Co-Constructive Business Governance

In today’s globalized world, regulation of global supply chains suffers from a well-known ‘governance gap’ that results from a fundamental mismatch between ‘a territorial logic of law and the transnational logic of capital.’ Proposed solutions have, for the most part, focused on international soft law instruments, domestic regulations of enterprise home states, and voluntary compliance by transnational enterprises. Largely missing from this picture has been a key set of actors—host states of supply chain activities. 

My recent (though pre-COVID) Article, Co-Constructing Business Governance, published in the Stanford Law and Policy Review, argues that we can no longer afford to ignore host states and their interests, especially because they may open up new venues to better regulate the persistent problems with supply chains. Today’s supply chains are dominated by authoritarian regimes: China is ‘the world’s factory’, and nearby countries such as Vietnam and Cambodia are popular ‘China Plus One’ destinations. Because authoritarian regimes dominate global trade, this necessitates studying and understanding the structure and underlying logic of authoritarian legality; that is, one designed to derive benefits from formal law and legal institutions while seeking to minimize risk to political stability and social control. Drawing insights from comparative law and sociolegal studies of authoritarian regimes, the Article examines three case studies—China, Vietnam, and Cambodia—to illustrate how this logic drives transnational business governance in each respective jurisdiction. I highlight here three key takeaways:

First, host states have incentives to improve the stability and quality of supply chains. After all, because supply chain activities occur on their soil, host nations and their people most acutely experience the impact of any resulting harm. When international news headlined systematic workplace abuses in China and toxic spills in Vietnam, the host state’s legitimacy and stability were called into questions. Long-term costs can include potentially irreversible impacts on its environment; macro effects on employment and GDP outputs; additional stress on its often already-overloaded public service institutions; reputational hits on its competitiveness in supply chain markets; and the risk of social unrest and public anger from its own populace. Just as democratic countries regularly engage in both an ideological and instrumental analysis in promulgating law and policies, so too do host states in weighing the risk and tradeoffs of economic development.

Second, progressive reforms are possible in host states when they result from a convergence of interests among various stakeholders. To be clear, we should not minimize the many shortcomings of host authoritarian states, not least their repressive behaviors. Nonetheless, given the vexing complexity and interconnectedness of today’s global supply chains, it would be a missed opportunity to disregard wholesale the potential of host states. For example, authoritarian states’ constant balancing between two competing priorities—promoting rapid development on the one hand and maintaining social stability on the other—has opened up viable venues for remedies, whereby foreign enterprises, nudged by state actors, struck deals to compensate aggrieved workers beyond national legal remedies to curb the risk of social unrest. Even then, these efforts were also bounded by the ‘birdcage’[1] of authoritarian legality, whereby civil society actions that outstepped the bounds of behaviors deemed acceptable by authoritarian leaders were heavily punished.

Finally, I end with a normative suggestion: mediation—a form of non-judicial remedy that so far has attracted little attention in the context of business and human rights—can be a viable dispute resolution forum in autocratic host states. Because mediation encourages parties to look beyond legal rights to their underlying interests, it enables a creative problem-solving space that can navigate through well-recognized obstacles in non-democracies such as weak judiciaries, corruption, and political risks. While it is unlikely that mediation can bridge the governance gap on its own, it can well complement other adjudicative efforts in seeking transnational business accountability.

The COVID-19 pandemic has, among its many devastating consequences, brought into sharp focus the vulnerabilities of supply chains and the critical roles of host states. As we head into an inevitable shift in supply chain configurations, a deeper understanding of authoritarian host states—their strengths, weaknesses, interests, and potentials—is only becoming more and more relevant.  

Trang (Mae) Nguyen is an Assistant Professor of Law at Temple University Beasley School of Law.

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[1] See generally Stanley Lubman, Bird in a Cage: Legal Reform in China after Mao (2000) (portraying the systemic and ideological constraints of Chinese Communist Party rule as a cage confining the many aspects of Chinese otherwise-unprecedented legal reforms).