WHEN IN MANCHESTER
Exploring the Ethical Trade of Palm Oil: A Critical Assessment of the Global Governance of Sustainable Global Value Chains
Entering the 21st global market entails fitting into international standards to the extent that a non-compliance results to missing out on profitable markets (Nadvi, 2008). The current neoliberal economy has witnessed the rise of Southern economies through shifts in Foreign Direct Investment destinations. Conversely, the apparent ‘race to the bottom’ phenomena in the Global South (United Nations, 2005; Nadvi, 2014) also crystalises the power inequalities within GVCs or sectors producing for global markets (Gereffi, Humphrey and Sturgeon, 2005).
In the search for a more sustainable global economy, private actors have pushed for the alignment of international standards in global trade structures with ‘bottom-up’ initiatives in ethical trade (Langan, 2013). Such an initiative has also given rise to third-party certification systems that ensure ‘civic logic’ for sustainable GVC practices (Bacon, 2010, p. 7).
This essay presents an international political economy (IPE) assessment on the legitimacy and effectivity of the global governance of sustainable GVCs. The following section will provide a brief overview of the debates in global governance and sustainable GVC governance in particular. This report will also provide detailed case study analysis on the governance of the ethical trade of the palm oil industry, specifically focusing on the legitimacy and effectivity of the private governance of the Roundtable of Sustainable Palm Oil (RSPO) in Indonesia and Malaysia.
The report finds that the RSPO governance presents a Western-engineered market-based solution that disproportionately disadvantages Southern economies and overlooks the support of the state to ensure national uptake. Finally, this report concludes by reflecting on the implications for the global governance of sustainable palm oil and GVCs in general.
Governing Global Governance
Rectified by the shortcomings of international relations, the more recent scholarly interest in global governance seeks to respond to the challenges in the disappearance of global borders (Rosenau, 1995; Committee for Development Policy, 2014) and to explain the growing complexity of state and non-state relations in an international platform (Rosenau, 1995; Ku and Weiss, 1998; Weiss and Wilkinson, 2014). Scholarly interest in global governance serves as a result of and is further perpetuated by boundless issues ranging from capitalist expansion (Murphy, 2013; Cammack, 2014) to environmental politics (Andonova and Mitchell, 2010). Tensions further arise with the notion regarding the failure of the state and existing intergovernmental mechanisms to address global issues such as health pandemics, carbon emissions, and unsustainable trade (Weiss and Wilkinson, 2014; Wilkinson, 2018).
Furthermore, the rising prominence of new emerging ‘state capitalist’ economies (Stephen, 2014), including, but not limited to, Brazil, Russia, China, and India, globalisation, NGOs and international social movements has bought about a new ‘internationalism’ that challenges the Western-engineering of global governance (Murphy, 2013; Hofferberth, 2015). Confirming Hofferberth (2016), global governance goes beyond international relations as the issues in focus are no longer fixated in state centrism, instead refers to a broader range of non-state engagement in the provision of global public goods and changing nature of governance.
Recent developments in the international governance arena necessitate a more adaptive, yet arguably ambiguous and confusing, means to understand the changes in world politics through its renewed interest in non-state and transnational actors and mechanisms under the normative belief that more pluralisation, decentralisation and diffusion of power is beneficial. However, some argue that this more encompassing approach to world politics also leads to the multiple understandings of global governance and its use subjectively deployed to the purpose of the particular actor (Hofferberth, 2015, 2016). In light of such an understanding, the following section will elaborate more deeply on the recent developments in the global governance of sustainable GVCs.
Global Governance of Global Value Chains and Ethical Trade
The increasingly ‘integrated’ yet at the same time ‘disintegrated’ production economy (Hernandez, Martinez-Piva and Mulder, 2014, p. 21), the former exemplified by trade liberalisation movements and agglomeration of economies and the latter by the global dispersion of value-added activities, inscribes the two fundamental transformations in today’s global production and trade. These value-added economies encompass multiple countries throughout the whole process of its production to distribution, forming regional or global networks or organisations referred to as GVCs (UNCTAD, 2013). More specifically, Gereffi, Humphrey and Sturgeon (2005) argues that the importance of understanding these global industrial organisations, comprised of networks of expansive and borderless breadth of interstate and vertically disintegrated industrial chains, is key to understanding the global structure of industries and how and why countries are (not) able to integrate within the global economy.
Integration to the global economy entails access to developed country markets through the global production of lead firms, such as Tesco and Nike (Humphrey and Schmitz, 2000; Nadvi et al., 2004; Hernandez, Martinez-Piva and Mulder, 2014). In such a way, compliance towards the parameters of quality and trade conditions is an essential aspect of the success of the integration. The notion of governance of the production chain arises when leading firms assert control in enforcing the parameters and influencing the complexity of actor engagement within the chain, including both private and public sectors that engage in producer or buyer-driven chains (Gereffi, Humphrey and Sturgeon, 2005), without which will merely be ‘market relations’ (Humphrey and Schmitz, 2000, p. 2).
As Gereffi, Humphrey and Sturgeon (2005) argue, measuring control over the value chain overlooks the transaction costs, codifiability of information and the capability of suppliers. Others have pinpointed on the measurement of the distribution of gains in the chain in the form of income (Davis, Kaplinsky and Morris, 2018). However, recent developments in sustainable production and trade challenge such ‘non-market coordination and institutional arrangements’ (Humphrey and Schmitz, 2000, p. 4) in which a new market for environmentalism is made prominent (Nadvi, 2014; Richardson, 2015).
At the core of the commodification of sustainable GVCs lies the emerging significance of global sustainability standards since the 1990s (Mol and Oosterveer, 2015). These standards are formulated by what scholars argue to be voluntary certification schemes (Pichler, 2013), non-state market-driven governance (Richardson, 2015), global private governance (Schaller, 2007; Auld, Renckens and Cashore, 2015), and market-based instruments (Martinez-Alier et al., 2014). In essence, these governance forms emerge as frameworks for control in various streams of GVCs, the sustainable agriculture chain included.
Case Study Analysis of Roundtable of Sustainable Palm Oil
The RSPO illustrates a unique case in analysing the governance of sustainable agricultural GVCs exemplified in its absence of formal governmental authority and built up its legitimacy through a market-making certification scheme (Richardson, 2015). Established in 2004, the World Wide Fund (WWF) Switzerland formed a private sector partnership that sets and promotes sustainability standards amidst rising concerns on environmental and social sustainability (Schouten and Glasbergen, 2011; Roundtable on Sustainable Palm Oil, 2019) at the height of state failure in addressing such issues (McCarthy, 2012).
In its establishment, founding stakeholders include representatives of palm oil producers, retailers, banks, investors, and food manufacturers, including prominent UK firm Unilever, Switzerland retailer Migros and Swedish-Danish manufacturer AAK. Ultimately, the goal of the RSPO is to transform the palm oil markets into one that ensures sustainability as its guiding norm (Roundtable on Sustainable Palm Oil, 2019). Under a consensus and arguably democratic decision-making process (Schaller, 2007; McCarthy, 2012), with the highest decision-making platform being the RSPO General Assembly, all commodity chain members and NGOs are represented. Today, RSPO’s members include 4.000 members worldwide (Roundtable on Sustainable Palm Oil, 2020).
The core of the RSPO is to provide a voluntary sustainability mechanism towards the palm oil industry by engaging in the global standard-setting process and establishing a traceable and tradable certification system (Schouten and Glasbergen, 2011; Mol and Oosterveer, 2015). Every five years, RSPO members, including external NGOs, deliberate upon the roundtable’s Principles and Criteria (P&C) that focuses on prosperity, people and planet (Schouten and Glasbergen, 2011; Roundtable on Sustainable Palm Oil, 2019).
Based on the agreed P&C, palm oil-producing members are annually assessed for certification over five years. National governments can also partake in adapting the agreed P&C by formulating their own specific National Interpretations to ensure better uptake of the sustainable palm oil chain. Certified Sustainable Palm Oil (CSPO) is now applied to 19% of the global palm oil chains, most of which are bought by European retailers and less so in developing, yet palm oil import-heavy, countries such as China and Pakistan (Schouten and Glasbergen, 2011; Roundtable on Sustainable Palm Oil, 2019).
Despite its rising prominence in the global agricultural chain, in which coincides with the state’s absence in governing apparent unsustainable industrial practices such as land grabbing (McCarthy, 2012), scholars have arguably questioned RSPO’s progress in attaining their desired goal of environmentally and socially sustainable palm oil markets. Mol (2015, p. 12) argues that certification schemes are ‘symbolic tokens that codify sustainability’ that at the same time have become the de facto market-making standard for palm oil (Richardson, 2015).
As a consequence, many have noted the asymmetric power relations in favour towards Western transnational company (TNC) giants such as Unilever (McCarthy, 2012; Pichler, 2013; Martinez-Alier et al., 2014; Auld, Renckens and Cashore, 2015). Recently, the Indonesian Palm Oil Association (GAPKI) has terminated its RSPO membership due to RSPO’s lack of local adaptation, high premiums coupled with unequal returning benefits for palm oil producers. Conversely, GAPKI has resorted to its own national establishment of palm oil standards under the Indonesian Sustainable Palm Oil (ISPO) in 2011, albeit arguably less strict in enforcing sustainable values in palm oil supply chains (McCarthy, 2012).
Critical Evaluation of the RSPO and the Global Governance of Ethical GVCs
Conflicting outcomes of the RSPO governance and certification scheme raises questions upon its overall legitimacy and effectivity as a voluntary-based mechanism for sustainability. Its legitimacy, defined as internal and external stakeholder trust in the initiative (Schouten and Glasbergen, 2012; Schouten and Bitzer, 2015) becomes of utmost importance in ensuring member compliance. Increasing pressure upon the RSPO effectivity also comes in resistance of sustainable palm oil chains in import-heavy developing countries such as India and China (McCarthy, 2012). The following section elaborates in further detail critical evaluations regarding the two concerned issues from an international political economy (IPE) framework.
IPE serves as a ‘method of inquiry’ to understand the complex and changing dynamics of stakeholder interactions across time and spatial spectrum (G Allen, David Balaam, 2013). This analysis tool accounts the power relations embedded within the particular relations, including the institutions that shape and govern the way the stakeholders interact. Another dimension of this analysis also entitles an economic analysis that serves to scrutinise resource allocation. Thus, such a framework will serve as the groundwork for the following critical review to uncover the power relation dynamics in the market-driven and market-making governance of the RSPO and ethical GVCs in general. Nevertheless, Weber (2015) argues for the lack of IPE to engage with pressing asymmetrical power relations concerning race, gender, and colonialism. Therefore, the following critical evaluation attempts to broaden the scope of analysis concerning RSPO’s governance legitimacy and effectivity in relation to Weber’s argument.
First, the IPE framework sheds light upon a Western-engineered legitimacy comprising of liberal governance and global market model of the palm oil industry in which Southern industries and smallholders are disproportionately disadvantaged. Auld, Renckens and Cashore (2015) contend that this transnational governance setting is embedded upon notions of control and compliance towards a particular framework. Noting how its establishment was initiated by a hegemony of firms and organisations from the Global North without involvement from palm oil-producing countries such as Malaysia and Indonesia (Pichler, 2013), in which the latter joined only a few years later, it crystalises the fact that the goals for attaining sustainable palm oil GVCs between the founding actors and their Southern counterparts may differ and can potentially lead to RSPO disproportionately putting developing countries at a disadvantage.
To illustrate, noting the high premiums that not necessarily translate to high financial returns for producers, Indonesia and Malaysia also believe that the RSPO focuses too heavily upon the planet aspect of sustainability while both palm-producing countries reside more strongly towards ensuring the people and prosperity aspect, thus leading to their termination of the RSPO membership (Pichler, 2013; Schouten and Bitzer, 2015). Further issues arise when the RSPO’s high premium certified palm oil struggles to enter the markets in palm oil-importing countries such as China and India. Without the legitimacy and structural power to enforce certification on all its members, the RSPO will continue to face challenges in attaining sustainable GVCs as its benefits will only be partial to more developed and environmentally aware countries.
Second, despite its market-making governance, the RSPO’s effectivity in attaining sustainable GVCs hinges the involvement of state actors. The RSPO presents an embodiment of championing neoliberal mechanisms to ensure better governance and sustainable outcomes (McCarthy, 2012). With the absence of state regulation and reformation of a neoliberal state (Pichler, 2013), although believed to lead to more efficient markets and better uptake of sustainable palm oil, the RSPO ultimately sidelines the importance of national uptake for a holistic change in the palm oil supply chain. While the state itself may arguably lack in successful sustainable reforms, the RSPO governance overlooks the potentials of the state in supporting regulatory framework to address indigenous land grabbing, country trade policies, and workers rights (Schouten and Glasbergen, 2012; Mosley, 2017).
Questioning Legitimacy and Effectivity of the RSPO
Conversely, alternate forms of sustainable palm oil governance emerge as a notable innovation towards sustainable palm oil governance, albeit with inherent challenges to come. After terminating their RSPO membership, palm oil giants such as Indonesia and Malaysia have established their own national palm oil certification that ensures a local adaption of sustainable palm oil practices, although its environmental enforcements remain to be questioned. Consequently, such Western governance and market ideals hinder the legitimacy and effectivity of the RSPO from enforcing the uptake of sustainable agricultural chains as initially determined.
As part of the series ‘When in Manchester’, this piece was originally an assignment the author completed for the course Global Governance at the University of Manchester.
