A fresh look at global value chains
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
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
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,
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
environmental side, legislation seeks to prevent environmental degradation in the production process.”
Case studies
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
Department of Business Humanities and Law
Professor Kjær says breaching them did not lead to sanctions. “These used to be guidelines, not formal law,” he stresses. Over time some of these guidelines or ‘soft’ law have been incorporated in more formal or ‘hard’ law as reflected in recent legislation, alongside which individual countries have their own norms and cultural expectations, which all adds up to a complex picture for major corporations to negotiate. “Multi-national companies may operate in more than 100 jurisdictions around the world, and they are faced with all sorts of legislative requirements, and soft law as well,” continues Professor Kjær. “They need to be able to operate in a fairly consistent way across these jurisdictions, as they cannot make different products or operate in a different way for every market. We’ve, for example, been looking at how a big French multi-national deals with this, at how their due diligence and sustainability department operates.”
The staff essentially take all the relevant legislation in the countries where the company is active, combine it with data on their other obligations in line with different treaties, conventions and norms, and bring this information together into a single document. This document provides a manual which guides how the company operates in different parts of the world. “The company may adapt it a little bit depending on local circumstances and requirements, and the nature of their activities in that country, but they essentially take the same package and implement it. Companies interpret regulations and in a certain sense reach their own conclusions about what is required of them, and this is the real substance of global trade law,” says Professor Kjær. Most multi-nationals have their own legal departments to perform these roles, and while it is often thought that the commercial
sector views regulations solely as a barrier to business, Professor Kjær says the picture is in fact more nuanced. “The legislative framework is a key consideration for big companies, and while sometimes they want to get rid of regulation, on other occasions they ask for it,” he outlines. “The most important things for them are consistency and predictability”. This helps companies understand the playing field and shape it in their own interests, which can then guide investment decisions over the longer term. Every industry has its own agenda, and while there is a general awareness of wider issues, companies often argue that others should bear the heavier burden in terms of regulatory compliance. “Companies may state that they should be free to operate as
Future evolution
The next step then is to consider the future evolution of global value chains, with the current model being widely questioned and criticised. Global value chains will not disappear in future, but they will change form again, believes Professor Kjær. “Due to the geopolitical situation, we are entering a new setup, and against that background we’re looking at how value chains will look in the future,” he outlines. Around 75 percent of the global population live in what might be described as middle-income or soon to be middle-income countries, such as Brazil, Colombia, India and Indonesia, and their voices are increasingly prominent in the development of regulations and trade standards. “These countries account for
“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.”
they choose, to source the best materials or components available, and that more stringent sourcing requirements should be imposed further down the value chain,” says Professor Kjær. The legislative framework plays a key role in shaping trading relationships, and Professor Kjær plans to share his findings with the authorities, helping inform future regulation. “Most EU legislation has to go through revision processes five years after it enters into law, and we are hoping to feed into that,” he continues. “We aim to reconstruct the emergence and evolution of global value chains, to understand what they are and how they transform over time.”
the majority of the world population, this is where the economic and demographic growth is,” stresses Professor Kjær. “It is the practices, values and approaches you find in these places that is increasingly setting the standards for trade, rather than the ideas that are emerging from thinktanks in Brussels, London and Washington. To a certain extent the more developed countries will be aligning with middleincome countries in terms of the regulation of global value chains, not the other way round.’
Researchers also looking to build a deeper picture of the effects of these regulations on trading relationships and national economies. In the case of Mozambique for example, a substantial part of the labour force is involved in producing exports to the EU and companies have to comply with its regulations in order to gain contracts, while at the same time some businesses export to other markets. “Another substantial part of the labour force are involved in producing exports for China, which has its own rules and regulations, while Mozambique also trades with other countries. This means that the country’s economy and labour market is de facto externally regulated to a large extent and in a fairly fragmented way, rather than through a more unified national system,” says Professor Kjær. Coherent taxation systems, labour market and corporate law frameworks were however central to the rise of the South Korean and Taiwanese economies, two of the socio-economic success stories of the past decades, and ill-considered legislation in the EU and elsewhere could prevent countries like Mozambique from achieving something similar, believes Professor Kjær. “The imposition of external legislation might add to institutional fragmentation in these countries, rather
than providing them with a coherent institutional framework,” he explains. The challenge here is to encourage the flow of trade, while at the same time mitigating its negative externalities, in terms of environmental impact, institutional fragmentation and working practices for example. The geopolitical backdrop is, as mentioned, also changing, and while a decade ago the EU placed a lot of emphasis on encouraging sustainable practices, the focus now is more on resilience. “Now we’re thinking more about resilience, securing society, and avoiding trade dependencies on certain countries,” explains Professor Kjær. The European Critical Raw Materials Act was passed in 2024 for example, with the aim of diversifying the sources of raw materials available to European businesses, illustrating how the regulatory agenda has shifted. “It used to be about sustainability and banning child labour and social concerns. These issues are still prominent of course, but now the regulatory toolbox is slowly being re-formed and the resilience and security aspects are becoming dominant,” says Professor Kjær.
GLOBALVAULE
Global Value Chain Law: Constituting Connectivity, Contracts and Corporations
Project Objectives
Global Value Chains (GVCs) have been with us since the colonial period, and they have changed significantly over time. In their modern form GVCs are central to the international economy, but environmental, working and socio-economic standards vary widely along them, raising questions around how they can be effectively regulated. The EU-funded GLOBALVALUE project will reconstruct the history of GVC law, which will provide an insight into how it is likely to evolve in future.
Project Funding
The GLOBALVAULE project is funded by the European Research Council (ERC) under Grant agreement ID: 101054237.
Contact Details
Project Coordinator, Professor Poul Fritz Kjær
Department of Business Humanities and Law
Copenhagen Business School
Porcelænshaven 18b
2000 Frederiksberg
Denmark
T: +45 38154281
E: pfk.bhl@cbs.dk
W: https://www.cbs.dk/en/research/ departments/department-businesshumanities-and-law
Poul Fritz Kjær is Professor of Governance and Sociology of Law at the Department of Business Humanities and Law, Copenhagen Business School. He holds degrees in law, Sociology and Political Science and has been a visiting scholar at several institutions, including Harvard University, LSE and Sciences Po in Paris.
Professor Poul Fritz Kjær