Why Traceability Fails and What It Would Take to Fix It

Updated: June 29, 2025

Key Points

• Attending a book talk on Why Politicians Lie About Trade deepened my understanding of how trade policy is shaped more by geopolitics than economics.

• The event and book prompted me to reflect on inefficiencies in international trade systems, particularly the challenge of verifying the country of origin for preferential tariffs.

• Blockchain technology could offer a solution by enabling verifiable, digital certificates of origin – reducing paperwork and increasing transparency.

• However, two major barriers stand in the way:
  (1) Lack of political will, as trade policy remains a geopolitical tool rather than a technocratic system;
  (2) The "oracle problem", or the difficulty of reliably linking physical goods and events to digital records.

• Addressing these challenges would require new incentives for international cooperation and a bridging of the socio-technical gap between analog processes and digital systems.

My Experience

This May, I attended a book presentation with an intriguing title, Why Politicians Lie about Trade, by professional international trade negotiator Dmitry Grozoubinski. It was an academic event organized by the Institute of International Economic Law (IIEL) at Georgetown University. I was lured there by my own interest in the book publication process. The more academic reason for my attendance was that the event coincided with the heated discussions around international tariffs introduced by the new U.S. administration – so, in my mind, it felt like a perfect moment to learn more about the topic.

At the event, Dmitry spoke about the fundamentals of how international agreements on tariffs are shaped and what the political process behind them looks like. The presentation was followed by a short panel discussion, where IIEL faculty and members of the audience asked questions, mostly focused on the legal aspects of trade (law venue obliged). But what struck me the most was the realization of how socially driven international trade law and trade policy are; there’s very little room for pure economic thinking. Instead, what dominates are power tensions and tit-for-tat strategies.

I eventually read the book and was quite mesmerized by how trade negotiations at the highest levels resemble any other negotiation process, with each party simply trying to split the pie. (This actually prompted me to take Barry Nalebuff’s course on negotiations on Coursera – but that’s a story for another time.)

As a technology researcher, I kept wondering whether technology could solve some – if not all – of the inefficiencies in international trade, such as through shared recordkeeping or electronic communication during negotiations. One particular aspect of trade kept drawing my attention: the issue of proof of origin. It led me to consider how blockchain architecture might offer a solution. Below, I discuss the possibility of creating electronic, verifiable certificates of origin – and the barriers that stand in the way.

The Invisible Origins of Trade: Why Traceability Fails and What It Would Take to Fix It 

Preferential tariffs. A preferential tariff is a reduced or zero-duty rate offered to specific countries or regions, often as part of a trade agreement, allowing them to pay less or no import duties on goods. The preferential tariff is defined based on the country of origin - the country where a product was manufactured, produced, or where it grew. By design, only the goods with the origin in certain countries with which the destination country has a preferential agreement can import the goods at a lower rate. For example, a car assembled in Mexico with a high percentage of U.S. or Mexican-made parts and labor could qualify for a duty-free import (0% tariff) under the USMCA (United States-Mexico-Canada Agreement). 

Problem. However, sometimes producers from neighboring countries exploit these rules applicable to their neighbors as loopholes to benefit from the preferential treatment. Thomson Reuters has an article on this (search for How can businesses take advantage of the rules of origin to lower their customs duties?), so I won't go into the details of the possibilities. But what's important is that the whole process of imports is supplemented by the chain of required paperwork that documents that the product meets requirements. First, the paperwork preparation is a nightmare on its own. Second, the paperwork is obscure as it does not allow for an easy search and verification. Therefore, the derivative issue is the lack of traceability of the origin of goods. 

Lack of traceability creates loopholes that allow producers to circumvent sanctions and exploit preferential trade agreements by obscuring the true origin of components or final products. While such manipulation undermines the legitimacy and fairness of trade regimes, it often goes unchallenged due to political expediency or willful ignorance.

Solution. In the 21st century, the solution seems quite obvious: Implement the information system (IS) and digitize everything to avoid paperwork and shed light on the murky ways of the global supply chain paper trails. The IS literature glorifies information technology for reducing the cost of search.

The implementation of such a solution is not without caveats, however. Global trade is the collection of sovereign states with their own reservations towards the sharing of such information and governance over such systems. However, let's allow the thought experiment for a moment: What would be an appropriate technological solution that allows for shared governance and possibly incentivizes split responsibilities over maintaining such a database? Right, it is blockchain. In fact, there has already been an initiative in this space aimed at aiding international trade - TradeLens. Despite its failure (the analysis of reasons is outside the scope of this article), the shared data storage architecture could solve the particular issue of the country of origin proof. 

Vision. The manufacturers, or even their employees, could have triggered the data records in the shared database, and the not-so-smart aggregation algorithm could have computed the ratios needed for COO qualification for preferential tariff rates. Customs workers of each country could have saved eons (exaggeration, but years definitely) on verification of records, and the goods would have gotten to their destinations faster. Oh, and this should have happened probably on the premise of the existing international cooperation platform, such as the UN, ILO, WTO, etc. Nevertheless, this vision never materialized (and Tradelens has failed, as a reminder).

Obstacles. Upon reading the book and discussing it with the author, it becomes clear that the main obstacles are in the political and social plane rather than in technological incapacity. I can group the reasons into two large groups of problems: (1) the lack of political will and (2) the "oracle problem." 

Remember, I mentioned above that the book quite vividly displays how international tariffs are a geopolitical power play rather than the search for the economic optimum. Therefore, the optimal technological solutions are not the first-priority ones. The technological vision described above would require a strong political will (like the ones that created WTO) and cooperation among nations. And these processes are not easily catalyzed.

Second, even with political support, implementation of the vision faces what is often termed the "oracle problem": the challenge of feeding reliable, real-world data into blockchain systems. Traceability is only as strong as the weakest input source, and many legacy systems in global trade are not only incompatible with new technologies but also opaque or poorly digitized. AI and blockchain solutions are only as effective as the quality and accessibility of input data  – an integration and compliance hurdle that is socio-technical, not just technical.

Summary. In sum, to improve international trade, we would need to address the problem of the infrastructural and epistemic gap between real-world events and digitally verified records and somehow discover new incentives for international trade cooperation. Until both are addressed, trade systems will remain vulnerable to manipulation and misrepresentation  – problems often downplayed or distorted in political narratives about globalization and trade fairness.