Corruption in trade is nothing new – far back in history, communities began organizing into urban leagues or federations in the fight against corruption, and so it has been ever since. International bribery is so widespread nowadays that quite a number of corruption/transparency indexes have been devised to measure the risk to business, trade and investment.
In recent decades international institutions such as the World Bank and the World Trade Organization (WTO) have taken up the banner in dealing with matters relating to corruption in trade.
According to its anticorruption website, the World Bank recognizes corruption as one of the main obstacles to economic and social development. The WTO for its part believes that reducing corruption in customs would increase trade flows between countries. The WTO has a mandate to promote transparency in international trade which also involves efforts to reduce corruption in customs, considered crucial to trade facilitation and forming part of the Doha Round discussions.
There is the view, however, that corruption through bribes actually facilitates trade that would otherwise be hindered by bureaucratic rigidities, leading to the well-known phrase “greasing the wheels of trade”.
So, would reducing corruption lead to an increase or a decrease in global trade?
It has been argued that trade and corruption have both a positive and a negative linkage: trade is negatively linked to corruption in customs when tariff barriers are low and positively linked when tariffs are high. In other words, when tariffs are low the opportunity for extortion is high, impeding trade, but when tariffs are high the opportunities for bribery to evade payment of these tariffs are also high, as are the potential gains from evasion for exporters, so trade flows will tend to increase. Much depends on the opportunity for corruption in customs and the discretionary powers of customs officials.
The overall consensus is that in the long term corruption has debilitating effects, generating distortions and inefficiencies in a country’s economic development and leading to a reduction in foreign investment and aid.