Corruption in Customs: Strategies to Get More Out of International Trade

All countries, including Turkey, participating in the WTO believe that there has been some economic benefit in adopting the WTO agreements; however, there is considerable disagreement as to how much benefit the agreements have actually produced. A study by the University of Michigan found that if all trade barriers in agriculture, services, and manufactures were reduced by 33% as a result of the Doha Development Agenda, there would be an increase in global welfare of $574.0 billion. A 2008 study by World Bank Lead Economist Kym Anderson found that global income could increase by more than $300 billion per year, $250 billion of which would go to the developing world. Others had been predicting more modest outcomes, e.g. world net welfare gains ranging from $84 billion to $287 billion by the year 2015.

Corruption in customs as one of the trade barriers which act as an additional tax or fee impedes the free trade; therefore causes huge losses of share that the developing countries would have in benefits of international trade. If Anderson’s above mentioned estimate is true, basically we might content that 250 billion USD gets less and less at every corruption case occurring in the customs of developing countries.

Corruption also causes inefficiency in business having bad impact on international trade. When the customs officials harass firms with demand of bribery, firms spend human and monetary resources resulting in inflation of labor and operational costs. This problem is even worse for small and medium enterprises as the bribe amounts that they have to pay at customs might substantially affect their capacity to do business across borders. Even if my main focus is in Turkey, I think developing countries where corruption in customs is widespread share similar features with regards to main reasons of corruption and strategies to combat against it. In my opinion in order for the efforts to combat against corruption in customs to be effective we need an integrity and ethical government oriented approach to the problem. Ethical government requires all the powers – legislature, bureaucracy and judiciary – to act in conformity with ethical principles. An ethics system that excludes one of these powers or branches of government is ready to collapse any time; thus preventing our chance to make improvement in this fight. Only a comprehensive reform process starting from the restructuring of customs administration can break countries out of existing vicious circles linking corruption and under-development. In order to achieve that, we need to be reformist. In order to achieve this, we need strong intent of highest ranking administrators in our case, i.e. Minister of Trade and Customs- to eliminate all kinds of corruption and inefficiency at customs because attitudes, perceptions, and actions of them are fundamental to any efforts to initiate and sustain reform. High ranking administrators have to take determined positions against corruption to be models of integrity for low ranking officials who work at the heart of operations. Second, what we need is not partial projects targeting specific areas of customs like computerization or modernization projects. What we need in Turkey and other developing countries where corruption is widespread, is a more revolutionary approach which is restructuring the customs administration. First, we need to change our perception about corruption which will be conducted through training programs for customs officials, seminars for firm representatives doing business across the border, conferences for raising awareness of society that corruption is an epidemic, not a right, tax or usual course of business.

Second, we need to build a very clear and standardized procedural system through concise and accessible legislation, eliminating all grey areas that cause opportunities of corruption. Third, we need to make sure that if a customs official violates his ethical and criminal obligations under codes of conduct at various laws defining corruption, the penalty system is applied to everyone equally and strictly without any exemptions or exceptions. With regard to corruption investigations carried out by the Turkish Inspection Boards, the need for a prior authorization from the hierarchy when investigating some categories of public officials hampers the investigation. There is an urgent need for better co-ordination of the system currently in place for combating corruption. The designation of a body with sufficient independence responsible for promulgating and monitoring the implementation of anti-corruption measures could be helpful in this respect. Also in Turkey, asset disclosure records of customs officials are unavailable to the public and whistle-blower protections are virtually non-existent. Journalists investigating corruption face intimidation and harassment with one fatality occurring over the reporting period.

A recent empirical study on corruption at customs of Bolivia, Pakistan, and Philippine might be taken as an example of methods for eliminating corruption at customs because each one of the countries are highly different from each other and they carry some similar features with Turkey in sense of international trade and development.

The study shows that the strategies based on repression and positive incentives are effective in regulating a situation of low corruption and preventing its further development but experience shows that these tools cannot correct a situation of widespread corruption. Therefore, I advise, restructuring of the procedures that leads to an important reduction of the opportunities of corruption should be at the core of the strategy. Furthermore a high degree of transparency in design and implementation should be maintained. Obtaining the active support of groups benefiting from reform, proceeding step by step, combining restructuring with changes in management, monitoring implementation and securing computer systems are also crucial for the comprehensive reform. Above all, as I have mentioned before political will remains key for a successful implementation. The case studies showed that it is crucial to have strong commitments on the part of both political leaders and the customs director.

How can we make drugs cheaper?

WHO members and observers have currently gathered (Nov 26-28th) at WHO headquarters to discuss and try to implement an R&D treaty which would de-link R&D costs from drug prices. In simple terms, this means that if implemented, it would lead to a huge jump in affordability of medicines around the world, by diverting the massive costs from the consumers to a large global fund, externally managed. (presumably governments chip in). As to why they costs should be diverted... The simple one to me is that people do not (consciously) choose to be sick; so there is no reason for rich people to have cures while poor people can only watch. Of course, there needs to be a practical, 'fair' way to do this. That's what this current treaty is looking into.  

[I said 'consciously' in the above line, because it is true that issues of general health, hygiene, educated choices, etc all play a part in people falling sick; as does simple bad luck. While it definitely requires inter-disciplinary attention, I believe trying to solve health and education issues as primary ones is the most sensible approach] 

This treaty has been under negotiation for more than 2 years now and that in itself is a big step as, if implemented if would mark a big change in approach towards the current market based pharmaceutical innovation system. Why is this important? Because the current system comes with several problems that are caused directly by this linkage between R&D costs and drug prices. Let me lay some out: 

1. Drugs are not like other market goods where the market tells you which drugs are most appreciated. Rather, drugs are taken for combination of the following reasons: Disease + doctor's advice + insurance considerations. Thus the usual 'free market' considerations do not take place here. Diseases are something no one values; doctor's advice is somewhat trustworthy, but still not the person's own judgment; and insurance, when present, quite often determines what drugs people eventually go in for, if anything at all. 

2. Having innovation dependent on the market causes innovations to be directed towards the market. Simple basic logic. This means that drugs are not made for diseases or afflictions which affect poor people more than rich people. This is highlighted in the case of developing country diseases, which rarely, if at all, affect developed countries (i.e., Richer markets). With much of the current capital present in the developed countries, this leaves the poorer countries at the mercy of the pharmaceuticals present in the richer countries. 

3. Following on from the above point, if/when drugs are made for diseases that are present in poorer countries, they are generally priced at a very high rate as compared to the Purchasing Power Parity (PPP) of those in poorer countries. A lot of public backlash regarding pricing strategies have fortunately led to some drugs being differentially priced in different countries in recent times. There is still much to be done though. Similarly, even poor people in richer countries are priced out of these drugs. In fact, in some cases (insurance-less for instance), access to these medicines may be much harder for them as compared to people in poorer countries due to inflated insurance based prices. 

4. Aside from the above mentioned circumstances, having a health system where the incentives for pharmaceuticals are laid out based on purchasing rather than treating/curing, is somewhat counterintuitive. For instance, it may not make any good business sense for a pharmaceutical company to find a vaccine for a disease, since that would mean eating into their future customer base. Similarly, it also makes more business sense for pharma companies to find palliatives rather than actually curing a disease in a person, as it would mean they need to constantly buy more medicines. I have no idea about pharmaceutical processes, but I find it amazing that the common cold has not been cured, while baldness creams of all sorts have reached the market, not to mention that man has landed machinery on Mars. 

And the reasons go on.. But I think these are the main ones. 

So, while WHO members meet to discuss and try to come up with a treaty that would solve these issues... There is one notable organization that is protesting it - The Wellcome Trust. 

A statement from them as per KEI: 

It is essential to engage with industry effectively. We are concerned that the report's emphasis on the delinkage of R&D costs from the pricing of end-products may hamper this. The pharma industry are important partners and should be galvanised to develop business models that address the needs of the poorest consumers.

For an organization that has a statement of "Our funding supports the brightest minds in biomedical research and the medical humanities, with the aim of improving human and animal health." as the first line on their website ... This surely is a stupid way of telling the world that they care more about the welfare of existing institutional players, than the reason that those players and institutes exist - i.e., than for 'improving human and animal health'. Not to mention, that this treaty doesn't ask pharmaceuticals to do charity work, but wants to change the flow of funding as coming from a global fund, rather than the patients.