How to Save Global Trade From Thieves, Pirates, and Black Market Kingpins

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International trade accounts for one in every three dollars of global GDP. But corruption and counterfeiting steal trillions from companies and consumers every year. Let's fight back.

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Reuters

Yesterday, at The Atlantic's America Works Summit in Washington, D.C., we spoke at length about how more and more companies have the opportunity to use their supply chains to combat corruption, counterfeiting, trade secret theft, and piracy, and promote sustainability and ethical business practices. Indeed, businesses have a growing interest in doing so -- using their purchasing power to protect the integrity of their brand and the quality of their products.

Following World War II, visionary world leaders slowly but steadily dismantled the many high barriers to trade and investment -- utilizing the General Agreement of Trade and Tariffs, and then the World Trade Organization -- between the United States, European nations, Japan, and numerous other countries. Since then, world trade and prosperity have flourished. In the past three decades, international commerce has jumped sevenfold. Trade now accounts for 33% of global economic activity.

But, with the benefits of global trade come new challenges. How do we maintain a safe, transparent, and open framework for global commerce that collectively benefits consumers, businesses, workers, innovators, and entrepreneurs around the world?

THE PRICE OF CORRUPTION: $1 TRILLION

Corruption, trade secret theft, counterfeiting, and piracy mar the global trading system and distort competition. We all pay a huge price in terms of monetary losses and compromised product quality and safety. The World Bank estimates that $1 trillion in trade-related bribes changes hands every year. These bribes raise the price consumers pay for goods and services and also foster a culture promoting unethical business practices.

Similarly, counterfeit or substandard medicines, fake automobile and airplane parts, and foods that do not comply with high-level sanitary standards or are made with unsafe ingredients threaten consumer health and safety.

And, because of intellectual property theft, legitimate manufacturers, innovators, performers and other do not benefit from revenues of their products or services. According to the World Customs Organization, intellectual property theft accounts for $500‐600 billion in lost sales each year. Millions of consumers are put at risk and countless number of businesses, workers, and entrepreneurs are denied the fruits of their efforts.

Government action is, of course, critical to reinforce the global trading system and address forcefully and comprehensively all of these distortions and violations. In today's interconnected world, however, the private sector can also play a powerful role. At all points along the supply chain -- from upstream commodity suppliers, to product developers and manufactures, to distributors and shippers, to final consumers -- participants have a strong interest in ensuring the quality, safety, and reliability of the goods and services they produce, sell, ship, and buy. Supply chain lapses -- counterfeit, substandard, or dangerous products -- threaten an organization's brand as well as consumer confidence, safety, and health.

Businesses can compel their suppliers and business partners to maintain a high-level of integrity and quality by introducing management systems and standards that hold supply chain participants accountable. Companies can use their purchasing power to ensure, and insist, that their suppliers avoid involvement with corrupt officials; do not steal trade secrets; reject counterfeit and pirated goods, and utilize genuine, high-quality components. A positive and mutually reinforcing series of actions all along the international supply chain can result.

SAFER, FAIRER, BETTER TRADE

Several of the world's leading companies have stepped up to insist on strict accountability. For example, a group of prominent payment processors and Internet intermediaries recently launched a non-profit group called the Center for Safe Internet Pharmacies to combat illegal online "pharmacies"-- criminals masquerading as legitimate pharmacies. They improved education and voluntary enforcement, de-registered Internet domain names, and withdrew payment services from fake pharmacies, and refused to advertise illicit websites. These companies banded together to protect the well-being of consumers and their respective brands.

In addition, businesses from many different sectors have developed codes of conduct that extend to their suppliers and business partners. The Electronic Industry Citizenship Coalition -- which represents a large group of electronics and software firms ranging from Apple to Xerox -- sets "standards to ensure that working conditions in the electronics industry supply chain are safe, that workers are treated with respect and dignity, and that business operations are environmentally responsible and conducted ethically."

To meet safety, quality, and sustainability goals, a growing number of businesses are forming innovative partnerships with NGOs to improve and audit their supply chains. For example, Procter & Gamble -- a recent recipient of the Secretary of State's Award for Corporate Excellence -- is working with Unilever, the World Wildlife Fund, and others in the Consumer Goods Forum to ensure sustainable and ethical sourcing of raw materials, including renewable forest products and palm oil.

These steps will take significant time and effort to put together. But they are critical to ensure that unethical practices do not undercut or distort the benefits of global trade. Collectively we can strengthen confidence in the products we buy and overall standards of reliability in international trade. Trade can be made safer, fairer, and more beneficial to those who participate in legitimate commerce -- and weed out those who engage in illegal or unethical practices. By responding to demanding consumers -- who increasingly insist on quality, sustainability, and safety -- forging stronger links between suppliers and buyers, and improving the integrity of supply chains, all parties can benefit.

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Presented by

Robert D. Hormats and Pamela Passman

Robert D. Hormats is the Under Secretary of State for Economic Growth, Energy and the Environment. Pamela Passman is President and CEO of the Center for Responsible Enterprise and Trade.

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