There are many factors that make international trade particularly vulnerable to corruption. This begs the question of what has been done to fight corruption, particularly by international organizations like the World Trade Organization (WTO), whose role is regulating international trade.
In my recent article published by the Journal of World Trade, I show that the WTO has increasingly adopted a more clear-cut approach to this problem and finally took an open stand regarding the relationship of anti-corruption measures and trade in its dispute settlement system.
Since enactment of the FCPA, several international actors, including the WTO, were called upon to join the fight against corruption in international business transactions. Yet the WTO’s efforts were rather timid compared to the enactment of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or the UNCAC. Within WTO law, the primary anti-corruption vector was the adoption of rules that make trade more transparent and predictable, therefore reducing the scope for corrupt practices.
In 2012, the revised text of the Plurilateral Agreement on Government Procurement (GPA) became the WTO’s first regulatory effort to explicitly address corruption by invoking UNCAC in its preamble and adding Article IV.4, which requires a “procuring entity [to] conduct covered procurement in a transparent and impartial manner that (…) prevents corrupt practices.”
Moreover, in 2013, state members signed the multilateral Trade Facilitation Agreement (TFA) with the purpose of reducing bureaucratic border red tape that increase opportunities for corruption. One of the TFA’s obligations — the Single Window — addresses precisely this point. It streamlines the process, provides for impersonal analysis, and avoids multiple submissions of repeated information.
Additionally, in 2016 the Appellate Body, a seven-member group that functions as WTO’s highest adjudicative body, issued an important precedent (legitimate expectation) by ruling on Colombia – Textiles and admitted that combating money laundering (one of the many manifestations of corruption) is a vital societal interest and may run contrary to trade liberalization. In other words, anti-corruption measures may be justified under WTO law if they restrict trade.
Economic studies show that a high tariff environment (over 25 percent) creates an incentive for corruption, which leads to lower tax revenues and distorts the profitability and competitiveness of international trade transactions.
The highly discretionary nature of customs activities significantly adds to opportunities for corrupt practices in this arena. Government procurement is another high corruption risk activity in international trade. It’s estimated that corruption adds as much as 25 percent to the prices of public goods, in addition to problems such as low-quality goods and services and reduced government bids.
Anti-corruption laws and WTO trade rules are mutually supportive and together contribute to a more effective fight against corruption in international trade. In this sense, it is argued that, from a legal standpoint, the WTO should focus on expanding the number of parties to the GPA and ensuring a proper implementation of the TFA.
However, in light of the predominately principle-based nature of WTO law, it’s clear that the organization must take additional measures to fight corruption in international trade. The realistic political alternatives suggested are:
- Issuing a comprehensive WTO Ministerial Declaration/Decision against corruption.
- Creating a specific Committee to study and provide a forum for debate on the impacts of corruption and anti-corruption requirements on international trade.
- Making these issues a mandatory topic of the Trade Policy Review in an effort to broaden and disseminate knowledge, lessons learned, and best practices related to how WTO members are dealing with corruption-related trade vulnerabilities individually and collectively.
Given the WTO’s major role in international trade governance and its coverage of a wide range of issues related to international trade relations, the incorporation by this organization of anti-corruption mandates and values through soft law initiatives will reaffirm support for the growth of international trade while bringing more teeth to the global anti-corruption agenda.
Luciana Silveira, pictured above, is an anti-corruption lawyer in Brazil a compliance manager at mining company CBMM. She holds a PhD from Pontifícia Universidade Católica de São Paulo. She can be contacted here.