Ethical standards in emerging markets: just how different are they?

Natalie Langford - Postdoctoral Research Associate, Sheffield Political Economy Research Institute

One response from corporations has been the introduction of privately-driven standards such as multi-stakeholder initiatives. Here, companies and NGOs cooperate to produce codes of conduct which are transmitted to suppliers across their supply chains. Whilst the effectiveness and legitimacy of such ethical standards has been widely questioned (especially in terms of their exclusion of local stakeholders) there is a sense that, in developed markets, consumer pressure alongside NGO campaigning has combined to led to new forms of governance which should (in principle) correct shortcomings in the regulation of labour standards in developing countries.

Yet, global trade flows and the geographies of consumption are shifting; and emerging economies now account for a rapidly growing proportion of imports. One key question facing academics and policy makers is ‘To what extent are consumers and NGOs in the global South also concerned about social and environmental issues within supply chains?’ While ethical standards have traditionally governed North-South trade flows (via global value chains), there is a pressing need to shift the geographical focus in order to understand how regional and domestic value chains feeding Southern markets are governed in terms of ethical practices. Anecdotal claims that consumers in these countries “just don’t care” about ethics in their purchasing practices has yet to be backed up with empirical evidence; and recent studies have challenged these claims by illustrating that consumers in emerging markets make ethical choices at lower purchasing power parity than consumers in developed markets.

The recent emergence of ethical standards within Southern markets has supported the argument that consumers and other local organisations support corporate accountability in relation to the social and environmental costs of production. There are now standards governing domestic and regional markets in the South in sectors which include tea, soya, palm oil and fresh fruit. This has occurred within diverse institutional environments such as Brazil, India and Indonesia. Given that these ethical standards are locally-driven, there is hope to believe that they may hold higher levels of legitimacy and accountability as compared to equivalent standards designed by global lead firms and NGOs in the global North. One study by Schouten and Bitzer (2015) comparing standards across a number of sectors and countries indeed argues that these standards are legitimised by the role of local state actors in their creation, and, as such they reflect local norms to a greater extent than export-oriented standards.

My research explores the extent to which such claims are generalisable, and examines the ways through which global and local actors and interests shaped the development of an ethical standard called Trustea for India’s local tea market. Trustea is a consumer facing label which governs social and environmental conditions of production through a code of conduct transmitted from tea buyers to producers.  Trustea was an interesting case for exploring the extent to which it was locally-driven; particularly given the claims on Trustea’s website that it is a locally developed standard made ‘for the Indian tea industry, by the Indian tea industry’. The key members identified as driving the Trustea standard are Hindustan Unilever, Tata Global Beverages and the Tea Board of India. However, a closer look at the funders and core members of Trustea’s governance committee reveals a number of Dutch and UK organisations present. This was a surprising finding which challenged the prevailing assumption within the literature that local standards for Southern markets are ‘reactive’ standards which challenge the primacy of export standards designed by global actors.

The reasons why Trustea is driven by both global and local actors relates to shifts in the geographies of trade and consumption. By 2012, the global firm Unilever (the largest buyer of tea worldwide) had become increasingly dependent on sales in emerging markets, and by 2020 it was projected that 75% of their footprint would be in these markets (Unilever 2015). Unilever’s launch of its ‘Sustainable Living Plan’ in 2010 announced the introduction of ethical standards and certification into all markets in which it sold tea (not only OECD markets). In India, this meant cooperation with their subsidiary Hindustan Unilever. Whilst the initial plan was to roll out certification using Rainforest Alliance; institutional ‘misalignment’ in the context of the domestic market made Rainforest Alliance implementation difficult (due to conflicts with local labour law, food safety standards and informal sector challenges).

Unilever’s realisation that it needed a ‘tea specific, Indian specific code’ led the firm to seek to alternatives to global standards, and to develop a locally embedded alternative. As Unilever is a Dutch firm, it was able to approach the Dutch government to request funding. Whilst IDH (a Dutch funded organisation designed to co-finance commodity programmes with the private sector) had provided money to support certification efforts for exports, there was a growing sense within Dutch civil society that certification for exports wasn’t reaching the more problematic parts of production; such as smallholders producing for local markets. There was an appetite to develop ethical standards for emerging markets and IDH agreed to provide funding for Trustea. One condition of the funding was that Unilever partner with their commercial rival Tata Global Beverages; an Indian firm who had purchased the UK brand Tetley less than a decade earlier.

Although some (selected) local actors were then invited to participate within the stakeholder and programme committees of Trustea, the standard was largely driven by NGOs and corporations who were linked to Northern markets. This included the Dutch NGO Solidaridad, who played a leading role in creating and implementing Trustea (via their Indian registered NGO, Solidaridad Asia). While the Tea Board of India became a ‘champion’ of Trustea, many local trade unions and NGOs felt excluded from the key internal governance structures of Trustea.

Returning to the question of which actors and interests are driving forward ethical standards in Southern markets, it is clear that Trustea has developed with minimal local stakeholder inclusion. Therefore, the case questions the prevailing assumption within the literature that Southern market standards will necessarily reflect different norms in relation to sustainability governance or depend on differing forms of legitimacy. Indeed, the high degree of involvement from firms, NGOs and governmental agencies from European countries tells us to exercise caution in our optimism for more inclusive and locally driven initiatives which would better protect labour standards in emerging economy markets.