Corruption-free trade – an important agenda for new generation trade agreements Susan Côté-Freeman is Head of the Business Integrity Programme, and Dr Dieter Zinnbauer is with the Research Department, at Transparency International Global trade governance at a crossroads Trade continues to be an important engine of economic development as global integration and interdependence are reaching unprecedented levels. World trade in goods and services has almost quadrupled over the last twenty years with world trade accounting for 30% of world GDP in 2014. Half of all trade now takes place across global value chains and the participation of developing countries in global trade has increased by 50% over the same period. At the same time, globalisation is increasingly linked with a number of global challenges including climate change, food security, rising income inequality and geopolitical instability. Given these challenges, trade governance must be viewed, not as a stand-alone technocratic exercise, but as a fundamental building block for creating an inclusive and sustainable future for all stakeholders. But trade governance is in flux. A new generation of mega-regional trade agreements is emerging, by-passing the multilateral WTO process. These mega-regionals go far beyond tariff reductions and aim at investors’ rights protections, regulatory convergence and many other measures that may impact national sovereignty and national policy domains related to health, safety, the environment and consumers’ protection. Corruption – an impediment to trade Business executives around the world increasingly recognise corruption as a major challenge for their operations. More than half of all respondents in a 2016 survey of more than 1,400 CEOs in 83 countries reported they were concerned about bribery and corruption as a threat to growth, a number that is up by more than 25% since 2013. In a similar poll, one in five CEOs said they had been asked to pay a bribe in a business situation. Corruption has been found to have particularly problematic implications for trade. Here are four major ways this happens. First, corruption undermines competitiveness and entrepreneurship by reducing overall institutional quality. It distorts the allocation of credit and drives away foreign direct investment thereby placing business from countries that face high levels of corruption at a competitive disadvantage. It also reduces for many developing nations the potential gains from participating in the global economy. Second, corruption in ports and customs as well as in the broader business environment reduces trade and deters foreign business partners from entering the market. Some 30% of compliance and legal professionals polled in a recent survey said that they have decided against doing business in a given country owing to high risk of corruption. Detailed accounts of corruption in African ports describe how firms choose to re-route cargo to ports with less corruption even if it means a doubling of transportation costs simply to avoid the uncertainty that comes with more corrupt customs practices. Third, the impact of corruption goes well beyond slowing down and reducing trade. Perhaps more problematically, corruption can undermine efforts at raising global standards for economic governance. For example, where corruption undermines regulatory oversight, tainted products like conflict diamonds, poached ivory, unsustainably harvested timber and oil from terrorist-controlled territories can make their way into legitimate world markets. Furthermore, trade that is tainted by corruption can accelerate threats to health, safety and the environment. We all remember the 2013 Rana Plaza tragedy in Bangladesh, which involved the tragic collapse of a factory producing garments for export. Corruption resulted in grave violations of safety and workplace regulations and ultimately caused the death of more than 1,000 workers who had producing clothes for some well-known Western fashion outlets. Finally, subtler forms of corruption and lack of transparency may also threaten to compromise the future architecture of global trade and its potential benefits. Special interests can gain undue influence in the design of national trade policies and international trade agreements if conflicts of interests are not adequately addressed, political finance rules allow for undue influence and there is a lack of transparency in trade policy decision-making. This can lead to the drafting of rules and regulations – from intellectual property to consumer protection – that unfairly skew the benefits and opportunities trade provides. Making the mega-regional trade agreements more open - a work in progress The new generation of mega-regional trade agreements, some of which are still under negotiation, includes the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union; the Comprehensive Economic and Trade Agreement (CETA), recently concluded by Canada and the European Union; and the Trans-Pacific Partnership (TPP) signed by 12 countries in North America, Asia and the Pacific which is still awaiting ratification. The transparency standards for negotiations surrounding these new trade pacts have not kept pace with 21st century expectations of openness. There has been no public access to key draft texts and only selective access for the parliamentarians who will eventually be asked to ratify these far-reaching deals. Such lack of transparency is out of step in an era of increasingly open government and open data. These disclosure practices even fall short of the transparency standards of other international fora and accords such as the WTO, the Aarhus Convention or the UNFCCC, some of which predate these mega-regionals. However, there is reason for guarded optimism, following recent amendments to the draft CETA agreement between Europe and Canada which will strengthen the investment dispute settlement mechanism by creating a more permanent tribunal and include more commitments on ethics aimed at avoiding conflicts of interests. Members of the tribunal will no longer be able to work as lawyers or experts in other investment disputes. The extent of revolving doors between industry lobbyists and officials is well documented. This can result in close, personal ties between the negotiators and lobbyists representing business interests with deep pockets. It has been estimated that 90% of recorded meetings with lobbyists by Brussels trade officials were with representatives of business, illustrating the limited the sphere of influence of consumers and that of other public interest groups’ in this area. Towards corruption-free trade The new generation of mega-regional trade agreements is providing a great opportunity to explore and advance measures that can support corruption-free trade. An important starting point is to think about the transparency requirements that should apply to the new trade regimes and to current and future trade negotiations. These negotiations suffer from significant transparency deficits that have even prompted the top EU negotiator to lament that “we need to explain that trade is good, but the public doesn’t trust the negotiators.” While the EU has taken steps to enhance openness, others still seem to be dragging their feet. Observers believe that increased transparency is needed throughout the process to restore public trust. This should start at the assessment stage, which seeks to gauge the desirability and scope of new trade agreements and continue through the negotiation process and the preparation of draft texts. These moves towards increased transparency can include setting clear and objective standards of independency for the economic consultants carrying out ex-ante trade impact assessments; publishing meeting agendas; disclosing lists of participant and detailed records of meetings; publishing the name and qualifications of the senior negotiators; and making public the submissions of all stakeholders. Because these agreements are designed as living agreements that establish processes aimed at producing greater harmonisation, mutual recognition and dispute resolution over many years, it is important to avoid policy capture and to level the playing field. Some areas for improvement in the mega-regional trade deals could include: measures to avoid forum shopping and to level the playing field between foreign and domestic investors by setting sufficient thresholds for initiating arbitration proceedings; high transparency standards for arbitration proceedings, including public hearings, third-party submissions and disclosure of any possible third-party funding for parties to the dispute; and, measures to ensure the independence of arbitrators and strengthen the position of less influential stakeholders. Finally, there is considerable interest by some negotiating parties and civil society groups to include strong anti-corruption provisions in these trade agreements as a means to present corruption in global trade relations. Some observers point out that such clauses can build on and reinforce key international anti-corruption treaties such as the United Nations Convention against Corruption and the OECD Anti-Bribery Convention, provided there is sufficient commitment for their actual enforcement. In sum, a lot can and should be done to ensure that corruption and lack of transparency do not undermine trade governance. There is no excuse for not taking action.
... a lot can and should be done to ensure that corruption and lack of transparency do not undermine trade governance. There is no excuse for not taking action