Should the TPP Address Corruption? If So, How?

The Office of the U.S. Trade Representative (USTR) says it is trying to include anticorruption pledges in the proposed Trans-Pacific Partnership (TPP) trade deal. According to USTR, it not only wants “commitments to promote transparency, participation, and accountability” in trade issues (commitments USTR claims it has already had some success securing recently), but also more general “commitments discouraging corruption . . . among public officials.” It’s not entirely clear what USTR means, particularly with respect to this latter suggestion that it is going to push for more general anticorruption pledges in the TPP. Maybe it doesn’t mean much – it might just be feel-good rhetoric, with little connection to what’s actually going on in the closed-door TPP negotiations. But suppose that USTR is sincere, and that it genuinely hopes to include some sort of anticorruption language in the final TPP deal. Is this a good idea? If so, what sorts of anticorruption commitments would be appropriate in a mega-regional trade agreement like the TPP?

The idea of incorporating anticorruption measures into trade deals is hardly novel. (See this panel summary for some high-level background). Last year, Colette’s post on this blog recommended adopting Transparency International’s suggested anticorruption measures for the proposed Transatlantic Trade and Investment Partnership (the T-TIP), though she also opposed addressing corruption through the multilateral WTO regime. Other commentators and civil society groups have pressed for the incorporation of anticorruption measures in other regional free trade agreements (for example, see here and here). With respect to the TPP, these prior discussions suggest several considerations that USTR negotiators should keep in mind if they are serious about pushing for more anticorruption language in this agreement:

  • First, it would be a mistake to use the TPP to craft and impose a new set of substantive anticorruption commitments. After all, the participants of the TPP are already members of an array of anticorruption instruments. All have signed the UN Convention Against Corruption (although Japan and New Zealand have not yet ratified it). The OECD Anti-Bribery Convention includes seven of the twelve TPP countries (excluding Brunei, Malaysia, Peru, Singapore, and Vietnam). Australia, Japan, Malaysia, Singapore, and Vietnam are involved in the ADB/OECD Anti-Corruption Initiative for the Asia-Pacific, while Chile, Mexico, Peru, and the United States are members of the Inter-American Convention Against Corruption. There is no shortage of international and regional anticorruption agreements. As Rick noted (in a somewhat different context), it would be a mistake to “[i]gnor[e] the several international anticorruption conventions now in place and the slow but steady improvements these agreements have produced.” Indeed, much as free trade advocates have warned of dilution and waste from a multiplicity of free trade deals, the same concern may apply to a multiplicity of anticorruption commitments. Instead, the TPP could and should work by reference to existing international anticorruption standards. A model for reference might be the draft labor chapter that the AFL-CIO and its foreign counterparts have proposed for the TPP. That plan included provisions requiring countries to comply with their own domestic labor laws. It also referenced existing international labor standards, calling on countries to “give full effect to the OECD Guidelines for Multinational Corporations.” TPP anticorruption terms should take a similar approach and explicitly reference the existing provisions, say of UNCAC, to reinforce current domestic commitments to anticorruption policy and enforcement.
  • Second, the TPP could appropriately include some language making explicit demands for fair courts. While most countries have corruption laws on the books, a compromised judiciary can all too often get in the way of punishing and deterring offenders. The TPP should call on countries to ensure due process in court proceedings on trade- and investment-related corruption matters (including bribery, land grabbing, and the like). Again, the AFL-CIO’s draft chapter on labor (particularly Article 17.6) could serve as a model here, as can Transparency International’s proposed T-TIP chapter on transparency issues (in Section A: Review and Appeal). A trade agreement can’t unilaterally fix a failing judiciary, but it could help to up the pressure to do so.
  • Third, specifically in the context of government contracting, the TPP could and should include express provisions on debarment of contractors who engage in corruption or fraud. The TPP should endorse some procedures through which countries may debar from government contracting companies caught out in corruption, though it should not mandate such a result. TI’s draft T-TIP chapter called for countries to maintain some mechanism for “denial for a set period of time of access” to certain benefits and contracts, including public procurement. Likewise, the TPP could include the threat of and routes to possible debarment. Public procurement can represent significant income streams. Such a debarment mechanism could threaten loss of business in either the home country or the host country. It could be used by governments to address problematic companies but could also be used by companies, if facing requests for bribes or special treatment, as a justification why their deals and activities must be legitimate.

On the whole, the TPP’s coverage of anticorruption measures should focus on trade-centered matters. TPP provisions asking for transparency in trade related issues—say, public access to information on the domestic trade policy creation process, appointment of trade officials, or setting of domestic trade and foreign direct investment procedures—makes intuitive sense. Although there are reservations to having major economic powers dominating the terms of a major economic deal including some smaller, less developed nations, this is an opportunity to set the bar high in at least one substantive area.

5 thoughts on “Should the TPP Address Corruption? If So, How?

  1. Great post! I would be interested to hear more related to your second point, about fair court systems. I completely agree that anti-corruption efforts cannot succeed without a strong judiciary for support. What type of language could be included to advance this goal? Would such a requirement be a condition of membership in the TPP, or a recommendation toward which member nations would have to demonstrate progress? One thing to think about: While trade may be a very effective way to make progress in “side” areas like judicial reform, the worry is that these supplementary issue standards will be used as an excuse to exclude certain nations or renege on certain obligations. This question comes up a lot in debates about doing things other than trade–like environmental protection or labor standards–through trade systems.

  2. Well, it looks like we’ll be able to read the official text quite soon! While it will be a few weeks until the publication, it sounds like the only component of the TPP related to judicial or quasi-judicial issues is the investor state dispute settlement mechanism (ISDS), which I haven’t addressed here. I do think future trade deals or the multilateral trading system could condition membership on some commitment to fair courts. What would that look like? I would imagine some sort of commitment that could be raised as a cause of action or an element of a cause of action in an arbitral tribunal or the WTO Dispute Settlement Body. That is, if a trade participant tries to access a domestic court system but encounters and can document unfairness, they would have recourse to some other remedy.

    I completely agree that addressing “side” issues through trade linkage is a tricky subject, and I don’t think there is a single answer to whether and how much other issues should become part of new and existing trade agreements. My understanding of the TPP, from what we know so far, is that it goes further than any other deal in linking labor and environmental issues to trade commitments. As you’ve said, this raises plenty of concerns, but if there is universal or near-universal support for certain standards, trade deals can potentially offer stronger enforcement mechanisms to see that those standards are met. Of course, setting and agreeing to standards in the first place is a much more difficult matter, but it sounds like the trade negotiators of the TPP have managed to do so in a few areas.

  3. My instinct is to be a bit more hesitant about focusing on fair court systems. I too agree that anticorruption efforts require a strong and clean judiciary. But concerns of investors over bias, sufficient remedies, procedural protections, and potential corruption of local courts seems to be precisely some of the reasons supporting investor-state dispute settlement via arbitration in the first place. In that case, I’m not sure that it’s necessary to allow a separate cause of action related to treatment in domestic courts for arbitration. Companies or investors could bring the underlying complaint to the arbitral body in the first place (and any concerns people generally have about investor-state arbitration at large might exist in either case, whether the issue being arbitrated is the underlying substantive dispute or treatment in local courts of that dispute). There already appears to be concern over the TPP’s treatment of investor-state dispute resolution; namely, that companies might bypass local courts, and what this means for the power of investors and ability of countries to govern, particularly with respect to public welfare issues. Interestingly, these issues seem related to “side” areas that Kait mentions in her comment, like the environment. To the extent that foreign investors challenge domestic regulations related to state concerns of water quality, mining regulation, preservation, etc, and use outside courts/tribunals to fight these local regulations, the concern or outlet for a “side” issue like strong judiciary might undermine a host state’s ability to determine for itself some of these public welfare issues. Even if trade agreements and deals start incorporating both issues like the environment (perhaps giving more strength to these local regulations), it’s unclear to me how disputes that pit these “side” issues against each other are likely to turn out in practice, and how to preserve a host state’s ability to regulate public welfare especially on these issues while providing recourse for investors who might be concerned about corrupt judiciaries and bias in outside courts.

    • I agree with you that concerns about fair courts may be not well or fully addressed by turning to ISDS. Without opening a whole can of worms surrounding the issue and the potential for its abuse, it does seem like some sort of measure calling for fair courts could coexist with ISDS. What I had in mind as a target for fair courts provisions was not necessarily the disputes with countries that would go to arbitral tribunals under ISDS. Instead, such a measure might be aimed at more run-of-the-mill actions, perhaps contract or tort issues, involving foreign investors and happening in the host country’s court system. Imagine there is a legitimate dispute and one party is able to bribe its way to a favorable resolution. Some sort of accountability for the host country for those sorts of problems might be a way to both increase investors’ confidence and to help improve the quality of courts along the way. That accountability might come in many forms, and I’m not sure which would be best.

      As for linkage of trade and other issues, I agree that it’s unclear how adding additional commitments into a trade deal would or should turn out in practice. Again, I have some sense that the level of linkage should be grounded in the amount of mutual or universal support for such aims, but it may be unrealistic to think it would ever be possible to reach agreement. My understanding is that investors likely still have a potential takings argument based on new regulation in a host country, whether or not the issue regulated is linked in a trade deal, but I agree that linkage, if it happens, should try to balance global priorities with allowing autonomy to regulate welfare in the way a country chooses.

  4. Domestic due process is certainly an important consideration for foreign investors. Although we don’t know the full text of the TPP yet, standard language in most bilateral investment treaties do provide for “fair and equitable treatment” by the host state, which arbitral tribunals have read to include due process within domestic court systems. (See UNCTAD Series on Issues in International Investment Agreements II (2012), http://unctad.org/en/Docs/unctaddiaeia2011d5_en.pdf)

    Due process will definitely be a component of the trade deal under the TPP. But of course, investor-state arbitration cannot police every domestic court decision. Thus some tribunals have held that the due process standard is only met by a “particularly serious shortcoming” involving “egregious conduct that shocks, or at least surprises, a sense of judicial propriety” (White Industries Australia Ltd. v. Republic of India). Would corruption meet this standard? International arbitral bodies are just beginning to engage with substantive corruption claims. (One of the best known of these new cases is World Duty Free v. Kenya.) It will be very interesting to watch this area of law develop, particularly with the rise of “mega-regional” agreements.

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