This Week in Markets and Democracy: TPP’s Auto Delay, Cleaning Up Supply Chains, and International Anti-Corruption Conference

CFR’s Civil Society, Markets, and Democracy (CSMD) Program highlights noteworthy events and articles each Friday in “This Week in Markets and Democracy.”

TPP’s Auto Parts Hold Up: North American Supply Chains in Play

This week Japan and the United States resumed bilateral talks over rules of origin requirements for auto parts within the Trans-Pacific Partnership (TPP) trade negotiations. The North American Free Trade Agreement (NAFTA) rules of origin, established over two decades ago, led to an auto production boom as car companies from around the world opened factories—including VW, Toyota, Nissan, and Kia in Mexico and Volvo in the United States—to gain lower-cost market access. Canada too is tied into the tiered supply chain with car parts from Magna International and Linamar Inc. ending up in assembly lines and showrooms to its south. As the North American auto industry boasts record sales, U.S. labor unions, Canadian suppliers and the rapidly-growing Mexican auto industry oppose relaxing rules of origin. The North American bloc worries that TPP plans to lower the requisite percentage of components made by trading partners for duty-free status will lead Japanese car makers to shift some production to China and Asia more generally, undercutting North America’s advantage.

Cleaning Up Corporate Supply Chains: Reporting Trumps Results?

A recent study ranking over twelve hundred companies based on their compliance with Dodd-Frank’s Section 1502 provision shows the gap between monitoring supply chains and ensuring ethical standards. To adhere to Securities and Exchange Commission (SEC) requirements, 1502 mandates U.S. businesses disclose use of “conflict minerals” (tantalum, tungsten, tin, or gold) commonly found in iPhones, computer parts, lightbulbs, and jewelry. According to the Tulane-led study, in aggregate companies committed over $700 million dollars and six million employee hours to 1502-related auditing last year, yet filings revealed that 90 percent reported they were unable to verify if their products contained conflict minerals. Microsoft and Apple ranked high in compliance by adhering to a complex auditing process—though both concluded that their production process may be tainted. Designed to “name and shame” (the act doesn’t penalize those that fail to report, only those that knowingly make false reporting claims) 1502 supporters argue that greater transparency and due diligence will eventually lead to more ethical sourcing. Still, a year after the rule took effect, advocacy groups say companies are falling short, and questions remain if such reporting forwards the stated end goal of stemming violence.

International Efforts to Combat Corruption: IACC Wrap-Up

Transparency International ended its sixteenth International Anti-Corruption Conference (IACC) in Malaysia by calling for “zero tolerance” for public official impunity. The IACC agenda focused on how to hold corruption’s beneficiaries accountable, with recommendations ranging from criminalizing grand corruption under international law—by imposing sanctions against banks that skimp on due diligence and launder illicit funds—to stringent travel and visa restrictions on individuals suspected of bribery and graft. Many IACC participants will now head to this month’s United Nations General Assembly (UNGA), pushing leaders to adopt a post-2015 agenda that commits to global anti-corruption efforts. Despite new development goals and the conference’s efforts to bring kleptocrats and their enablers to justice, getting governments to act remains a challenge. Initial steps in tracing and repatriating the $1 trillion annually drained from developing countries through corruption and illicit financial flows include a new U.S. FBI effort to investigate international allegations of theft and bribery, and UK Prime Minister David Cameron’s vow to take on money laundering by outing foreign entities buying British property.