The EU Approach to Regulating Global Value Chains

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The EU Approach to Regulating Global Value Chains

One. Introduction

The European Union, EU; Union, is deeply integrated into global markets. As the world's largest trader of manufactured goods and services and ranking first in both inbound and outbound international investments, the EU is able, through its policies and legal instruments, to influence global trading patterns. Moreover, the EU has a vested interest in shaping the rules that govern the international trading system to protect the integrity of its internal market and promote its values.

Over the past thirty years, the proliferation of global value chains, GVCs, has radically altered the global economy, fragmenting production processes, diversifying sources of supply and thereby transforming trading patterns across the world. These changes have inevitably had an impact on the EU and its internal market, just as they have shaped international relations and trade policy in other jurisdictions.

This economic shift has not taken place in isolation from other socio-economic trends. Globalisation and the liberalisation of markets has been accompanied by an increase in societal awareness of the negative externalities associated with economic development, including the risks of environmental harm and the exacerbation of social inequalities. The need to address these externalities concurrently is reflected in the United Nations Twenty Thirty Agenda for the Sustainable Development and the United Nations Sustainable Development Goals, SDGs, both adopted in Twenty Fifteen.

The past two decades have also been characterised by the acceptance by the international community that climate change is a matter of common concern to humankind. As a result, the relationship between the emergence of GVCs and their impacts on environmental sustainability has attracted increased policy attention within the EU, in other jurisdictions and at the multilateral level.

Within the EU, the adoption of the Lisbon Treaty in Two Thousand Seven provided a legal foundation for a more intensive and structured pursuit of non-economic objectives through the Union. internal and external policies. Article Twenty-one of the Treaty on European Union, TEU, requires all relevant EU policies, including trade policy, to promote sustainable development and Article Eleven of the Treaty on the Functioning of the European Union, TFEU, mainstreams the Union's environmental objectives.

The launch of the Green Deal in Twenty Nineteen together with associated policy initiatives such as the new Circular Economy Action Plan, exemplify a shift in political focus towards embedding core Union values across a broad spectrum of regulatory domains, taking into account the internal and external dimension of those policy objectives. Similarly, the European Commission's Twenty Twenty-One Trade Policy Review, reiterated that EU trade policy should use all the tools at its disposal to support social fairness and environmental sustainability.

Building on these political orientations, since Twenty Nineteen the EU has adopted a growing body of domestic regulatory instruments designed to further integrate social and environmental objectives along value chains connected to its internal market. Those instruments do so by addressing the behaviours of different market participants, from manufacturers designing products, to operators placing goods on or exporting goods from the internal market, to end consumers. All of these economic actors are incentivised to adopt more sustainable practices and or consumption patterns. Some rules address specific products such as batteries, others a specific concern such as deforestation, and others seek to ensure that the efficacy of internal regulatory requirements is not undermined by market forces and regulatory leakage, for instance the Carbon Border Adjustment Mechanism, CBAM.

Whilst each of the regulatory frameworks differ in some respects, they share important commonalities. In particular, they all aim to promote non-economic values whether environmental, emissions-reductions and the prevention of biodiversity loss, or social, respect for human rights and the prevention of forced labour and they use similar regulatory tools such as due diligence frameworks and reporting requirements to secure that end. Given the fragmented structure of the world economy, these regulations have, inevitably and by design, implications for participants along the GVCs connected to the internal market, irrespective of where those participants are located.

Viewed holistically, this growing body of legislation can be conceptualised as a distinct field of regulation at the EU level: EU GVC regulation.

This chapter examines the foundations of EU GVC regulation including its conceptual origins and purpose. Section Two Two examines the definition of GVCs and section Three addresses their basic attributes. Section Four considers the relationship between GVCs, international trade and sustainable development. Since regulating GVCs presents conceptual challenges due exam Secti pers this

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Defining Global Value Chains Nine

Two. Defining Global Value Chains

Three. Basic Attributes of Global Value Chains

Global Value Chains, International Trade and Sustainable Development eleven

Four. Global Value Chains, International Trade and Sustainable Development

Four point one. Trade and Sustainable Development

Global Value Chains, International Trade and Sustainable Development thirteen

Conceptual Challenges for the Governance and Regulation of Global Value Chains fifteen

Five point one. Issues of Jurisdiction

Conceptual Challenges for the Governance and Regulation of Global Value Chains seventeen

Five point two. Norm-Setting

Five point three. Regulatory Burden Sharing

Six. The Drivers and Origins of EU GVC Regulation

Six point one. Drivers for EU GVC Regulation

Six point one point one. The 'Participation Imperative'

Six point one point two. The 'Values Imperative'

Twenty-two EU Approach to Regulating Global Value Chains

Six point one point three. The 'Harmonisation Imperative'

Six point one point four. The 'Externalisation Imperative'

Six point two. Existing and Complementary Legal Tools

Six point two point one. Multilateral Relations

Six point two point two. Bilateral Trade and Cooperation Agreements

Six point two point three. The Generalised System of Preferences

Six.

Six point two point four. Restrictive Measures

Six point three. The Genesis of EU GVC Regulations

Six point three point one. Illegal, Unreported and Unregulated Fishing

Six point three point two. Illegal Timber Trade and Biofuels

Thirty-two EU Approach to Regulating Global Value Chains

Seven. Global Value Chain Regulatory Objectives: Present and Future?

Eight. The 'EU Approach' to Global Value Chain Regulation

Eight point one. Element One: Market Conditionality

Eight point two. Element Two: Product or Commodity-Centricity

Eight point three. Element Three: A 'Risk-Based' Due Diligence Model

Eight point three point one. Defining Risk-Based Due Diligence

Eight point three point two. The Advantages of Due Diligence for the Regulator

Eight point three point three. Risk-Based Due Diligence in Second-Generation GVC Regulations

Eight point four. Element Four: Implementation Support and Private Sector Onboarding

Eight point five. Element Five: Shared Enforcement

Nine. Criticisms of the EU's Regulatory Approach

Nine point one. GVC Regulation and International Law

Nine point one point two. The Paris Agreement and CBDR-RC

Nine point two. Overarching and Recurrent Concerns

Nine point two point one. Unilateral Approach and Jurisdiction

Nine point two point two. Divergence from International Standards and Definitions

Nine point two point three. Effectiveness of the Measures

Nine point two point four. Discrimination

Nine point two point five. Regulator Hyperactivity and Excessive Compliance Burdens

Conclusion forty-nine

Ten. Conclusion

Overview

The EU is leveraging its regulatory framework to address the sustainability and social implications of global value chains, reflecting wider goals for environmental sustainability and social justice. The document outlines the evolution of the EU's policies in response to global market dynamics and the urgency of climate change.

Key Points

1The EU is the world's largest trader of manufactured goods and services, influencing global trading patterns.
2Recent regulations aim to promote sustainable practices across various market participants in GVCs.
3The integration of social and environmental objectives is foundational to the EU's trade policy post-Lisbon Treaty.
4The document details the shifts in trading patterns and their implications on sustainability and social equity globally.

Details

Category: Government and Policy

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