks ossifying current relationships, structures and players within the supply chain and might limit the opportunities for individuals and corporations within the exporting countries to develop their own processing capabilities and manufacturing innovations. Blockchain technology is itself also a source of significant profit. By using blockchain throughout the Global South, another avenue is created for Global North companies (in this case technology companies) to profit from Global South countries while leaving them at the outside—neither benefiting from access to new technologies, nor being part of the economic benefits from the deployment of such technologies. This is digital colonialism.

Under traditional colonialism, colonies were exploited for raw materials and prevented from industrializing. The goal of using blockchain platforms for trade facilitation and supply chain management purposes is to track raw materials from their inception to their final output as a finished good. While this is an undeniably positive goal when viewed in isolation from the overall conditions in the input-producing country, it entrenches the role of these producers as raw material exporters rather than opening doors to manufacturing possibilities. This colonial-era extractivist development model has left Global South countries struggling to grow their economies, and has exposed them to global volatility and risks arising from being economically tied to the performance of the commodity markets.148

Where paperless trade facilitation measures are discussed as a means of achieving sustainable development goals, it is important to be clear on what is meant by sustainable development. This article previously discussed some of the controversy surrounding the phrase. As this author has previously stated, “[w]hat sustainable development means and for whose benefit it is to be interpreted lie at the center of a debate between the Global South and the Global North concerning industrialization, economic development, and colonialist exploitation.”149 While to many in the Global North it means reducing industrial footprints, for the Global South there must be opportunities for industrial development, particularly where countries have continued to serve their colonial-era functions as producers and exporters of raw materials and been denied the opportunity to diversify economically.

Blockchain should also not just be viewed as a tool to ensure that raw materials are correctly tracked from the Global South producer to the Global North consumer. As previously discussed, Global North corporations are involved in corruption in the form of trade misinvoicing and transfer mispricing, both of which contribute to the large-scale problem of illicit outflow.150 Blockchain provides a more effective means to combat these types of outflows than any previously existing technology, although it is not foolproof. Incorrect information can be uploaded, which would require a separate step of information verification, without which the risk of corruption would remain.151 This risk exists wherever data must be entered—the information is only as good as the original input, whether it is about raw material quantities or about invoice pricing.

The neo-colonialism of using blockchain to trace raw materials from their production in the Global South to their consumption in the Global North can in part be mitigated by participating in programs designed to ensure a living wage for producers of raw materials. From a Global South perspective, setting minimum prices for raw materials that are not subject to speculation on the commodities markets is a way to protect the livelihoods of producers and signal to the Global North that the time for exploitation is over. Côte d’Ivoire and Ghana, the two largest cocoa producers in the world, have both implemented a price floor on their cocoa and a Living Income Differential (“LID”) per ton, which is meant to address poverty amongst the producers. In late 2020, both countries increased the fixed price paid to cocoa farmers, with Ghana increasing it by 28% and Côte d’Ivoire increasing it by 21%.152 A recent study showed that the LID benefited the incomes of already better-off producers the most, since they already had larger production volumes, meaning that the price increase had a more significant impact on their income than on smaller producers.153 Despite this caveat, the LID does provide improved living standards for all households involved in cocoa production.154

Measures like those implemented by Côte d’Ivoire and Ghana work best where there are many producers, rather than production being dominated by a small number of large corporations and/or the government. In tandem with setting price floors and ensuring living wages, blockchain can play a positive role in ensuring that these measures are in fact implemented. For more extractive mineral industries, government efforts to alleviate poverty more broadly will likely have positive effects, but the effectiveness of this will depend on the degree of corruption both within the government and in the corporations that export and process these resources. Ultimately, Global North consumers are more interested in the provenance of their chocolate than in the provenance of their oil, gold, or rare earth minerals used to make the electronic equipment they use on a daily basis, which limits the effectiveness of blockchain as a means of monitoring the supply chains for mineral resources. And ultimately, the simplest and most just solution—to allow raw material producers to set their own prices rather than having them externally dictated by a small cartel of foreign corporations—is currently politically and economically unfeasible.

Conclusion

In November 2020, Côte d’Ivoire and Ghana cancelled all of Hershey’s (the US-based chocolate company’s) cocoa sustainability schemes that Hershey operated in those two countries.155 Hershey had entered into a scheme to certify cocoa as sustainably sourced, meaning free of environmental and human rights abuses, part of Côte d’Ivoire and Ghana’s efforts to improve living conditions for cocoa producers in their countries.156 The two countries accused Hershey of using the ICE futures exchange to source large volumes of cocoa in order to avoid the LID premium.157 This demonstrates the lengths to which large manufacturers and exporters will go to maximize their profits at the cost of a decent living for the people in raw material-producing countries. Only a few weeks later, Côte d’Ivoire lifted its suspension on the sustainability schemes, bowing to pressure.158 In February 2021, a federal class action lawsuit was filed by International Rights Advocates, a human rights group, against seven major cocoa companies on behalf of eight Malian men who allege that they were trafficked as children and forced to harvest cocoa in Côte d’Ivoire as minors.159 The outcome of that case remains to be seen, but it is clear that Western cocoa companies have been and continue to be complicit in reinforcing cycles of poverty and exploitation in West Africa.

It is not enough to implement blockchain technology to provide detailed tracking of a product from raw material to final manufactured good. As long as some countries produce raw materials and other countries manufacture the final product, thus benefitting from the value-added, there will be an incentive to maintain the status quo and keep raw material producers as agricultural economies, even against their own interests and desires. Blockchain offers much positive potential—it is undoubtedly desirable to be able to track a product from beginning to end. But we must ask ourselves who ultimately benefits from this tracking and who gets left out. As long as the raw material producers cannot afford the final products made from their inputs, as is the case in Côte d’Ivoire with chocolate,160 we should focus as much on sustainable development and improving quality of life for the producers as we do on reducing costs of international transport. And as long as the technologies that will create new avenues of profit for foreign corporations are unavailable to those being commodified under those technologies, systems of colonialism will continue to be replicated, this time in a digital fashion.