Raphael Kaplinsky, University of Sussex

14 June 2017 | Divonne, France

The role of private sustainability standards in supporting inclusive and sustainable value chains: a sectoral approach

RAPHAEL KAPLINSKY

Historically, entry into markets was governed by governments – tariffs and

quantitative restrictions (QRs)

After WW2, tariffs and QRs declined in importance, and governments generally

restricted interventions to monitor product safety.

At the same time, market entry became increasingly governed by private sector actors

TRADE AND MARKET ENTRY

In the interests of economic efficiency

– Just in time and scale of delivery (T)

– Cost reduction (C)

– Quality (Q)

The Social Licence to Operate

– Working conditions

– Environmental impact

Hence, the TRIPLE BOTTOM LINE Imperative

– Economic Bottom Line

– Social Bottom Line

– Environmental Bottom Line

WHY DO PRIVATE SECTOR ACTORS RESTRICT MARKET

ENTRY?

These objectives can be met by

– Internalising production – Wholly-owned subsidiaries and Foreign Direct investment

– Changing behaviour throughout the supply chain

But this needs to be a dynamic process since the competitive frontier is continually

changing – UPGRADING is hence critical for sustainable growth

HOW DOES THE PRIVATE SECTOR ACHIEVE THESE TRIPLE BOTTOM LINE

OBJECTIVES?

Hands off and let suppliers respond independently?

Supply Chain Management programmes

Using intermediaries

HOW DO LEAD FIRMS ACHIEVE STANDARDS?

Supply chain management programmes are costly for the lead firm

Certification costs for complying firms have

Financial costs

– International Accreditation Forum @$800-850 pd

– Quality-certification about $3K (5 employees), $6,000 (10) and $10K (20) every 3 years

– Environmental-Certification - 50% more

Plus costs of Re-organisation and training

• These generally exceed the financial costs

THIS IS NOT A COSTLESS PROCESS

A REVIEW OF

Sectors

• Fresh fruit and vegetable, wine, fish, apparel, handicrafts, leather products, the marine

sector and electronics.

Economies

• Benin, Burkina Faso, Côte d’Ivoire, Gabon, Gambia, Guinea-Bissau, Kenya, Morocco,

Senegal, South Africa and Uganda in Africa; Cambodia, China, India and Malaysia in

Asia; and Brazil and Peru in Latin America.

WHAT HAPPENS IN THE REAL WORLD

SDG1 (ending poverty in all forms), SDG2 (ending hunger/sustainable agriculture/), SDG3 (lifelong learning),

SDG9 (infrastructure), SDG12 (sustainable consumption and production) are affected by incomes which may

be earned in GVCs.

SDG3 (healthy lives for all ages), SDG4 (education/learning/training), SDG5 (gender), SDG8 (inclusive and

sustainable growth, employment and decent work) and SDG10 (reducing inequality) are affected by the

relative nature of inclusion of different groups in GVCs, that is on how effectively suppliers meet chain

standards

SDG6 (access to water and sanitation), SDG13 (climate change), SDG14 (impact on the marine sector) and

SDG15 (impact on the terrestrial physical environment) are affected by the character of GVCs

SDG16 (peaceful environment/justice for all) and SDG17 (citizenship/global partnerships/implementation)

are affected by the role which participation in GVCs promotes empowerment of particular sets of

producers

DO STANDARDS AND REGULATIONS AFFECT THE SDGS?

Economic Upgrading

– Fruit, vegetable and horticultural GVCs in South and East Africa

– Auto components in South Africa

– Morocco Apparel

Social Upgrading

– Labour standards in Kenya, South Africa and Uganda

– Gender inclusion in Kenya, South Africa and Uganda

– Working conditions in Morocco Apparel

Environmental Upgrading

– Mining in Ghana

– Walmart in Chia and Africa

REGULATIONS AND STANDARDS ENHANCE CAPABILITIES

Whilst there is evidence that standards and regulations promote

inclusion, upgrading and achievement of SDGs,

There is simultaneous evidence of exclusion,

downgrading and the undermining of SDGs

BUT…

Inclusion has its costs:

• South African handicrafts and FairTrade

Standards and regulations can exclude small firms and farms

• Small farmers in S African fruit

• Small growers in Senegal bean exports

• Cambodian seafood

Exclusion within firms and farms

• Illiterate and innumerate workers excluded frOm the chain

• Segmentation of labour force and retrenchmentin in S Africa, East Africa and Morocco

Active and passive forms of exclusion

HOW DOES THIS HAPPEN?

1. Promote inclusion in GVCs

– Knowledge diffusion in both buyers and potential suppliers

2. Promote capability and skill development in the excluded

– Lead firms to promote supply chain development

– Subsidise costs or promote cost-sharing for certification

– Enhance supplier development through the use of Civil Society Organisations and aid agencies

3. More effective monitoring of conformance deep down the chain, including of those not

in formal sector

4. Promoting access to markets

WHAT CAN BE DONE?

1. Lead firms

– Foreign and local

– Buyers and producers

2. Specialised business service providers

3. CSOs

4. Governments

5. Aid agencies

6. Promoting Global awareness (eg ICTSD, UN family, Commonwealth Secretariat)

WHO HAS A ROLE TO PLAY?

AND WHO SAID THAT DEVELOPMENT WAS EASY…

THIS INCLUSION IS JANUS-FACED

Jim Redden, Institute for International Trade, University of Adelaide

14 June 2017 | Divonne, France

Session II - Enhancing the sustainable development impact of value chains through the use of sustainability standards: what role for aid for trade solutions?

JIM REDDEN

Research Question: How can Aid for Trade assist the private sector in developing countries to meet

required regulations and standards (social, environmental, financial etc.) so they can effectively

integrate into Global Value Chains and contribute to the achievement of the SDGs?

Broad Objective: To share information and increase knowledge of how Aid for Trade can effectively be

used to facilitate the participation of developing country firms in global value chains and as such, assist

countries to progress towards the SDGs.

Methodology: Desk research, interviews and case-studies from a range of sources.

Research and Methodology

1. Complexity: The various drivers of standards – government regulations, standards set by multinational corporations, CSOs

and industry bodies as per triple bottom lines and as discussed by Kaplinsky and Morris

2. Sectoral Variation: The range of standards and regulations differs markedly between sectors

3. Transparency: Lack of clarity and information available in some sectors on regulations and standards required

4. Size: Particularly difficult for SMEs who lack the capacity to find the information, technology and often the labour and skilled

workers required to implement them

5. Public Sector Awareness: Government officials sometimes lack the knowledge of regulatory standards required by their

industries if export and trade promotion is a priority

6. Infrastructure: Lack of appropriate infrastructure: can be large scale (cold storage facilities) or small scale (appropriate kilns)

7. Gender: Patriarchal traditions and cultural practices in a number of developing countries impact negatively on gender equity

where women SMEs struggle to access market information, integrate standards and gain access to finance etc.

8. Education and skill levels: Many standards require basic skills which marginalised groups may not possess, for example, ‘in-

process monitoring will characteristically require both literacy and numeracy in the labour force, and organisational skills on

the side of management.” (Kaplinsky and Morris, 2017)

So can Aid for Trade (AfT) assist in addressing such challenges?

Some Key Challenges for DC Firms to Meet Standards

Aid for Trade aims:

• To increase investment in economic and trade infrastructure as well as to improve the capacity of

the private and public sectors in developing countries to capture the benefits of existing and future

market access opportunities.

• To address internal barriers – supply side constraints

• To promote monitoring, aid effectiveness and accountability

What is Aid for Trade?

21

Increased trade, competitivenessand growth

Aid for Trade

trade reformentrepreneurship

privateinvestment

trade-relatedcapacity and

infrastructure

catalyst

AFT What it is?

• Aid for Trade is a part of official development assistance (ODA)

• LDCs benefit from a dedicated source of AFT funding support through the Enhanced Integrated Framework - EIF (other developing countries only through normal aid channels)

There are four main categories of Aid for Trade –OECD/WTO

Trade policy and regulation

Economic infrastructure

Productive capacity building

Adjustment assistance

Yes the potential is significant for well designed AfT to be delivered across each to the four categories

just listed and in particular across the first three, for example:

Trade policy and regulation: AfT can be targeted to assist government officials to better

understand GVC standards and regulations so that in turn can support their industry sectors in

meeting those standards. For example, number of DC governments have SME support

authorities, such as SMEDA in Mauritius, which seeks to enhance SME GVC integration.

Economic infrastructure: AfT specifically provides for country based trade related infrastructure

priorities such as laboratories to help meet SPS standards or small scale infrastructure to assist

SMEs meet TBT packaging and labelling requirements.

Productive capacity building: Where as category one tends to target the government sector,

this category of AfT targets private sector capacity and for example can see the delivery of a

specifically designed training course for SMEs to meet relevant standards or could provide

technical assistance for managers and workers to understand and improve health and safety

measures.

Can Aid for Trade assist in the meeting of GVC standards?

25

Productive capacity building – private sector focus

Strengthening private sector capacity – from improved testing laboratories to improve supply chains – to increase competitiveness in export markets

Relevance of Services Value Chains and Standards

• Telecommunications reforms and the application of digital technology standards to a widening range of business services is driving a rapid emergence of supply chains in services.

• Traditionally, services providers were constrained by their inability to capture, store and possess the value of the intangible. There were few opportunities to create step by step “pathways” to market as services tend to be delivered and consumed simultaneously.

• The application of information technology is radically changing this; there is now a constant quest in the services sector to segment out any business function in which knowledge can be commoditised and packaged as a “product”, and where ownership can be established, production can be scaled up and trade can take place separately from production.

• The innovative business process transformation is involving SMEs as well as creating globally integrated services firms.

• Services intermediates (generally known as knowledge-intensive B2B business services) are the fastest growing component of world trade today.

Services are key inputs in all production stages

Services inputs vital to goods GVCsOECD average

Source: OECD Trade and Agriculture Directorate

So SME Issues and the Role of Aid for Trade

• Skills – What interventions do SMEs need to increase the availability and expertise of their services skills to ensure they are positioned to take advantage of regional and global value chain opportunities?

• Costs - Are SMEs experiencing undue regulatory compliance costs, human resource costs, broadband internet costs?

• Value-Chain analysis – Is there potential for upgrading: where are the blockages and how can AfT assist?

• R&D/Innovation – What could be done to boost the ability of the local services sector to increasingly improve productivity through innovation? Do SMEs need a higher level of collaboration between the private sector, academia and governments?

• Policy and Regulatory Focus and Attention; Do SMEs need to achieve a higher level of support from the policy and regulatory institutions to help improve your access to global or regional value chain opportunities?

• Promoting and facilitating local services capability globally and regionally – Is there anything SMEs - or other agencies/institutions can do to improve “branding” either domestically or internationally? Is trade finance readily available and if not, what needs to be done?

• It is not a question of can AfT help improve compliance with standards but how can AfT most

effectively do this in the SDG context? To explore the answer and lessons to be derived to date, we

are exploring existing literature and in particular, pertinent case-studies that will assist.

• Literature: From the WTO (including the SDTF and EIF), OECD data on AfT, ITC studies, ICTSD articles,

ODI research, relevant UNIDO and UNCTAD reports along with some relevant government reports

such as from the EU or Australian Government. Other suggestions?

• Case-studies: Fisheries in Bangladesh, some ITC case-studies, Mango exports from Burkina Faso, the

Garment Industry in Sri Lanka, Quality Infrastructure issues in the Pacific, Services standards in

tourism, Tea and coffee exports from Rwanda, other possible short studies coming from Nepal,

Vanuatu and Cambodia.

Case-Studies to Explore AfT Effectiveness and Lessons

1. Mainly consisting of SME producers, the fishery and shrimp sector are a major export earner and

important source of food security and nutrition for Bangladesh. Major export destination is EU.

2. Shrimp sector needs to meet a range of diverse standards via a complex supply chain. SMEs require

a range of certification and licenses to operate; meet EU food safety and SPS regulations; satisfy

HACCP and traceability auditing standards and others.

3. The EU, NORAD, INIDO and Government of Bangladesh have cooperated to develop a major Aid for

Trade program called “The Strengthening of Fisheries & Aquaculture Food Safety and Quality

Management Systems”.

4. The results of the Aid for Trade has so far been impressive leading to improved pre-shipment

testing and better food quality outcomes for local consumption having a two fold effect on

sustainability and the SDGs. For example, improved export income, growth and employment

outcomes connects with SDG 8, while improvement to local livelihood and nutrition are important

indicators for SDG 1.

The Shrimp Export Industry in Bangladesh

AfT and the SDGs

32

1. Mango So, is a fruit and vegetable processing & export company, based in Toussiana in the Hauts-Bassins

region of Burkina Faso. Women account for 85 percent of its 200 workers. In 2016 the company celebrated 15

years of processing & exporting mangos to clients in Europe and South Africa.

2. Challenge has been to meet strict environmental food safety and SPS import requirements. One key issue for

local producers was that most of them used wooden tables to cut and process their mangoes.

3. The Enhanced Integrated Framework (of the WTO) since 2014 has targeted strategic support in the processing

of mangoes with strong emphasis on women's economic empowerment in capacity-building, meeting

standards and value chain addition. The provision of quality steel tables to assist meet health and safety

standards along with training programs were essential for the success of this AfT program.

4. Results to date: Mango processing units produced an average of 70 tons of dried mangoes in 2015, which is up

from 32 tons per UT in 2014. Dried mango exports totalled 1,208,000 kg, which is up from 460,330 kg in 2013.

Increased training and employment of women workers. Contributing to SDG 5, SDG 8 and SDG 17.

Mango Exporters from Burkina Faso

The following policy areas are draft and preliminary. They suggest some future priorities if AfT is to be increasingly

effective in assisting DC firms to meet sustainability standards and integrate with GVCs:

1. Focus particularly on the activities and needs of SMEs: context and sector specific

2. Similarly, need focus on women, marginalised groups, informal sector consistent with SDGs 1, 2, 5 & 10

3. Focus on raining and related activities for government officials (LDCs in particular), regulatory bodies, SME

development authorities

4. Provision of quality infrastructure vital whether small or large scale – again industry specific and through a

gendered lens

5. Need to harness current activity and enthusiasm for implementation of the WTO Trade Facilitation Agreement

and its emphasis on harmonisation, connectivity and integration with value chains

6. Emphasis on AfT in services value chains and the vital role of training and HRD for low to medium skilled

7. Some AfT appropriately directed to meeting ‘lower standard’ value chains eg. in South – South markets

8. Thinking about reinforcing AfT strategies in support of transparency and harmonisation ? Also thinking about

how AfT built into preferential trade agreements might be used in this area?

Some Preliminary Indications of Policy Implications

The following begins a list of what might be considered some important conditions that need to be in

place for AfT interventions to be effective in assisting developing country firms to comply with

standards and therefore help realise national/global sustainable development objectives:

• Initial political economy analysis undertaken

• Local ownership of the AfT intervention

• Supportive and coherent governance

• Committed private sector management

• Flexible work force - openness to training/technical assistance

• Institutional/political stability

• Potential for increased market access

• Other?

Conditions for Effective AfT Interventions

1. How much background do you think readers need on what Aid for Trade is and its role/effectiveness

to date etc?

2. I am receiving a number of very useful case-studies which will form the basis of the analysis and

policy recommendations. Some of them are short and some up to 10 pages. Obviously the best

case-studies will be a key part of the paper but we might want to think about how other case-

studies might be used if there’s not enough space in this paper for them

3. Please note the first draft of the paper is still about two weeks away so please treat findings on

previous slide as preliminary but would love your feedback.

4. Other conditions for effective AfT interventions?

Merci beaucoup!

Questions for the workshop?

Fabrizio Meliado, Consultant; PhD Fellow (Bocconi University)

14 June 2017 | Divonne, France

Session III - Linking private sustainability standards to the multilateral trading system

FABRIZIO MELIADO

• Research question: should private standards be “disciplined”? If so, should the WTO

play a role in this?o Hypothesis: private standards are responsible for unnecessary or unjustifiable trade

hindrances that affect in particular smaller GVC players and/or would-be GVC players.

• Objective: supporting fresh thinking focussing on the “how”.

• Methodology: desk research and interviews with experts.

Research question & methodology

1. What is the “issue of private standards”?

2. What should be done?

3. What has been done?

4. What could be done?

Structure (paper highlights)

1.1 What are “private” standards?

1. What is the “issue of private standards”?

1.2 Private standards are important for GVC buyers and sellers

1. What is the “issue of private standards”?

The Nutella ® GVC

Source: OECD, 2012

1.2 Private standards are important for GVC buyers and sellers

1. What is the “issue of private standards”?

Source: ITC & EUI, 2016

Historical trends of establishment of VSS initiatives

1.2 Private standards are important for GVC buyers and sellers

1. What is the “issue of private standards”?

Source: ITC & EUI, 2016

Percentage share of new VSS initiatives with headquarters in non-OECD countries

1.2 Private standards are important for GVC buyers and sellers

1. What is the “issue of private standards”?

Reputation

Private standards areuseful for GVC players…

Trust-building

GVC management

E-Commerce

Enabler for accessing GVCs

Also note role in

1.3 Private standards are of concern for GVC buyers and sellers

1. What is the “issue of private standards”?

Suitable for exclusive backward integration…but private standards can be of concern for GVC players…

Economic sustainability

Transparency

CredibilityAnti-competitive outcomes

+ Strong need for research based on “disentangling”!

1.3 Private standards are of concern for GVC buyers and sellers

1. What is the “issue of private standards”?

Lack of harmonized meta-guidelines…also because their setting, design and operation is, in principle, out of control.

ISO CodesTBT Code ASTM Code ISEAL GFSI GSSI

for example

2.1 State actors in “trans-national new governance” of sustainability issues

2. What should be done?

Sustainable development

objectives

IGOs

CSOsMNCs

2.2 What role for IGOs?

2. What should be done?

…facilitation… …command and control……orchestration…

2.3 Is there a mandate in the SDGs?

2. What should be done?

“(Goal 12.6) Encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle” (UN, 2015).”

Paragraph 67 of the same UNGA resolution then adds:

“… We call upon all businesses to apply their creativity and innovation to solving sustainable development challenges. We will foster a dynamic and well- functioning business sector, while protecting labour rights and environmental and health standards in accordance with relevant international standards and agreements and other ongoing initiatives in this regard, such as the Guiding Principles on Business and Human Rights and the labour standards of the [ILO], the Convention on the Rights of the Child and key multilateral environmental agreements, for parties to those agreements.” (UN, 2015). (emphasis added; parts and footnotes omitted).

2.4 How to go closer to “sustainable development”?

2. What should be done?

Some factors that can make standards in general “successful”

Interoperability

Critical mass of users

Support to “subscribers”

Some factors that can make privatestandards more “successful”

Improved transparency

Interoperability + B2B technical and financial assistance = economic sustainability

Controls against anti-competitive outcomes

3.1 State of WTO discussions

3. What has been done?

"An SPS-related private standard is a written requirement or condition, or a set of written requirements or conditions, related to food safety, or animal or plant life or health that may be used in commercial transactions and that is applied by a non-governmental entity that is not exercising governmental authority."(emphasis added). (G/SPS/W/283, March 2015)

(June 2016) Paper by China on meta-principles?(G/TBT/M/69, paras. 3.372-83)

SPS Committee:

TBT Committee:

3.2 Main WTO disciplines and mechanisms associable with private standards

3. What has been done?

SPS Agreement

Agreement on Government Procurement (GPA)

TBT Agreement

Dispute Settlement Understanding

Standards and Trade Development Facility

3.3 Factors that may help to explain the inability to agree of WTO Members

3. What has been done?

Discussions focused on legalistic issues

Misconceptions on the real nature of the problembeing discussed

Too much emphasis on negative aspects

+ your views!?

4.1 How to draft a set of minimum meta-guidelines for private standards?

4. What could be done?

Asking international standardization hubs to draft it, or…

…starting a national stocktaking exercise and setting a deadline (Paris model), or…

…+ your views!?

4.2 Set of meta-guidelines developed or not; what next!?

4. What could be done?

…Inside the WTO and…

1. Joint SPS-TBT work programme?

2. Amending the GPA?

3. Official work programme on sustainability-related PPPs under the Trade Facilitation Agreement?

Complementary & mutually reinforcing OPTIONS forImplementation,Monitoring, orSupportive adjustments…

…outside the WTO

1. Amending the CISG?

2. Using a model for international regulatory cooperation?

3. Monitoring mandate to UNFSS?

4. Adding “Principle 11” to the UNGC?

…+ your views!?

THANK YOU!

fabrizio.meliado@phd.unibocconi.it