Obligations & Contract Law II 2020/2021
Content:
Lectures 7 – 10: Contract law and regulation in global value chains
, Week 7: Introduction to GVC’s
Readings:
• Baldwin, R. 2019. “Global Supply Chains: Why they emerged, why they matter, and where they are
going”, in Elms. D.K.; Low, P., Global Value Chains in a Changing World, World Trade Organization:
Geneva, pp. 13-59, available at:
https://www.wto.org/english/res_e/booksp_e/aid4tradeglobalvalue13_e.pdf
• The IGLP Law and Global Production Working Group, “The role of law in global value chains: a
research manifesto”, London Review of International Law, Volume 4, Issue 1, March 2016, p. 57–79,
available at: https://academic.oup.com/lril/article/4/1/57/2413108
• ‘Finally some justice’: Court rules Shell Nigeria must pay for oil damage’, The Guardian 29 January
2021, available https://www.theguardian.com/global-development/2021/jan/29/finally-some-justice-
court-rules-shell-nigeria-must-pay-for-oil-damage .
• Press release Court of Appeal, The Hague, the Netherlands, ‘Shell Nigeria liable for oil spills in
Nigeria’, 29 January 2021, available https://www.rechtspraak.nl/Organisatie-en-
contact/Organisatie/Gerechtshoven/Gerechtshof-Den-Haag/Nieuws/Paginas/Shell-Nigeria-liable-for-oil-
spills-in-Nigeria.aspx
Preparation
• Global Value Chains (GVC’s) have emerged as a dominant form of organizing production of consumer
goods in today’s globalized economy. These chains rely heavily on private law contracts. Major
incidents have revealed the imperfections of GVC’s and its contractual architecture.
• We will examine how the notion of GVC’s relates to key concepts in contract, tort and consumer law,
and assess whether and to what extent the practice of GVS”s require a rethinking of those concepts.
Learning goals of the course:
• Gain insights in the development and implications of GVCs on the production of goods and services.
• Gain insights on emergent risks of GVCs and the (contractual) regulation thereof
• Present and discuss complex global regimes of production and their rules and regulations
• Relate concepts in private law, in particular contract law and consumer law, to GVC theory and practice.
Prerecorded video: What are GVCs?
Global Value Chains
• A way of organizing production across different borders, for the purpose of optimizing the value creation
in that chain such that the chain leader can have the biggest economic profit.
• Also: organized in a way to ensure the quality of the products; organized to control the risks associated
with production across the borders;
• Two risks come out: safety of the products for end consumers; safety of workers in those chains.
What are Global Value Chains?
• Hugely important to understand today’s global trade.
• Really an economic phenomenon.
• “Global investment and trade are inextricably intertwined through the international production
networks of firms investing in productive assets worldwide and trading inputs and outputs in cross-
border value chains in various degrees of complexity. Such value chains (intra-firm or inter-firm,
, regional or global in nature, and commonly referred to as Global Value Chains or GVCs) shaped by
TNCs [i.e. transnational companies] account for some 80% of global trade.” (UNCTAD, 2013).
• Are value chain and supply chain identical? No difference in effect, but a difference in perspective.
o Supply chain: Raw materials → End customer
▪ The stages that transform a raw material into a finished product or service and delivers it
to the ultimate customer
o Value Chain: End Customer → Raw materials
▪ Allocation of price paid by consumers and primary producers. Focuses on the added value
through each stage until the end consumer.
• Global / regional / local? In effect, only a few value chains are truly global (think of development of
iPhone by Apple). Most of the value chains that are transnational, are in fact regional. Think of products
developed within the EU. Goods and services move across borders. Even value chains that are highly
local, that have one aspect of transnationality, can be viewed as global for the purpose of analysis.
• Inter- or intra-firm? Are they organized within one whole corporate structure (intra) or outside corporate
structures (inter)? Interfirm: there are different legal entities that constitute the chain and they are not
part of one holding structure of the multinational company that is driving that chain. Rather, there are
contracts between different legal entities. Intra-firm: Mother company having different subsidiaries that
again have subsidiaries. Along the stages of production.
• Global North / Global South? North (Northern America, Europe) is associated to western, industrialized
nations responsible for the first stages of the development of a product (research and development,
design) and the very last stage of production (marketing). The South is associated with the countries in
which raw materials are found for production (minerals, cotton, cacao, sugar) and associated to labor.
• Is a chain always the same length? Dependent on the sector of the product. Complex products have
complex chains.
• GVCs are concerned with the functionally integrated and geographical dispersed trade that is
coordinated by a transnational corporation.
Genealogy of GVCs
• Two unbundlings (Baldwin 2011, 2019)
• The unbundling of transportation: in a world pre-GVCs, it was the case that each and every village
produced for itself. With the industrial revolution, things changed. The revolution made it possible for
goods to be transported on great distances. Of course there was international trade before (silk route,
textile trade, spice trade, slave trade, etc.). Now, the extend of trade changed profoundly, because it
became cheaper. Railways and steamships made global distribution really possible with reasonable time
limits with a dramatic drop in cost of transportation. This led to the industrialization of the North (EU,
US, Canada, Japan). This led to a de-industrialization of the South (particular India and China). Where it
before was at a similar level as the North, innovation practically stopped. This led to a difference in
income between the North and the South. (until 1970/1980). Production was unbundled from the
location of consumption.
• The unbundling of transmission. Happened since 1980/1990. Production is now unbundled from a single
location. Production takes place at different locations across the world. Different stages of production
can be relocated around the world. This requires coordination between the different locations to have a
good quality of production. The second unbundling is the transmission, because it is the ICT revolution.
ICT enables the coordination of complex means and stages of production at a distance. Wage differences
made it economically profitable for firms based in the global north to pursue this type of activity.
