The spaghetti bowl revisited in the context of corruption: understanding how corrupt countries could subvert the WTO's rule-oriented system through preferential trade agreements.

• Author: Sarlo, Paul

I am still convinced that it is in the national interest of every trading nation to abide by the rules, which were accepted as valid for good times and bad. One of the major benefits of international [trade] is that [it] offer[s] equal opportunities and require[s].... [t]hose who believe in the open trading system ... [to] correct those rigidities in their economic and social systems which obstruct ... economic growth.... (1)

Bribery and corruption have become a scourge on international trade. [They have] literally become an epidemic.... [They have] a deleterious effect on trade and create[] unfair and unbalanced situations. (2)

1. INTRODUCTION

   Coined by Professor Jagdish Bhagwati of Columbia University, the term "spaghetti bowl" (3) refers to the proliferation of free trade agreements--the nearly two hundred regional and bilateral trade agreements that exist today and that comprise a "maze of free-trade areas ... and customs unions...." (4) Sanctioned under the World Trade Organization ("WTO") Charter, in particular under Article XXIV of the General Agreement on Tariffs and Trade ("GATT"), free trade agreements arise when "countries extend [their] preferences in different directions." (5) In more direct terms, countries engage a particular country or region with which they would like to trade, at the exclusion of all other countries or regions. Free trade agreements are, therefore, also known as "preferential trade agreements" ("PTAs"). Because these agreements depend on national preferences, (6) the reasons countries enter into them are not always clear--one country's motivation for seeking a PTA may be different from another's. The WTO Charter does not require countries to disclose their rationales for entering into a PTA. In fact, the lone condition tied to a PTA is that it must liberalize substantially all the trade between the constituent territories, (7) meaning that it must account for the bulk of their trade. (8)

   While many scholars have considered the theory, consequences, and positives and negatives of PTAs, (9) few have addressed the reasons why countries pursue them and why they pick the partners they do. (10) Indeed, authors of recent literature on PTAs implicitly assume that these agreements are similar. (11) But in today's age, when culture, goods, and money "cross borders more than at any time in history," (12) PTAs are more likely to be some of the most diverse instruments in the world, rather than near facsimiles of each other. To be sure, the majority of them vary not only in content but also in form, reflecting "sharp differences in the objectives of the countries seeking them." (13) These objectives include increased market access, the implementation of domestic policy reform, the creation of leverage in bilateral or multilateral bargaining power, and the formation of strategic linkages, some of which may be related to national security. (14) But this list is hardly exhaustive, considering the profound differences in national institutions, economic conditions, and socioeconomic backgrounds around the world.

   This Article proposes that some countries could have far more nefarious objectives in their pursuit of PTAs--corruption--and that corrupt schemes involving PTAs could threaten the rule-oriented infrastructure of the WTO and the efficacy of the WTO as a free-market force. The term "corruption" is an amorphous one, encompassing a range of behaviors and activities, (15) so this Article defines it broadly as "the misuse of public power for private gain." (16) While scholars have agreed that corruption creates an "awkward disruption of trade," an interference with the laws of free trade and liberal expansion, they have not identified the ways in which the WTO's rule-oriented system is vulnerable to corrupt schemes. (17) Because corruption can undermine international trade, an understanding of how it could infiltrate and operate within the WTO's rule-oriented system is the first step toward stopping it. The purpose of this Article therefore is to build that understanding and to argue that PTAs could serve as the launching pad for corrupt practices among WTO Members, particularly among the developing countries where corruption has long been rife. This Article does not address whether the WTO should serve as an international watchdog of corruption, adopt rules for the curtailment of corruption, or enforce those rules--propositions to which scholars have already devoted ample attention. (18)

   Part II of this Article describes the transnational anti-corruption regime and identifies how corruption is a detriment to trade from a theoretical and an empirical perspective. Part III presents the ways in which PTAs are susceptible to corruption and contends that the manipulation of PTAs could compromise the WTO's rule-oriented system. To make this case, this Part uses Dr. Robert Klitgaard's famous metaphorical formula for corruption and argues that PTAs in the hands of corrupt countries can embody all the variables that make a business transaction or an agreement vulnerable to corrupt practices: (1) monopoly power, (2) discretion by officials, and (3) lack of accountability. (19) Part IV concludes that corruption could play a part in the pursuit of PTAs by infamously corrupt countries, and may have been doing so for years.

2. BACKGROUND: AND OVERVIEW OF TRANSNATIONAL ANTI-CORRUPTION REGIME AND THE DETRIMENT OF CORRUPTION ON TRADE

   This Part traces the historical events that have prompted the development of today's transnational anti-corruption regime. It then describes the WTO's lack of involvement to date in this regime. Assessing the effect of corruption on trade, this Part next assembles a list of the most corrupt WTO Members, and identifies how corruption among WTO Members disrupts trade, stunts economic growth, and threatens the welfare of society, both in theoretical and empirical terms.

   1. The Transnational Anti-Corruption Regime

      In the 1970s, the Watergate scandal brought legislative developments in anticorruption to the fore in the U.S. Investigations uncovered evidence that many U.S. companies had made illicit contributions to President Nixon's committee for reelection and used offshore subsidiaries to hide their payments. (20) These proceeds, however, were a mere fraction of the bribes that hundreds of American companies had paid to foreign officials to secure business abroad. (21) In response to these companies' efforts to obtain business abroad through bribery, President Carter signed the Foreign Corrupt Practices Act ("FCPA") (22) into law. (23) By the late 1990s, European leaders began to recognize corruption as a wide-scale problem from which their countries were not immune." (24) "A tidal wave of ... corruption [swept] across the Eurasian landmass, threatening to overwhelm the region's ... market[s]...." (25) Indeed, a third of Italy's legislators had become the subject of anti-corruption investigations at one point. (26) The pervasiveness of corruption extended to other regions, too. (27)

      To curb abuses of power, members of the international community collaborated to usher in an anti-corruption regime, (28) under which the most prominent measures against corruption are the Organisation for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions ("OECD Convention") and the U.N. Convention Against Corruption ("UNCAC"). (24) Each convention requires countries to enact laws similar to the FCPA, including criminal penalties for the bribery of foreign officials. (30) The majority of WTO Members has signed and ratified the U.N. Convention, though only some have ratified the OECD Convention. (31) The efficacy of these conventions and the anti-corruption regime as a whole depends on whether countries enforce their anti-corruption laws--only four of the forty-one parties to the OECD Convention actively enforced their anticorruption laws in the past year. (32) Along with the enforcement of anti-corruption laws, the discouragement of business with highly corrupt countries is a principle objective of parties in the anti-corruption regime. (33 Governments therefore may take to cutting off trade to corrupt countries, with the hope that "economic incentive created by the threat of isolation ... will encourage corrupt states to take steps to reduce corruption." (34)

   2. The WTO and Anti-Corruption

      Although a host of international organizations have united to curb corruption, (35) " the WTO is not one of them, despite the disruptive effect that corruption has on trade. (36) Some scholars have suggested the WTO's Agreement on Government Procurement ("GPA") falls under the panoply of the anticorruption movement, (37) but this agreement is geared toward only a few industrial countries, (38) not the developing nations that are rank with corruption. In addition, while the WTO has primed "the further elimination ... of measures distorting international competition" as an issue for future rounds of negotiations, corruption appears unlikely to be within the scope of these discussions. (39) Despite the WTO's hands-off approach toward corruption, some scholars have argued that the WTO is the international organization most capable of reining in corruption:

      [WTO] membership encompasses most of the world's trade. It also can facilitate enforcement of its requirements. Those two facts, combined with the almost fifty years of institutional experience in international commercial regulation that it inherits from the GATT qualify the World Trade Organization as the entity that could best ... [provide international coordination of efforts to] control transnational bribery. (40) Even while arguing that the WTO should espouse the anti-corruption regime, one scholar warns, however, that the WTO is without the power or the resources to "solve all of the world's woes, nor should it try." (41) The fact that the WTO is only "an infant...