The Governance Gap in Supply Chains of Foreign Mul8na8onal - - PowerPoint PPT Presentation

In Indic icator

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s and Me Metrics f rics for S

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clusiv sive e Waste Manageme ment and Resource Effic fficiency (WM&RE) in Supply Chains: Measuring and ReporAng to Emb mbed Sustainability in Policy and PracAce

The Governance Gap in Supply Chains

• f Foreign Mul8na8onal Corpora8ons (MNCs) in China

Dr Qingxiu Bu 23-25 May 2017, Florianópolis, Brazil

Ou Outline e

• China as a Major Centre for Global Supply Chains
• Why do we intervene?
• Foreign MulKnaKonals’ Governance Gap
• What are challenges?
• Framework to Build Sustainable Supply Chains
• Where is a legal avenue?

Gl Glob

• bal S

Supply Ch Chains

• Supplies Go Global
• Supply Chains ScruKnised
• Global supply chains remain crucial to the success of mulKnaKonal

companies (MNCs)

China: A Majo jor Centre for Global Supply Chain

• Supply chains as part of the globalisaKon of producKon
• Supply chains are mulK-faceted, interdisciplinary, complex and mulK-

layered systems and are becoming increasingly complex in our globalised world economic system.

• With the globalisaKon of producKon and the development of global

supply chains, mulKnaKonal corporaKons (MNCs) are moving producKon to developing countries.

Wh Why do y do w we in e inter ervene? ene?

• As globalisaKon conKnues to grow, supply chain in China will

generate more toxic chemicals and hazardous wastes, mostly coming from industrial, agriculture, and manufacturing processes, but current waste management policies are not linked with resource conservaKon/ecosystem protecKon.

• It is NOT sustainable!
• China needs to move towards a system where the enKre supply chain
• f products moves towards the circular model.
• How do global supply chain strategies impact Chinese suppliers?

Leverage/Game me Theory Who Who ar are act e actors/ s/stak akeho eholder lders? s?

• Home State
• Host State
• Foreign MulKnaKonal Companies (MNCs)
• Supply Chain

En Ensu sure S e Sustain ainab able le Consump mpAon and ProducAon PaOerns

• InternaKonal frameworks to achieve the environmentally sound

management of hazardous wastes, chemicals and persistent organic pollutants

• Basel ConvenKon on the Control of Transboundary Movements of Hazardous

Wastes and Their Disposal (183 parKes. 22 March 1989, Amendment 22 September 1995)

• Ro^erdam ConvenKon on the Prior Informed Consent Procedure for Certain

Hazardous Chemicals and PesKcides in InternaKonal Trade (155 parKes, 10 September 1998)

• Stockholm ConvenKon on Persistent Organic Pollutants (180 parKes)
• IntegraKng the 12th SDG into Supply Chains

The circular economy is a part of the EC’s roadmap for sustainable growth

Source: Royal Society for the encouragement of Arts, Manufactures and Commerce (2013)

Dir DirecAv ecAve 2008/98/E e 2008/98/EC o C on W n Was aste e Waste Fr Frame mework DirecAve (WFD FD)

• Aiming to limit the producKon of waste, as well as encouraging the

use of waste as a resource by recycling and recovery.

• ArKcle 3(1) of the Waste Framework DirecKve (WFD, 2008/98/EC) defines

“waste” as:- “…any substance or object which the holder discards or intends

• r is required to discard…”
• ArKcles 17-20 of DirecKve 2008/98/EC: Hazardous wastes
• One of the key aims of the WFD and related EU legislaKon is to

promote the be^er use of resources by recycling.

• RegulaKon (EC) No 1907/2006 of 18 December 2006 concerning the

RegistraKon, EvaluaKon, AuthorisaKon and RestricKon of Chemicals (REACH)

Dir DirecAv ecAve 2008/98/E e 2008/98/EC o C on W n Was aste e (Waste Fr Frame mework DirecAve)

• Place greater emphasis on the waste hierarchy to ensure that waste

is dealt with in the priority order illustrated below.

New defini8ons of by-products, end-of-waste, recycling and recovery – partly enshrining the European Court Jus8ce (ECJ) case law

• ProducKon processes should not only

factor resource efficiency but also the waste generated and its disposal.

Commi mmission v Belgium m (Wa Walloon Wa Waste) ) (Case C–2 –2/90) [1992] ECR I–4 –4431

• Wallonia, an area of Belgium, prohibited waste originaKng in another

Member State from being stored, Kpped or dumped in its locality.

• Did this prohibiKon run contrary to Art 34 TFEU (prohibiKng

quanKtaKve restricKons on imports from other Member States)?

• Yes!
• Waste must be considered as “goods” within Art 34 TFEU, as it forms the

basis of commercial transacKon (even if only for transportaKon purposes)

• Belgium could not adequately jusKfy its absolute prohibiKon with reference

to environmental consideraKons

Commi mmission v Belgium m (Wa Walloon Wa Waste) ) (Case C–2 –2/90) [1992] ECR I–4 –4431

• Waste is not only an environmental issue – it is also an economic

issue.

• The European Court found in “the Walloon Waste judgment” of July

1992 that:- “It must… be concluded that waste, whether recyclable or not, is to be regarded as ‘goods’ the movement of which, in accordance with ArKcle [28] of the Treaty, must in principle not be prevented.” Case C-2/90 §28

• Does the EC Treaty provide a suitable framework for regulaKng

waste?

Business are Realising the Benefit of Resource Efficiency Waste Crime is Eradicated Waste Ac8vi8es are Compliant. Maximum Value is Derived from Resources Circula8ng In the Economy

SEPA’s Waste to Resources Framework

Source: Apple Corporation 2015 supplier list. Note: Includes suppliers of materials, manufacturing, and assembly of products worldwide

T

• p Five Country Sources of

Facilities that Supply Apple Corporation in 2015

Tw Two Faces of Apple: Fo Foxconn

• Race to the Top or…?
• Too big to governance Moral Hazard?
• Does 'When in Rome, do as the Romans do´? consKtute defence?
• Zero Waste Facility: First “Zero Waste” factory to receive cerKficaKon

in China.(√)

• Foxconn, Shenzhen Zero Waste UL Environmental Claim ValidaKon Procedure

(ECVP) 2799 cerKficaKon (April 2015)

• UL ECVP 2799 Sustainable Manufacturer cerKficaKon (January 2016)

Intensive Environme

mental Engineering Programme mme

• Some 40 footwear suppliers located primarily in China,

Vietnam and Indonesia.

• Discharging toxins into a local river (×)
• Those footwear factories now generate one-third less

nonhazardous materials waste and have reduced hazardous waste by almost 40% per pair of shoes manufactured since the programme started. (√)

Source: Erica Plambeck, Hau Lee and Pamela Yatsk

‘Improving Environmental Performance in Your Chinese Supply Chain’ MIT Sloan Management Review (21 December 2011)

Con Control

• l of t
• f the T

e Trans-Bou

• Boundary

y Moveme ment of Hazardous Wastes

• Chinese government enforces new laws to increase

transparency and accountability

• China focuses on Criminal Enforcement of Environmental

Laws

• Supreme People’s Court (SPC) Judicial InterpretaKon (23

December 2016)

• EffecKve 1 January 2017
• SPC Judicial InterpretaKon 2017 ArKcle 8
• Crimes involving importaKon of solid waste and transportaKon of

hazardous waste.

Managing Sustainability in Chinese Supply Chain of Foreign MNCs Incen8ves

• Sustainable supply chain creates a compeKKve advantage

worldwide.

• Right incenKves and collaboraKve efforts can help their

suppliers achieve be^er sustainable performance.

• Provide incenKves for idenKfying, disclosing and addressing problems
• Foreign MNCs’ DisincenKves
• Compliance Cost
• Take the chance between legal but unethical behaviour

Managing Sustainability in Chinese Supply Chain of Foreign MNCs Innova8on

• Resource efficiency policies need to be further developed and

mainstreamed

• Establish a shared commitment with suppliers
• Leveraging the Supply Chain to Gain “Reciprocal Value”
• Upgrading the technology to reduce hazardous waste in the manufacturing

process

• Foreign MNCs should tailor their approaches and narrow the

governance gap to create sustainable supply chains

• Gap between Home and Host States
• Gap between Coastal Areas and West Region

Source: Cory Searcy, ‘What Makes a Supply Chain Sustainable?’ MIT Sloan Management Review (15 November 2016)

Build Responsible and Resilient Supply Chain

CreaAng a Level Playing Fi Field Re Regulatory, Legal and Policy Issues

• The legal and regulatory framework will be an important tool to

accompany the evoluKons in “Resource Efficiency”

• Law and policy on the resource efficiency of supply chains
• Eradicate illegal waste shipments with a special focus on hazardous waste

But

• Legal certainty is a prerequisite!

Tr True Sustainability Needs Regulatory Supervision

• World Bank Group Environmental, Health, and Safety

Guidelines (EHS Guidelines): Non-Legally Binding

• Technical reference documents with general and industry-specific examples
• f Good InternaKonal Industry PracKce (GIIP), as defined in IFC's Performance

Standard 3: Resource Efficiency and PolluKon PrevenKon

• PRC Circular Economy PromoKon Law 2009 (EffecKve 1

January 2009): Legal Binding

• Reducing the consumpKon of resources and the generaKon of waste;
• Encouraging resource recovery and recycling; and
• Specifying producers’ obligaKons to recycle and dispose of waste products

Legal Barriers for VicAms ms to Access to JusAce/Reme medies

• Extraterritoriality
• Salomon v A Salomon [1896] UKHL 1, [1897] AC 22: Principle of Separate

Legal EnKty

• Gap between the Chinese DomesKc Laws and InternaKonal Standards
• NaKonal Law
• InternaKonally Well-Established Standards
• Lawful but Unethical Behaviour arising from the Gap
• Where is legal avenue?
• Treaty?
• Legally Binding?
• Enforcement?: Making rules and regulaKons is one thing. Making sure they are

enforced is another!

Guarantee a Level Playing Fi Field between Foreign MNCs and Dome mesAc Fi Firms ms

• State
• AdaptaKon of the legal framework, Removing legal barriers
• The State must ensure, via legal acKon, that all actors conform to the same

regulaKons and comply with the same legal obligaKons.

• Foreign MulKnaKonal CorporaKons (MNCs)
• Fulfilling all of the legal requirements
• Ensuring that their supply chains at the very least meet Chinese, if not internaKonal,

standards can be a challenging process.

• Access to Remedies
• Hard Law vis-à-vis So{ Law
• Public Enforcement vis-à-vis Private Enforcement
• Chinese Standards vis-à-vis InternaKonal Standards

Thank You!