Cargo ships in Rotterdam Harbor. In 2013, trade between the U.S. and EU totaled more than $650 billion. (Photo: Wikimedia Commons)
This post was published in Corporate Compliance Trends, CIPE’s new blog focused on anti-corruption compliance issues in emerging and frontier markets.
The next year is shaping up to be a big one for multilateral free trade agreements and, by extension, efforts to fight corruption in international commerce.
First, there is the historic Trade Facilitation Agreement (TFA) that grew out of the World Trade Organization (WTO) accord reached in December 2013 in Bali. Under the TFA, all the WTO’s 160 members agreed to work toward reducing the red tape and corruption at ports of entry, so that goods can move more quickly and economically from country to country. Second, there is the Transatlantic Trade and Investment Partnership (TTIP), between the United States and the 28 nations of the European Union. Together, the U.S. and EU account for 60 percent of the world’s GDP.
What do trade agreements have to do with reducing corruption? Historically, not much. But these two agreements break new ground both in their scope and their potential for attacking corruption as a barrier to trade. This fact is often lost in media coverage that focuses on winners and losers within specific countries and economic sectors. Adding to the lack of attention paid to corruption issues is the fact that negotiations are complex, not always transparent and can take years to conclude.
To zero in on the role of corruption in disrupting free trade, American University’s Washington College of Law recently put together a panel of experts and advocates, headlined by former World Trade Organization Director General Pascal Lamy. The moderator of the “Addressing Corruption in Global Trade” session, Nancy Boswell, framed the issue concisely.
When Maxim Tsoi, a journalist for the Kyrgyzstan newspaper Vecherny Bishkek, made the four-hour drive last spring to the town of Talas on the border with Kazakhstan, he was expecting to gather some local color to illustrate provincial life for readers in the capital city. What Tsoi came away with was a little different. After interviewing local bean farmers, customs officials, and border guards, he had material for a story on the pros and cons of Kyrgyzstan joining the Eurasian Economic Union.
The issue of whether Kyrgyzstan should join the Russian-led Eurasian Economic Union, which so far includes Kazakhstan and Belarus, is a source of frequent debate in Bishkek. Membership in the Union has significant implications for the country’s political and economic elites. In the border town, Tsoi found farmers in favor of joining the Union and getting privileged access to new markets. Local resellers of Chinese imports, however, were opposed since they would be facing new tariffs.
“Most of media outlets here in the capital only write about what happens in the capital. So, the material from these trips is quite interesting to everyone, to the journalists and to the readers,” said Tsoi in an interview from Bishkek.
Thanks to its Special Economic Zone status, many foreign companies assemble cars and electronics in the Kaliningrad region for the broader Russian market. But corruption remains a major barrier.
At public events on corruption, no matter how sophisticated the participants and no matter how narrow the subject, the discussion invariably seems to wander off topic. Often the audience members want to speak about a high-profile case like the suburban Washington, DC, politician’s wife who stuffed $79,000 into her undergarments when federal agents came knocking. Sometimes, speakers wander off into digressions on how one nation or another is inherently corrupt because of cultural and historical factors. Frequently, attendees simply conflate different kinds of corruption – petty, political, commercial – into in insoluble morass.
This was the case at a recent CIPE-supported event held in November in Kazan, Russia. One of the 70 participants began to derail a technical discussion of Russian legislation with a series of questions about recent arrests of regional political leaders on bribery charges. Some of the audience perked up. Others looked uncomfortable, not expecting this at a conference on how to boost investment by improving firm-level compliance with anti-corruption laws.
Igor Belikov, the event’s moderator and head of the Russian Institute of Directors, deftly reined in the discussion and with a bit of humor brought it back to the subject at hand – how mid-sized firms can reap the benefits of globalization by putting in place anti-corruption compliance programs that give the firms better access to multi-national companies’ global value chains.
Surveys attempting to measure illegal or frowned-upon behavior are notoriously difficult to execute in a useful way. This is especially true when it comes to surveys asking global corporate leaders how well they are following anti-corruption laws.
On the one hand, such surveys can end up underestimating the problem when companies are reluctant to acknowledge behavior that can result in multimillion dollar fines. On the other hand, surveys can overestimate corruption issues or give a false sense of a growing problem simply because awareness is growing as more and more executive and managers undergo mandatory training on all the different ways to run afoul of U.S., UK and Canadian anti-corruption laws.
Such surveys become even more problematic when the organization conducting the survey stands to benefit from results that highlight whatever problem the organization is in the business of solving.
So, with all those caveats out of the way, it is worth noting that Ernst & Young’s 2013 Europe, Middle East, India and Africa Fraud Survey is quite useful, both for its scope and for its findings. The recently released survey is based on anonymous interviews, conducted in late 2012, with 3,459 people from companies in 36 countries. Interview subjects ranged from employees to board members, directors, and managers. The majority of the companies surveyed employed more than 1,500 workers. For sheer breadth, the survey is noteworthy. The results are, too.
The World Trade Organization (WTO) welcomed Russia in August of last year as its 156th member — the last of the world’s large economies to join. The process, taking nearly two decades, had been steeped in anxiety and high expectations within Russia.
Now that Russian firms and their foreign counterparts can better grasp the practical consequences of WTO membership, corporate executives, entrepreneurs, and regional development officials are turning to the nuts and bolts of membership. Moscow-based CIPE partner the International Institute of Management for Business Associations (IIMBA) is at the forefront of these efforts, holding a raft of classes and webinars designed to help Russian businesses understand the promises and pitfalls of WTO membership. IIMBA is helping shape the discussion on the issue, taking a no-nonsense approach free of the sparring which grabs headlines having to do with U.S. agricultural imports and Russian rules benefitting the automobile industry.
On March 5, CIPE helped introduce a highly-informed U.S. point of view into IIMBA’s ongoing WTO series with a presentation by Elizabeth Hafner, Deputy Assistant U.S. Trade Representative for Russia and Eurasia at the Office of the U.S. Trade Representative. Hafner, based in Washington DC, first gave a presentation on the benefits of WTO membership for Russian businesses via webcast from CIPE’s Washington office. She then took live questions from some of the 182 participants connected to the webinar from Kazakhstan, Uzbekistan, and a host of Russian cities including St. Petersburg, Volgograd, Moscow, and Ufa. Watch a webcast of the presentation.
(Photo: Associated Press)
Veteran Ukrainian legislator Ksenia Lyapina is optimistic about the makeup of the newly elected parliament, the Verhovna Rada. Not only is she being joined in the 450-member body by six new deputies with an explicitly pro-entrepreneur agenda, but her party has some muscular new allies on key votes: both figuratively and literally. In the first two days of the new Rada’s proceedings in mid-December, pushing matches, brawls, and fistfights broke out on the floor. Lyapina liked what she saw among the 37 deputies in the Svoboda (“Freedom”) party.
“Now, we’ve got Svoboda with us. They’ve got some young men in good physical shape,” she said at a restaurant near the Rada on December 13, shortly after the closing of the second day of the proceedings. “Before, we were being beaten all the time,” added Lyapina, a refined woman who is one of Ukraine’s leading experts on issues of importance to small and medium-sized enterprises (SMEs).
A candidate for a seat in parliament representing Lviv region speaks at a meeting with private-sector representatives.
In a cavernous, ornate hall inside the Palace of Railroad Workers in the western Ukrainian city of Lviv, 10 parliamentary candidates faced off in late September opposite an equal number of local business owners and leaders of business associations. Over the course of three hours, the group grappled with issues of importance to the local business community, ranging from tax rates to economic development initiatives. What emerged was a deep skepticism among businessmen, especially on the parliament’s ability to tackle corruption issues, and a written pledge by most of the candidates to adhere to a set of five legislative priorities established by the local business community with CIPE support.
This was a scene repeated across Ukraine in the run-up to October 28 parliamentary elections. In 10 regions, including Lviv, CIPE supported the process as part of a year-long effort to raise the profile of business concerns in the 450-seat parliament.
According to CIPE Ukraine director Nataliya Balandina, an added dividend of the project has been a boost in the standing of the local CIPE partner organizations that organize the candidate forums and pledges. “It is not just the candidates and politicians are learning that small and medium businesses are capable of taking action and spreading information quickly, but it also ordinary citizens who learn about these [business] organizations for the first time and see what they do,” says Balandina.