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Producing Global Governance in the Global Factory

11 April 2018

Nicole Watson (MSc Global Governance and Ethics) on a GGI Keynote Lecture with Professor Virginia Haufler.

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As the world becomes increasingly interconnected, we also become increasingly distanced from the source of the materials used to craft the items we rely on every day. Transnational corporations have often taken advantage of this disconnect to maximise profits with little accountability for the origins of the materials they use. 

Criticism of the dominance of transnational corporations has been a staple of the anti-globalisation movement for decades, but recently, scholars like Professor Virginia Haufler (University of Maryland) have sought not only to criticise corporate exploitation of global supply chains, but also to explore whether they might be leveraged to create public goods. In a thought-provoking keynote lecture at UCL's Global Governance Institute, Haufler argued that, indeed, global supply chains may have the potential to leverage peace in conflict situations.

Haufler began with a discussion of the smartphone, a device that most individuals - despite owning one - would be hard pressed to identify who made it, under what conditions, and from where its various parts were sourced. As the biggest transnational corporations tend to contract the production of different components out to various firms overseas, which in turn source their materials from other suppliers abroad, global supply chains quickly become convoluted and opaque; often, companies themselves have little idea how many hands and how many countries their product has passed through before it reaches the shop floor. This disaggregated production process is what Peter Buckley refers to as "the Global Factory". Without knowledge of each step in the global supply chain, it is difficult to hold transnational corporations to account for how ethically their materials are sourced and the conditions under which their goods are produced.

The emergence of the Global Factory presents a challenge for global governance. Beyond creating an accountability gap, varied sites of production often have competing standards, making it difficult to regulate quality and working conditions - a problem frequently exacerbated by firms resistant to international regulation. According to Haufler, however, there may be a silver lining. Companies at the end of a global supply chain have significant power: as suppliers across the globe are competing for the business of major corporations, those same corporations are well placed to demand that certain standards must be met, whether technical or social. This power has not gone unnoticed by activists. Increasingly, transnational advocacy groups are launching campaigns targeted directly at companies, urging corporate giants to use their power to achieve public aims. In response, discourse around corporate social responsibility has risen, and industry self-regulation has emerged to curb the necessity of more intrusive international regulation. This, Haufler argued, is a nascent form of global governance without input from nation states.

After contextualising her argument, Haufler turned to conflict minerals as a case study. In academic literature, conflict minerals have been linked to broader discussions of the resource curse; when rebel leaders have access to valuable natural resources that can be sold or traded for weapons, they have little incentive to come to negotiations. Although minerals have been used to finance conflict for centuries, it was not until the 1990s that they appeared on the agenda of global activists in any meaningful form. One of the most prominent and successful campaigns in this area was the Blood Diamonds campaign, catalysed by Global Witness's 1998 report on the link between diamond trade and funding conflicts in Africa.

Through brutal imagery associating diamonds with bloody conflict in a hard-hitting and widespread campaign, a coalition of NGOs was able to put pressure on the diamond industry to take responsibility for their use of conflict diamonds: in 2003, the Kimberley Process Certification Scheme was born. Under the Kimberly Process, each step in the supply chain agreed to identify which diamonds came from legitimate sources, tracking each diamond from the mine to the border. The Kimberly Process, which now covers 99.8% of the world's diamond market, has created significant barriers to rebel financing - although, naturally, a black market of smuggled diamonds and forged certificates rose up in response.

Whilst the Kimberly Process is currently facing new challenges, such as how to expand the definition of conflict diamonds to account for both state and rebel violence, NGOs are turning their attention to the "3TG" conflict minerals: tantalum, tin, tungsten, and gold. Tackling the issues surrounding this second set of conflict minerals comes with different challenges - supply chains are far more diverse than in the diamond industry, and these minerals make up essential components of many goods we use every day. For these reasons, NGOs are now targeting buyers, particularly in the electronics and automobile industries, and working directly with the private sector to halt the progress of conflict minerals through the global supply chain. Smelters have become the key chokepoint for blocking conflict minerals, as the origin of the metals can only be determined before they are melted down. Additionally, an array of regional and international frameworks is emerging to implement and monitor traceability standards for minerals across the globe.

As corporate social responsibility is becoming an increasingly prevalent concern for transnational corporations, Haufler is hopeful that this new trend will weave a dense web of industry self-regulation that can help cut off rebel finances and offer a new instrument of diplomacy. She speculated that the successful leveraging of corporate power to demand greater transparency in the sourcing of minerals might become a template for raising standards in a variety of areas, from human rights to environmental issues.

Haufler's argument came with several caveats, however. She noted the damaging consequences of cutting countries that are recovering from conflict off from trade relations with the rest of the world and the potential for leveraging global supply chains to lead to nothing more than a shift in the location of trade. Several NGOs have also expressed scepticism about the rigor of the processes used to certify minerals as 'conflict-free'. Despite their pivotal role in its conception, Global Witness dropped out of the Kimberly Process in 2011, claiming that it is not fit for purpose. Finally, we might be wary of relying on transnational corporations as the next heroes of global governance, even if civil society is beginning to demand more social responsibility from the corporate giants.

Whilst Haufler's lecture offered an unusually optimistic insight into how corporate power can be leveraged for good, she herself concluded that if global supply chains can be used as an instrument of peace, they remain a weak one. What is perhaps most interesting to reflect on is whether the trends described by Haufler can be applied to other issue areas and what this means for the future of governance beyond the nation state.