International Trade Agreements and Corruption

Negotiations concerning the Canada-European Comprehensive Economic and Trade Agreement (CETA) are well underway. Many major issues for Québec’s future are being discussed, notably the conditions under which European businesses will be allowed to tender for supplier, service, and construction contracts from the Québec state.

According to a meeting held on this past 5 October between the government and social stakeholders, if these agreements are confirmed, they will allow European businesses to tender for government service requests and supply call-forwards in all contracts above $315,000. Furthermore, European businesses will be allowed to tender for government infrastructure contracts greater or equal to 8.15 million dollars.

Proponents of local economic development view it as a direct attack against sustainable development’s principles. Local businesses, which usually offer services generating less pollution and guarantee jobs in the region, will be competing against European multinational corporations for contracts from different governments or municipalities. In contrast, those in favour of market liberalization view this competition as a healthy way of decreasing government and public institutions’ buying costs.

One of the arguments put forward by the latter group, which is incidentally taken up by Québec’s chief negotiator, Pierre-Marc Johnson, is that opening up government contracts to European competition will make it easier to tackle corruption. Mr Johnson postulates that by increasing the number of bidders on a given contract, governments minimize the risk of collusion between them. Let’s check if this statement is borne out.

Little by little Québec is discovering the depth and structure of the corruption system which appears well implemented both at the municipal and provincial levels of government. Reducing corruption seems like a very pertinent and interesting argument in this context. However, two remarks can counter arguing that we could reduce corruption with the help of free trade agreements.

Firstly, it’s simply naïve to think that multinational corporations do not engage in corruption on an international scale. Actually, according to a Transparency International report concerning the OECD’s fight against corruption: “With 144 new cases in 2011, the total number of cases prosecuted by 37 major exporters rose from 564 at the end of 2010 to 708 at the end of 2011, with a further 286 investigations ongoing”. Corruption is therefore not restricted to domestic companies.

In addition, if introducing new players (national or international) can break up corruption cartels as those which currently appear to be in existence in Québec, nothing prevents them from reemerging after having integrated the new players. And that supposes the cartels would have been broken up in the first place. If the cartel is agreeing on prices in the context of a low bid rule, a well-oiled corruption system can always make sure it beats very low bids, potentially by taking in cost overruns afterwards.

Let’s add a little ironic thought on this argument put forward by Mr Johnson. In theory, international agreements are interesting because they allow Québec businesses to pick up contracts abroad. Recently, it has become apparent that many big Québec engineering companies (those which will be very interested in European public contracts) have been pulling shady deals for some time now. Is it possible, in fact, that the very corruption that we want to fight with international agreements has given solid enough financial footing to our national businesses for them to profit from the agreements? Should we even consider that their refined corruption and collusion practices are part of what they export (and will be exporting even more with this agreement) when they go abroad?

This article was written by Bertrand Schepper and Simon Tremblay-Pepin, researchers with IRIS—a Montreal-based progressive think tank. 

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