The independent republic of the supply chain and the International Labor Conference 2016

Global supply chains and their effect on people in developed and developing countries are a very hot topic this election cycle. This month, the International Labor Organization (ILO) is holding its three-week International Labor Conference, where supply chains will take center stage. Here are the three big questions we’re watching out for as the meeting unfolds through June 10. 

 

1. Do global supply chains require new rules? Is there a governance gap?
This is the 105th standard-setting conference of the ILO, but the first time that global supply chains will be discussed as an official agenda item. The ILO has a tripartite structure, with governments, employers, and unions represented in the governance of the organization and the standards it produces. The employers and the unions are sharply divided on whether supply chains represent a unique trans-national phenomenon that requires new rules. In their opening statement, the employers clearly stated that they believe “there is no new regulatory gap that needs to be bridged at the international level because of cross-border supply chains.” While Sharan Burrow, General Secretary of the International Trade Union Confederation, writes that “there are serious global governance gaps concerning [global supply chains].”

Undoubtedly, supply chains that cross economic, political, and regulatory borders don’t fit neatly into existing categories of regulation. But whether they require new standards under the auspices of the ILO is the first-order fight of the conference.

 
 

2. Who’s in charge in the supply chain?
The ILO’s pre-conference report rests on the concept of a “lead firm,” which it defines as “the company that controls the global supply chain and sets the parameters with which other firms in the chain must comply, and is typically responsible for the final sale of the product.” Translation: companies like Disney or Coke. The employers object to the idea that lead firms exercise significant control in the supply chain. They go to great lengths to show that brand-name multinationals do not control their suppliers and call instead for national-level enforcement of existing obligations that would apply to suppliers (and not lead firms). For labor, there’s no question that lead firms bear responsibility for what happens in their supply chains, or that they exercise significant control with their suppliers. As Burrow points out, “lead firms are usually immune from any legal accountability.” Much of the background paper focuses on examples of supplier failures to uphold basic labor standards, rather than failures of the lead firm - such as purchasing practices - that create conditions where labor rights abuse is almost inevitable. 

Whatever you think about who holds the cards in the supply chain - buyers or suppliers - the fundamental disagreement over the concept and role of the lead firm does not bode well for resolution at the conference.

 
 

3. Do we need new legal obligations?
The conference is a non-binding discussion, but it’s the first step toward potential ILO standards that would apply to supply chains as a unique entity. Labor has sought a platform for supply chain issues for the last several years, including at the G7, G20, and the OECD. The 2015 G7 leaders’ declaration included a section on responsible supply chains, but labor is looking for harder standards and the ability to seek recourse when rights are violated. The logic of their demand is clear, but their proposed solution is less so. Burrow calls for a system of global extraterritorial jurisdiction that would allow a victim of labor rights abuse to sue lead firms and suppliers in both home and host countries. But if national-level regulation in supplier countries isn’t working to protect labor rights, does it make sense to double down on ineffective regulation by applying it extraterritorially? For their part, the employers are satisfied with the existing regulatory framework and assert a “firm position that no new standard setting on supply chains is required.”

 

A few things to keep in mind as the debate plays out over the next two weeks. First, multinational firms seek out low-regulatory environments as key sourcing destinations precisely because these places are cheap and flexible. The employers’ argument that national-level enforcement is an adequate response to obvious abuses of labor rights in places like the Democratic Republic of Congo (minerals for electronics) or Bangladesh (fast fashion) is having their cake and eating it, too. But labor’s proposal of doubling down on ineffective national-level regulation by applying it extraterritoriality is also unrealistic. 

The conference is not binding and will not produce new standards for supply chains, but it will set the stage for the next phase of the debate. New and better reporting in supply chains reveals that many jobs in manufacturing, mining, fishing, and farming do not provide the kind of decent employment the ILO was designed to safeguard. In our view, there is no doubt that there is a governance gap in global supply chains or that there is a need for new forms of governance that apply to them. But the discussion in Geneva seems poised to reinforce polarized views between employers and labor. Instead, there’s an urgent need for a more ambitious discussion about how to develop and apply reasonable standards  for multinational companies - and their suppliers - and for sharing the responsibility and costs for ensuring that supply chains deliver on the promise of decent work with dignity.