Trade rules for fair play

Trade Directorate

WTO rules can help in the fight against corruption. That would be good for trade. 

There is no single international definition of bribery and corruption, just as there is no single area where corruption manifests itself. Still, international trade is an area that is particularly vulnerable to corrupt practices. Not surprisingly, within the detail of WTO agreements are rules which contribute to the fight against corruption by helping to build a domestic regulatory environment where corruption is less likely to occur.

There are essentially two ways to combat corruption, either by dissuasion or prevention. The former aims to reduce the gains from corruption through sanctions, such as criminalising corrupt behaviour or excluding corrupt companies from access to economic benefits. The latter seeks to introduce competition in government, reduce the areas of bureaucratic discretion by clarifying applicable rules, improve transparency and scrutiny to make corruption less rewarding and more risky, and eliminate the motives for corrupt behaviour. Improving the wage levels of public officials may be one way of doing this. Granting import/export permits more easily and without having to pay a bribe is another.

WTO rules and disciplines are on the “preventive” side. The implementation of various provisions, such as on Customs Valuation, Pre-shipment Inspection, Government Procurement and Rules of Origin, aims to clarify applicable rules, reduce the complexity of procedures and improve the predictability of the regulatory system. Even though neither the 1994 GATT agreement nor any of the other WTO agreements specifically address corruption and bribery, they certainly fight it by reducing bureaucratic arbitrariness and improving transparency and accountability, even to outside evaluators.

The gradual liberalisation of world trade in general, namely through tariff bindings, specific commitments in the General Agreement on Trade in Services (GATS) and provisions of agreements such as that on Technical Barriers to Trade, helps to eliminate the business incentives for corrupt behaviour by legally reducing overall operation costs. This means that conforming with WTO obligations is a process which not only helps countries to reap the benefits of trade liberalisation, but also to improve their domestic regulatory environment, making it less prone to corruption.

Rules of the game 

Non-discrimination rules are vital to the multilateral trading system. They provide for equality of competitive opportunities between like products and services and help to prevent trade distortion. And they have to function properly to win the confidence of businesses and other stakeholders, including governments. Corrupt practices are clearly a violation of those rules because they result in discriminatory treatment. For this reason, the Agreement on Technical Barriers to Trade, for instance, requires that if fees are charged for assessing the conformity of products coming into a country, they should be no different to fees charged for assessing similar products of national origin or goods coming from any other country.

Bribery and corruption thrive on secrecy. The 1994 GATT requires that “laws, regulations, judicial decisions and administrative rulings … be published promptly in such a manner as to enable governments and traders to become acquainted with them.” And the Government Procurement Agreement contains a series of provisions, which seek to ensure that the tendering procedures are open and transparent to all interested parties. In fact, unsuccessful bidders have to be provided with such additional information on the contract award as may be necessary to ensure that the procurement was made fairly and impartially.

Assuring a stable and predictable business environment is one of the main reasons for creating a multilateral trading system in the first place. By reducing risks, a predictable trading system not only facilitates trade and investment flows, but could also remove any incentive firms may have for acting corruptly. Unwarranted administrative delays are in many cases seen as trade barriers, and bribes are often required to secure a more efficient service. This practice is one of the targets of the WTO’s Pre-shipment Inspection Agreement, which requires that an inspection be concluded within five working days.

Clear rules make it harder for public officials to make abusive requests and for businesses to ask for unwarranted preferential treatment. In other words, impartiality is vital and the GATS seeks to achieve this, by demanding its signatories to “ensure that all measures of general application are administered in a reasonable, objective and impartial manner.” The Agreement on Trade-Related Aspects of Intellectual Property Rights takes an equally tough stance: “Procedures concerning the enforcement of intellectual property rights shall be fair and equitable. They shall not be unnecessarily complicated or costly, or entail unreasonable time limits or unwarranted delays.” And the preamble of the Customs Valuation Agreement recognises the need for a “fair, uniform and neutral system for the valuation of goods for customs purposes that precludes the use of arbitrary or fictitious customs values”.

WTO rules can make a contribution to building a less corrupt world, though technical assistance may be needed to help developing countries enforce them effectively. But while reducing the opportunities and motivations for corruption through trade regulations is a valuable preventive weapon in the fight against bribery, experience shows that it is not enough to eradicate corruption. Moreover, WTO rights and obligations apply only to states and not to individuals, businesses or other private parties. This means that the enforcement by a government of its WTO obligations may affect the acts of corrupt public officials requesting or accepting bribes, but it does not concern the payment of bribes by private businesses to public officials. That is where the OECD Convention comes in. The two instruments reinforce each other and are perfectly complementary. Indeed, together the Convention and the WTO rules can help make international trade both freer and fairer.

©OECD Observer No 220, April 2000

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
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Last update: 8 July 2019

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