[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
LEVERAGING BLOCKCHAIN TECHNOLOGY
TO IMPROVE SUPPLY CHAIN MANAGEMENT
AND COMBAT COUNTERFEIT GOODS
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT &
SUBCOMMITTEE ON RESEARCH AND TECHNOLOGY
COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
MAY 8, 2018
__________
Serial No. 115-57
__________
Printed for the use of the Committee on Science, Space, and Technology
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Available via the World Wide Web: http://science.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
30-320PDF WASHINGTON : 2018
COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HON. LAMAR S. SMITH, Texas, Chair
FRANK D. LUCAS, Oklahoma EDDIE BERNICE JOHNSON, Texas
DANA ROHRABACHER, California ZOE LOFGREN, California
MO BROOKS, Alabama DANIEL LIPINSKI, Illinois
RANDY HULTGREN, Illinois SUZANNE BONAMICI, Oregon
BILL POSEY, Florida AMI BERA, California
THOMAS MASSIE, Kentucky ELIZABETH H. ESTY, Connecticut
RANDY K. WEBER, Texas MARC A. VEASEY, Texas
STEPHEN KNIGHT, California DONALD S. BEYER, JR., Virginia
BRIAN BABIN, Texas JACKY ROSEN, Nevada
BARBARA COMSTOCK, Virginia CONOR LAMB, Pennsylvania
BARRY LOUDERMILK, Georgia JERRY McNERNEY, California
RALPH LEE ABRAHAM, Louisiana ED PERLMUTTER, Colorado
DANIEL WEBSTER, Florida PAUL TONKO, New York
JIM BANKS, Indiana BILL FOSTER, Illinois
ANDY BIGGS, Arizona MARK TAKANO, California
ROGER W. MARSHALL, Kansas COLLEEN HANABUSA, Hawaii
NEAL P. DUNN, Florida CHARLIE CRIST, Florida
CLAY HIGGINS, Louisiana
RALPH NORMAN, South Carolina
------
Subcommittee on Oversight
RALPH LEE ABRAHAM, Louisiana, Chair
BILL POSEY, Florida DONALD S. BEYER, Jr., Virginia
THOMAS MASSIE, Kentucky JERRY McNERNEY, California
BARRY LOUDERMILK, Georgia ED PERLMUTTER, Colorado
ROGER W. MARSHALL, Kansas EDDIE BERNICE JOHNSON, Texas
CLAY HIGGINS, Louisiana
RALPH NORMAN, South Carolina
LAMAR S. SMITH, Texas
------
Subcommittee on Research and Technology
HON. BARBARA COMSTOCK, Virginia, Chair
FRANK D. LUCAS, Oklahoma DANIEL LIPINSKI, Illinois
RANDY HULTGREN, Illinois ELIZABETH H. ESTY, Connecticut
STEPHEN KNIGHT, California JACKY ROSEN, Nevada
DANIEL WEBSTER, Florida SUZANNE BONAMICI, Oregon
JIM BANKS, Indiana AMI BERA, California
ROGER W. MARSHALL, Kansas DONALD S. BEYER, JR., Virginia
LAMAR S. SMITH, Texas EDDIE BERNICE JOHNSON, Texas
C O N T E N T S
May 8, 2018
Page
Witness List..................................................... 2
Hearing Charter.................................................. 3
Opening Statements
Statement by Representative Ralph Lee Abraham, Chairman,
Subcommittee on Oversight, Committee on Science, Space, and
Technology, U.S. House of Representatives...................... 4
Written Statement............................................ 6
Written Statement by Representative Eddie Bernice Johnson,
Ranking Member, Committee on Science, Space, and Technology,
U.S. House of Representatives.................................. 8
Written Statement by Representative Donald S. Beyer, Jr., Ranking
Member, Subcommittee on Oversight, Committee on Science, Space,
and Technology, U.S. House of Representatives.................. 10
Written Statement by Representative Barbara Comstock, Chairwoman,
Subcommittee on Research and Technology, Committee on Science,
Space, and Technology, U.S. House of Representatives........... 12
Written Statement by Representative Daniel Lipinski, Ranking
Member, Subcommittee on Research and Technology, Committee on
Science, Space, and Technology, U.S. House of Representatives.. 14
Witnesses:
Dr. Douglas Maughan, Cyber Security Division Director, Science
and Technology Directorate, U.S. Department of Homeland
Security
Oral Statement............................................... 16
Written Statement............................................ 19
Mr. Robert ``Bob'' Chiaviello, IPR Counsel, Nuby Law
Oral Statement............................................... 27
Written Statement............................................ 29
Mr. Michael White, Head of Global Trade Digitization, Maersk
Oral Statement............................................... 50
Written Statement............................................ 53
Mr. Chris Rubio, VP Global Customs Brokerage Staff, UPS
Oral Statement............................................... 57
Written Statement............................................ 60
Discussion....................................................... 65
Appendix I: Answers to Post-Hearing Questions
Dr. Douglas Maughan, Cyber Security Division Director, Science
and Technology Directorate, U.S. Department of Homeland
Security....................................................... 84
Mr. Robert ``Bob'' Chiaviello, IPR Counsel, Nuby Law............. 87
Mr. Michael White, Head of Global Trade Digitization, Maersk..... 89
Mr. Chris Rubio, VP Global Customs Brokerage Staff, UPS.......... 91
LEVERAGING BLOCKCHAIN TECHNOLOGY
TO IMPROVE SUPPLY CHAIN MANAGEMENT
AND COMBAT COUNTERFEIT GOODS
----------
TUESDAY, MAY 8, 2018
House of Representatives,
Subcommittee on Oversight and
Subcommittee on Research and Technology
Committee on Science, Space, and Technology,
Washington, D.C.
The Subcommittees met, pursuant to call, at 10:03 a.m., in
Room 2318 of the Rayburn House Office Building, Hon. Ralph
Abraham [Chairman of the Subcommittee on Oversight] presiding.
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Chairman Abraham. The Subcommittee on Oversight and
Research and Technology will come to order.
Without objection, the Chair is authorized to declare
recess of the Subcommittee at any time.
Good morning, and welcome to today's hearing entitled
``Leveraging Blockchain Technology to Improve Supply Chain
Management and Combat Counterfeit Goods.'' I'll recognize
myself for five minutes for an opening statement.
Good morning again. Welcome to today's joint Oversight and
Research and Technology Subcommittee hearing, ``Leveraging
Blockchain Technology to Improve Supply Chain Management and
Combat Counterfeit Goods.'' Today's hearing will highlight
potential applications of blockchain technology in shipping,
logistics, and customs, emphasizing supply chain management. A
focus today will be how this technology can be leveraged to a
greater visibility into the supply chain and how the technology
can be used to combat the distribution of counterfeit products.
We will hear from government and private-sector experts
about blockchains potential to improve the security of our
systems and how it can ensure customers and the companies
alike, that the products and services being used are verified.
The Science Committee continues to engage in oversight of
emerging forms and applications of technology, just like the
discussion that we--will occur on blockchain today. We
recognize that these technologies can benefit both the public
and private sectors and seek to understand what can be done to
ensure that this technology is appropriately leveraged in an
efficient and productive manner.
Through ensuring reliability, increasing productivity, and
securing systems and data, the application of blockchain
technology is an area in which there is much to learn. While
the applications for blockchain technology are continuously
increasing, this hearing is an opportunity to learn more about
its specific use in supply chain management. Today's witnesses
can provide valuable insight into how blockchain can enhance
security and be leveraged outside of the private sector to
improve government efficiency.
We must also recognize that--the barriers faced by the
private sector in leveraging blockchain technology in order to
fully realize its potential benefits. By hearing from
individuals today that are taking part in ongoing and proactive
efforts within the private sector to utilize blockchain
technology in different areas of their business models, we can
gain a better understanding of what, if anything, industry
needs from the government.
I want to thank Mr. White for being here to represent
Maersk, and Mr. Rubio representing UPS. These companies are
presently engaged in important case studies using this
technology. We look forward to learning about those efforts.
Additionally, Mr. Chiaviello is here today to do--detail
some of the counterfeiting and business issues companies like
Luv N' Care are experiencing. Baby care products are some of
the most important on the market. We must be able to verify the
authenticity of these goods. There is a potential role emerging
for technologies like blockchain to address these global supply
chain safety issues.
The committee will continue to prioritize issues like
verification and overall cybersecurity. We hope venues like
today's hearing will help provide a better understanding of the
issues our private industries are facing and how they are
utilizing emerging technologies. This knowledge can better
inform the Committee on how the application of blockchain
technology could potentially bolster private companies' and the
federal government's cybersecurity weaknesses.
Dr. Maughan, we appreciate you being here today to provide
more insight into the role DHS has played in utilizing this
emerging technology. DHS Science and Technology Directorate is
in a unique position to provide valuable insight and services
as a useful role in exploring a broader understanding and
application of the technology in areas directly related to
shipping, logistics, and customs.
Additionally, through the many projects and ventures it
supports, DHS has the ability to effectively identify the
potential for blockchain technology and address how the federal
government could benefit. These potential solutions could help
secure data and enhance our national security.
I look forward to the insight our witnesses will provide.
This dialogue will help us resolve important questions and
better understand the next steps that must be taken to ensure
the integrity, resilience, and security of our systems and
industries that could--and do--benefit from the application of
this technology.
[The prepared statement of Chairman Abraham follows:]
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[The prepared statement of Ms. Johnson follows:]
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[The prepared statement of Mr. Beyer follows:]
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[The prepared statement of Mrs. Comstock follows:]
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[The prepared statement of Mr. Lipinski follows:]
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Chairman Abraham. We're going to recognize our witnesses
now. Our first witness today is Dr. Douglas Maughan, Director
of the Cyber Security Division of the Science and Technology
Directorate at the Department of Homeland Security. Dr. Maughan
previously worked at the National Security Agency from 1987 to
1999 as a Senior Computer Scientist before moving to DARPA to
work as a Program Manager. In 2003, he joined the Department of
Homeland Security as a Program Manager and was promoted to
Division Director in 2010. He holds two bachelor's degrees from
Utah State University in computer science and applied
statistics, a master's degree in computer science from Johns
Hopkins University, and a doctorate in computer science from
the University of Maryland, Baltimore County.
Our second witness is Mr. Bob Chiaviello, an IPR Counsel at
Nuby Law. Mr. Chiaviello has practiced intellectual property
law for 37 years starting at Pennie & Edmonds in 1980. After a
brief stint with IBM, he joined Baker Botts in 1990. In 2002,
Mr. Chiaviello joined Fulbright & Jaworski as a partner and
worked there until 2011. He received his bachelor's degree from
Washington and Lee University and his juris doctor from the
John Marshall Law School.
Our next witness is Mr. Michael White, head of the Global
Trade Digitalization at Maersk. Mr. White has worked at Maersk
since 2007, first as a Managing Director at Maersk Holding. He
then became Managing Director at Maersk Line before becoming
the head of Global Trade Digitization in 2017. He received a
bachelor's degree from Virginia Wesleyan University and also
studied at Harvard Business School and the International
Institute for Management Development business school in
Lausanne, Switzerland.
Our final witness is Mr. Christopher Rubio, Vice President
of Global Customs Brokerage Staff at United Parcel Services.
Mr. Rubio holds a bachelor's degree in accounting from Pace
University and an MBA in finance from Rutgers University. He
has worked for UPS since 2004, first as Department Manager for
the Midmarket Sales Team. He then became the Department Manager
for UPS Trade Management Services before joining the Global
Customs Brokerage System Group.
I now recognize Dr. Maughan for five minutes to present his
testimony.
TESTIMONY OF DR. DOUGLAS MAUGHAN,
CYBER SECURITY DIVISION DIRECTOR,
SCIENCE AND TECHNOLOGY DIRECTORATE,
U.S. DEPARTMENT OF HOMELAND SECURITY
Dr. Maughan. Chairman Abraham and distinguished Members of
the Oversight and Research and Technology Subcommittees, thank
you for inviting DHS to speak with you today. I will be sharing
important aspects of how the Department of Homeland Security
Science and Technology Directorate is using blockchain
technologies in research and development and working with
department missionaries to integrate the innovative technology
into everyday use.
As the R&D arm of DHS, S&T develops the tools,
technologies, and knowledge products for DHS operators and
state and local first responders, ensuring that R&D
coordination across the Department to develop solutions for the
needs of today and tomorrow. S&T partners with federal
agencies, industry, academia, and international governments to
create and test real-world solutions that help the Nation's
homeland security officials defend against, respond to,
mitigate, and recover from all hazards and threats in a
realistic time frame.
Blockchains offer promise, as witnessed by the rapid growth
of interest across government and private sector. From a
government perspective, the technology holds potential for
enhanced transparency and auditing of public service
operations, greater supply chain visibility to combat the
distribution of counterfeit products, and automation of paper-
based processes to improve delivery of services to
organizations and citizens.
There are many types of blockchains with varying degrees of
support of classic security principles such as confidentiality,
integrity, and availability, as well as support of privacy
principles such as pseudonymity and selective disclosure.
Analysis to determine if a particular blockchain supports these
security and privacy considerations is often nonexistent and/or
not readily available. There remain other challenges with
blockchain technology, particularly a lack of support for
standards that may limit the growth and availability of a
competitive marketplace of interoperable, cost-effective, and
innovative solutions for both government and industry.
Certainly, private industry is leading the way in
blockchain development, as many see it as a key competitive
advantage. Government must be informed and ensure blockchain
technology, as it evolves, supports standardized approaches for
security privacy and data exchange to create efficiencies and
enhance the public good. Government must also consider
leadership opportunities within the broader community and
partner with industry to bring solutions to market.
Blockchain technologies are an integral part of several
ongoing S&T research efforts with both DHS components and
industry partners. We're exploring many issues, including the
development of best practices and decision criteria on when and
how to implement the blockchain technologies, understanding the
support for security and privacy principles in commercial
blockchain implementations, developing specifications to ensure
standardized approaches for decentralized identifiers, defining
interoperable data formats using verifiable credentials, and
identifying scalable and usable approaches to decentralized key
management systems.
DHS S&T is also supporting the development of globally
available specifications as a precursor to standards, which are
open, royalty-free, and free to implement to ensure
interoperability across systems, while ensuring there is no
vendor lock-in. We are doing this through organizations like
the World Wide Web Consortium and the Organization for the
Advancement of Structured Information Standards.
Within DHS, the U.S. Customs and Border Protection
organization has been the most active operational component to
partner with S&T on the use of blockchain technologies for its
mission. Our ongoing engagements with CBP include a proof-of-
concept deployment with the Border Patrol to evaluate how
blockchain technology can ensure the authenticity and integrity
of imagery data collected from cameras, both fixed and mobile;
conducting analysis of alternatives and feasibility studies to
understand the potential benefits and challenges for
facilitating and enhancing international passenger travel; and
conducting proof-of-concept deployments in partnership with
CBP's Office of Trade and Office of Trade Relations that are
directly focused on applications of blockchain to shipping,
logistics, and customs.
Blockchains are moving rapidly from hype to reality in the
application domain areas where DHS S&T is currently working. We
believe our careful and considered approach benefits not just
DHS but everyone who is considering the use of a blockchain
technology by ensuring that there are multiple vendors with
interoperable solutions from which the government can choose.
Thank you again for your committee's thoughtful interest
and leadership in blockchain technology and how it will help
DHS accomplish its important mission. I look forward to your
questions.
[The prepared statement of Dr. Maughan follows:]
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Chairman Abraham. Thank you, Dr. Maughan.
I now recognize Mr. Chiaviello for five minutes to present
his testimony.
TESTIMONY OF MR. ROBERT CHIAVIELLO,
IPR COUNSEL, NUBY LAW
Mr. Chiaviello. Mr. Chairman, Members, thank you for
focusing a light on this problem. I also want to thank your
staff for helping to coordinate and the hospitality they've
shown us coming up from Monroe, Louisiana, for this hearing.
I represent Luv N' Care. It's a company located in Monroe,
Louisiana, and we make baby products. If you're a parent or
grandparent of small children, you probably are familiar with
our products. We make sippy cups, pacifiers, bibs, a wide range
of products. We're not a tech company, so--but I'm here to
explain to the Committee a problem--a growing problem that we
are experiencing from unfair competition, particularly unfair
competition from overseas.
As a consumer products company, we've always had to deal
with people who would copy our intellectual property and try to
sell it to--as counterfeits or knockoffs, but today, what we're
facing is a foreign-centered threat. It's costing our company
millions of dollars a year, and it's seriously affecting our
bottom line.
Some of the--what we are seeing today is really a
combination of two things. One is online retailing, combined
with the ability to ship products directly from overseas into
the U.S. market. When I first started 30-some years ago, if
there was unfair competition, it usually came in by a container
load, which usually gave us plenty of time to deal with it or--
either on the water or by the time it arrived here we--we could
deal with it either with customs or in the court system.
Today, the products are coming in by UPS and China post.
What we see is a foreign-based entity that will use an online
retailer like Amazon or others. They market their product to
U.S.-based consumers. Typically, they use our intellectual
property. They're using our trademarks to promote their
product. They'll even go so far as to copy our photographs from
our website, photograph our products, marketing it as their
own. Then, they use digital advertising to attract the consumer
to their website. The consumer thinks of course that the
product is somehow related to us, purchases the product, and
then the product is shipped directly to the consumer from,
typically, China.
We are now--and this--the product can be shipped in. We've
done experiments or testing. It can be 48, 72 hours from
placing an order online to the time the product arrives here in
the United States.
The--well, let me see. The--another--well, our problem is
primarily with intellectual property where we can enforce our
rights. There's also a problem with U.S. health and safety
laws. Baby products are a fairly regulated item between the
Consumer Products Safety Commission and the FDA, and our
company spends a great deal of effort, resource complying with
those rules and regulations, as well as our own quality
standards.
Quite often, these pirates do not. We--some of the products
that we've inspected, they use inferior materials. They use
banned materials. The products don't comply with the size
regulations of the CPSC. We've found pacifiers, for example,
that are made using inferior plastic materials or with
adulterants so that the nipple part can come off the pacifier,
obviously can become a choking hazard.
And the U.S. consumer, as well as we, have no recourse.
These folks are located--these pirates are located in China.
They have no domestic connection, and our current systems for
trying to enforce U.S. IP laws and health and safety
regulations fail when the infringer or the violator is located
overseas and outside the jurisdiction of U.S. courts and
customs.
The way we see the problem, it's really a question of how
the border is opened, and we implore for some solution to try
and place better controls on the border to prevent these kinds
of--this kind of activity.
I want to thank the Committee for its attention to this
problem.
[The prepared statement of Mr. Chiaviello follows:]
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Chairman Abraham. Thank you, Mr. Chiaviello.
Mr. White, five minutes please, sir.
TESTIMONY OF MR. MICHAEL WHITE,
HEAD OF GLOBAL TRADE DIGITIZATION, MAERSK
Mr. White. Good morning, Chairman Abraham, Chairwoman
Comstock, Ranking Member Beyer, Ranking Member Lipinski, and
members of the subcommittees. My name is Mike White. I'm head
of Global Trade Digitization for Maersk. Before moving to my
current role, I was President of Maersk Line North America for
the past eight years, and I have had the pleasure of working in
this industry for over 37 years. Thank you very much for the
opportunity to testify this morning.
In a global economy, supply chains are of critical
importance. It is estimated that over $16 trillion worth of
goods cross international borders each year, and more than 80
percent of those goods are carried by the ocean shipping
industry. Over the past five years, global container volumes
have increased on average of 3.7 percent per year.
Moving goods from point A to point B involves many parties
who are separate but dependent upon one another. Importers and
exporters, freight forwarders, customs brokers, ports and
terminals, ocean carriers, customs and government authorities,
inland transportation providers, financial institutions, and
others all gather discrete sets of sometimes overlapping
information, which they share using a convoluted web of
individualized formats and aging technologies. This
inconsistent flow of information across organizational
boundaries hampers the efficient flow of goods, but through a
collective complexity-driven inertia, supply chain participants
persist in their outdated practices. Perhaps this is because
they trust that, flawed though it may be, the system will
deliver ultimately a container from point A to point B, and
they can't afford to experiment with a system that may fail to
do so.
The industry operates today much as it does--or has since
the introduction of shipping containers in the 1950s. Many
processes are manual, time-consuming, and too often paper-
based, with transactions still frequently coming today via fax
machine. The cargo on any given container vessel voyage
generates a mountain of documents, many of which are sent to
the relevant container's destination by some other means.
Container shipments can often be delayed in the port because
necessary paperwork has not caught up with the goods that they
carry.
In a Freightos survey recently cited by The Economist, 2/3
of respondents said that over 1/4 of their deliveries abroad
arrived late. Nearly 1/2 said they spend more than 2 hours on
paperwork when arranging a given shipment, and the vast
majority of respondents had real difficulty tracking goods in
transit.
In an industry where global transport costs are 1.8 to $2
trillion annually, administrative costs can sometimes exceed
the end-to-end transport costs for a given container, and
overall inefficiencies are estimated at 15 percent or higher.
The World Economic Forum estimates that by reducing barriers
within international supply chains, global trade could increase
by up to 15 percent, boosting economy and creating jobs.
These barriers have proven incredibly difficult to surmount
as participants are trapped by the layered complexity of
entrenched methods. Everyone agrees that there must be a better
way, but no single participant is able to affect change because
of the overarching desire to stick with what is known to work
even if not very well over an experiment that could fail with
disastrous and cascading consequences.
In 2016, Maersk and IBM began a collaboration with the goal
of digitizing the global supply chain. To begin, we analyzed a
number of supply chains to understand the current challenges in
specific areas of complexity. One of these involved a shipment
of avocados moving from Kenya to the Netherlands. This one
container involved over 30 different actors or entities, more
than 100 individuals, and over 200 separate exchanges of
information and documentation, the vast majority of which were
completely manual, paper-based, and extremely time-consuming.
We soon realized that no sustainable solution can exist for
streamlining this entrenched complexity without unprecedented
buy-in from the entire industry. In our analysis, an open and
neutral industry platform, consisting at its core of a
worldwide network of interconnected supply chain participants,
is by far the best way to drive efficient, transparent, and
secure global trade. The trust necessary to build this network
would likely not exist without blockchain technology.
In January of this year, Maersk and IBM announced our
intention, subject to the receipt of all applicable regulatory
approvals, to form a joint venture to implement this global
platform. The platform will follow the flow of cargo from
source to destination. As empty containers are provisioned and
transported from a warehouse, as the containers are stuffed and
transported to a port, loaded on board a vessel, cleared export
regulatory clearance, and continuing on the vessel to the
import side will follow the flow of the cargo through customs
clearance and ultimately delivery to the final consignee and
the empty containers returned to a depot.
The platform will do this by leveraging network
participants who both make information available and consume
information by others. Blockchain enables this unprecedented
collaboration by ensuring the security, trustworthiness, and
permissioned accessibility of sensitive participation
information, even as that information is distributed across
heretofore segregated enterprises. Participants will be able to
go to one place to track the real-time status of a container
and to locate and transact with up-to-date, trustworthy trade
information.
Blockchain is the critical ingredient. It creates an
immutable record of transactions, which enables the ecosystem
to track the exchange of critical information like records of
inspection, bills of lading, customs documents. Throughout the
trade, each participant has real-time visibility access to
supply chain according to permission levels. Trust is built by
validating the participants, authenticating transactions,
distributing information, and maintaining unalterable records
that are located or accessible through the platform.
At the end of the given shipment, these immutable records
will provide one version of the truth of how a container
transited from beginning to end, and the documents submitted to
the platform can be actioned and stored using blockchain
technology. This means that, once a document has been certified
by a government agency, the slightest alteration to that
document will be exposed and rejected as different from the
original. This will obviously have lasting benefits towards
fraud detection and prevention.
The result: a previously unattainable information backbone
of the global supply chain, encompassing the milestones
documents in a structured form, customs filings, and many more
solutions. Access to this platform will give traders and
transportation real-time end-to-end visibility of, and
permission to access to, information about cargo shipments such
as status and whereabouts of containers, shipping milestones,
and trade documentation. As the network grows, its benefits
will multiply and it will generate billions of dollars in
savings for all industry participants, along with entirely new
approaches to global logistics.
Thank you for the opportunity to discuss this vital topic.
I look forward to answering your questions.
[The prepared statement of Mr. White follows:]
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Chairman Abraham. Thank you, Mr. White.
Mr. Rubio?
TESTIMONY OF MR. CHRIS RUBIO,
VP GLOBAL CUSTOMS BROKERAGE STAFF, UPS
Mr. Rubio. Chairman Abraham, Chairman Comstock, Ranking
Member Beyer----
Chairman Abraham. Turn your mic on.
Mr. Rubio. Thank you, sir. Chairman Abraham, Chairman
Comstock, Ranking Member Beyer, Ranking Member Lipinski, and
distinguished members of the committee, thank you for the
opportunity to testify before you today on how blockchain
technology can be leveraged to provide greater supply chain
visibility and possibly help combat the distribution of
counterfeit products.
I applaud the Committee's efforts to get in front of this
rapidly evolving technology, and this hearing before two
subcommittees speaks to the importance of this issue.
With over 434,000 global employees delivering more than 19
million packages and documents every day in over 220 countries
and territories around the world, we work hard to be united
problem solvers. At UPS, our business processes are complex and
our technology advanced, but our objective is simple: to ensure
world-class service for our customers.
UPS has been researching the use of blockchain technology
with the purpose of identifying ways blockchain may impact,
disrupt, and/or drive efficiency in the supply chain. Our goal
is to engage in a collaborative discussion with customers and
policymakers on how blockchain technology can be utilized to
further enable supply chain digitization, efficiency, and
security, blockchain as an enabler.
In terms of logistics applications, blockchain could bring
together buyers, sellers, suppliers, payment companies, and
logistic companies to provide end-to-end supply chain
visibility, while addressing privacy and data security
concerns. For government border agencies, blockchain could
enable greater transparency of a transaction, possibly
including what's in the box and who's buying it, how much
they're paying for it, assurance that the duties and taxes are
paid, and possible confirmation that shipments are not under-
declared, resulting in faster release and a more trustworthy
supply chain.
As a result of the technology underlying blockchains, UPS
sees four key benefits for our company and our customers:
integrity, transparency, interoperability, and security. In
particular, our large customers have the potential to benefit
greatly from the adoption of this technology.
Given the complexities of the modern supply chain,
multinational corporations have invested large amounts of money
in enterprise resource planning systems and supply chain
management software yet only have limited visibility and
insight into where all of these products are at a given point
in time.
However, it is not only large multinationals that will
benefit. We also see the potential for small and medium-size
enterprises to realize the many benefits of blockchain, for
example, a small business would be able to ship its products
globally due to the blockchain framework that enables multiple
parties to share important trade information in a single ledger
for the contents of that shipment.
As a protector of intellectual property rights, UPS and
other express delivery service providers engage regularly with
customers and governments to ensure that our network around the
world only carries legitimate and legal products. However,
there are practical limits to what we and other express
delivery providers can do day-to-day. First, we're not the
originators of the information about the shipments, and
limitations exist on the quantity of information that we can
obtain from customers. Second, we and other express delivery
providers do not have the requisite expertise to identify
counterfeit or pirated goods. And third, we're not law
enforcement agencies, which means we're subject to national
data protection and commercial information and confidentiality
rules.
This is where blockchain could potentially provide a
solution. By having the ability to track any product from the
beginning of its journey through the supply chain, blockchain
may provide a solution to unknown or unverified product
origins. In fact, we are already seeing this technology used to
trace the origins of various products from diamonds and mangos.
By creating a digital record of each individual item, the
company and consumer are able to verify the authenticity of the
product and ensure standards are met each step of the way.
The United States and international governments' role in
fostering blockchain: The U.S. Congress, federal agencies, and
our international counterparts will play a vital role in the
adoption and success of blockchain in the supply chain.
Governments must take a balanced and measured approach between
regulating this everchanging technology and allowing for its
innovation and evolution. As e-commerce and global trade flows
continue to rapidly grow, the United States must work with our
international trading partners to establish a common set of
blockchain standards that are recognized throughout the world.
As I mentioned previously, UPS operates in over 220
countries and territories around the world, and I know
firsthand that a patchwork of global regulation would stifle
innovation, slow the flow of goods across borders, and increase
the likelihood that illicit material would enter the country
undetected.
Despite the potential upside to the widespread adoption of
blockchain, a couple of key barriers exist that must be
overcome. The first and biggest hurdle is the linking of all
physical objects to the digital stream. Currently, individual
items may be tagged digitally with RFID, near-field
communication, or two-dimensional barcodes. However, in order
for blockchain to realize its full potential, all products
would have to be tagged digitally, requiring an overhaul in
today's supply chain practices. Without an industry and supply-
chain-wide commitment to adopt to digitalization, many
organizations will not make the investment in the technology.
Finally, the international community must come together to
ensure that there is one unified set of standards for
blockchain. This will give companies the confidence they need
to know the technology they adopt will be recognized throughout
the world. Without these common standards, uncertainty will
prevent the largescale investment that is needed to make
blockchain a success in the supply chain.
Thank you once again for inviting me to testify before you
on the technology that could change how the world understands
supply chains. I look forward to any questions.
[The prepared statement of Mr. Rubio follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Abraham. Thank you, Mr. Rubio. And I want to thank
all the witnesses again for coming here and certainly bringing
your knowledge base to this subcommittee.
If I understand blockchain correctly--and I am in a steep
learning curve--but it will revolutionize tracking of goods
somewhat like GPS revolutionized navigation. So I think this is
world-changing technology that we're dealing with.
I'm going to ask some questions for five minutes. Mr.
Chiaviello, I'll ask you first.
In your testimony you detailed the issues your company and
others are experiencing with counterfeit goods in the supply
chain. What sort of impacts, either quantitative or
qualitative, has this had on your business and on your
customers?
Mr. Chiaviello. Well, on our business it certainly affects
us on the order of millions of dollars a year. I mean, it's
hard--it's difficult to put an exact number on it because we
don't know what we don't know, but based on what we can
determine from what we have investigated, as I say--and it's
growing. You know, five years ago, we didn't really see this
problem, and--so now it's--it's a million-dollar problem,
whereas five years ago, well, it barely existed.
The direct effect is not only does it--it costs us--it
costs us money, it affects our competitive situation as these
pirates or counterfeiters, they don't bear the cost burden that
we do in making sure that our products comply with federal
regulations, so they can compete against us with a much lower
cost structure. Our products set the--sort of set the price
level. They come in just slightly underneath us, but because
they don't have our cost structure, it's very, very profitable,
which is what's driving this business.
Chairman Abraham. So building off that, Mr. White and Mr.
Rubio, how can your companies, with the application of this
blockchain technology, help a company that Mr. Chiaviello
represents? What can you guys do to combat that counterfeiting
of goods?
Mr. White. Well, the platform we're putting together
between Maersk and IBM initially is one that helps identify the
sources of information. So we use blockchain to help establish
who are the--it's a blockchain solution which is permission
blockchain, which means that the entities that are involved are
known to each other. And if the documents created from origin
are sent to anybody else who are party to that transaction, if
any of those documents change, it's immediately identified that
the document has been changed. And that could work from a
change from when it goes to a customs authority or another
government agency, when that's been certified and the document
is therefore sent down the path.
So the ability to identify any changes in the documentation
of what's been shipped or any new entities that are involved in
the party is immediately identifiable. So it helps identify the
potential risk of fraud I think much easier, much earlier, and
for everybody involved in the transaction to see one document
is different from what was--the rest of the documents that they
had seen up to that point.
Chairman Abraham. Mr. Rubio?
Mr. Rubio. Yes, and what we can envision is an environment
where you can have a provision--permissioned network of
traders, and in this permissioned network of traders, you could
have the different actors in the supply chain exchanging
information. And as the exchange information, fraud can, you
know, immediately be detected via the technology, and then
those that fall outside could be, you know, scored negatively
and removed from the networks, et cetera. So the technology
really lends itself to advancing the internet--intellectual
property rights protection, and we see that as a possibility
going forward.
Chairman Abraham. And Dr. Maughan, could DHS potentially
leverage this blockchain as a tool to combat the importation of
counterfeit goods?
Dr. Maughan. Yes, certainly. In fact, if you look at the
Customs and Border Protection, they are just one person and one
organization involved in the whole transaction, along with
companies like Maersk and UPS and others. And so that's the
work we've been looking at is in the pilot phase. How could we
use the blockchain technology to detect counterfeit goods more
easily?
Chairman Abraham. Are you seeing any obstacles that we as a
federal government are throwing up in your path to prevent you
from using that technology in an efficient and productive way?
Dr. Maughan. To date, no. As I pointed out in my testimony,
the one area that does concern us is a shortage or lack of
standards, and so we've been focusing on specifications towards
that end, and I think when we have a full network of standards
that everybody can live by, then I think that will be even more
useful for all involved.
Chairman Abraham. Thank you, Dr. Maughan.
I now recognize Ms. Bonamici for 5 minutes.
Ms. Bonamici. Thank you very much, Mr. Chairman, and thank
you to all of our witnesses for your testimony today. There is
certainly a wide range of possible applications for blockchain
technology, some quite fascinating, for example, safeguarding
ownership of creative works or voting technologies. There's a
lot of potential there.
These and other possible uses are important, but the health
and safety of Americans is of course something that is of
paramount importance. So I'd like to focus on one particular
area where blockchain may offer benefits, namely drug abuse
prevention. I recently had a series of community meetings in
northwest Oregon about the toll of the opioid epidemic on our
families and our communities, and one issue that came up not
infrequently was the influx of dangerous drugs from foreign
countries, especially fentanyl from China. So it seems that
blockchain could be used to prevent the importation of illicit
drugs or the unlawful diversion of legitimate medications.
Parcels that are shipped from foreign countries are a major
source of illegal substances, including opioids and, as I
mentioned, fentanyl. I understand that Homeland Security,
particularly customs, is as concerned about this as I am. And I
know there are several legislative proposals to combat this
problem. For example, one of the bills I'm cosponsoring is the
Synthetics Trafficking and Overdose Prevention Act that would
require foreign and postal operators to provide electronic
data, enabling Customs and Border Patrol to better target and
screen high-risk shipments.
So, Dr. Maughan, might there be uses for blockchain
technology in verifying that imported goods are legal and do
not pose a threat to public health or safety? And are you aware
of efforts or discussions specifically around using blockchain
to prevent illegal drug activity, whether it be the
interdiction or preventing diversion?
Dr. Maughan. So I am unaware of any activity to date that
is looking at this issue, but I certainly believe that it has a
very interesting opportunity for us. As I mentioned in my
testimony, there are other pilots that we are looking at with
CBP to address counterfeit goods. We just haven't had the
conversation about the opioids, fentanyl, and other illicit
drugs in those types of pilots.
In the end, the goal here is to be able to track goods, not
only the--you know, using industry providers as well as
government participants, and I certainly believe there's
opportunity to look at that in the same example.
Ms. Bonamici. I think that would be some welcome work.
Also, Dr. Maughan, of course food safety, which you mentioned
and has been mentioned in the testimony, the FDA and Centers
for Disease Control recently warned us all about E. coli
contamination in romaine lettuce, for example. Would you be
able to comment on how blockchain might improve that ability to
ensure food quality and safety? And you mentioned pilots. I
know there's a couple of pilots going on and trial projects
regarding seafood traceability, working with organizations so
that customers, when they're shopping for fish, can know
exactly where that came from and trace that. So do--are you
aware of that work?
Dr. Maughan. I'm not aware of that work but one of the
other witnesses mentioned mangoes. There have been--and
avocados. There have been other examples of cases where we've
tracked food and goods, and I certainly believe the application
areas are unlimited as to how we would use the technology to
provide food safety for the Nation.
Ms. Bonamici. Mr. Rubio, I understand that UPS already
requires a kind of electronic registration data from foreign
shippers. Could you comment on whether blockchain could play a
role in this area?
Mr. Rubio. Yes. Most definitely, we see the opportunity,
again, leveraging the potential of blockchain to provide
permissioned access for the exchange of information and then
leveraging the information that's--that can be collected to
perhaps maybe score customers and then provide access to, you
know, secure supply chains.
Ms. Bonamici. Terrific. And I don't know who wants to weigh
in on my next question. As we are talking about this great
potential from blockchain, we also understand and talk about in
this committee a lot quantum computing and whether the
development of blockchain is really keeping up with what's
happening with quantum computing. I know NIST, the National
Institute of Standards and Technologies, is looking at this,
sort of incorporating some quantum cybersecurity measures along
the way because everything I've read said that that is the big
threat eventually that if we don't keep--as we're developing
blockchain if we don't keep up with what's happening with
quantum computing. Does anybody know about the work that's
going on there as blockchain is developing? Are we developing
these quantum-resistant algorithms? Anybody able to answer
that?
Dr. Maughan. I'll give you a shot and try, but--so if you
look at the blockchain technology, at its core it's
cryptography and the ability to secure the data, and the
concern is that our cryptographic systems eventually can be
broken using quantum computing, and so the concern is how do I
make my cryptographic algorithms at the core of the blockchain
technology something that can be quantum-computing-resistant or
at least allow the cryptography to be--to last a lot longer.
And the concern is if our adversaries are using quantum
cryptography to break our cryptographic algorithms, they would
actually be able to break the blockchain technology.
Ms. Bonamici. Certainly something we can discuss further.
Thank you. My time is expired. I yield back. Thank you.
Chairman Abraham. Mrs. Comstock.
Mrs. Comstock. Thank you.
Mr. Chiaviello, as a mom and a grandmother now, your
testimony about the challenges of knockoff children's products
was certainly troubling. So how might the use of blockchain
technology help a company resolve this problem? And what other
tools might be useful in helping companies and consumers combat
counterfeiters particularly in this area?
Mr. Chiaviello. Well, I think the primary goal would be to
control access, in other words, as the term has been used,
permissioned access. And so when a consumer is--well, let me
give you an example. Teethers are regulated by the Food and
Drug Administration and require that any factory where a
teether is manufactured has to be registered with the Food and
Drug Administration, has to pass extensive health and safety
evaluations. And then once the factory passes those tests, the
factory is given a number. And that number then identifies the
source of all the teethers that originate from that factory.
And so that number can act as a stamp of approval like USDA
approval on hamburger, on beef products and go with the
product, using a blockchain technology to assure the consumer
that the product they are buying is an authentic product. In
other words, it's been--I don't want to say certified but
it's--originates from a certified location. So I think there's
great opportunity for--in that respect.
Mrs. Comstock. Okay. Thank you. And then I guess for other
witnesses, if any of you work--does any of your work involve
coordinating with NIST or leading any type of collaboration
with other industries regarding standards for blockchain
technology?
Mr. White. From Maersk and IBM, we're looking to embrace
existing standards, industries, wherever there are standards
available so that we can make sure that we adopt and embrace
it. In our view, to have a platform that really helps to
accelerate the digitization of global trade, we need to be
completely open and neutral, and we need to take advantage of
having common standards around the world.
So here in the United States we're looking into the BiTA,
which is trying to look at some of the standards. Also, we're
working with other agencies as they develop across the global
economy to understand where those opportunities are. Also, we
look to be embracing not only DHS and CBH here--CBP here in the
United States but also other customs and WCO to understand what
direction they're going because we think it's really important,
this interoperability. We need to make sure that everybody can
avail themselves of this platform and exchange information in a
transparent way using blockchain that provides that immutable
trust.
Mr. Rubio. Yes, and UPS is also involved in the BiTA
Alliance, and we're clearly interested in advancing standards
in blockchain.
Mrs. Comstock. Okay. And have your companies recognized any
cybersecurity benefits in the development and implementation of
blockchain technologies across various applications? That's for
any of you.
Mr. White. At this point, we're still in the pilot program
of putting together the platform and again waiting for
regulatory approval, so it's a little bit early on in that, but
I think it was mentioned using cryptography and having a
permission blockchain, I think it's a 32-character alphanumeric
sequence that has to be attached to the previous documents in
there. So, so far, it seems that it's pretty trustworthy in
terms of getting that information across there. It's a little
bit early to see about the broader applications for
cybersecurity, but that's obviously high on our list at Maersk
Line, concerning some of the challenges we went through last
year, and just make sure that we continue to keep that high on
our agenda because it's critical to global supply chains.
Mrs. Comstock. Okay. Anyone else on that? Okay.
Well, I'll yield back, Mr. Chairman. Thanks.
Chairman Abraham. Thank you, Mrs. Comstock.
Dr. Marshall?
Mr. Marshall. Thank you, Mr. Chairman. Let me first of all
brag on my two grandsons, so congratulations to Mrs. Comstock
on a new granddaughter.
Mrs. Comstock. Yes, I have a grandson and a granddaughter--
--
Mr. Marshall. Well, good for you.
Mrs. Comstock. --this past year. Yes, so I----
Mr. Marshall. We've both got two each up here. This doesn't
count against my time does it?
I want to start with Mr. White. How important is NAFTA to
Maersk?
Mr. White. Well, NAFTA is important to all of us. I think,
as Maersk, we're obviously supporters of global trade and
trying to make sure that, you know, there's opportunities to
promote that. In terms of North America, South America, most of
our shipments are international by water, so there's some
that's moving via that route, but most of that's moving
overland borders. So we of course are interested in monitoring
that, and we----
Mr. Marshall. Okay.
Mr. White. --just support whatever the regulations are and
make sure that we can make trade as easy as possible under the
regulations that are available.
Mr. Marshall. Mr. Rubio, how important is NAFTA to UPS?
Mr. Rubio. It's very important. Canada's one of our largest
trading partners, and of course we move lots of products
between United States, Canada, and Mexico. So we're also
involved with CBP on some pilot work related to NAFTA.
Mr. Marshall. Okay. Yes, China--I mean, Canada actually is
our largest trading partner. We export $280 billion a year to
Canada, 230 to Mexico. China is a distant third at about half
of those.
Blockchain technology, as we're modernizing the NAFTA
agreement, do you feel like we're doing anything to help
empower you all? Either one, Mr. White, Mr. Rubio, are we
taking blockchain technology--have you had any conversations
with Administration if you're allowed to what would allow you
to better use blockchain as we modernize this NAFTA agreement?
Mr. Rubio. We're--yes, as I mentioned, we're working right
now with CBP on a pilot related to NAFTA, and it's progressing
very well. We think that will have a pilot up and running in
the fall time frame, so I think we're getting great support
from CBP in this area.
Mr. Marshall. Great. And, Mr. White, anything to add there?
Mr. White. Yes, likewise, we're working with Canadian
customs and CBP here in the United States to try and look at
the documentation that's required for a certain specific
commodity segment of that and to see if that can be applicable
there and can we actually make that a standard elsewhere. So
we're early days, but we're working together on that.
Mr. Marshall. So there's a spirit of cooperation in
anticipation of this technology from this Administration?
Mr. White. Absolutely.
Mr. Marshall. That's great to hear.
Dr. Maughan, let's talk to you for a second. One of my
biggest concerns is I go to all my different meetings,
different committees, talk to different folks, is when it comes
to cybersecurity, let alone blockchain technology is--I'm
worried that every department is doing their own thing. Would
you--is DHS the leader on these issues? Would--is there some
cooperation between your department and the other departments
in the Administration, whether it's blockchain technology or
cybersecurity?
Dr. Maughan. So I'll answer from two sides. From the
science and technology side, there's a lot of coordination and
collaboration going on in the interagency and particularly in
the blockchain area where we share what's going on across the
different agencies. You have NSF and NIST and others also
funding research and development in blockchain.
On the operational side, DHS does have the lead on the
cybersecurity, as well as with the NIST cybersecurity framework
and it's--how it explains cybersecurity. So both operationally
and R&D, DHS has a strong position there.
Mr. Marshall. Is there a cooperation with the military in
what they're doing in these areas with DHS?
Dr. Maughan. That I'm aware of on the research and
development side there is because I'm involved in it and we----
Mr. Marshall. Okay.
Dr. Maughan. --do things from an interagency perspective. I
don't know the details on operationally. I would expect there
is, but I don't know the details.
Mr. Marshall. Okay. It's been said--I'll stick with you Dr.
Maughan--is that China steals $400-$600 billion of our
technology every year through copyrights or computer software,
whatever it is, explain to me again--you all have touched on
it. Go a little bit deeper. How can blockchain technology
impact that? And be as specific give me examples if you could.
Dr. Maughan. Sure. So the--if you look at how a blockchain
works and the ability for organizations or individuals to put
their cryptographic stamp on the data, right, now, if I use it
in that way, you as the Chinese or others, wouldn't be able to
counterfeit and----
Mr. Marshall. So Nike would have their unique encryption,
and you knew if you got----
Dr. Maughan. Right.
Mr. Marshall. --a pair of Nike shoes from someone that
doesn't have that unique encryption, you as a producer would--I
mean, not as a producer--you as a wholesaler in America would
understand--would see that?
Dr. Maughan. Correct. And if it's not--if it doesn't have
the correct data, doesn't have the correct integrity on the
data, then someone would be able to tell that you're not the
legitimate producer or supplier.
Mr. Marshall. Okay. Thank you. I can ask one more question
if you're not quite ready.
Tell me--you know, fentanyl is one of my big concerns.
Fentanyl is 100, 1,000 times more potent than the typical
opioids coming across. You can make this in your garage. It's
coming over by the truckloads from China, I'm told. How can
blockchain--you know, UPS or DHS--maybe--Mr. Rubio, you're the
UPS guy. Any thoughts how blockchain could impact that?
Mr. Rubio. It's a tricky issue because it's ultimately what
gets packed in a carton, and I think that becomes a challenge
for us. Blockchain certainly provides the framework for us to
begin investigating the contents and then perhaps scoring
transactions and then eliminating them from the supply chain.
So the framework is there, and it's an area that will require
work----
Mr. Marshall. Can we trace it backwards, you know, perhaps
back to the origin----
Mr. Rubio. Absolutely.
Mr. Marshall. --a little bit better?
Mr. Rubio. Yes, using the same techniques that Dr. Maughan
explained, that's exactly the way we would go.
Mr. Marshall. Thank you, Mr. Chairman, and I apologize I
went over. I yield back.
Chairman Abraham. That's quite all right, Doctor.
Mr. Hultgren, 5 minutes.
Mr. Hultgren. Thank you, Chairman. Thank you all. I
appreciate you being here. This is a really important,
interesting, challenging topic and grateful to learn from you
all. And I've also been grateful I've been able to see a number
of great ideas coming out of Illinois, my home State, with many
investments in the financial sector coming out of Chicago.
There are also some efforts at the state level to look at many
innovative solutions to state and local government with the
Illinois Blockchain Initiative, a consortium of state and
county agencies who issued their first report just in February.
I've also been encouraged through the work that I've been
able to do on the Tom Lantos Human Rights Commission on the way
in which new technologies like blockchain can better secure and
validate supply lines in conflict regions, as well as better
manage the disbursements of aid through the federal government
and other NGOs. The transparency of something like a
distributed ledger can also give new tools for individuals to
finally assert basic property rights when governments deny the
rule of law or access to the legal system in other countries.
If I can address first, Mr. White, Mr. Rubio, and Dr.
Maughan. Previous witnesses before the Committee have detailed
how thoughtfully inserting blockchain, inappropriate projects
already funded would ensure we stay at the forefront of this
transformative technology. Have you taken this approach to
analyze blockchain's potential for appropriate projects? And in
your opinion, what are some examples of where it would be
appropriate or not be appropriate to implement blockchain
technology? And what's the distinction of where it would work
likely and where it would likely not work?
Mr. White. Well, from a Maersk Line perspective, one of the
opportunities we see are global supply chains. So global supply
chains are some of the most complex multiparty networks in the
economic landscape today. So, by definition, you have a number
of companies that are involved, transmitting sensitive
information for the cargo across different channels. I think
blockchain is especially suitable for that because you can
enable, through this permissioned blockchain, the entities that
should have a right to see and have access to that information,
to have access to that information, to make sure that they can
see it, and trust that the information has not been tampered
with or modified in any way, shape, or form. And then you can
tie the visibility of the sort of end-to-end, in-transit
information and have that simultaneously with the documents or
the data on that to actually enable smoother supply chains but
also in a trusted immutable way. So we think for that
blockchain is very much fit for purpose, and I think it can be
a game changer because it provides that immutable trust through
the distributed ledger, through smart contracts, and through a
permissioned blockchain, so we think there's a great
opportunity.
Mr. Hultgren. Great. Mr. Rubio or Dr. Maughan?
Mr. Rubio. Yes. From our side, really it's about reducing
friction in the supply chain and streamlining the exchange of
information. So what blockchain provides is the opportunity to
digitize transactions and then share that information through
the network. And as we can collect information near real-time,
that will just speed up supply chains and provide, you know,
fast-moving product.
Mr. Hultgren. Okay. Dr. Maughan?
Dr. Maughan. As I mentioned in my testimony, there are
other additional ones from a DHS perspective in addition to the
supply chain, but certainly the ones we've been working on is
the data and sharing of imagery on the border with CBP in order
to be able to share that and ensure the authenticity and
integrity of that data. And I think that has tremendous value
as we think about IOT devices that are doing--that are
collecting data and sharing that data. We'll be able to protect
that. There are others that have to do with passenger
processing and other aspects that I think our potential uses as
well.
Mr. Hultgren. Yes. Any that jump to mind that you feel like
this just wouldn't work? It's just not the right place for
this? I guess if that comes up, let us know because we
definitely respect your thoughts and opinions.
Let me move on in my last minute here again to Mr. White,
Mr. Rubio, and Dr. Maughan. Do you collaborate or coordinate
with any domestic or international standards bodies on
blockchain?
Mr. White. Yes, so from a Maersk Line and IBM association,
we're working together and looking to work with BiTA here in
the United States and also looking to work with other entities
around the world. We think it's very important to have sort of
a common definition of standards where standards exist, and
where standards don't exist or need to be improved, we want to
work collaboratively with others to make sure that we get the
right standards so that we can all--make sure that we can talk
more easily through a digitized environment going forward.
Mr. Rubio. UPS is also a member of the BiTA, and we're very
interested in driving standards to improve this technology.
Dr. Maughan. And we are actively involved with both the
World Wide Web Consortium, the W3C, and OASIS, the Organization
for Structured Information Systems for some of our standards
work as well.
Mr. Hultgren. Great. My time is expired. Thank you again
for your work. Thank you, Chairman, for holding this hearing.
Chairman Abraham. Thank you. Mr. Beyer?
Mr. Beyer. Thank you, Mr. Chairman.
Dr. Maughan, you--in your briefing you said, and I quote,
``Most organizations don't need a blockchain.'' Can you tell us
why most organizations don't need a blockchain?
Dr. Maughan. So we've worked through kind of a process to
ask some questions of people about what they're trying to do,
and they oftentimes don't need a blockchain. They can solve
their problems with a database or other accounting instruments.
And it takes a little bit of a discussion to get to a point. A
lot of times people are thinking just in a single organization
they'll use a blockchain. Well, they don't really need one. The
blockchain, its attributes include multiple parties, trust
relationships, and different types of sharing of information
and storage of information. And you really need to actually
walk through a certain set of questions to decide whether you
really need a blockchain. And in a lot of cases, people don't
need a blockchain.
Mr. Beyer. You know, there have been lots of anxiety the
last couple of elections--and not just 2016--2004, 2008 about
the security of voting machines, and there's a move to online
voting but only if it's secure. Is voting someplace where
blockchain might be relevant or is this like again a place
where there are other simpler technologies?
Dr. Maughan. I think we're early days. I don't know that
we've done the real diligence that we need to look at that, but
I actually believe that voting is probably not a place where we
would use blockchain technology.
Mr. Beyer. Would every voter have to have their own
blockchain key and----
Dr. Maughan. Right, well, the question is, is who am I
sharing my vote with? I mean, the only person that I really
want to share my vote with is my local voting establishment,
and so I think the complexity there is even worse than what we
have today in just paper in normal elections.
Mr. Beyer. Thank you. Mr. Chiaviello, you are--I very much
empathize with the problems of your company. I'm an automobile
dealer, so counterfeit parts have plagued me for more than 4
decades. But are any of the companies that you represent now
pursuing blockchain technology? And do--on the other hand, if
you complain about reselling the counterfeits through a big
company, an Amazon, do they have to be a participant in the
blockchain with you to make this work?
Mr. Chiaviello. I--we are not pursuing blockchain at this
point directly, but it would appear that the retailer, the
Amazons of the world, would have to be participants in
blockchain technology. And we would have to be participants as
well. As we see it, where this is going is that the blockchain,
the key to a blockchain would be like a digital hologram or an
equivalent to a trademark or a watermark that you might find on
paper identifying the product itself as an authentic,
legitimate product. That would have to be established by
someone like us, the designer/manufacturer, but then it would
have to pass through the entire supply chain, and ultimately,
we would need a method for the consumer to be able to verify
that that product is a legitimate, authentic product.
Mr. Beyer. Interesting. Mr. White, you have your--you had
global perspective with Maersk obviously, and I strongly
believe, just based on this committee's interest, that America
should take the lead on blockchain innovation research. But we
have--we see what a lot of the other nations are doing. China
recently launched what they call the Trusted Blockchain Open
Lab. Dubai says it will be the world's first blockchain-powered
government. Singapore is exploring it. Russia's state-run bank
Sberbank announced it's going to team up to do blockchain for
document transfer. The European Union launched its E.U.
Blockchain Observatory and Forum. Where is the United States
compared to the rest of the world in terms of our blockchain
leadership in research?
Mr. White. Well, I think the United States is leading in
lots of ways on blockchain. Maersk and IBM are coming together
for our collaborative effort that we are seeking regulatory
approval in different authorities around the world to launch
this global digitization platform I think is evidence of the
largest marine transport container shipping company in the
world and the technology giant of IBM that is a leader in
blockchain coming together to have some innovative uses of
blockchain.
And it's not--I would say blockchain is not a solution
looking for a problem. It is specifically fit for purpose for a
global supply chain, so when we talk about this large,
distributed network, multiple parties transmitting sensitive
information across not only organizational but also
geographical boundaries, having some way to do that in a secure
manner I think helps facilitate trade. I think it helps to
certainly identify fraud much earlier in the process, which is
a significant disincentive to it. And I think we can create
safer, better, more efficient supply chains by deploying this
technology. And I think the United States is right in the
forefront of that.
Mr. Beyer. Thank you. Mr. Chairman, I yield back.
Chairman Abraham. Thank you. Mr. Loudermilk?
Mr. Loudermilk. Thank you, Mr. Chairman. And first of all,
I want to thank the Chairman for holding this hearing. I've
kind of felt a little bit like a voice in the wilderness on
blockchain--excuse me--after spending 20 years in the--20-plus
years in the IT industry. And I've often said for the last
couple of years if we can get over the stigma of cryptocurrency
and look at the technology beneath it, it could be a solution
to a lot of our cybersecurity and data protection issues.
And so I appreciate the Chairman having this hearing. I was
very excited when I saw it because I think we're beginning to
make some progress from this side of the dais in looking at
this incredible technology.
Mr. Chiaviello, you talked about counterfeit and knockoff
products as a problem, the sale and distribution of those. Can
you elaborate a little bit how the sell and distribution of
these counterfeit goods makes it difficult and costly to police
and enforce IP rights, intellectual property?
Mr. Chiaviello. Yes. The big problem that we're facing now
is that the--the pirates, the knockoff companies are now
located overseas, and we have no way of identifying them. They
establish an online store with typically a fake name and no
identifying or contact information. The--if they have a domain
name, it's hidden behind a proxy server, privacy proxy, and so
we have--we or the consumer have no way of identifying where
that entity is located.
Products that are shipped into this country, often they use
fake addresses. Return addresses on the packaging are fake, and
so we and the U.S. consumer is essentially left without a
remedy. There's--as you know, to bring an action in a federal
court or even a state court, you need personal jurisdiction
over the seller.
Mr. Loudermilk. Right.
Mr. Chiaviello. And if we don't even know who the seller
is, much less where they're located, we cannot get personal
jurisdiction, and any default judgment would be essentially
valueless trying to enforce it.
Mr. Loudermilk. What would be the long-term consequences of
failing to address the issue both to business and to the
consumers?
Mr. Chiaviello. Well, it puts domestic companies at a
financial disadvantage. We're competing with people who don't
incur the cost for the R&D, don't incur the cost for the
regulatory compliance. And at the least it limits our growth.
We're not as--we cannot be as big company as we should be based
on this type of foreign unfair competition. And to the extent
it continues, it threatens domestic industries.
Mr. Loudermilk. Okay. Thank you. Let me steer a little
closer back to Georgia with our good corporate partner from
Atlanta. Mr. Rubio, you've stated or actually wrote that
blockchain could make large multinational companies such as UPS
more efficient and could, and I quote, ``leave them better
equipped to handle the continued growth of e-commerce.'' Can
you elaborate a little bit more on the e-commerce aspect of
that and how it can help these companies be more efficient, as
well as more secure?
Mr. Rubio. Sure. The promise of blockchain is that it
allows for the digitization of transactions within the supply
chain. And in the e-commerce space, oftentimes documentation is
required to clear customs around the world. And so what
blockchain can do is it can provide the vehicle for us to
digitize transactions, collect that information, and make it
simpler for the consumers and then eliminate this friction in
the supply chain. So by posting information in real time to the
supply chain, data can be shared among the different players,
and that would streamline the flow of goods.
Mr. Loudermilk. What's the benefit to the consumer?
Mr. Rubio. The benefit to the consumer is that they can
receive their product quicker without any interruption.
Mr. Loudermilk. All right. Thank you. Mr. Chairman, I yield
back.
Chairman Abraham. Thank you. Fascinating subject, so we're
going to have another round of questions here.
I'm sure volumes have been written on the efficiency of
both Maersk and UPS as far as moving goods, phenomenal
companies. But, Mr. White, in your testimony you said that
blockchain technology could increase global trade by up to 15
percent. That's a phenomenal figure, and certainly we want to
move that forward. One barrier to the widespread adoption of
blockchain technology is the linking of the physical object to
the digitization. Can you guys--Mr. White and Mr. Rubio--can
you all elaborate as to how we can actually make that happen,
how we can make those physical dots connect?
Mr. White. I think it's well-cited. Actually, during our
evaluation of supply chains, we looked at some of the most sort
of complex supply chains, as I mentioned. You have a challenge
of both the physical end-to-end transport of the goods, which
is one thing, and the visibility of the events that--the real-
time access of that information as to where that container in
our case is physically located at any one point in time and
then the disconnect that we see from a paper-based
documentation flow, so linking the two of them together with
digitization so you have the opportunity to have more real-time
visibility as to where a shipment is.
So with our platform we have a shipment--shipping
information pipeline, so we can actually see more events of
what's happening with that container, everything from when it's
empty for loading to when it's stuffed to when it's back to the
terminal facility to when it's loaded on board a vessel and
onto any train shipment through customs clearances on both
ends, endgame delivery, but also having the capability with
this platform to have digitize documents. As Mr. Rubio has
said, it enables us to have them in a structured way in a
format that the government agencies require so that they can
actually process them. So you have the capability of having
them both together.
In our supply chain evaluation, the one shipment of
avocados I mentioned was I know is a 34-day end-to-end transit
from when it was actually farmed at the farm and then put to
the truck to be loaded into a container until it would end up
being delivered. In that 34 days, 14 days, two weeks of it, it
was sitting there waiting for documentation for processing. So
you've got an opportunity to actually improve supply chain
cycle times and the efficiency, as I mentioned, over 200
individual exchanges of document and information. With the
certifications that were required, they actually are stamped by
one authority and moved by courier by motorbike to another
authority for another stamp and then to the port so you're
physically moving documents instead of transmitting
electronically.
Chairman Abraham. Mr. Rubio, do you want to weigh in on
that?
Mr. Rubio. Sure, yes. The big challenge of course is making
the physical world connect with the information world, and that
really is a key challenge that will need to be overcome in
order to achieve the ends that you're asking about.
But there are technologies that can speak to the data like
RFID, as I mentioned, and potentially even x-ray technology. So
x-ray technology, you know, the possibilities exist for
interpretation of x-rays to understand what's actually in a
carton and then leveraging that information with what's
physically been communicated by the different players in the
supply chain can then further support the validity of what has
been claimed on the transaction. So those are kinds of
techniques that can be used to link up the two. It's a very
tricky issue, but that would be how it could possibly unfold.
Chairman Abraham. All right, thank you. Dr. Maughan, we
have consistently heard that in order to effectively foster the
adoption of blockchain solutions to supply-chain problems,
there must be a common set of standards, and we've addressed
that somewhat here today that are globally recognized. How can
such standards be promulgated and adopted?
Dr. Maughan. First is the development of those standards,
which we're working on with some of our partners, but then I
think it is--it's an education game. As you can tell, we're
fairly early on in the blockchain world, and it becomes up to
companies like Maersk and UPS as they use it to educate others.
And I think we are in a leading position within the world that
we the United States can take a leadership role and continue to
push blockchain and educate people on the use of it.
Chairman Abraham. So you agree that the United States
should lead that charge?
Mr. Rubio. I certainly believe we should take a leadership
role. I don't know if we're going to be out in front because
you can't do a blockchain by yourself, right?
Chairman Abraham. Right.
Mr. Rubio. I mean, what we want to do is have this
conversation both government to government and have a
conversation with our government partners so that they are also
on board because it is a global community.
Chairman Abraham. Okay. Thank you. Mr. Beyer?
Mr. Beyer. Thank you, Mr. Chairman.
Mr. Rubio, you talked about how UPS is committed to
blockchain, and you also talked about some of the obstacles.
One of the things I read is that Visa right now can process
56,000 transactions per second, but the Bitcoin blockchain is
only about five transactions per second. Do you see this
transaction processing power an obstacle to making UPS
effectively use blockchain?
Mr. Rubio. Well, I'm unfortunately not in a position to
qualify any statements on Bitcoin, but certainly, the
blockchain itself, we certainly see the capability to share
information, streamline information, and process it in real
time and absolutely by exchanging information rapidly, that
will streamline the supply chain and allow trade to happen
efficiently.
Mr. Beyer. If you adopt blockchain, will UPS drivers be
allowed to turn left?
Mr. Rubio. Hardly.
Mr. Beyer. Okay. Dr. Maughan, one of the things that--you
know, when we had our last blockchain technology, we got all
excited for two hours and somebody pointed out that when
quantum computing comes, that it goes so fast that they
actually break the block chain keys. How soon do you see this
coming? Do--does it make sense for us to make all this huge
investment of blockchain if quantum computing is going to make
it irrelevant once it arrives?
Dr. Maughan. You know, that's a very good question, and I
think we don't know yet where--when quantum is going to be
here, right? I mean, it depends on who you talk to. Quantum is
10 to 15 to 20 years out, and there's still I think a lot of
research and development to be done even to get us there. And I
think the issue is blockchain today can use cryptographic
algorithms of today and still provide us the security and the
privacy we need? I think we're going to have to figure out how
this competition, if you will, between blockchain and quantum,
how that plays out over the next decade or two.
Mr. Beyer. Blockchain at least is a lot more intuitive----
Dr. Maughan. It is and----
Mr. Beyer. --than quantum entanglement and things like that
so----
Dr. Maughan. That's right, a bit easier to understand.
Mr. Beyer. So you have this beautiful education, a Ph.D. in
computer science. The President still doesn't have a National
Science Director, head of the Office of Science and Technology
Policy at the White House. Are you--should you apply? It would
be the first computer scientist ever to be the White House
Chief Scientist.
Dr. Maughan. I don't think I can comment on that.
Mr. Beyer. I'm talking to my friend here, the Chairman. I
yield back, sir.
Chairman Abraham. Thank you, Mr. Beyer.
Mr. Hultgren?
Mr. Hultgren. Thank you again, Chairman.
Moving on to a couple other questions I had, so, first, I'm
going to address this to Dr. Maughan. Other experts in the
field have noted the potential opportunity for nurturing future
blockchain projects within SBIR, the Small Business Innovation
Research program. Do you see any other areas within the federal
government that could help facilitate the establishment of
blockchain projects or pilots, certainly within DHS but other
spots as well?
Dr. Maughan. I think the applications are almost limitless,
and I think the question is really up to the departments or
agencies as to how they try to address that. We have--from a
science and technology perspective, we have taken a fairly good
leadership position so far within the government. We are
talking about other applications where blockchains might be
usable, and we have also used our Silicon Valley Innovation
Program to fund startup companies to look at some of these
techniques and technologies. In fact, the pilot we're doing
with the Border Patrol on data imagery is with a startup
company out of Texas.
Mr. Hultgren. Great. Thank you. Mr. White and Mr. Rubio,
specifically with respect to collaboration and standardization,
what are some of the lessons your companies have learned that
will help you utilize blockchain technology at scale?
Mr. White. So in terms of lessons, I think this item of
standardization is critically important. We need to understand
what standards are out there. For instance, you know, if we
look at just end-to-end supply chains, UNC codes or the way
that we define inland points varies depending on what geography
you're in, and then also are they specific enough to really
nail down, you know, what the geography is that you're--if
you're talking about multiple facilities within a common ZIP
Code, for instance. So the ability to sort of embrace and
tackle some of those challenges I think, as an industry, we
have to do it. It's something of course Maersk and UPS could do
individually, but then if we're both calling it something
different, it makes it a challenge. So I think coming together,
working through these advisory boards and these standards
committees, I think it's really important to prioritize what
are the most important standards to get alignment on and how
can we move that forward.
And in addition to joining these established organizations
between Maersk and IBM with our new platform we're looking to
establish an industry advisory board, you know, making sure
that we have participants from ports, terminals, other
carriers, inland carriers, customs entities if we can to make
sure that we look at it from a collaborative multi-perspective
position.
Mr. Hultgren. Thanks.
Mr. Rubio. And the lessons that I'm learning personally in
this space being involved in some of these working committees,
but as you sit through and you look at defining standards for
how we're going to communicate and collaborate via blockchain,
there are painstaking issues over data that you will exchange.
And so it's fascinating to listen to the different players and
their perspectives of what information would be useful to
exchange and what information would not. So it is--in driving
the standards, it's not a trivial task but it's an important
task. And in the end, you end up with a very sound product. And
my first-hand experience is that's how we did it with CBP, and
you guys should be proud of the work that they have done so
far.
Mr. Hultgren. Absolutely. Thank you. One last question,
again, Mr. White, Mr. Rubio, and Dr. Maughan. Given its
jurisdiction over NIST, what can this committee do to ensure
that the United States is cultivating a supportive environment
for blockchain technology projects? Dr. Maughan, I'll start
with you.
Dr. Maughan. Well, I think certainly in our role within
DHS, we work a lot with NIST and the roles there. They've
published documents identifying blockchain overview and how
that all works, and I think just to continue participation in
the standards community is an important part for NIST
participation, and we've certainly been working with them on
that.
Mr. Hultgren. Great. Thanks.
Mr. White. The interaction we've had with DHS and CBP has
been very positive. We've been working with the E.U. CORE
project for the last 18 months to try and understand how
they're approaching digitization, and CBP and DHS have been
supportive of that. And then also as we're developing our
platform trying to learn from those lessons, that continued
support and looking to how we can work with other partner
government agencies, I think they have been very constructive
in that process.
Mr. Hultgren. Great. Thank you all so much. I'll yield
back.
Chairman Abraham. Thank you. Mr. McNerney?
Mr. McNerney. Well, I thank the Chairman and I thank the
panelists.
Mr. Rubio, can you walk us through why blockchain
technology is useful for identifying--for identity verification
and why this is important for chain logistics?
Mr. Rubio. So it's--it would be important for identity
verification in that it would help secure supply chains. And so
understanding who the actors are in the supply chain that are
exchanging product or information would be critically important
so that we can maintain security and it can also be leveraged
for potential intellectual property rights types of issues.
Mr. McNerney. Good. Thank you. Mr. Maughan, is the U.S.
Government currently using blockchain technology to mitigate
cybersecurity threats?
Dr. Maughan. I'm not aware of actual deployed blockchain
technology. As I mentioned in my testimony, we have a number of
pilot deployments where we're testing out some of the
technology to see how it will be used and the scale at which we
can use it.
Mr. McNerney. Are there any potential risks associated with
using blockchains to reduce cybersecurity threats?
Dr. Maughan. I don't know that there are that many risks. I
mean, I think we're--you know, when you start talking about
cybersecurity, it is about the data and can I ensure integrity
and authenticity? As long as the technology is implemented
correctly, then I think the risks are--they're mitigated by the
technology itself. A lot of times in cybersecurity the problem
is implementation and people implementing it incorrectly.
Mr. McNerney. I understand. I'm not sure which panelist to
ask, but could someone discuss the energy implications of
expanding applications of blockchain technology and how can it
be mitigated? Who would be the right person to address that?
What are the energy implications of blockchain--widespread
application of blockchains?
Dr. Maughan. I believe your question is probably related
to--if you look at from an energy standpoint, are you talking
about computing power?
Mr. McNerney. Right.
Dr. Maughan. Yes. So if you look at the way
cryptocurrencies are used--and there's an awful lot of
computing power in the background of cryptocurrencies to
actually make them work. And so the--I think the question and
the discussion is about if I start to do large-scale
blockchains, I now have computing infrastructure that I also
have to operate. And the question is is does that make it a
difficulty for a small business or someone else to ensure that
they have the adequate power to do their blockchain technology?
Because you do have to check. And there's checks all along the
way in the data to ensure that it hasn't changed and that--and
it is authentic, and so there is a computing infrastructure
that goes along with this. It doesn't just happen.
Mr. McNerney. So, I mean, what can be done to mitigate the
energy usage implications of widespread application of
blockchains?
Dr. Maughan. I actually believe you're going to see
companies like Maersk and UPS probably have their own large
infrastructure from a computing standpoint. I think you have a
potential for service companies to provide, which is what
happens in the cryptocurrency world. There are what are called
Bitcoin miners, and they run the infrastructure that does a lot
of the calculation.
Mr. McNerney. Right.
Dr. Maughan. You could very easily see something similar in
the blockchain world where someone else is doing--offering a
technical capability to provide you a service and be the
computing infrastructure if you are a small business.
Mr. McNerney. Mr. White, I have in my district the Port of
Stockton. It's the largest inland port on the West Coast. It's
the third-largest port in the State of California. What steps
is your company taking to increase adoption of blockchain
technology?
Mr. White. Well, we're working with ecosystem participants
from ports and terminals to major rail operators, so we're
already in discussion with four out of the seven class I
railroads in the United States and also with trucking
communities because we think by everybody participating in this
new global platform, we have the capability of making it more
visible in terms of the seamless and more efficient movement of
cargo and, by using blockchain, make sure that those who are
permissioned--it is a permissioned blockchain, so those who are
party to the shipment can see the information; others cannot.
And those that can see it can get better real-time information,
so in terms of moving cargo efficiently through ocean or inland
terminals, getting better visibility as to when cargo is
available, will be available, and enabling more efficient use
of the landside equipment that moves cargo between the ports
and the shippers or the consignees and D.C.'s and warehouses.
Mr. McNerney. It sounds like a lot of advantage.
Mr. White. We think it's a great utility for everybody. I
think this industry has not really changed since the 1950s
since containerization has come around, and I think this
technology affords us an opportunity to look at things
differently. And what we're seeing is a lot of engagement from
everybody involved in the supply chain because I think the
industry is ready for change.
Mr. McNerney. Thank you. I yield back.
Chairman Abraham. Thank you, Mr. McNerney.
Well, once again, I thank the witnesses and the members had
some great questions. Robert, tell everybody in Monroe,
Louisiana, give them my regards. I'll be home shortly.
Mr. Rubio, is that your family behind you?
Mr. Rubio. It is, yes.
Chairman Abraham. I tell you, I've been watching those two
young people. They are our future, and they have been listening
intently, so they are our future blockchainers and quantum
computer tacticians, so I appreciate their presence very much
here.
Mr. Rubio. Thank you, Mr. Abraham.
Chairman Abraham. The record will remain open for two weeks
for additional comments and written questions from members.
This hearing is adjourned.
[Whereupon, at 11:32 a.m., the Subcommittees were
adjourned.]
Appendix I
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Answers to Post-Hearing Questions
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