This is the eighteenth in a series of articles Interest.co.nz has commissioned reviewing the key chapters and issues for New Zealand in the Trans-Pacific Partnership Agreement (TPPA). Links to all the analysis in this series are below.
By Ryan Greenaway-McGrevy*
Corruption is bad for trade. Palms that need greasing act like taxes. But whereas taxes can end up in hospitals, schools or other public services, graft and other forms of corruption end up lining the pockets of public officials. And when the politically connected are sheltered from competition, they can extract exorbitant profits.
Worst of all, corruption can exacerbate poverty.
It may be all very well and good to break down the formal barriers to trade. But it means very little if we do not bring down the informal barriers at the same time.
It is not surprising then that transparency and corruption are receiving more attention in international trade and investment.
Chapter twenty-six of the TPPA is devoted to encouraging transparency and cracking down on corruption.
Transparency is a key theme of the TPPA. The agreement often permits the use of trade-related policy to achieve specific public policy goals under certain conditions – provided that policy-makers are open and transparent with their policy objectives.
Section B of chapter twenty-six outlines the standards and principles for the entire agreement. Article 26.2 (Publication) requires that Parties publish the laws, regulations and administrative rulings covered by the Agreement; give fair warning of any proposed changes to these regulations; and allow interested parties to comment on the proposed changes.
Article 26.3 (Administrative Proceedings) requires that any administrative proceedings initiated to apply or interpret these laws and regulations are publicised. Members of other Parties that may be affected are to be notified and provided with a reasonable opportunity to submit facts and arguments to the proceedings.
Article 26.4 (Review and Appeal) requires each Party to establish or maintain independent tribunals so that the outcome of any administrative proceedings can be reviewed or appealed. These tribunals are to operate within the domestic laws of the Party.
Article 26.5 (Provision of Information) states that if a Party believes that a proposed or actual measure may affect another Party’s interests under the Agreement, it must take practical steps to inform them and provide any requested information.
Section C of the chapter requires TPP signatories to implement various measures to discourage and fight corruption.
Article 26.7 (Measures to Combat Corruption) obliges each country to establish the following as a criminal offence and provide for “effective and dissuasive sanctions” for those found liable: Bribing an official; accepting a bribe; or aiding and abetting either of these offences. The paragraph also lists a number of accounting practices which should be legislated against such as “off-the-books accounts” and falsification of records. It also includes a whistle-blower protection clause.
Article 26.8 (Promoting Integrity among Public Officials) encourages each Party to adopt preventative measures such as: rotation of staff in positions vulnerable to corruption; a code of conduct for public employees including disclosure of conflicts of interest; and ways to promote the integrity of the judicial system. It also calls for the establishment of disciplinary procedures to address any code of conduct breaches.
Article 26.9 (Application and Enforcement of Anti-Corruption Laws) requires Parties to enforce their anti-corruption laws, but still grants them sufficient flexibility to decide the best method for doing so. The clause is, however, exempted from dispute settlement, meaning that the trade agreement cannot be used to enforce it. If a government does not enforce its anti-corruption laws it does not face the prospect of trade sanctions from its TPP trading partners.
Article 26.10 (Participation of Private Sector and Society) states that each Party recognises the benefit of having non-governmental organisations monitor and disclose corruption; an acknowledgement of the important role that independent media and non-governmental organisations play in combating corruption. The language of the clause is, however, rather permissive. While it requires Parties to promote the participation of non-governmental organisations in the fight against corruption, the clause permits these measures to be within the “means” of the Party.
The chapter incorporates many existing guidelines and conventions on corruption. Article 26.6 (Scope) states that the Parties re-affirm their commitment to Asia-Pacific Economic Cooperation (APEC) codes of conduct for public officials and private enterprise; it also requires each Party to ratify or accede to the United Nations Convention against Corruption. (Japan is the only TPP nation yet to ratify this agreement. NZ finally ratified it late last year, some 12 years after signing it).
Sunlight and disinfectant
The TPPA is by no means a panacea for corruption. Its remit is limited to activities covered under the agreement – international trade and investment. And it won’t do anything about the uncomfortably close relationships between political donors and politicians both here and abroad. But despite its limited scope, the agreement does lay the groundwork to fight some forms of corruption.
Consider government procurement – one of the primary ways public officials can redirect public money to their family or cronies.
The government procurement chapter of the TPPA requires a fair and transparent bidding process for central government contracts. This includes well-publicised criteria for how the contracts will be awarded – which makes it more difficult for officials to give extravagant contracts to their mates. More importantly, alleged infractions are subject to the state-to- state dispute settlement process, meaning that doling out government contracts to cronies ultimately threatens the country’s trade benefits.
But there would still be a few hurdles to overcome for the agreement to be really effective in the fight against corruption.
First, for many nations (including New Zealand, the USA and Vietnam), the sub-central government is exempt from the procurement chapter, meaning that there would be little additional pressure for local officials to curb corruption. This could, however, change: under Article 15.24, the government procurement chapter is to be renegotiated no later than three years after the TPPA comes into effect. Reducing the exemptions is listed on the agenda – meaning that the agreement could feasibly be extended to sub-central levels of government too.
Second, initiating a state-to- state dispute over alleged corruption requires political will, and often such disputes are part of the broader geopolitical relationship between two nations. If a government raises a dispute with a trading partner, there is likely to be blow-back.
Still, the transparency and anti-corruption chapter is a step in the right direction – because it ties the benefits of trade to addressing the problem. And the developing nations that are expected to gain the most from the TPPA also happen to be the ones that rank poorly in international measures of corruption and transparency. Any additional impetus to do something about the problem should be welcomed.
*Ryan Greenaway-McGrevy is a senior lecturer in economics at the University of Auckland. Prior to that he was a research economist in the Office of the Chief Statistician at the Bureau of Economic Analysis (BEA) in Washington DC.
*Amber Carran-Fletcher contributed to this article.
The series so far: