New Trade Rules and Transparency: How Implementing Good Regulatory Practices (GRPs) Supports Anti-Corruption Programing
Corruption is increasingly seen as the very “operating system” of many developing country governments, and is connected to sophisticated networks that cross sectoral and national boundaries in their drive to maximize returns for their members. Indeed, independent studies suggest that corruption is woven into the fabric of governing institutions due to kleptocrats’ ability to co-opt or disable independent authorities, promote willful blindness, competing incentives, or inattention. These studies suggest that traditional development programming may be ill-equipped to effectively address the sheer enormity of the kleptocracy challenge.
In rapid succession, the U.S. Agency for International Development (USAID) released its own Anti-corruption Policy and an accompanying Dekleptification Guide in 2022, committing the Agency to constrain opportunities for corruption, raise the cost of engaging in it, and incentivizing public sector integrity among USAID partner countries. Perhaps lesser known, the United States in parallel negotiated several bilateral and plurilateral trade agreements incorporating new and innovative obligations for combating corruption.
In November 2022, the United States and Ecuador signed a new Trade Rules and Transparency Protocol, updating the existing U.S.-Ecuador Trade and Investment Council Agreement. The Protocol features two affiliated annexes on: (1) Anti-corruption; and (2) Good Regulatory Practices. These texts closely align with those contained in the near identical U.S.-Brazil Trade Rules and Transparency Protocol of October 2020, which in turn was based on the U.S.-Mexico-Canada Agreement (USMCA) signed in July the same year. Thus, the U.S.-Ecuador Protocol represents the “third-generation” of the original pairing of the USMCA Anticorruption (Chapter 27) and Good Regulatory Practices (Chapter 28) obligations.
USAID can work with partner countries and implementing partners to enhance anti-corruption programming by pairing it up with good regulatory practices, forming an innovative “dynamic duo,” which can serve to build the capacities of local institutions and local private sector entities while expanding international trade, attracting foreign direct investment, and increasing economic growth. The U.S. Protocols with Ecuador and Brazil build upon the USMCA’s “sister chapters” on anti-corruption and good regulatory practices, offering our closest trading partners a pair of powerful and interrelated levers through which to combat the cultures of corruption and regulatory capture in many governments around the world.
USMCA Anti-Corruption Chapter: Several prior U.S. FTAs, including the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) and U.S.-Colombia Trade Promotion Agreement, contained a one-pager of “anti-corruption” obligations, housed in the Transparency Chapter. The USMCA greatly expanded the scope and specificity of its anti-corruption commitments and elevated them into a brand-new, standalone “Anti-Corruption Chapter.” Like those prior texts, the new eight-page USMCA Anti-Corruption Chapter contains practical obligations for: 1) adopting, maintaining, and enforcing measures to prevent and combat individual bribery and corruption; 2) precluding the tax deductibility of bribes; 3) recovery of proceeds of corruption; 4) whistleblower protections, and 5) the denial of a haven for foreign public officials that engage in corruption.
Beyond those core obligations, the USMCA establishes new commitments focused on promoting integrity among federal public officials, requiring the signatories to adopt standards for selection and training of individuals for public positions considered especially vulnerable to corruption. The Chapter breaks new ground in promoting the active participation of individuals and groups outside the public sector, such as enterprises, civil society, non-governmental organizations, and community-based organizations, in preventing, combatting, and raising public awareness concerning international trade-related corruption. The Chapter also pioneers fresh commitments to encourage private enterprises to adopt or maintain internal auditing controls to assist in preventing corrupt actions, as well as recognize the benefits of internal compliance programs in enterprises to combat corruption.
USMCA Good Regulatory Practices Chapter: The USMCA also drew from the U.S.-Korea FTA’s Technical Barriers to Trade Chapter to weave together a new, standalone Good Regulatory Practices (GRP) Chapter, aligned with overarching U.S. federal administrative practices, as found in the Administrative Procedures Act of 1946, as amended, Executive Order 12866 on Regulatory Planning and Review of 1993 as amended, and others. The GRP Chapter lays the foundation for establishing a coherent rulemaking system that is open, transparent, and inclusive, and which makes decisions based on available evidence. It requires governments to provide meaningful opportunities for public consultation through 60-day “notice and comment” procedures for draft regulatory proposals, plus a preliminary economic impact assessment. It establishes central coordinating bodies empowered with sufficient authority to ensure that all agencies, government-wide, work cooperatively (or at least not at cross purposes) to ensure that regulations meet whole-of-government objectives.
Implementing GRPs on a government-wide basis prevents a broad range of institutional failures concerning the discretionary powers of government officials, which can lead to inappropriate, contradictory, incoherent, arbitrary, discriminatory, and costly regulations. Poorly constructed regulations can be more easily leveraged for the purposes of corrupt rent-seeking and/or regulatory capture,
Leveraging GRP’s Framework Against the Corruption “Operating System”
Fundamentally, the absence of a viable framework for private sector participation in government decision making breeds all sorts of kleptocratic practices that inhibits trade and investment and reverses economic development. These new U.S. Trade Rules and Transparency Protocols adjoin anti-corruption initiatives with GRP reforms, and importantly, recommend adoption of an overall GRP framework to increase accessibility to the public to key information about the actions of governments. This GRP framework provides legitimate paths for government officials to achieve their goals (without reliance on coercive acts). Inversely, the GRP framework makes it easier for interested persons in the private sector to lawfully participate in government policy making processes (eliminating the rationale for paying bribes).
Of course, developing countries need not negotiate a U.S. free trade agreement to begin to reap the broad benefits of implementing GRPs. After completing basic research and scoping activities, USAID can assist our partner countries “build out” their GRP capacities in three basic steps:
- Educate and Raise Public Awareness: Publicize the benefits of GRPs by organizing multi-stakeholder initiatives aimed to build stronger domestic private sector understanding and support for institutionalizing core GRPs reforms.
- Conduct Government Advocacy: Foster the development of a robust business and NGO-backed constituency able to effectively and sustainably advocate to government officials–at all levels–for increased transparency, interagency coordination, accountability, and other GRPs in internal domestic policy discussions
Institutionalize Reforms: Incorporate GRP mechanisms into national decrees, laws, and other regulations, establishing necessary government administrative and coordinating capacities, aligned with the USMCA GRP Chapter.
Implementing GRPs alongside anti-corruption efforts offers a more commensurate “operating system” counter approach that can serve to transform government institutions to help restrain the kleptocratic state. GRPs also have the added virtue that their often dull- and listless-sounding administrative procedures (YAWN!) can be implemented quietly, subtly, and gradually while offering broader economic benefits than a standalone anti-corruption campaign.
GRPs may then increasingly redirect the greedy desires and aspirations of political officials, public servants, and industrialists into more productive channels which are more likely to lead to the mutual “discovery” of the public interest, and thus prevent corruption through quietly institutionalizing and broadening the habits of “good private sector engagement.”
About the author: Bryan O’Byrne is a Senior International Trade Advisor in the USAID Bureau for Development, Democracy, and Innovation’s Center for Economics and Market Development
- Markets and Trade