The Gap-Filling Role of Private Environmental Governance: A Case Study of Semiconductor Supply Chain Contracting.

• Author: Roberts, Cassie D.

TABLE OF CONTENTS I. INTRODUCTION 592 II. FOCUSING IN ON THE SEMICONDUCTOR INDUSTRY 593 A. Introduction to the Semiconductor 593 Industry B. Why Does This Industry Serve as a 594 Fitting Case Study? III. GOVERNING INTERNATIONAL ENVIRONMENTAL 595 AGREEMENTS A. The Basel Convention 596 B. The Rotterdam Convention 597 C. The Stockholm Convention 598 D. Where These Conventions Stand in the United States 600 E. Summary of the Governing International 600 Environmental Agreements IV. PRIVATE ENVIRONMENTAL GOVERNANCE IN THE 601 ELECTRONICS INDUSTRY A. What Function Does Private 601 Environmental Governance Serve? B. The Growing Role of Private Environmental Governance in Supply Chain Contracting 605 1. The Greenhouse Gas Protocol's Scope 3 Standard 606 2. The Marine Stewardship 608 Council's Blue Label Sustainable Seafood Initiative 3. How is Private Environmental 610 Governance Making an Appearance in Semiconductor Industry Supply Agreements? 4. Summary of Private 618 Environmental Governance in the Semiconductor Industry V. METHODOLOGY & FINDINGS 618 VI. WHAT ARE THE IMPLICATIONS FOR FUTURE 622 REGULATION OF HAZARDOUS WASTES AND SUBSTANCES IN THE SEMICONDUCTOR INDUSTRY? VII. CONCLUSION 623 I. INTRODUCTION

Companies must conform to various standards of conduct, stemming from domestic legal requirements, foreign laws and the norms of the countries in which they operate, and rules and regulations promulgated by a wide array of influential nongovernmental organizations. To the extent those norms and laws are reflected in international environmental agreements that have not been implemented in the United States, American companies are vulnerable to legal challenge or decreased business opportunities if they comply only with domestic legal requirements.

Enter private environmental governance, which interacts with public environmental governance in a variety of ways, including supplementing, superseding, undermining, or simply filling in gaps inherent in many public efforts. Instead of merely reacting to continually evolving global environmental standards, semiconductor firms have embraced private environmental governance by proactively implementing self-regulating standards to minimize any adverse impact external intervention might have on their supply chains and manufacturing operations more generally. These self-regulating standards are not uniform across the semiconductor industry; instead, individual manufacturers develop their own standards with which they then require their suppliers to comply.

The objective of this Note is to determine the role supply chain contracting plays in private environmental governance, primarily by analyzing the documents governing toxic chemicals that accompany supply chain agreements. In addition, this Note relies on sustainability reports, annual reports, and other publicly available information provided by American semiconductor firms that illuminate how these firms communicate the presence of toxics in their supply chains to the public and how they attempt to regulate those toxics. This Note details the primary mechanism several key firms in the semiconductor industry use to regulate toxics through their supply chains, examines possible reasons these firms might be policing the toxic chemicals in their supply chains, and concludes that the private regulation of toxics through supply chain contracts fills gaps created by the US government's failure to implement international toxics agreements, at least at the federal level. Additionally, this Note highlights the firm-specific nature of these standards and recommends a uniform approach across the semiconductor industry, or a broader approach across manufacturers more generally. As an alternative to uniform standards, this Note proposes the creation of a database to compile the various firm-specific requirements, which would eliminate some of the burden individualized firm standards put on suppliers serving multiple firms or even multiple industries.

2. FOCUSING IN ON THE SEMICONDUCTOR INDUSTRY

   1. Introduction to the Semiconductor Industry

      The semiconductor industry majorly impacts the everyday lives of citizens spanning most of the globe. Semiconductors are the microchips that control all modern electronics. (1) Although these microchips are safe in their manufactured, useful form, large amounts of high-grade chemicals are used to produce them, (2) including: highly corrosive hydrochloric acid; volatile solvents like toluene, benzene, methyl chloroform, and acetone; toxic gases including arsine; and metals including arsenic, cadmium, and lead. (3) Unsurprisingly, many of the chemicals utilized, including those listed above, and the waste they ultimately produce, are hazardous. (4) As a result, these chemicals are regulated under a number of international agreements, domestic laws, and increasingly by manufacturers themselves through supply chain agreements with the companies that supply their raw materials and component parts.

   2. Why Does This Industry Serve as a Fitting Case Study?

      The American semiconductor industry may serve as an instructive case study in private environmental governance because it generates tremendous profits and has achieved great success in producing more efficient, better-performing electronic components while simultaneously developing more sustainable manufacturing processes. (5) In 2015, the global semiconductor industry generated USD 335 billion in sales. (6) The American semiconductor industry has the largest market share in the global semiconductor industry, controlling over 50 percent of the market. (7) Further, electronics constitute the single largest American export category, worth more than USD 120 billion per year, and semiconductors are a key component of almost all electronic products. (8) Exports of semiconductor components themselves, worth USD 43 billion, were second only to the export value of automobiles and aircraft. (9) United States-based semiconductor industry global sales have seen an average annual rate of increase of 14.6 percent over the twenty-year period from 1994 to 2014. (10)

      Of particular relevance to supply chain contracting, the US semiconductor industry conducts about 52 percent of its manufacturing in the United States. (11) Since not every raw material needed in semiconductor manufacturing is readily available in the United States, American semiconductor companies are importing raw materials (and, in some cases, pre-manufactured components or component parts) into the United States. (12)

3. GOVERNING INTERNATIONAL ENVIRONMENTAL AGREEMENTS

   This Note explores three international agreements that govern aspects of hazardous substances or wastes: the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes of 1989 (the Basel Convention), the Rotterdam Convention on Prior Informed Consent of 1998 (the Rotterdam Convention), and the Stockholm Convention on Persistent Organic Pollutants of 2001 (the Stockholm Convention). These Conventions differ from each other in a number of ways, but for this analysis, the key difference is the way in which they choose which substances to regulate and, consequently, the substances they ultimately cover. These agreements--and the US Congress's failure to implement them--illustrate the gap between international law and domestic law that creates a challenge for American companies that operate on the international stage.

   1. The Basel Convention

      On March 22, 1989, the Basel Convention was adopted in response to public outcry following the discovery that developed countries were depositing toxic wastes in Africa and other parts of the developing world. (13) The Basel Convention seeks to "protect human health and the environment against the adverse effects of hazardous wastes" (14) by prohibiting trade in such wastes when (1) the importing country fails to provide written consent; or (2) the exporting country has reason to believe that the particular wastes will not be handled in an environmentally sound manner. (15) The Basel Convention covers an array of "hazardous wastes" that were selected by the drafters based on their source, composition, and characteristics, plus "other wastes," a category that includes household waste and incinerator ash. (16) These "other wastes" are not generated by the semiconductor industry, and are included in this description of the Basel Convention solely for the sake of completeness. Wastes may be deemed "hazardous wastes" for the purpose of the Basel Convention if they (1) are both listed in Annex I and possess any of the hazardous characteristics contained in Annex III, (17) or (2) are considered to be hazardous wastes by the domestic legislation of the exporting, importing, or transit party. (18)

      The Basel Convention prohibits the export of any hazardous or other waste until the importing and transit nations have authorized the transport in writing. (19) The authorization process requires the participant countries, the disposer, and the exporter to share information regarding the waste itself, including the nature and amount, and the contract specifications governing waste management. (20) Under the Basel Convention, the parties themselves independently choose whether to prohibit the import of hazardous or other wastes into their respective counties. (21) If a party chooses to prohibit such imports, it is then prohibited from exporting said waste. (22) Since the parties themselves ultimately decide whether to prohibit the import of a particular hazardous waste, scientific considerations play, at most, an indirect role and are subject to the individual country's values, resources, and priorities.

   2. The Rotterdam Convention

      The Rotterdam Convention, adopted on September 10, 1998, seeks to protect human health and the environment by encouraging cooperation and facilitating information-sharing between parties in the international trade of certain hazardous materials. (23) A party in each...