Trade deals increasingly taking corruption into account

Efforts to combat corruption as a trade barrier are gaining ground, as trade deals are starting to deal with corruption issues more directly.

For example, the US-Mexico-Canada Agreement, drafted to replace the North American Free Trade Agreement, devotes eight pages to its anticorruption chapter.

Senator Lindsey Graham, chairman of the Senate Judiciary Committee, floated the idea at a recent hearing about corporate transparency that trade measures could be used to combat corruption.

"It is an unfair trade practice to go in and take market share by bribing people," Graham said after accusing Chinese firms from extensive bribery in Africa. "Is there anything we can do on the trading side?  Everybody think about that for a moment."

Corruption has been generally understood to be an aspect of trade relations, but in recent months and years, trade negotiators have sought more specific anticorruption provisions.

— USMCA, other trade deals —

The USMCA has given added impetus to Mexico's ongoing efforts to establish anticorruption programs. The country has a longstanding problem with corruption, reflected by its ranking in the lowest quintile of the World Bank's "Control of Corruption" worldwide governance indicator. In 2017, Mexico had the 35th lowest score on this metric, falling below Bangladesh, Nicaragua and Russia.

The USMCA gives trading partners recourse to the dispute settlement process if a country "fails to implement or enforce anti-corruption laws in a manner affecting trade or investment between Parties.".

The new North American trade deal requires the countries to pass anticorruption laws prohibiting corporate off-the-book records, inadequately or fraudulently identified transactions, or the use of false documents. The USMCA also calls on governments to encourage better audits of corporate records to ensure compliance with anticorruption books-and-records requirements and to discourage the use of facilitation payments.

The agreement asks the countries to affirm their willingness to cooperate in anticorruption investigations and prosecutions, though it recognizes that each country retains its own discretion in the exercise of its laws.

But if one trading partner claims that sustained or recurring corruption has cost them trade, it may take up the grievance using the treaty's dispute settlement mechanism. The same day that Graham discussed corruption as a trade issue, the Mexican Senate approved the USMCA.

The US and Canada are moving more slowly, but are working on the ratification question. The day before the Mexican Senate vote, the Canadian House of Commons Standing Committee on International Trade held a hearing on C-100, the Parliament's bill to ratify USMCA. The US Congress, meanwhile, has established working groups to study the trade deal.

Anticorruption provisions are becoming more common in trade agreements.

Two weeks after the USMCA was signed last October, US Trade Representative Robert Lighthizer said the US would adopt a "new and innovative approach" to combating "practices that take advantage of the US economy in ways that don’t promote market efficiencies." He specifically mentioned corruption.

The forestry annex of the US-Peru trade agreement requires Peru to "develop and implement an anticorruption plan for officials charged with the administration and control of forest resources."

The Trans-Pacific Partnership Agreement, which US President Donald Trump abandoned, had an anticorruption chapter with substantially the same language found in the USMCA. Eleven other Pacific Rim countries signed onto the deal, now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, with an anticorruption chapter in the pact. It entered into force on Dec. 31, 2018.

Also, the Dominican Republic-Central American Free Trade Agreement, of which the US is a signatory, contains a transparency chapter that calls on trading partners to pass anticorruption laws.

— Sanctions —

Anticorruption provisions of trade agreements were rare before the USMCA and TPP deals, but other instruments and regulatory powers relating to trade have addressed corruption.

The US Treasury Department recently has frequently cited corruption as grounds for placing trade sanctions on foreign companies, prohibiting them from using the US financial system and banning US entities from doing business with them. Notably, Treasury placed trade sanctions on Petróleos de Venezuela SA, or PdVSA, the national oil company of Venezuela.

Treasury also sanctioned EvroFinance MosnarBank, a bank jointly owned by the Russian and Venezuelan governments, for money laundering. Officials in South Sudan were also subjected to sanctions for corruption by Treasury.

— WTO provisions —

The World Trade Organization's Government Procurement Agreement was revised in 2012 and included an explicit anticorruption provision.

The GPA says: "A procuring entity shall conduct covered procurement in a transparent and impartial manner that: is consistent with this Agreement, using methods such as open tendering, selective tendering and limited tendering; avoids conflicts of interest; and prevents corrupt practices." It adds that parties should accomplish this "in accordance with applicable international instruments, such as the United Nations Convention Against Corruption."

Signatories may present government procurement corruption grievances to the WTO's dispute settlement body. The GPA also requires parties to report to a WTO Committee on Government Procurement, which is responsible for oversight of the agreement.

Governments are taking note of this anticorruption provision. Ecuador last week was granted observer status by the WTO's Procurement Committee. In its request to the committee, Ecuador said "participating in this Agreement as an observer would reinforce the country's image within the context of the change in economic and trade policy, improve the perception of transparency and anti-corruption efforts."

But other WTO instruments speak of transparency obligations rather than actionable anticorruption provisions, and some legal authorities say it is time to change that. One of them, Haynes and Boone attorney Christine Dryden, published a 2016 article in "Law and Contemporary Problems" calling for a WTO anticorruption agreement.

Dryden argues that the WTO, with its existing dispute settlement body, could serve as an international forum for corruption grievances, at least in the realm of trade. The other major anticorruption treaties, such as UNCAC and the Organisation for Economic Co-operation and Development's Anti-bribery Treaty, call on signatories to implement antibribery and anticorruption laws but do not have global tools to enforce anticorruption principles.

"The countries have been good at putting in legislation that addresses corruption, but the problem has been enforcement," Dryden told MLex.

"It is promising that there are now treaties with anti-corruption chapters," she said. "It suggests that people are more accepting of the idea."

— USTR efforts —

The Office of the US Trade Representative, in its budget justification, said: "The United States continues to push its anti-corruption agenda forward. The United States promotes transparency and reforms that specifically address corruption of public officials."

It cited its efforts to conclude the WTO Trade Facilitation Agreement, which contains provisions on transparency in customs operations, as well as the WTO's GPA and the USMCA anticorruption agreement.

"The United States is also playing a leadership role on these issues in the Asia-Pacific Economic Cooperation (APEC) Forum and other fora," the USTR said.

But also in its "2019 National Trade Estimate Report on Foreign Trade Barriers," the USTR outlined corrupt practices in no fewer than 33 countries that it considered barriers to trade or which it had received reports about from companies attempting to do business in the countries.

The USTR report highlighted bribery in: Angola; Bangladesh; Bulgaria; Burma; Cambodia; China; Costa Rica; Croatia; Dominican Republic; Ecuador; El Salvador; Ethiopia; Ghana; Honduras; Indonesia; Italy; Ivory Coast; Kazakhstan; Kenya; Laos; Nicaragua; Nigeria; Pakistan; Paraguay; Peru; the Philippines; Russia; South Africa; Sri Lanka; Tunisia; Thailand; Turkey; and Ukraine.

The report said that in most of the countries, governments are attempting to strengthen anticorruption laws, but that implementation and enforcement is frequently found lacking. US firms often complain of corruption in public procurement, the USTR said.