Does the WTO Help Member States Clean Up?

Abstract

Corruption (the abuse of entrusted authority for illicit gain) is pervasive, hard to measure, and damaging both to economic growth and human rights. Corruption is also intimately associated with trade. However, the international organization governing trade, the WTO, says nothing about corruption. This paper uses qualitative and quantitative analysis to examine whether the GATT/WTO, without deliberate intent, helps nations improve governance. Under GATT/WTO rules, policymakers are obligated to act in an evenhanded and predictable manner, to facilitate transparent trade-related policymaking and to provide due process to such policymaking by allowing individuals to comment on and challenge trade related regulations before they are adopted. Even-handedness, access to information, and due process are anticorruption counterweights. Hence we hypothesized that we would see both qualitative and quantitative evidence of improvement in these government metrics among developing country WTO members.

On one hand, our qualitative evidence was strongly supportive of our hypothesis- As nations seek to join the WTO, they are obligated to provide greater access to information and allow citizens to challenge proposed and existing trade related laws and regulation. These states are also required to reform their legal system to ensure that it does not discriminate among foreign and domestic producers. If a WTO member does not adhere to these norms, some members may use the trade policy review process to criticize that behavior and they may even challenge its practices in a trade dispute. Thus our qualitative evidence supports what scholars term the policy anchoring hypothesis - that member states use the WTO to prod new members to adopt transparent accountable governance and member states use the process to signal their citizens and market actors that they will be predictable and accountable. On the other hand, our empirical analysis did not show that GATT/ WTO accession or membership over time improves governance outcomes. We found no evidence that policy anchoring actually works - new members of the WTO did not improve their performance on our measures of due process, access to information and even-handedness during the accession process or as members. In fact membership in the GATT/WTO was associated with worse performance on our metrics of access to information and evenhandedness. We posit two possible explanations for our surprising results: one based on policy realities - the other based on the limitations of our data. First, although many new members have legislated and regulated a new approach to trade policy-making that requires due process, access to information and even-handedness, these changes may have not yet filtered into the polity as a whole. Federal policymakers may struggle against corruption, the opposition of domestic citizens or other domestic factors. In addition, policymakers may have the will, but not the expertise and funds to translate their commitments into better governance. Alternatively, our empirical findings may stem from problems in our data’s scope and duration. Our empirical results contradict both our theoretical model and qualitative evidence. Hence, we hope to encourage other scholars to examine this question.

Keywords: WTO, corruption, anticorruption, rule of law, good governance, transparency, evenhandedness, nondiscrimination

JEL Classification: F00, F10, F15, F42, P16, N40, O19, K33