The Role of International Trade Agreements in Fighting Corruption

The next year is shaping up to be a big one for multilateral free trade agreements and, by extension, efforts to fight corruption in international commerce.

First, there is the historic Trade Facilitation Agreement (TFA) that grew out of the World Trade Organization (WTO) accord reached in December 2013 in Bali. Under the TFA, all the WTO’s 160 members agreed to work toward reducing the red tape and corruption at ports of entry, so that goods can move more quickly and economically from country to country. Second, there is the Transatlantic Trade and Investment Partnership (TTIP), between the United States and the 28 nations of the European Union. Together, the U.S. and EU account for 60 percent of the world’s GDP.

What do trade agreements have to do with reducing corruption? Historically, not much. But these two agreements break new ground both in their scope and their potential for attacking corruption as a barrier to trade. This fact is often lost in media coverage that focuses on winners and losers within specific countries and economic sectors. Adding to the lack of attention paid to corruption issues is the fact that negotiations are complex, not always transparent and can take years to conclude.

To zero in on the role of corruption in disrupting free trade, American University’s Washington College of Law recently put together a panel of experts and advocates, headlined by former World Trade Organization Director General Pascal Lamy. The moderator of the “Addressing Corruption in Global Trade” session, Nancy Boswell, framed the issue concisely.

“Despite the attention to new trade barriers, what has not been explicitly recognized is a long-standing trade barrier: that is, corruption. Corruption acts as a significant trade barrier, particularly at a time of economic stress, when global competition for business is particularly acute,” said Boswell, director of the law school’s U.S. and International Anti-Corruption Law Program and a past head of Transparency International USA. Boswell continued, “GE’s former General Counsel Ben Heineman captured the impact of corruption on trade when he criticized what he called ‘the pernicious protectionism’ created by developed nations’ failure to enforce foreign bribery prohibitions – as they had agreed to do under the OECD Convention on Combating Bribery of Foreign Public Officials.”

A key element to CIPE’s anti-corruption approach is to support mid-sized firms in emerging markets to reduce corruption by building upon existing U.S., British, Canadian and Brazilian laws that outlaw the bribery of foreign officials. Earlier this month, CIPE published a practical guide to help firms in emerging markets put in place anti-corruption compliance programs. In addition, CIPE’s Corporate Compliance Trends website is a venue for an ongoing blog and Twitter conversation about issues and trends related to compliance in emerging markets, specifically as they relate to medium and even small businesses.

In his remarks at the “Addressing Corruption in Global Trade” event, Pascal Lamy discussed what role modest-sized local firms may play as the Trade Facilitation Agreement is implemented, especially in developing countries. Lamy said that while the general perception may be that the main private sector driver of the TFA is big business, in reality, smaller businesses have a strong interest in reforming cumbersome, corruption-ridden trade procedures. “This is more of a problem for a small business that wants to go global than a big business that has the resources” to overcome obstacles presented by customs clearance and other issues, he said.

Many of the 100 or so people attending the event were lawyers or law students. For them, the remarks of Timothy Reif, General Counsel of the U.S. Trade Representative, offered a concise, heartening account of progressive U.S. efforts, beginning with the 1994 North American Free Trade Agreement, to introduce transparency and anti-corruption measures into trade deals.

Referencing U.S. trade agreements with Chile, Singapore, Australia, and, finally, the TTIP, Reif outlined how corruption is increasingly acknowledged as a significant barrier to trade. Using an architectural metaphor, Reif described how these efforts, taken together, may result in the creation of something beautiful and lasting: “These are the flying buttresses of the cathedral of transparency and free trade.”

Because the WTO’s Trade Facilitation Agreement covers 160 countries and includes provisions for richer nations helping poorer ones with implementation, it is likely to dominate discussions in the coming years of how trade agreements can serve to reduce corrupt practices. The effectiveness of such efforts will depend on key elements in each country, Reif said:

• A country’s capacity to implement anti-corruption measures by, for example, paying customs officials an adequate wage;
• Non-state actors playing a role in implementing anti-corruption programs;
• Ensuring that anti-corruption elements of trade agreements are functioning in rural and informal business environments;
• and, the presence of a judiciary to actually enforce the rules.

For those interested in learning more about international anti-corruption efforts generally, the Washington School of Law’s Boswell leads an annual summer program devoted to the issue. The Summer 2014 course offerings and faculty are online.

Frank Brown is a Program Officer for Eurasia and Value Chain/Anti-Corruption Program Team Leader at CIPE.