Social, political, historical events Views and comments

Law and Global Value Chains at the Time of Covid-19: A Systemic Approach Beyond Contracts and Tort

The author of this post is Tomaso Ferando, Research Professor at the University of Antwerp. This is the third in a series of posts aimed to explore the impact of the coronavirus crisis on the phenomena of mobility and exchange that form the constituent elements of private international law, and to discuss the responses that private international law rules provide to the challenges posed by the crisis itself (see the previous contributions by Giovanni Chiapponi and Matthias Lehmann). The EAPIL blog welcomes further contributions on these topics, either in the form of comments to the published posts or in the form of guest posts. Those interested in proposing a guest post for publication are encouraged to contact the blog’s editorial team at   

If we leave aside for a second the worrisome death toll that the covid-19 virus is claiming, there is no doubt that the spread of the virus from one wet market in Wuhan to more than 162 countries sheds light on interesting aspects of the contemporary world such as the existence of privileged patterns of human mobility that can facilitate the diffusion of diseases, the impact of aviation and daily commuting on greenhouse gases emissions, and the porosity of national borders (and people’s minds) when the threat is hidden in the lungs of businesspeople and tourists rather than in the lives of refugees and economic migrants.

Among economists, the ongoing pandemic has also triggered concerns with regards to the slowdown in production and consumption and the consequences that it is having on global growth’s projection, international trade and the performances of specific sectors such as manufacturing, energy, aviation and tourism. In the words of Japanese Finance Minister Taro Aso: “The spread of the new coronavirus is a public health crisis that could pose a serious risk to the macro economy through the halt in production activities, interruptions of people’s movement and cut-off of supply chains.”

The reliability of supply chains, i.e. the complex network of people, materials and logistic that makes the continuous provision of goods and services possible, is under the spotlight. In few weeks, the alleged efficiency of global networks of production has been compromised by the lockdowns of the Hubei province imposed by the Chinese Government, by the emergency measures adopted by countries all over the planet and by the change in patterns of consumption, with some goods that experienced unexpected high demand and other that lost any traction.

In a global scenario characterized by hyper-reliance on China as the factory of the world, the isolation of 15 Chinese provinces that was ordered at the end of January did not really matter because it concerned more than 57 million people, which is less than 1% of the global population. It mattered because that corner of the world is responsible for almost 90% of the Chinese GDP and 80% of the Chinese export: despite the global nature of the supply chains, it didn’t take long for such geographically defined measures to generate enormous repercussions on the global economy.

In the last weeks, Global Value Chains’ experts, governments, workers and citizens have been increasingly reflecting on the high level of risk and fragility that is intrinsic to overly integrated and interdependent value chains that rely on just-on-time worldwide logistic, depend on the supply of components provided by hundreds of intermediary producers located in different corners of the planet (although mainly in China) and are based on the uninterrupted coordination among all the parties involved – regulators, producers, traders, retailers and consumers alike. After the Japanese earthquake that suspended numerous production line, covid-19 seems to be the ultimate stress test for the global economic system: one that may leave the world economy – and global health – significantly changed.

For lawyers interested in the relationship between law, global capitalism and the production and allocation of value across jurisdictions and among people, there is no doubt that the speed of the economic contagion and the content of the regulatory responses aimed at mitigating or preventing the economic contagion provide a new opportunity to discuss the central role that law plays in constructing, weakening, preserving, oiling and – in some cases – destroying,  the multi-layered, multi-territorial, inter-dependent and extremely fragile expression of contemporary financial capitalism that is often described with the less controversial notion of Global Value Chains.

Why does law matter for Global Value Chains?

Although it may not be evident, law is central to the existence, functioning and distributive processes that are related to global value chains. This is certainly the case of contract law, which is often represented as the backbone of a complex system of horizontal interaction between suppliers and purchasers, the glue that keeps them together and that guarantees, through a system of standards, requirements, alternative dispute resolution mechanisms and public enforcement (and along with reputation and the possibility of long-term commercial relationships), that goods and services of the right kind are delivered on time – normally by the global brand company that consumers recognize. But this is not all. As we discuss in the Manifesto on The Role of Law in Global Value Chains, the link between law and supply chains go beyond the organization and management of their complexity and concerns the creation and allocation of value itself: property law, labor law, trade and investment law, intellectual property law, health and safety law, tort law, etc. not only determine commercial choices on where to source, the logistic routes to follow and the overall geographical footprint of the chain, but also who will be appropriating the value generated by the combination of labor, nature and capital.

When we think at the impact that the lockdown in the Hubei province had on a car manufacturer like Toyota, that relies on 2,192 distinct firms (both direct and indirect suppliers) to source and assemble the circa 30,000 pieces needed to produce a car, we can certainly think at the contractual implications of delays and breaches or, as suggested by the Digital Supply Chain Institute, at the way global brands may use contract to “develop an ecosystem of suppliers that have a commitment to meeting your requirements, even in the face of challenges,” an advice that we may interpret as the construction of legal obligations that overcome the economic and logistic difficulties of lockdowns. But this is not everything.

Another way of thinking about law, coronavirus and global value chains is to ask what legal structures have contributed to the construction of chains, like automotive, precision instruments and communication equipment, that are strongly dependent on the inputs originating from one country. Then, we would not talk about contracts, but about trade liberalization, the adoption of the TRIPs, labor and fiscal requirements, the non-internalization of environmental externalities in China or in the market of destination, the use of legislation to provide public subsidies to oil, and the whole set of legislative and regulatory forces that pushed production away from Europe and the United States and pulled it into China. From this perspective, law in its widest and most diverse meaning is one of the main reasons why the global economy is structured around supply chains and the health crisis has triggered a rapid economic contagion.

Moreover, law is central to the responses offered by governments across the world in their attempt to limit the impact of the economic contagion or improve their position in the supply chain by seizing a larger share of the – future and possible – pie (what is generally known as ‘upgrading’). For example, governments around the world may perceive the slowdown in Chinese production as an opportunity to provide financial and regulatory support the production sites capable of filling the current gap or to attract future investments by companies interested in diversifying their sourcing or in delocalizing away from a region where production is particularly exposed to health risks. Similarly, governments of countries strongly dependent on oil and commodity export (like Saudi Arabia, Chile, Brazil, Norway, etc.) may use their regulatory and legislative powers to reduce the cost of production and extraction – with the consequent implications on society and the environment – or try to create the conditions to diversify their economies and reduce their exposure to the systemic risk of a highly interconnected economy.

Independently on the regulatory or legislative interventions that will be adopted, there is no doubt that law will be central to designing the future geographies of global supply capitalism. More importantly, law already has a core role in redefining the way in which value is extracted and distributed and on the allocation of power between workers, capital and nature. With the help of one concrete example, the next section shows the importance of adopting a systemic approach to the interaction between supply chains and law, specifically through the lenses of value, coercion and redistribution.

Law and State of Necessity at the Service of Global Value Chains

We all know too well that masks and hand sanitizers may significantly reduce the risk of contagion. We also know that they are in high demand, extremely hard to find and that stocks cannot be produced at the speed that is needed by hospitals, let alone the totality of the world population. What may be less known is that before the outbreak of the virus China – yes, China – was producing more than a half of the N95 sanitary masks used by medical personnel around the planet, and that in the last month the number has multiplied by ten thanks to the financial support of the government and the conversion of factories from iPod assemblers into masks producers.

Given the dependence on Chinese provisions and the limited national production, individual European countries and the European Union stepped into the supply chain: public procurement, legally determined maximum prices and export bans have been three of the measures adopted to redesign the shape and reach of the chains. In particular, Italy, Czech Republic, Germany and France used their regulatory powers to ban or require ad hoc administrative authorization to the export of any protective equipment, directly redefining the extension and distributive effects of the global supply chain. In this context, the European Commission represents an illustrative example of the multiple ways in which law and regulatory power can shape the geography and content of supply chains. On 14 March, the Commission threatened to open an infraction procedure against Germany to favor the conclusion of a deal with Italy for the purchase of 1 million masks: the fear of a sanction opened a new route for the global supply chain of masks that would have otherwise not being in place. On 15 March, it published the so-called implementing act requiring that any export of face masks and medical to non-EU countries be subject to authorization by member states, thus limiting the possibility of the supply chains to reach third countries and their people. On 16 March, it launched a joined public procurement with member states for testing kits and respiratory ventilators. And the lockdowns have only started.

However, the story of the global supply of masks and hand sanitizers is not only one of public incentives, trade dependence on China and the strategic use of the state of health necessity to justify restrictions to trade or interventions in the global supply chain with significant impact on the availability of crucial medical equipment across Europe and in countries outside the EU potentially less prepared than the European Union in avoiding the contagion. The sudden surge in the demand for medical equipment is also the story of the women and men who in the production lines across the planet and the competition between countries and producers to guarantee a cheap and quick supply.

In Taiwan, Czech Republic, Kerala, Israel and Hong Kong alike, hundreds of thousands of prisoners have been organized in production lines to supply their ‘unfree’ labor to the global demand for masks and sanitary products, a situation that border on paradox if we consider the recent strikes in Italian prisons due to the poor hygienic conditions and the draconian confinement measures introduced to prevent the spread of the virus among prisoners. In Hong Kong, women inmates at the Lo Wu prison have volunteered – or been asked, according to other sources – to work night shifts to make 2.5m face masks a month for a monthly compensation of HK$800 (£80), a sum that is significantly under Hong Kong’s minimum wage. In Israel, inmates in the Ayalon and Rimonim prisons – two of the complexes where Palestinian prisoners have recently been on hunger strike – have been producing  face masks will serve police officers, firefighters and health inspectors. In the State of New York, the governor has promised that 100 gallons a week of “NYS Clean” will be distributed for free to residents, schools and the Metropolitan Transportation Authority: behind them, there is the work of nearly 100 inmates in the State’s prisons who perceive an average hourly salary of $0.65 cents, significantly lowered than the $15 an hour in New York and $11.10 in the rest of the state.

Yet, poorly paid and exploited labor is not only a prerogative of newly established supply chains aimed at providing cheap and abundant emergency medical equipment. In these weeks more than ever, factory and logistic workers who cannot operate from remote are fighting an even harder battle against emergency decrees that often abide by the imperatives of competitiveness, productivity and the need to keep the global supply chain running. Because, even in the state of necessity and the risk for the workers’ health, there are supply chains that have not been halted or – tin the case of logistic workers and couriers – there has been an increase in demand. Excluded from the lockdown, factory workers and operators in the logistic sector depend on the decisions of their employers and on the implementation of safety measures that are often incompatible with the production line and the security procedures.

In Italy, for example, FCA Fiat Auto decided not to close the factories producing intermediate components for international supply chains and the National Association of the Automotive Industrial Chain (Antia) released a manifesto on behalf of the Italian automotive sector asking “workers to resist and continue in the effort to maintain the international competitiveness of one of the leaders of the Italian economy.” The fear of losing its place in the global supply chain and the absence of a strong regulatory intervention converge in requiring workers to leave the safety of their houses and assume a higher risk than most of the national workforce. In the logistic sector, Amazon has announced 100,000 new jobs to increase its emergency delivery capacity both in Europe and the United States. The positive moment for the company and the need to keep the business going have their repercussions on workers and working conditions. In Italy, the Amazon workers in Torrazza, Piedmont, organized a protest against the company’s decision not to close the operations after one of the employees tested positive to covid-19 and to just quarantine part of the workforce and sanitize the warehouse. In Piacenza, near Milan, Amazon warehouse workers are on strike to denounce the company’s lack of appropriate response to the multiple coronavirus cases across Europe and the incompatibility between the company’s procedures and the health and safety requirements imposed to the whole country with the Decree on 10 March. Not to talk about the truck drivers, farm workers and the deliverers whose work is essential to making everyone else’s isolation possible and is legally excluded from the lockdown but have not received any specific form of guidance, protection and support in the legal construction of the state of emergency.

Law and Global Value Chains after covid-19

The coronavirus pandemic is already leaving an indelible mark on both global health and global economy. In this context, the role of law as one of the main tools the construction of interdependent world and interconnected supply chains cannot be overlooked. Similarly, a systemic and critical approach to law can help better understanding the rationale and distributive effects of national and regional interventions at the time of the global state of emergency. Yet, it is also important to focus on the space that law will play in shaping lives, interactions and commercial interconnections once the biological threat is over. As a matter of fact, there are at least three main lessons that we can learn from what is happening.

1. First of all, it is clear that states, national economies and citizens (above all non-skilled workers, consumers, and the most vulnerable) are exposed to highly volatile and fragile global supply chains. Law was central to the construction of the present complexity and could be a passive observer of the continuous delocalization of production away from Europe into the neighbor countries or in the loss of works without any form of public support. However, it can also intervene to subordinate market dynamics to the needs and interests of the public. Financial and regulatory incentives, bans, public procurement, universal basic income, fiscal coordination and other measures can be adopted to shape and redesign the geographies and distributive implications of global commodity capitalism. Why, therefore, not using this opportunity to rethink the relationship between states, supply chains and citizens? Why not recognizing the precariousness of supply chains and recognize the inevitability of legislative measures aimed at redistributing wealth and income? Why not using public prerogatives to build resilient, affordable, sustainable and reliable chains – for example for food and medical equipment – that guarantee citizens’ rights and essential needs and are spared from the uncertainties and profit-driven prerogatives of global competitiveness?

2. Secondly, the pandemic is revealing what jobs (factory and logistic workers) are truly essential to global supply capitalism and how their indispensability is often twisted against them to ask for more without providing enough (for example, going to work even if they are exposed to high risk of contagion). Yet, the actions of resistance undertaken in Piacenza, Torrazza and in other logistic and production sites across the world reveal the disruptive potential of strikes and protests in the context of just-on-time and transnationally coordinated supply chains. In the absence of adequate responses from the state and their employers, warehouse, automotive and manufacturing workers in Italy – and soon elsewhere in the world – are leveraging their power as potential choke points of transnational supply chains, bottlenecks of disruption in a system that depends on their labor but does not recognize it with salaries and precautions. In light of, national labor law will territorialize the transnational character of supply chains and co-define their pace and the distributional implications: will future labor law continue to be conceived as an opportunity to smoothen global production and circulation of goods/services? Will it favor automation and the replacement of humans with machines in order not to lose investments and growth opportunities? Or will it recognize the centrality of workers in the continuation of global supply capitalism and strike a new balance?

3. Finally, the health-economic crisis is highlighting the socio-environmental risks behind the mantra of competitiveness and the continuous search for cheap inputs (labor, nature, animals, etc.). The economic downturn is closely linked with the hyper-dependence on China as the (cheap) global factory. Some of the last epidemics (covid-19, swine flu, avian flu and the ‘mad cow’) were all triggered by lack of consideration for animals and the dire exploitation of their flesh and environment. On the other hand, the reduction in greenhouse gases, the rediscovery of social interactions, the abandonment of unnecessary consumerism and the rebirth of solidarity are proving that human and non-human beings can – and must – go slower. This is not an invitation of a perennial state of exception, but an invitation to assessing the compatibility of global supply capitalism with the objectives and limits of people and planet. Are we going to get more or the same or take advantage of this situation to pause and reflect? So far, the use of underpaid inmates to address the urgent need for increased production of masks and hand sanitizers and the reduction in the price of oil to stimulate the economy demonstrate that both private and public solutions to the crises have been looked for within the same unsustainable framework. Without a shift away from cheapness and competitiveness, the interlinked future of supply chains, health and global economy can only be bound to more crises, more contagions, more deaths and more precariousness. Is it too ambitious to join Capra and Mattei and hope that lawyers will be in the front line of a radical move away from social and environmental self-destruction and in the adoption of new a new paradigm that does not see law as an enabler of value accumulation through global supply chains but as a tool to build a new ecological order informed by principles of environmental and social justice?