I. Identification

1. The Issue

In an era of increasing globalization, trade is conducted between and among more players than ever before, including governments, multinational corporations, and individuals. In an effort to exploit previously closed, underserved, or developing markets, corporations-especially western corporations-are expanding operations into these areas. Many issues affect the success of these ventures, several related to culture. One in particular relates to the historical prevalence of bribery. Formerly practiced worldwide, bribery has not been eliminated from the business place in all countries. This practice can place stress on a society, produce distortions in an economy, and hinder the development of international trade. According to the World Trade Organization (WTO), transnational bribery consists of the offering or giving of money, valuable goods or other benefits as favors, promises or advantages to a foreign government official for procuring that official do or omit any action with intent to influence economic or business transactions which have a relationship with his public function. The WTO has recently formed the Working Group on Transparency in Government Procedure to study bribery and its effect on international trade while taking into account national policies as well as cultural traditions.

2. Description

While bribery is outlawed in most countries, the number of players in international trade and its increasing importance to the world economy, combined with the relative newness of transnational governing organizations such as the World Trade Organization all combine to make combating bribery between counties difficult. The first major international efforts to combat this practice were the Organization of American States' Inter-American Convention against Corruption (1996) and the Organization for Economics Cooperation and Development's OECD Convention (1997). Recently, the World Trade Organization has begun to focus on the issue. But many countries and cultures do not accept criminalization of bribery as appropriate or even a legal matter to be decided by the world's governing bodies. For many, it is a cultural issue with deep roots. This case study will examine recent efforts to control bribery in governments and the private sector, in particular, the 1999 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and efforts to find a solution which will allow the unimpeded development of international trade while taking into consideration differing cultural definitions of bribery.

3. Related Cases

Kathy Lee and Sweatshop Allegations, by Sajeed Ashgar

Fiji and Sugarcane, by Erica Blodgett

China, Prisons, and Organs, by Dena Kram

Africa Textile Trade, by Gabriel Lazier

4. Author and Date:

Ronald Oman, April 2001

5. Discourse and Status:

United States Government:

The U.S. Foreign Corrupt Practices Act, enacted in the 1970's in the United States, makes it a crime for American companies to use corrupt payments to win business overseas. Some argue that this stipulation puts U.S. companies at a competative disadvantage because other nations do not have the same regulations for their companies. In 1997, the U.S. government was able to identify 50 contracts, valued at more than US $15 billion, lost by U.S. firms to foreign firms alleged to have made payoffs in securing deals (Source 8).

Organization for Economic Cooperation and Development (OECD):

Since 1989, the Organization for Economic Development and Cooperation (OECD) has played a leading role in the battle against international bribery and corruption. The OECD's efforts apply primarily to efforts that governments can undertake to undermine corruption and bribery as signatories of the treaty. On 21 November 1997, OECD Member countries and five non-member countries - Argentina, Brazil, Bulgaria, Chile and the Slovak Republic - adopted a Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Signature of the Convention took place in Paris on 17 December 1997 and it entered into force on 15 February 1999.

The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions may be found on the organization's website at www.oecd.org.

The OECD believes that bribery and corruption erode public confidence in political institutions and lead to contempt for the rule of law. The Convention defines bribery as the offering, promising or giving of something in order to influence a public official in the execution of his or her official duties.

The overall purpose of the Convention is to prevent bribery in international business transactions by requiring countries to establish the bribing of a foreign public official as a criminal offence. Countries are encouraged to have in place adequate sanctions and reliable means for detecting and enforcing the offence. The convention also provides non-criminal rules for prevention, over-all transparency, and cooperation between countries. In addition, parties are also required to deny the tax deductibility of such bribes.

A recent example of bribery highlighting the importance of the OECD convention relates to Japan and efforts to establish a Pacific whale sanctuary. While anti-bribery efforts often concentrate on behavior of officials in developing economies, this case shows that industrialized nations need to be addressed as well. Background: At the July 2000 meeting of the International Whaling Commission, a resolution introduced by Australia to create a Pacific whaling sanctuary was defeated when six Caribbean nations voted against it counter to previous expectations. The defeat came at a time when Japan was expanding whaling activities, including its hunting of species listed as endangered by the US government such as the sperm whale, despite international treaties. (http://www.stopwhalekill.org/newsadvisory-japancoercion.html)

Atherton Martin, the former Environment and Fisheries Minister of Dominica, denounced what he called "Japan's outright extortion", and the use of bribes to win Third World countries' votes for its pro-whaling position. According to Mr. Martin, who resigned in protest after he was instructed by Dominica's president to vote against the whaling protection measure, Japan threatened Dominica with withdrawal of Japanese aid. Mr. Martin alleges that five other Caribbean nations were also subjected to Japan's economic threats.

  The International Chamber of Commerce (ICC)

The International Chamber of Commerce (ICC) fully supports the provisions of the OECD Convention. It also supports measures by the World Bank, the Organization of American States (OAS), and the European Union to address the matter. The ICC has adopted its own set of recommendations to governments, international organizations and businesses to further combat extortion, bribery and corruption and level the playing field for all international enterprises.

Governments and International Organizations:

The ICC recommends increased international cooperation in this area through and the development of consistent standards of criminal legislation in this field. It encourages governments to review its statutes to ensure that they effectively prohibit, in conformity with its jurisdictional and other basic legal principles, all aspects of both the giving and the taking of bribes including promises and solicitation of bribes. Particular attention should be paid to the tax deduction legal in many countries for bribes.

The ICC encourages transparency regarding agents of private enterprises dealing with governments through the reporting of payments given or received, including political contributions. Cooperation with international law enforcement organizations and financial institutions can also help reduce instances of bribery and corruption.

International Business:

Transnational enterprises themselves can also take steps to mitigate the negative impact of bribery on international trade. Many corporations already have codes of conduct preventing acts which would involve companies in questionable practices. The ICC recommends instituting strict policies preventing the use of bribes and kickbacks, careful accounting and record-keeping, and training programs to make company agents aware of the provisions of their corporate codes of conduct.

6. Forum and Scope:

Multilateral. OECD Countries, in addition to five non-members, signed the OECD anti-bribery Convention in February 1999.

9. Geographic Locations

a. Geographic Domain: Global

b. Geographic Site: Global

c. Geographic Impact: Global

10. Sub-National Factors:

Transnational

13. Direct v. Indirect Impacts:

Bribery has both direct and indirect effects on international trade. Industrialized nations, on whose foreign direct investment (FDI) many developing countries rely, can often become less willing to invest in countries where bribery is rampant (source: NY Law Journal). Negative perceptions result in hesitancy and distrust from those outside who might otherwise have been interested in investing in such countries' economies. (Ibid) The importance of perceptions cannot be underestimated: After Hong Kong's reversion to Chinese rule, its ranking among the best nations in which to invest tumbled from number one to number fourteen. Political consequences involve relations between developed and developing nations and using economic power to achieve political dominance over other nations to effect desired results in world policy making bodies. Environmental consequences of transnational bribery are particularly evident in the case involving Japan and the International Whaling Commission.

14. Relation of Trade Measure to Environmental Impact

a. Directly Related to Product:

b. Indirectly Related to Product:

c. Not Related to Product:

d. Related to Process:

15. Trade Product Identification:

16. Economic Data:

Bribery creates an uneven playing field for international businesses. In 1995, because of US laws such as the Foreign Corrupt Practices Act, US businesses lost US $45 billion worth of foreign contracts (Source 1). Currently, many countries consider bribery a legitimate business expense when incurred in developing markets and these enterprises thus can take advantage of the tax deductibility of bribery costs.

17. Impact of Trade Restriction: Low

18. Industry Sector: All

19. Exporters and Importers:

Transparency International commissioned Gallup International Association (GIA) to conduct in-depth interviews with private sector leaders in 14 emerging market economies, which combine to account for over 60% of imports of all emerging market economies, namely India, Indonesia, Philippines, South Korea, Thailand, Argentina, Brazil, Colombia, Hungary, Poland, Russia, Morocco, Nigeria, South Africa. The 14 countries included India, Indonesia, the Philippines, South Korea, Thailand, Argentina, Brazil, Colombia, Hungary, Poland, Russia, Morocco, Nigeria and South Africa. The survey was conducted from April to July 1999. Many of the questions asked related to perceptions of bribe- paying in these emerging market economies by companies from the 19 leading exporting countries of the world.

V. Environment Clusters

20. Environmental Problem Type: N/A

21. Name, Type, and Diversity of Species: N/A

22. Resource Impact and Effect:

The Whaling case involving Japan and Caribbean nations illustrates how transnational bribery and corruption can have significant environmental consequences. Nations involved in fishing and whaling have a stake in this matter due to the economic importance of fishing. Due to Japan's bribery of developing nations, whale populations will suffer, particularly species such as the sperm and Bryde's whales, which the US lists as endangered.

23. Urgency and Lifetime: Ongoing

24. Substitutes: N/A

VI. Other Factors

25. Culture:

Culture is one of the most relevent factors to the case of transantional bribery. What is bribery? Should every nation, corporation, and individual subscribe to the OECD defenition of bribery? Most multinational corporations recognize a difference between the criminal act of bribery and normal facilitation payments common in many countries. In a recent interview with Paris Match magazine, Omar Bongo, President of Gabon, insisted that Corruption exests only in the minds and culture of Western, developed nations. He says,"This word [corruption] does not exist in any language native to Gabon. If you [Westerners] created the word corruption, then you must know something about it. You are the corrupters and the corrupted." (Paris Match March 2001)

26. Trans-Boundary Issues: Yes

27. Humanitarian Issues: Yes

Governments that tend towards corruption encounter much of their funds being wasted and misused. Funds that could otherwise have been appropriated for education and health instead line the pockets of corrupt officials. Government corruption remains an area that needs to be addressed because of the role that government contracts play in trade: some estimate that the value of government procurement contracts exceeds US $1 trillion, or one-tenth of the global output of goods and services (Source 1).

28. Relevant Literature and Bibliography:

1) Arkin, Stanley S. Bribery of Foreign Officials: Leveling the Playing Field. New York Law Journal, February 19, 1998.

2) Chellaney, Brahma. Something Rotten in New Delhi. The Wall Street Journal, March 30, 2001.

3) Gordon, Kathryn & Maiko Miyake. Business Approaches to Combatting Bribery: A Study of Codes of Conduct. January, 2001. Downloaded from Working Papers on International Investment, www.oecd.org.

4) International Chamber of Commerce. Extortion and Bribery in International Business: Transactions Rules and Recommendations, 1996. Downloaded from www.iccwbo.org, February, 2001

5) McKeeby, David. Crude Business: Corruption and Caspian Oil, September, 2000. Downloaded from www.csis.org March, 2001.

6) OECD. Policy Brief: The fight against bribery and corruption. September, 2000. Downloaded from www.oecd.org

7) Paris Match, Omar Bongo: Un Entretien avec Patrick Forestier. February, 2001 issue.

8) Rodgers, Dewitt & John C. Knapp. Finally moving to outlaw bribery in global business. Atlanta Business Chronicle, September 18, 1998.

 

1/2001