Webs of Global Regulation: The End of Westphalian Sovereignty and the Harmonization of Norms

Classic descriptions of governance embedded sovereign legal authority in the nation-state. Outside of the nation-state was anarchy in the international order; within the nation-state was domestic security provided by the state’s ability to enforce the rule of law. Today, the reduced power of the nation-state and the interconnectedness of the world have turned this situation on its head. New modes of private, transnational governance have greater effect in many developing countries than the tradition legal system of the state. The weakening of Westphalian sovereignty has come through evolving, complex systems of new rule-making authorities and enforcement agents. Most importantly, acceptance of these new legal systems has been widespread.

This paper seeks to describe this radical change in the nature of governance from a legal authority which exclusively resided in the state to chaotic, overlapping, and often privately-created legal systems. This new global governance is characterized by five main features: (1) multiple authors of regulation and enforcement; (2) increased regulation with a lack of harmonization; (3) new methods of legal enforcement based on cooperation and economic incentives; (4) governance that is joined voluntarily rather than being mandatory; and (5) a partial, but incomplete, inclusion of stakeholders in the rule-making process. This paper will examine the web of regulation governing an apparel factory as an example of new forms of governance.

After describing the nature of global governance today, this paper will attempt to draw broader conclusions about the conceptual and normative implications of this profound shift in legal authority. Conceptually, this new global governance has begun two dramatic changes: (1) the undoing of the Westphalian system and (2) the harmonization of global norms. This process is not without pitfalls, notably the lack of clear legal supremacy and a democratic deficit. Fundamentally, new forms of private, transnational governance act to harmonize norms across national borders rather than within the nation-state, offering a powerful opportunity for securing peace and justice for the entire world.

A review of the literature

The literature on new forms of governance has been rudimentary and inconsistent. Abbot and Snidal (2009) advanced a theory of “transnational new governance” which attempts to categorize a variety of international regulatory schemes. They argued that the model of transnational new governance is similar in kind to new governance within the state.[1] Kolk and van Tulder (2005) examined the codes of conduct of transnational corporations, an important aspect of new governance, and propose a matrix to analyze corporate behavior.[2] Murphy (2005)[3] and Wetterberg (2009)[4] discussed similar material less efficiently. Many articles on these topics simply take an old model and apply it to new observations or focus only on a small part of the broader web of global governance.

Scholarship that considers governance more broadly has been more effective in explaining the nature of new global governance. Slaughter (2004) described a “governance deficit” at the international level and the many approaches to filling it.[5] Levy (2005: 21, 23) described corporate social responsibility as “representing the contested terrain of global governance” and “not just a struggle over practices, but over the locus of governance authority, offering a potential path toward the transformation of stakeholders from external observers and petitioners into legitimate and organized participants in decision-making.”[6] Jenkins (2005) argued that new modes of governance should open up new areas of political contestation.[7] The conceptual framework in which new arenas of political contestation offer an opportunity to fill a global governance deficit dovetails neatly with Kaldor’s theory of global civil society. Kaldor (2003) argued that the emergence of these new spaces and actors offers an opportunity to build and influence systems of global governance.[8] This paper will use this model as the normative basis for a description of the nature of new governance.

An analysis of the nature of new governance

New governance includes five major differences from the traditional governance of the nation-state. First, new governance has many actors who hold legal authority, rather than the state exclusively. Private systems of regulation for business transactions are the most common form of new governance. Quasi-governmental agencies, such as boards of investment, are tasked with creating regulations for special economic zones and certain industries. Private transnational corporations write codes of conduct which are then expanded into a more complex and detailed system of regulation. Buyers and suppliers sign on to private, not-for-profit certification programs, which then require compliance with their own rules in exchange for the mark of certification. Stock exchange listing committees have yet another set of rules for transnational corporations. Even traditional loci of international authority such as the United Nations have rules for transnational conduct, although the U.N. lacks an effective enforcement mechanism to back it up. Rather than a vacuum of governance in the contemporary global economy, there exists quite the opposite: a complex, crowded field of actors who often write regulations independently of one another.

Second, the presence of many self-styled legal authorities has led to a rapidly expanding body of regulations, which often overlap, contradict each other, and fail to create a coherent system of law. So much regulation from so many actors results in a frequently occurring problem of supremacy. If two overlapping sets of rules contradict each other, which is to be followed? In the traditional legal structure of the nation-state, a supreme legal authority (e.g. the U. S. Supreme Court) has the power to resolve these disputes within the law. There is no such legal authority for the new, international system of governance. While new governance has many rules, it has yet to develop meta-rules to govern supremacy and rule-making authority.

Third, new forms of governance have developed new methods of enforcement based on cooperation and economic incentives, rather than the traditional penalties of imprisonment and fines imposed by the nation-state. In old governance, the state had a monopoly on the use of force, which allowed it to impose its laws through the threat of sanction.[9] Actors today can create governance but usually do not have the ability to use force to ensure demands are met. Instead, governance institutions such as corporations must different methods to ensure adhere to regulations. The first is cooperation. For example, transnational apparel corporations will work with suppliers to mitigate risks and improve labor standards after violations are found. However, these corporations also hold an economic axe over non-compliant suppliers. Corporations threaten to sever economic ties with suppliers who fail to comply with their regulations. Compliance is often a stipulation within the contract governing their relationship. These new mechanisms of enforcement are more horizontal than previous methods of top-down state enforcement.

Fourth, much of the new governance is entered into voluntarily, in sharp contrast with the mandatory nature of nation-state governance. For instance, factories can choose whether or not to sign a contract with a buyer who has an extremely rigorous code of conduct. But private citizens are unable to choose whether or not to subscribe to their country’s laws, especially if they face restrictions on emigration. However, exit is often made quite difficult, because of the brand risk associated with any diminution of labor standards. In part this is because of the nature of the creation and propagation of regulations.

Fifth, the rule-making process includes some, but not all, stakeholders, leaving a democratic deficit in new systems of governance. Some stakeholders, including global civil society, have been included in the creation of regulation. The U.S. government used informal influence to encourage corporations to join the Apparel Industry Partnership in 1994, an industry group promoting improved working conditions.[10] The United Nations has launched similar initiatives such as its Business & Human Rights Resource Centre.[11]  Members of global civil society, such as labor activists, have been instrumental in setting the agenda and sparking media attention around factories’ working conditions. However, real democratic representation for the workers – those actually governed by these corporate codes – is almost entirely absent. This democratic deficit presents serious obstacles of legitimacy and sustainability for new governance systems, as this paper describes in greater detail below.

To summarize, new systems of governance outside of the nation-state have more actors writing and implementing regulations; more, and more incoherent, regulation in toto, without clear supremacy; new methods of enforcement that rely on cooperation and economic incentives rather than force; voluntary entrance into systems of regulation; and, finally, some government and civil society input in the writing of regulation but a continued democratic deficit. To illustrate these characteristics of the nature of new governance, this paper will now examine an apparel factory in Sri Lanka.

Governed by a web of regulation: an apparel factory in Sri Lanka

Twenty years ago, the laws governing labor standards in a Sri Lankan apparel factory were exclusively from the Sri Lankan government. Today, an enormous and complex web of regulation from a variety of state and non-state actors directs the day-to-day working conditions of employees on the factory floor.

First, the factory has its own internal rules. Executives working in the factory, in particular the CEO, the COO, and the Director of Human Resources, set rules that affect a range of issues such as health and safety conditions. Within the factory, a designated compliance officer works to implement regulations from these executives as well as higher levels. The factory itself is owned by an manufacturing conglomerate, which sets company-wise policies on, for example, the permissible number of working hours. The conglomerate has its own team of compliance officers, who filter compliance requirements from above and implement them with the compliance officers and executives within the factories. Up to this point the implementation of governance is vertical. Above the manufacturer are a number of national and transnational actors which operate on a more horizontal platform.

The factory sits in an Export Processing Zone (EPZ), which was set up by the government with most of the regulatory authority delegated to a quasi-governmental organization, the Sri Lanka Board of Investment (BOI). The BOI has written a set of regulations for the industries within the EPZ, and it conducts regular audits to ensure compliance. The BOI enforces its regulations with a licensing mechanism. Factories in the EPZ are required to have a license, which can be suspended in the case of repeated noncompliance. In practice, the BOI regulatory mechanism is quite weak, because it is also tasked with spurring economic development by creating a business-friendly environment. The BOI is still subject to the laws of the state itself.

The Sri Lanka Ministry of Labour is tasked with enforcing the labor laws of the state, which are passed by the Sri Lankan Parliament. However, these laws are not at all stringent in comparison with the labor regulations applied by private corporations and certification standards. The Ministry of Labour has also delegated much of its authority to the Board of Investment, and does its own inspections only rarely.

Adidas has a corporate code of conduct for its suppliers, which it mandates that they follow as a condition of the business relationship, or contract. In the past 15 years, this code of conduct has grown from a short list of vague standards to an extensive series of documents that now include many specific, or black-letter, rules that govern working conditions for labor. Adidas stipulates compliance with its code of conduct as part of its contractual agreement with the supplier. It enforces the code of conduct through semi-annual and quite rigorous factory audits by direct employees of Adidas. These auditors do spot checks in the factory itself and also closely examine the policies and licenses of the factory. Instances of repeated noncompliance are referred to Adidas’ legal division for possible termination of the contract.

Adidas’ code of conduct for suppliers maintains a nominal deference to the supremacy of the state. For instance, on child labor, it states: “Business partners must not employ children who are less than 15 years old, or less than the age for completing compulsory education in the country of manufacture where such age is higher than 15.”[12] In practice, Adidas is much more concerned about enforcing its own rules than the state’s. However, there is some spillover; to some extent, transnational corporations are subsidizing legal enforcement for governments in developing countries.

Adidas itself is subject to a litany of state and non-state regulation, which it passes on to its suppliers. The United States government has certain laws that apply to companies that export to the U.S. The Customs-Trade Partnership Against Terrorism (C-TPAT), introduced in 2001, requires companies that export goods to the United States to submit to security inspections or face extended wait times at the border.[13] The U.S. sends its own auditors to factories in other countries to ensure compliance. Other U.S. laws extend beyond its own borders as well, such as the Foreign Corrupt Practices Act (FCPA).

Adidas must also submit to another system of regulation in order to be publicly listed on stock exchanges. Each exchange has a listing committee that analyzes not only Adidas’ balance sheet and corporate governance policies but also their risk exposure within its supply chain. Unsafe labor practices or a lack of effective enforcement of a corporate code of conduct is increasingly considered an unacceptable risk.

The factory used in this example also produces apparel for several other large Western brands. Some of these brands, rather than doing their own audits, require an external certification process to ensure proper labor standards are met. One of these certification schemes is the Worldwide Responsible Apparel Partnership (WRAP). WRAP imposes a similar set of demands as Adidas with an equivalent (although not as rigorous) audit process.

This example of an apparel factory only captures the slice of new governance which regulates labor standards in the supply chains of transnational apparel corporations. This particular factory also has one of the best compliance audit ratings in the world. But it is not simply an outlier; instead, this factory exemplifies the complex, interwoven web of regulation which makes up new governance.

Conclusions

More broadly, the new governance described in this paper exhibits two main trends. The first is the dissolution of the Westphalian system of nation-state sovereignty. The second is the harmonization of global norms. While problems for global governance exist, such as questions of supremacy and democracy, increased civil society participation in global governance seems to offer an opportunity for a better world.

The Peace of Westphalia created sovereignty, which allowed for the systemization of rules into laws under a central legal authority. Under democratic sovereignty, legal authority emanated from popular consensus (with the antimajoritarian protections afforded by the judiciary). New governance has undone the Westphalian system. No longer are states the exclusive authors and enforcers of legal regulations. Instead, new actors such as transnational corporations have created their own systems of regulations.

The web of regulation surrounding the apparel factory in Sri Lanka initially seems confusing and incoherent – more of a shambles than a web. But underneath the various codes of conduct, certification mechanisms, and licensing standards runs a similar theme: making norms for labor standards in the developing world equivalent to those in the developed world. No longer can Nike buy shoes cheaply from a sweatshop in Indonesia and sell them at a large mark-up in America. Consumers and rule-makers today demand equality in working standards, if not wages. This harmonization of norms is perhaps the most important effects of global governance.

Looking ahead, new governance will confront two major problems. The first is dispute resolution and the arbitration of supremacy. How will transnational corporations resolve disputes with national governments? Existing international arbitration institutions, such as the International Centre for Settlement of Investment Disputes (ICSID), are hampered by problems of legitimacy and bureaucracy. Without a higher governing body, how will transnational corporations and governments decide on the supremacy of their respective legal systems?

The second problem for new governance is its democratic deficit. Rule-making authority still rests at the top, e.g. at Adidas’ headquarters in Germany, despite some limited success by activists to become involved in the rule-making process. Certification schemes often offer seats at the negotiating table to traditional civil society groups such as NGOs. But even these actors do not truly represent the interests of the governed — in the case of Adidas, the workers themselves.

The traditional form of governance – the nation-state – faced its own problems of legal supremacy and a democratic deficit, as well. Many governments were able to overcome these difficulties through the inclusion of additional actors – what we now call civil society. Perhaps a global civil society, even in a de-centralized and atomized world, can create a web of governance that resolves these problems and harmonizes global norms in order to construct a more free and just society for all the world’s inhabitants.

Much of this work is drawn from unpublished research conducted in the summer of 2010. I owe thanks to the Georg W. Leitner Program in International and Comparative Political Economy Award, the Saybrook College Master’s Office, and the Richter Fellowship at Yale University for their generous support.