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Secretary Of State Kerry Gets It Right

Secretary of State John Kerry got it right recently when he linked trade barriers and other distortions to – among other things – corruption.

Speaking to American Chamber of Commerce participants in Poland, Secretary of State Kerry focused his remarks “about the possibilities of the TTIP, the Transatlantic Trade and Investment Partnership” and stated:

“And a market of that size [envisioned by the TTIP] can have a profound impact on the choices that other countries must begin to make with respect to transparency, accountability, corruption, all of the things that are really the key to attracting investment with the kind of confidence that money seeks, as it has many choices around this planet as to where to go and where to invest. TTIP will improve the rules that govern trade and it will level the playing field.

And by strengthening the rules-based trading and promoting greater transparency and regulations and standards that become more compatible, we will break some of the resistance to trade that exists and encourage this very, very important standardization, which is, in the end, I think, in the interest of everybody. If you know what the rules of the road are and you know the rules of the road are top level, you are much more prone to invest and locate and do business than you are at a place where you know you can’t get a decision from the government because they don’t have those rules or getting that decision from the government may require all kinds of hoops you have to jump through. And for our companies that adhere to the Foreign Corrupt Practices Act, that can be a particular challenge against countries where they don’t.”

When looking for the root causes of bribery and corruption, there are several, but trade barriers and distortions are at the top of the list.

These barriers and distortions – whether complex customs procedures, import documentation and inspection requirements, local sponsor or other third-party requirements, arcane licensing and certification requirements, quality standards that require product testing and inspection visits, or other foreign government procurement practices – all serve as breeding grounds for harassment bribes to be requested.

Simply put, 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 demand bribes.

Several FCPA enforcement actions demonstrate this point (see my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense” pgs. 619-625).  In addition, as highlighted in this prior post, there is a positive correlation between regulatory burdens when doing business in a foreign country and corruption in that foreign country.

In short, removal of trade barrier and distortions can help reduce bribe demands.

The focus of the anti-corruption community should be less narrowly focused on pounding the pavement for more enforcement of FCPA-like laws (see prior posts here and here).  Among other things, enforcement of FCPA-like laws only addresses the supply of bribes, not the demand of bribes.

More energy should be spent on encouraging nations to eliminate trade barriers and distortions.

On this score, Secretary of State Kerry got it right.

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