Putting Corruption on the Trade Agenda

IS IT TIME TO PUT CORRUPTION ON THE GLOBAL TRADE AND INVESTMENT AGENDA?

A columnist for the respected Washington Post made the following controversial statements following successful U.S. Congressional attempts to foil the Chinese takeover of a major American energy company Unocal:

China wants to control supplies of oil and other commodities because it's scared of price shocks; owning oil or other mineral reserves provides anti-shock insurance. As Chinese economists argue, their economy is extremely vulnerable to external shocks because it's extremely open. The Unocal defeat is not going to stanch China's drive to buy foreign resources. China has two ways to do that. It can buy Western resource companies: That was the Unocal strategy. Or it can do deals in resource-rich developing countries, which tend to be plagued with corruption, human rights abuses and other unsavory practices. To cite just two of many examples, China has invested in Sudan and Zimbabwe, propping up both countries' unspeakable dictatorships. (Sebastian MallabyMonday, August 8, 2005; Page A15)

There are growing concerns that China and possibly other Asian rapidly developing countries may be winning the bidding wars for such foreign resources through corruption, just as some major corporations from Europe and America have done for so long before. These concerns inevitably focus on countries such as Angola, Equatorial Guinea, Nigeria and Sudan which rank towards the bottom of the Transparency International’s Corruption Perceptions Index. At stake is not only the huge cost to sustainable development and human rights in the targeted countries, but also the entire global investment and trading system. How long will it be before there is political retaliation in the form of disguised trade and investment protectionism?

Free markets may be the fire that can stoke trade and investment around, but often overlooked is the "oxygen" that is needed to keep that fire burning. That oxygen is the environment that enables sustainable business through the rule of law, accountability of the public sector and social stability. Without this oxygen, the fire will eventually diminish or even go out completely. Ethical corporations that do business in countries that lack these essentials of a sustainable business environment have a vital role to play. However, governments and International financial, trade and investment institutions also can promote ethical and therefore sustainable business environments around the world.

First, in member nations of the Organization of American States, the Organization for Economic Co-operation and Development and now for countries which have ratified the 2003 UN Convention Against Corruption, there are international legal obligations imposed on countries to implement anti-bribery and anti-corruption treaties. Legal systems and bureaucracies in many of the countries of the world will keep on being rifle with corruption unless their governments shake up the systems and start imposing criminal penalties, including long prison sentences, that far exceed the gains possible from corrupt activities. If this is not done, the efforts of ethical leadership companies will dissipate in a business environment that distorts the fundamental objectives and spirit of free markets and free-trade agreements. It may be time to insert these legal obligations of countries to abstain from corruption into global trading rules and attach trading remedies for those who violate these obligations.

Another possible idea to combat the increase in global corruption is to promote co-operation in establishing national integrity plans for each member country of free-trade zones. This could include assistance in justice system reforms and promotion of the rule of law. Likewise, international financial institutions and national export credit and insurance organization, such as Export Development Corp. (EDC) in Canada, can crack down heavily on clients, contractors and executing agencies that become involved in corrupt business practices. This could entail excluding such entities from all future dealings with these vital financing and insurance sources. Convictions for such activities could also be publicized to magnify the deterrent effect. If such a regime is adopted in Canada, Europe or the United States, it should also be promoted throughout the world. These international financial institutions and national export credit and insurance agencies should also encourage and perhaps even insist that corporations that want their services should establish effective codes of conduct that militate against corrupt practices. Canada can show leadership in the Americas by beginning this practice with the EDC. Likewise, the assistance that the Canadian International Development Agency gives to the private sector for commercial projects in developing countries could also be utilized as a lever for promoting effective codes of conduct.

Finally, there can be no sustainable business environment without social stability, as several countries in the Americas are demonstrating. It is imperative that governments see the necessity of working with society and the private sector to explore the links between social stability and respect for human rights, labour standards and the fair sharing of benefits that come from free markets and free trade.