Global Development Institute Blog

by Khalid Nadvi and Gale Raj-Reichert

Many leading global brands, like Apple and Hewlett-Packard, source components from, and have their products manufactured by, a variety of independent suppliers. These suppliers undertake production in many locations across the world in vast global value chains. Ensuring that these suppliers meet international standards on labour, health and safety and environmental impacts is an increasing challenge for the global brands in the computer industry. These pressures are often accentuated by campaigning non-governmental organisations (NGOs), trade unions seeking to ensure better working conditions, and by governments keen to enforce public regulations. There has been substantial progress by the leading brands to engage with their first tier suppliers on such concerns. However, little is known about how labor standards and codes of conduct are addressed by second tier suppliers found at the lower tiers of global value chains, where the governance of labour conditions can be extremely challenging. Are private or public measures more successful in reaching suppliers down the global value chain? This question is addressed in a recent paper by Dr Khalid Nadvi and Dr Gale Raj-Reichert from the Institute for Development Policy and Management (IDPM) at the University of Manchester, “Governing health and safety at lower tiers of the computer industry global value chain” in the journal Regulation & Governance (the article is offered as open access and is free to everyone).

The paper investigates whether, and how, occupational health and safety standards permeate down the computer industry global value chain. It does so by comparing first and second tier suppliers located in Penang, Malaysia and their engagement with a private voluntary industry code – the Electronics Industry Code of Conduct (EICC), and the publicly regulated European Union Directive on the Restriction of Hazardous Substances (EU RoHs).

The EICC, which was developed in 2004, specifies guidelines for firm conduct and policies on labour, occupational health and safety, the environment, ethics, and management systems. The EICC is a voluntary standard and firms that comply with it are required to ensure their suppliers also implement it. The EU RoHS, which came into effect on 1 July 2006, limits the use of hazardous contents, such as lead and brominated flame retardants, in electronics goods of all electronic products sold in the European Union. The penalty for not complying with EU RoHS includes fines and the denial of market access to the EU. Both the EICC and the EU-RoHS directive have direct and potentially positive impacts on the occupational health and safety conditions of workers in factories that produce electronics goods.

The study reported in the paper investigated a group of second tier suppliers in Penang, Malaysia and found that while none of them complied with the EICC code, the majority of them did meet the EU RoHS requirements. The second tier suppliers managed to comply with EU RoHS largely using their own resources with little or no assistance from other firms or the Malaysian government. Through case studies of different second tier suppliers the paper sets out to explain why these suppliers prioritized the EU RoHS over all other governance measures.

The findings show that EU RoHS because of its mandatory legal stipulation made it a de facto market entry requirement for suppliers that were already plugged into global value chains linked to the European market. These findings raise important questions about the role of public regulation and public governance in improving labour conditions in global value chains. While there has been an emphasis over the past three decades on private standards and private measures for governing labour conditions in global industries, experience has shown these measures to have weak outcomes. When one travels further down to smaller suppliers in lower tiers of global value chains in developing countries, private labour standards can be altogether missing. This is often because small suppliers usually have weaker technical, managerial and financial resources. Moreover, many lower tier suppliers in the electronics industry are located in developing countries with weak government agencies and regulatory oversight over labour conditions. This was exactly the case of the second tier suppliers in Penang featured in the paper. For the majority of these suppliers, government agencies did not assist with the compliance of any type of private or public standards on labour conditions.

The paper highlights a critical and important finding which suggests that mandatory standards directly tied to market access may be better able than voluntary private standards to penetrate down the global value chain to reach second tier suppliers. This signals the efficacy and importance of market access regulation over private voluntary initiatives in the most difficult places of global value chains. While market access standards (especially pertaining to labor and the environment) have been difficult to implement at a global or multilateral level (given World Trade Organization restrictions) there are however many examples that prove it is possible at the regional, national/bilateral, and even local levels. For example, China, Japan, South Korea, Turkey and California have all implemented their own versions of a RoHS.

Moreover, market access standards can have harmonizing effects on an industry. Take the printed circuit board industry as an example. After the EU RoHS banned the use of lead, printed circuit board companies found it more expensive to operate two different types of manufacturing processes – one that uses lead for non-EU markets and one that is lead free, complying with EU RoHS, and destined for the EU market. Also, brands such as Apple and Dell now require all of their products globally to comply with EU RoHS.

The findings of the paper support arguments for complementary public-private governance arrangements. Our findings suggest the need for policy actors and researchers to further investigate how to better integrate private regulation with public regulation and public enforcement in order to improve working conditions at lower tiers of the global value chain.

The paper can be accessed free at http://onlinelibrary.wiley.com/doi/10.1111/rego.12079/abstract

This blog also appears on www.labourandelectronics.net and www.risingpowers.net

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