A “Stick” in the World of “Sunshine and Carrots”: Using Binding Arbitration in Global Framework Agreements to Regulate Labour Standards and Multinational Corporations in Global Supply Chains

Abstract

Many multinational corporations now use global supply chains to produce goods and services. Multinational corporations at the top of global supply chains exert significant control over actors lower in the chain, and thereby contribute to low labour standards in the companies they source goods from. The contractual structures in global supply chains make the multinational corporations that enjoy this control appear to be mere commercial buyers. Global supply chains make it difficult for states to effectively regulate labour standards and enforce them against the multinational corporations. Therefore a regulatory gap currently exists in which multinational corporations contribute to low labour standards within their global supply chains free from the controls of public labour regulation.

This paper examines attempts to fill the regulatory gap. It analyses attempts to regulate global supply chain labour standards through state level public law, private mechanisms (codes of conduct and global framework agreements), and international frameworks, and finds that these have failed to fill the regulatory gap. The paper proposes that global framework agreements that include binding arbitration clauses have the potential to hold multinational corporations legally responsible for contributing to low labour standards within global supply chains, therefore filling the regulatory gap. The Bangladesh Accord, the only existing agreement of this form, is shown to demonstrate this potential. The paper concludes that global framework agreements including binding arbitration clauses should be utilised, in combination with attempts to strengthen domestic law labour regulations and enforcement capabilities, to remedy the problem of low labour standards in global supply chains. The International Labour Organisation is shown to have potential to assist this approach.