The full text of the Trans-Pacific Partnership (TPP), released earlier this month, is already generating plenty of discussion. One of the proposed agreement’s most striking features is the full chapter on transparency and anticorruption, Chapter 26. The U.S. Trade Representative (USTR) had earlier stated that its objectives in negotiating the TPP included addressing transparency, accountability, and corruption; at the time I thought this was simply a negotiating ploy or marketing strategy, but it looks like I was wrong. As USTR’s summary of the “good governance” steps of Chapter 26 correctly notes, the TPP “includes the strongest anti-corruption and transparency standards of any trade agreement.” Indeed, Chapter 26–which appears to modeled in part on draft language that Transparency International had proposed for inclusion in a different trade deal, the Transatlantic Trade and Investment Partnership–could mark an important and unprecedented step towards using trade agreements to promoting and harmonize international anticorruption efforts.
Here are a few points that are or could be particularly important features of Chapter 26:
- First, Article 26.7 requires TPP signatories to maintain legislation to punish bribes and other advantage given to public officials, similar to the behaviors punished under legislation like the US Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act. This mandate sweeps broadly. For example, it could require countries to amend their laws to provide for corporate criminal liability, at least for covered bribery offenses. The TPP definition of “public official” is also broad, including unpaid and temporary government workers, any “person who performs a public function,” and any other person defined as a public official in the country’s domestic law. (By contrast, the FCPA defines public officials as those who are government “officer[s] or employee[s]” or acting “in an official capacity for or on behalf of” a government.) Article 26.7 also requires countries to have measures protecting whistleblowers and prohibiting corruption through bookkeeping and accounting.
- Second, Article 26.6 requires accession to UNCAC for all TPP members. (While all of the negotiation parties to the TPP are UNCAC signatories, Japan and New Zealand have not yet ratified UNCAC; they would need to do so in order to join the TPP if the text as drafted is approved.) Chapter 26 also “encourage[s] observance” of the APEC Anti-Corruption Code of Conduct for Business, which prohibits bribery of officials and asks corporations to implement programs to combat bribery. In addition, Chapter 26 recognizes and explicitly states that it does not conflict with several existing anticorruption regimes, including UNCAC and the Inter-American Convention Against Corruption. (Somewhat surprisingly, though, the TPP does not mention the OECD Anti-Bribery Convention, even though a majority of prospective TPP signatories are members of that Convention, and there appears to be substantial overlap between the legislation mandated by Chapter 26 of the TPP and the OECD Convention. This may lead to questions about whether the OECD Convention’s nuanced multi-stage monitoring system will take a back seat to the TPP, or vice versa, or whether they will work in tandem.)
- Third, and perhaps most importantly, most of Chapter 26’s obligations are covered by the TPP’s dispute settlement system, which can be invoked to enforce the commitments of the Chapter when a party has “failed to carry out an obligation” or acted in a way “inconsistent with an obligation.” In theory, this could be used, for example, to challenge a country’s failure to adopt mandated anticorruption and anti-bribery legislation or to join UNCAC. (Parties can also choose to address problems through the less formal TPP consultation process, which appears to be similar to the WTO consultation system.) There are some limits: Parties cannot use the dispute settlement process to challenge another party’s alleged inadequate enforcement of its anticorruption laws; as long as a country has adequate laws on the books, it cannot be taken to arbitration for failing to prosecute or convict under those laws. Additionally, nearly all of Article 26’s measures are limited to those matters “affecting trade or investment”–though the reach of that category could be interpreted broadly. (An interesting question would be posed if, for instance, a domestic corporation were given a public procurement contract instead of a foreign investor through bribery of a public official. Would that be “affecting trade or investment”?)
Of course, notwithstanding the text, whether Chapter 26 will become a significant anticorruption instrument depends on the extent to which its measures are used. And it is far from clear whether investors or states parties with have the incentive to bringing claim when other countries fail to live up to their anticorruption commitments. While less bribery would benefit the trade bloc as a whole, it may not be a salient issue for any individual investor or state. With that caveat, the TPP text may signal a trend towards incorporating robust anticorruption commitments in international trade agreements, a trend further suggested by the EU’s recent pledge to include “ambitious” measures on transparency and corruption in all its future trade deals. This trend could conceivably lead to more global action, especially if the WTO were ever to adopt anticorruption provisions, enforceable through the WTO Dispute Settlement Body. Though not everyone would welcome this development, the WTO’s strong enforcement mechanisms would certainly offer even more bite to anticorruption commitments. More generally, the inclusion of anticorruption in trade deals lends weight and legitimacy to international anticorruption efforts. For all of those reasons, the inclusion of Chapter 26 in the TPP is a major development in the global struggle against corruption.
As is so often the case, it seems that the practical effect of Chapter 26—at least beyond the fact that it lends weight and legitimacy to international anticorruption efforts—comes down to the likelihood of enforcement by TPP members, and overcoming the collective action problems you mentioned regarding whether a single investor or state party will take advantage of the recourse TPP provides when corruption gives rise to a claim.
These issues are not easily solved, but I wonder if there are examples of other multilateral agreements that have addressed or failed to address the enforcement and collective action problems which TPP states—and civil society—could draw on to make Chapter 26 as effective as possible when it is implemented.
It might be difficult (or impossible) to alter a sovereign state’s enforcement choices, but perhaps member states could overcome collective action problems by incentivizing individual parties who have claim to raise it. I am not entirely sure what an incentive might look like (financial support, litigation support, or some other form, perhaps) or whether creating an incentive for a party to raise a claim would violate Chapter 26 or some other TPP provision, but it could be an interesting step toward making Chapter 26 a major development in practice as well as in spirit.
Your characterization and concerns are echo how I would expect the chapter to play out in reality. I like your idea about incentives, but I’m not sure how an incentive system could ever be possible within the TPP itself. Weight and legitimacy likely don’t have an impact on domestic enforcement, and I’m not sure what else could. Even if there were some incentive available to challenge a lack of enforcement (though that incentive need not necessarily come from the TPP itself), there doesn’t seem to be a forum where that sort of challenge could ever be raised, absent the sort of provision Daniel mentions below. If a government is truly opposed to enforcement of its antibribery laws, I can’t think of much that could be done aside from awareness-raising. This makes me think that civil society organizations may be the best players to address a lack of enforcement or a biased enforcement regime. Perhaps there could be an incentive scheme for governments to report on their enforcement stats, but again, it doesn’t seem like that can be demanded.
Many thanks to the author. No such a provision in the CETA (Canada-Europe). It’s unfortunate.
Really timely subject. What are your thoughts on the qualifying language highlighted in the Mexico Monitor post you linked to? Do you think that it’s going to essentially remove the need for countries to make substantial reforms, or would any body created under the dispute settlement system be likely to interpret the discretion the qualifiers grant narrowly?
I agree that you and Nathan seem right to highlight the domestic enforcement issue. I suppose there’s an argument that just the normative law creation process might have a positive effect or enable people within those countries to bring legal challenges, but this feels to me like a bit of a wait-and-see moment (but that’s not a reason not to include these sorts of provisions).
I completely agree that this seems like a matter that will play out with time. In my opinion, the trend toward inclusion of these types of issues, if indeed it is a trend, would be a smart move to make in the long run, even if the only practical result from this particular inclusion is greater dialogue.
While I’m no expert, I think the qualifying language–at least the language allowing for discretion in domestic application of the law–appears to be quite a standard grant. Though of course there could be exceptions, the anticorruption texts I have read largely seem to allow for discretion in the application and enforcement of mandated or recommended legislation or other measures. As a practical matter, I think this type of inclusion is necessary to avoid the possibility that challenges could be brought in bad faith and could be used to pester or bully, for example. While that also means there can’t be challenges to a genuine lack of enforcement or to biased enforcement, I’m not sure how those challenges could be allowed without also raising serious concerns. In this case, the step of creating enforceability for the provision of domestic antibribery laws does create a need for reforms in any cases where signatory countries aren’t yet living up to those commitments.
I had many of the same thoughts that Nathan expressed above. While Nathan mentions incentivizing parties to raise claims, I am also curious whether there exist any possible mechanisms for civil society groups to challenge a state’s enforcement of its anticorruption laws.
From your post, it seems as though investors/parties to a dispute would not be able to challenge a state’s enforcement through arbitration. But is there the possibility that these anticorruption laws could include citizen suit provisions, similar to those in U.S. statutes like the Clean Water Act, whereby citizen groups can bring suit directly against the government for inadequate enforcement?
I imagine that an agreement like the TPP would not include such a requirement, but assuming that these anticorruption requirements are a floor rather than a ceiling, could individual countries take it upon themselves to implement citizen suit provisions in their laws?
Very interesting thought. My sense is that suits for inadequate enforcement could be allowed domestically, although that wouldn’t seem to have any practical impact on whether the TPP obligations are met or not. In those situations where enforcement would be a genuine concern, if the legislative body could create such a cause of action, the courts would still need to allow that action and appropriately rule in favor of the challengers. Assuming that a genuine lack of enforcement might be a signal of some hostility or powerful special interest, I’m skeptical that all the moving parts would align to allow that cause of action to be successful. As I mentioned in response to Nathan’s comment, to me it seems like the most accessible approach to addressing enforcement concerns would be awareness-raising through civil society.
Very exciting update. I like your question about whether an investor might have a claim against a member state for awarding a public procurement contract to a domestic company rather than a foreign one, through bribery of a public official. My impression is that this would be a difficult case to make, because the claimant investor would have to show that they had an investment in the country that was affected by the state’s action — a prospective investment is generally not actionable.
However, one could imagine a scenario where a foreign investor’s contract was terminated and transferred to a domestic investor. This is actually comparable to the World Duty Free case, where Kenya placed the concession under receivership and then transferred beneficial interest to the state, after the investor refused to participate in a public corruption scheme. However, Kenya was able to avoid liability because World Duty Free had paid a bribe to secure the original concession. I’ll be discussing some of these these conflicting incentives in my next post.
Fantastic insight–thanks so much! I wonder where the limits are to a situation like World Duty Free. Do you think a winning bid on a public contract that was subsequently rescinded by the bidder after requests for bribes would give rise to a cause of action? What if a public procurement contract was terminated after a period of performance in favor of a party willing to pay bribes? I’m looking forward to your discussions about the ISDS possibilities–my own thoughts and other commentary I have seen on Chapter 26 focus on the possibility of enforcement, so the types of actions that can be brought are a key part of understanding how this could play out in practice.
Thank you for this great post Kaitlin. I am also concerned with the fact that as long as a state has adequate laws, it could not be taken to arbitration for not enforcing them. To follow up on the ‘corruption trump’ approach in the World Duty Free case, if the TPP’s dispute settlement system was to adopt such approach, it might be a way to overcome the lack of enforcement. Do you think arbitration within the TPP would be inclined to adopt a similar jurisprudence?
Of course this would not be the ideal solution either to the extent that ‘corruption trump’ can lead to unfair outcomes for the investor…
While I think Danielle has more insight on the scope of corruption in international arbitration, it is definitely an important question. Briefly, there are two issues that come to my mind. First, World Duty Free, Metal-Tech, and other cases recognizing corruption as a defense to or reason to dismiss an investment claim might actually work against increased enforcement of those individuals seeking bribes. Neither of those cases dealt with the lack of domestic prosecution of the individuals seeking payment. Instead, the bribe payors had to bear all the consequences of the deals gone bad because of their participation in the bribery. Where countries facing investment claims can get out of large damage awards because of an investor’s illegal payments, there is actually some encouragement to allow bribe-taking behavior instead of increasing enforcement of anticorruption and anti-bribery laws. Potentially huge costs can be avoided where bribery is in the picture. I think there would need to be some honing of the corruption trump to encourage anticorruption enforcement through international trade. At least one commentator, whose work is described here: https://icsidreview.oxfordjournals.org/content/early/2015/08/03/icsidreview.siv028.full, has suggested that countries be required to prove their enforcement and prosecutions to be entitled to use corruption as a defense to an investment claim. He also says that anticorruption instruments, like UNCAC and presumably now like Chapter 26, are “myth system[s]”–aspirational texts rather than functional obligations, not actually requiring enforcement action. Second, there certainly could be some “jurisprudence,” but ICSID and other international arbitral tribunals are not bound by existing precedent–i.e. the World Duty Free case doesn’t have to be followed in the future. This could be good or bad in terms of incentivizing enforcement, but it certainly allows room for some creative thinking on the right approach to take.
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