A fresh look at global value chains
environmental side, legislation seeks to prevent environmental degradation in the production process.”
Global value chains are a central part of the world economy, and components often cross borders multiple times before a product eventually reaches the commercial market. Professor Poul Fritz Kjær tells us about his research into the long history of global value chains, and how it could influence their future regulation. The global trade system often involves goods, components and capital crossing borders multiple times, and products gain value as they move closer to the commercial market. The starting point may be the extraction of raw materials in different parts of the world, for example coffee, sugar or valuable metals, which are then transported, refined and transformed into components of various products. “Refining these products increases their value, and this increase takes place while they are moved across borders,” says Poul Fritz Kjær, a Professor in the Department of Business Humanities and Law at Copenhagen Business School. Some people have argued that this essentially represents a continuation of historical colonial practices, when resources were extracted from the global South before being transported to more developed markets, yet Professor Kjær says there is a key difference. “The activity might be the same, but the legal and normative framing is different,” he says. “In
46
a colonial context you would typically rely on asymmetric legal norms, essentially an unequal relationship, whereas today we have, legally and formally speaking, equal partnerships.”
Global Value Chains A multi-national company may establish a partnership with a company in a developing country on a formally equal basis for example, in what appears to be a symmetrical relationship. However, there is a debate over whether this shift from asymmetrical to symmetrical relationships makes a practical difference on the ground, an issue that Professor Kjær is exploring in the Global Value Chains project. “We’re looking at the extent to which modern global value chains can be considered a continuation of previous forms,” he outlines. The term ‘global value chain’ dates back only to around the 1970s, but Professor Kjær argues that they existed long before then. “We have had value chains for a long time, they have just changed in nature. The question then is how much continuity or discontinuity there
is between the present and previous forms,” he continues. “In one part of the project we’re investigating the history of global value chains, one of the many cases we are looking at is the wine industry in Algeria, which used to be the world’s fourth biggest wine producer and at some point the number one exporter, before it gained independence from France in 1962.” The country was formally part of the French Republic up to this point, so there were no customs, which meant they could freely import wine into mainland France. Mass-produced, fairly cheap, Algerian wine outperformed French wine in the domestic market for a sustained period, leading to the introduction of new rules. “Rules were established around provenance, that Bordeaux wine could only be produced within a certain distance of Bordeaux for example, and standards were tightened,” explains Professor Kjær. These same rules within an EU framework are being used today to protect the French and European wine industry against a different set of competitors. “Now the industry is using
EU Research
Case studies
Department of Business Humanities and Law
it to protect themselves against imports from Chile, Australia, and South Africa for example. They’re arguing that in order to be considered ‘proper’ wines, they need to live up to French and European standards, and that they shouldn’t be allowed onto the market otherwise,” continues Professor Kjær. “The rulebook and the legal toolbox which are being used to structure the global wine market today were developed during the colonial period, a historical legacy that we’re looking into in the project.” Researchers are also looking at the empirical question of how global value chains operate in practice on the ground today, against the backdrop of an evolving legislative framework. A broad range of measures have been passed over recent years to try and regulate global value chains, such as the UK Modern Slavery Act of 2015,
www.euresearcher.com
the French Corporate Duty of Vigilance Law of 2017, the German Supply Chain Due Diligence Act of 2023 and the EU Corporate Sustainability Due Diligence Directive, which entered into force in 2024 following a consultation period. “Interested parties could submit their concerns, proposals and ideas. The majority of submissions came from European and Western companies. However, people in the countries likely to be affected were not really involved in the process of drafting the legislation,” says Professor Kjær. This directive and other pieces of legislation are designed to essentially transpose European or Western norms into other parts of the world. “This is about establishing certain standards, that child labour can’t be used in the value chain for example, and ensuring safety at work,” outlines Professor Kjær. “On the
The question then is whether these various pieces of legislation are having the desired effect, are leading to lasting change in working practices, or whether they are being circumvented. “Are they merely a tickbox exercise? Or are they actually having practical effects?” asks Professor Kjær. The project team are exploring these questions through case studies on the pharmaceutical, wine and trade fairs industries, looking at how value chains operate in different parts of the world. “We have case studies on wine in Australia, France, Brazil and Chile, as well as case studies on the pharmaceutical industry in India, Singapore, Malaysia, the US and Europe, particularly Denmark,” outlines Professor Kjær. “We’re also looking at trade fairs, which are an interesting case as they are where value chains are made in a sense, where buyers and sellers meet and discuss the terms of deals. The interesting question here is how much legislative demands and compliance requirements actually matter in these meetings. Are sustainability and compliance concerns a determining issue in terms of purchasing choices?” A company needs to balance the desire to maximise profits with its need to operate in a manner that gains the approval of its customers and avoids negative publicity. Previous scandals and media exposes have led to the development of guidelines, yet
47