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The TPP And Corruption

TPP

Trade barriers and distortions are often the root causes of bribery.

This has long been recognized, including by Congress in the mid-1970’s when it was considering various legislative approaches to the s0-called foreign corporate payments problem.

As highlighted in “The Story of the Foreign Corrupt Practices Act,” in November 1975 Senate Resolution 265 passed 93-0 and called for executive branch agencies to pursue remedies to the corporate payments problem within the framework of the General Agreement on Tariffs and Trade (GATT).

At the same time, Congress realized that multilateral trade agreement were “largely hortatory in nature and do not include reliable enforcement machinery or sanctions for violators” and that the then-existing trade discussions already included “a large number of complex and difficult negotiating objectives” and that it was not in the U.S. interest “to add yet another major problem” into the trade discussions.

Nevertheless, trade barriers and distortions remain a frequent root cause of bribery.

A long-awaited developed occurred in the trade space last week as the Obama administration released the full text of the Trans-Pacific Partnership (TPP) agreement. As highlighted here:

“The TPP would arguably be the largest free trade agreement in history when considering the economies of the 12 Pacific Rim member countries, covering approximately 40% of the global economy. The agreement must now be individually approved by each of the 12 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam.”

The TPP is massive document and its potential to reduce trade barriers and distortions is country specific and indeed industry specific.

If the TPP does indeed reduce trade barriers and distortions, then it can help reduce the root causes of bribery and the reason is fairly straight-forward.

  • Trade barriers and distortions create bureaucracy.
  • Bureaucracy creates points of contact with foreign officials.
  • Points of contact with foreign officials create discretion.
  • Discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.

While the potential of the TPP to reduce trade barriers and distortions is found deep within the country and industry specific information in the document, the TPP does contain an “aspirational” chapter (Chapter 26) devoted specifically to anti-corruption.

As highlighted in this U.S. government summary:

“The chapter ensures that U.S. exporters, service suppliers, investors, and other interested stakeholders in TPP have ready access to information about the laws, regulations, and other rules affecting trade or investment in TPP markets; guarantees due process rights; commits TPP Parties to have and enforce anti-bribery laws; and promotes rules against conflicts of interest in government. The chapter guarantees the full rights of governments to regulate for public health, environmental quality, and other public-policy goals.”

“The [chapter] requires TPP Parties to ensure that, to the extent possible, their laws, regulations, and administrative rulings related to any matters covered by the TPP Agreement are publicly available and that regulations are subject to notice and comment.”

Similar to the OECD Convention, the summary document highlights the following “aspirational” portion of the TPP.

“Each TPP Party commits to adopt or maintain laws that criminalize the offering of an undue advantage to a public official (or the solicitation of such an advantage by a public official), as well as other acts of corruption in matters affecting international trade or investment. Parties also commit to effectively enforce their anticorruption laws and regulations.”

One final note regarding the TPP anti-corruption chapter.

Unlike the FCPA’s definition of “foreign official” which is silent as to state-owned or state-controlled enterprises (SOEs) – as highlighted here competing bills introduced in Congress, but rejected by Congress, did contain explicit reference to SOEs – the TPP has no problem in explicitly capturing SOEs in its definition of “foreign public official” which includes “any person exercising a public function for a foreign country, at any level of government, including for a public agency or public enterprise.”

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