This post originally appeared on the Corporate Compliance Trends blog.
Mutually beneficial exchange of goods and services is at the heart of David Ricardo’s comparative advantage argument and Adam Smith’s The Wealth of Nations. Over the centuries, such exchange through commerce has connected countries around the globe through a web of economic links and lifted millions out of poverty. In the modern era, international agreements under the World Trade Organization (WTO) have done much to lower tariffs and increase trade. However, in many countries, non-tariff barriers continue to impede growth and development. Lack of integrity in border control and customs administration is one such key barrier.
As estimated by the World Customs Organization (WCO), the loss of revenue among its 180 member countries caused by customs-related corruption is at least USD 2 billion in customs revenue each year. India and Russia alone are losing USD 334 million and USD 223 million, respectively. Beyond monetary losses, lack of integrity in customs also presents big risks for global value chains and security concerns when it comes to criminal activity and illicit trade.
Given this global significance, combatting corruption at the border was an important topic of the 2016 OECD Integrity Forum in Paris conducted under the theme “Fighting the Hidden Tariff: Global Trade without Corruption.” Angel Gurría, Secretary-General of the OECD, made a powerful case for trade with integrity in his opening remarks:
“Integrity is not just a moral issue; it’s also about making our economies more productive, our public sectors more efficient, our societies and our economies more inclusive. It’s about restoring trust, not just trust in government, but trust in public institutions, regulators, banks, and corporations.”
He added that full implementation of the WTO Trade Facilitation Agreement (TFA) would ensure transparency, predictability, and accountability in global trade, and it could reduce the costs of delays and uncertainty by around 12-18 percent. “The Agreement’s specific provisions for promoting integrity and impartiality could alone reduce trade costs by up to one percentage point,” Gurría pointed out.
It is important to note that while integrity-enhancing trade facilitation measures have the potential to benefit all countries, they would disproportionately benefit developing economies and emerging markets. In fact, complete implementation of the TFA could reduce trade cost by 16.5 percent for low income countries and by 17.4 percent for lower middle income countries, as compared to 14.6 percent for upper middle income countries and 11.8 percent for OECD countries.
CIPE, International Chamber of Commerce, and World Economic Forum have joined forces to work precisely toward that goal of helping lower-income countries take full advantage of trade through the Global Alliance for Trade Facilitation. It is a public-private partnership that aims to engage with the private sector in implementing TFA and help governments identify local challenges and opportunities to enhance logistical and commercial links to global value chains. By streamlining border processes, such locally tailored trade facilitation measures can substantially lower incentives for corruption. That, in turn will translate not just into the economic benefits of trade but also governance benefits of trade with integrity.
Anna Kompanek is Director of Multiregional Programs at CIPE.