Supply chains: Competition with China as an excuse

Merle Groneweg http://www.beltandroad.blog December 2019.

China violates fundamental human rights in its global supply chains and tolerates environmental devastation. That is true. But this should not be an excuse for Western companies and governments to distract attention from their own shortcomings. It would be better to actively involve China in the formulation of comprehensive standards. China has already made progress in the area of environment, in particular.

For more than a decade, China has been more active in the context of Corporate Social Responsibility (CSR). Already in 2008, the government issued guidelines and specific requirements for reporting by state-owned companies. In the summer of 2019, a management consultant explained that CSR is now advertised as „responsibility towards one’s own country“. Since then, ambitious laws on environmental protection have also been introduced – and are being enforced. The broad anger among the Chinese population about polluted air and water played a major role in this development.

Emphasis on environmental risks

However, highlighting social, labour and human rights issues in the country itself and in the activities of Chinese companies abroad remains a difficult matter. The representative of a Chinese non-governmental organisation (NGO) in Beijing said that there is still a lot of ignorance and also concerns about being overburdened. „Let’s first talk about the environment at this time“, would frequently be replied – also because it is easier to quantify environmental damage.

The sustainable production chain manager of a large Chinese smartphone manufacturer, who had previously worked for a well-known environmental NGO, replied to the question about responsible raw material sourcing by his employer: „They don’t know what they are doing, but they give me room to find out.“ He also wants to look into the issue of conflict minerals, he said. Such statements show that the concept of due diligence – as in other countries – is relatively new, but there is also a certain spirit of optimism.

The Chinese government, for example, is now paying some attention to the issue. The China Electronics Standardisation Association (CESA), which is under the supervision of the Ministry of Industry and Information Technology, is now also taking up the topic of due diligence as part of its broad CSR activities. Since the government is always „the most important stakeholder“, its noticeable support for this topic is of tremendous significance.

NGOs and the media play an important role in generating pressure for the enforcement of due diligence obligations. In this regard, the publication of the report „‚This is what we die for“ on the significance of human rights violations in the DRC for the global trade in cobalt by Amnesty International in 2016 was a ‚game changer’. The ‚reputational damage‘ suffered by the Chinese company Huayou Cobalt, which was strongly criticised in the report, made Huayou Cobalt and other companies more sensitive to the issue. ‚Damage to reputation‘ is particularly serious for those companies that operate in the supply chains of Western companies.

However, several commentators pointed out that this ‚Western‘ approach of naming and shaming is very unusual in China. NGO representatives indicated that they themselves cannot and do not want to use this strategy for a variety of reasons. This is especially so with regard to direct critique of the Chinese government or state-owned enterprises. It would be more successful to argue that the Chinese government has to act responsibly if it wants to take a leading role globally – and further reputational risks are looming if Chinese companies are involved in human rights violations and environmental pollution abroad.

China is developing its own standards

It is also important to take the efforts of the Chinese government and other actors in the country to be a global player seriously, because this implies setting standards for themselves. „Our terms will always be different,“ an expert on international standards told me, „they will be our terms“. One example of this are the Due Diligence Guidelines for Responsible Supply Chains of Minerals published in 2015 by the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters (CCCMC). They are based on OECD standards in the raw materials sector and were developed in cooperation with the OECD.

Since the People’s Republic of China is not a member of the OECD, the government must develop its own standards. Their implementation is voluntary for companies, but the development of the CCCMC guidelines has been instrumental in establishing China as an actor shaping the framework for responsible raw material supply chains.

The Responsable Cobalt Initiative (RCI) of 2016, which was also co-designed and advanced by the CCCMC, is worth mentioning here as well. It is the first and only industry initiative in the world to address responsible cobalt sourcing. Unlike many other industry initiatives, RCI not only focuses on transparency in reporting, but also seeks to promote capacity building in the field of reducing risks of human rights violations.

China’s significance for global supply chains is already tremendous and will continue to grow. This applies both to the raw materials sector itself and to industrial production, for example in the field of electronics or the manufacturing of electric vehicles. The People’s Republic of China should therefore be proactively involved in the development of international frameworks governing human rights due diligence – otherwise there will be no effective regulation.

In this context, it would be desirable for the German government and/or the EU Commission to create an official forum for exchange with the Chinese government on responsible supply chains and due diligence concepts – similar to the EU-China Dialogue on Environmental Services. But this will only succeed if and when they themselves have a credible commitment to appropriate regulation.

Literature:

Jannick Saegert and Gregor Grossman (2018): Human Rights Due Diligence in Mineral Supply Chains: International Developments and Chinese Efforts. Stiftung Asienhaus, Blickwechsel.

Merle Groneweg and Michael Reckordt (2019): Lieferkettenverantwortung: Die Rolle Chinas für Debatte und Standardsetzung. PowerShift Factsheet.

Merle Groneweg contributes to the magazine Südlink-Redaktion and is a researcher for resource policy at PowerShift.

This article appeared in a longer version first in Südlink 190 (http://bit.ly/suedlink-190). Translated with http://www.DeepL.com/Translator (free version)

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