Early beginnings of catching up: Global value chains and the ongoing struggle for regulation.

 

Since the 1970s, the rise of outsourcing (shifting production steps to external companies) and offshoring (relocating production to other countries) has transformed integrated firms into globally dispersed value chains, reinforcing asymmetrical power relations between lead firms in the Global North and suppliers in the Global South. While this restructuring enabled unprecedented global integration and economic growth, it entrenched structural inequalities and generated severe risks for labour rights, human rights, and the environment.

A brief guide through the supply chain terminology 

The term “supply chain”, which people often use in everyday business and legal discourse, originated in the field of business administration. It focuses on the flow of goods and compliance rules from the perspective of management. This business perspective also shapes everyday language and most legal discussions. In the wider social sciences, by contrast, researchers more commonly use the term “global value chains" (GVCs). As described, a GVC encompasses “the full range of activities that firms, farmers and workers carry out to bring a product or service from its conception to its end use, recycling or reuse. These activities include design, production, processing, assembly, distribution, maintenance and repair, disposal/recycling, marketing, finance and consumer services”. The GVC perspective then, which we take in the remainder of this chapter, looks at the full range of activities that create and capture value — from raw materials to finished products. Some researchers also prefer the term “global production networks”, emphasizing the wider social context of production, such as state institutions and labour geographies. The term “global commodity chains”, finally, emphasizes material flows and exchange relationships, usually from a world-systems perspective, highlighting hierarchical relations between core and periphery. From time to time, different combinations of the terms are also used. While each term stands for a specific research tradition and perspective, these perspectives often speak to each other and overlap.

Efforts to regulate the social and environmental consequences of GVCs through binding international norms have a long and contested history. Over the last fifty years, we can see repeated attempts to bring transnational economic activities back under social control, i.e. to set rules that make global business more accountable to societies and communities. In the 1970s, the United Nations Commission on Transnational Corporations (UNCTC) already attempted to establish a code of conduct for transnational corporations (TNCs), but diverging, influential economic interests blocked its adoption. The 1980s saw the rise of the neoliberal economic paradigm, which holds that the market forces of supply and demand are the best way to coordinate societies. State control and forms of common ownership were increasingly viewed as problematic. As a result, privatization, corporate self-regulation, and — in many parts of the world — the active suppression of trade unions became dominant tools of economic governance. In the 1990s, the prevailing regulatory policy shifted away from the radical belief in free markets, but transnational regulation remained predominantly private. Regimes of private transnational governance became a prevalent paradigm, which adhered to private-sector solutions to social and ecological challenges. They aimed at promoting human rights and sustainability along GVCs based on the private profit interests of large lead firms but still lacked obligatory enforcement mechanisms and state-driven monitoring. In the late 1990s, new attempts were made to hold corporations accountable, this time with a focus on international human rights law. The United Nations “Norms on the Responsibilities of Transnational Corporations and Other BusinessEnterprises with regard to Human Rights” from 2003 (or short: UN Norms) were proposed as a binding international obligation for TNCs. However, they failed to gain political traction and were only adopted as a framework without legal effect. Against this backdrop, John Ruggie was appointed as the UN Secretary-General’s Special Representative for Business and Human Rights. He had already co-designed the UN Global Compact, a voluntary UN initiative promoting corporate commitment to human rights and sustainability that had been established in 2000. Ruggie introduced the concept of “principled pragmatism”, drawing on New Governance Theory, an approach that emphasizes flexible

His approach emphasized three elements: the state duty to protect human rights through public policies, the corporate responsibility to respect human rights, and the importance of access to effective complaint mechanisms and legal remedies. In doing so, he remained committed to soft law throughout his mandates, but by emphasizing the importance of legal remedies, he laid an important foundation for subsequent political debates: Functioning legal mechanisms were emphasized as essential if rights holders were to be able to make claims and address grievances. In 2011, after extensive consultations, the UN Human Rights Council unanimously supported Ruggie’s approach and endorsed the UN Guiding Principles on Business and Human Rights (UNGPs) . These principles marked a milestone in the evolution of GVC regulation, providing a soft law framework that structured corporate due diligence as a key mechanism to prevent human rights violations and environmental harm. It emphasizes the role of the state, as well as the importance of transnational corporations and their self-interest as levers for international norms and rule enforcement. While the approach does not exclude binding legal regulation, the binding nature of laws was less important in the framework than the pragmatic consideration of building international consensus. Nevertheless, the approach demonstrated significant potential for further civil society activism and political discourse surrounding the selective enforcement of legally binding instruments in the years following the adoption of the UNGPs.

Following the 2008/09 financial crisis, governments increasingly adopted public rules to make companies more transparent about supply-chain risks. Section 1502 of the U.S. Dodd-Frank Act (2010) requires reporting on the use of “conflict minerals” from the Democratic Republic of the Congo and neighbouring countries, while the UK Modern Slavery Act (2015) and Australia’s Modern Slavery Act (2018) require large companies to publish annual statements on steps taken against forced labour. These measures centre on transparency and let authorities act if firms fail to report, but they stop short of a broad legal duty to prevent abuses across the whole supply chain. The EU Timber Regulation (2013) goes a step further: it bans illegally harvested timber from the EU market and requires companies to conduct due-diligence checks in an issue-specific way. The French Duty of Vigilance Law (Loi de Vigilance) of 2017 represented another landmark in hard law regulation. It was the first law that – in a more holistic fashion – required large companies to implement and publish vigilance plans covering human rights and environmental risks in their supply chains. Germany’s Supply Chain Due Diligence Act (LkSG, Lieferkettensorgfaltspflichtengesetz), effective from January 2023, followed a similar logic, with a more limited scope but with relatively extensive official powers of enforcement. Although the law excludes civil liability, it allows complaints from civil society to be lodged with the relevant public authority: the Federal Office for Economic Affairs and Export Control (BAFA, Bundesamt für Wirtschaft und Ausfuhrkontrolle). The Transparency Act in Norway, in force since 2022, similarly requires due diligence steps by companies with effective sanctioning. Some countries have also introduced issue-specific laws, that either demand due diligence processes, such as the Dutch Child Labour Law1, or ban products that are produced under violation of fundamental rights, such as the Uyghur Forced Labor Prevention Act in the U.S. (2022) and the Forced Labor Ban in Mexico (2023). Overall, it is clear that an increasingly complex landscape of different due diligence laws is emerging. While transparency was initially the main focus, this has gradually been supplemented by issue-specific import restrictions and more holistic due diligence obligations. The trend towards hard law can therefore be viewed in more detail, as the nature of the legislation is also changing. This development can be observed particularly at EU level, which is likely to continue contributing to the harmonization of its member states’ regulations in the coming years. 

The EU’s CSDDD was originally proposed in 2020 by then-Justice Commissioner Didier Reynders. It aimed to create a harmonized framework even surpassing national laws like the German LkSG by including civil liability and covering a wider range of companies. This was heavily contested by various governments and interest groups. The CSDDD was formally adopted in 2024 in a much less  ambitious form. It establishes phased, binding human rights and environmental due diligence duties for large EU and non-EU companies, but its exact scope and reach is still up for debate at the time of writing. The EU Taxonomy for sustainable activities introduced a common classification system for environmentally sustainable economic activities. Entering into force in 2020, it is intended to help investors and companies by providing a shared definition of what constitutes sustainability, creating investor confidence, preventing “greenwashing”, and directing capital towards sustainable activities. In parallel, the Corporate Sustainability Reporting Directive (CSRD) (2023) mandates harmonized sustainability disclosures using the European Sustainability Reporting Standards (ESRS) adopted on 31 July 2023, thereby reinforcing transparency and comparability. The EU Deforestation Regulation (EUDR) targets forest-risk commodities with traceability and due diligence requirements. It has also been highly contested. Following a 12-month phase-in period, obligations will apply to large and medium-sized operators from the end of 2025 and to small companies from mid-2026. Together, CSDDD, CSRD/ESRS, and the Taxonomy form the core of an increasingly comprehensive, yet institutionally fragmented, EU sustainability governance regime for GVCs. This core is flanked by a broader set of EU instruments, such as the EUDR, that shape incentives, market access and organizational practice, including: a forced-labour market ban, sector-/product-specific due diligence, circularity-driven product rules and digital product passports, climate-trade measures, sustainable-finance transparency, consumer protection against greenwashing, and agri-food power asymmetry rules. A detailed examination of the underlying regulations would go beyond the scope of this analysis, but Figure 2 shows that an increasingly complex ecosystem of regulations is emerging, underscoring the normative trend toward growing social and environmental due diligence obligations for transnational companies in the EU.

The effects of the new due diligence obligations are still difficult to assess. This is not only because they are new, but also because they are ambivalent in nature. On the one hand, they introduce new rules for companies. On the other hand, they grant extensive powers to management and private intermediaries for their implementation. This has also proven problematic with soft law solutions, as governance fails precisely when conflicts of interest arise for the company. Furthermore, beyond formal due diligence rules, compliance outcomes are influenced by purchasing practices. Pricing, lead times, order variability and the allocation of contractual risk can all contribute to the externalization of business risks and compliance costs, thereby undermining the supplier’s remediation capacity. Including buying practices in the scope of due diligence regulation shifts the focus of compliance from supplier audits to a shared responsibility challenge throughout the supply chain. However, this has not been a focus of existing regulations to date, and it seems increasingly sidelined as pushbacks against new regulation intensify.

After decades in which human rights and environmental regulation of GVCs was contested but ultimately pushed forward step by step, there has been significant headwind in recent years, and it is unclear whether the regulatory efforts will take a new path. In view of the perceived polycrisis of the global economy and a rise of governments that criticize international legal rules, the regulation of human rights and environmental standards is being portrayed by influential actors as an unacceptable bureaucratic hurdle and a geopolitical misstep. We can clearly see this pressure on due diligence regulation on the EU level: Following its adoption, the CSDDD has faced significant opposition. In response, civil society actors, trade unions and Nongovernmental Organizations (NGOs) defend the relevance and progress of due diligence laws. New publications that reiterate the arguments in favour of due diligence regulations demonstrate the ongoing political struggle for regulation.

In Germany, the implementation of the LkSG has faced increasing opposition from the beginning. At the time of writing, we can witness a de facto moratorium on enforcement, the implications of which are unclear. In light of the crises widely perceived to be facing the German economy, especially since 2022 (including the consequences of the pandemic and energy shortages resulting from Russia’s war against Ukraine), German governments have resisted implementing the LkSG consistently. Criticism focuses on “bureaucratic burdens” and potential competitive disadvantages for German firms. The federal government’s stance led to a dormant regulatory status of the law, in which the LkSG continues to exist and, in view of the adopted CSDDD, cannot simply be repealed under European law, but at the same time companies are no longer sanctioned if they fail to fulfil their due diligence obligations (as of August 2025). At the EU level, the initially ambitious CSDDD has also been substantially weakened after prolonged negotiations. The backlash has recently materialized in the “Omnibus I package”, proposed in February 2025 by the European Commission. The simplification bundle aims at reducing administrative burdens on businesses and enhancing competitiveness. The Omnibus would streamline sustainability reporting under CSRD and the EU Taxonomy, and temper due diligence obligations under the CSDDD. Subsequently, in June 2025, the EU Council adopted its position, endorsing measures to roll back some Environmental, Social, and Governance-related (ESG) requirements in the interests of greater market efficiency. This reflects a significant shift: while the CSDDD still stands, its enforcement mechanisms and compliance thresholds have been softened in response to concerns raised by member states and powerful industry interests. In addition to restrictions on content, the most important aspects here are the limitation of the scope of application to significantly fewer companies and the deletion of harmonized civil liability rules. The omnibus proposal is still subject to approval by the Council and Parliament, so at this point we are only presenting the voting positions of influential member states that have taken a clear stance [see Figure 3].

The recent backlash against GVC regulation cannot be fully understood without situating it within broader global political and economic developments. Across many regions, including the EU, the U.S., India, and Latin America (especially Argentina), political landscapes have shifted towards increasingly libertarian-authoritarian, or otherwise anti-democratic orientations. These trends have implications for regulatory approaches to corporate accountability and sustainability governance. At the same time, GVCs have acquired a central role in geopolitics. Their significance is not only reflected in the sheer volume of global trade organized through GVCs but also in their growing presence within legal frameworks and the intense contestation surrounding regulatory efforts. The geopolitical salience of GVCs became particularly evident during the COVID-19 pandemic, when supply chain disruptions and heightened awareness of critical dependencies prompted intense public and political debate. The war in Ukraine further underscored these dynamics, as disruptions in wheat trade and other critical raw materials from Russia and Ukraine highlighted vulnerabilities in global production and logistics networks. New trade routes and initiatives such as China’s Belt and Road Initiative have become focal points of competition and regulatory concern in international relations. In this context, the U.S. also plays a pivotal role. While protectionist and nationalist trade policies gained prominence under the Trump administration, the retreat from multilateral trade governance had already begun during the Obama years, notably through the U.S.’s obstruction of the World Trade Organization’s dispute resolution mechanism that still paralyzes the organization. In recent years, however, this trend has massively shifted towards concerted political campaigns and government actions against private sector ESG standards and investments. The “anti-ESG movement” driven by the U.S. government has included high-profile measures such as the freezing of climate funds, lawsuits against regulatory agencies, and the repeal of Biden-era fiduciary rules on ESG considerations in investment decisions. For example, the U.S. Department of Labor officially dropped ESG-related fiduciary guidance for retirement plans, fundamentally reshaping the regulatory landscape for sustainable finance. Lawsuits such as Climate United v. E.P.A. (Environmental Protection Agency) further illustrate the intensified contestation of environmental governance at the federal level. Even if the current administration changes, the anti-ESG momentum may have lasting repercussions. It could reduce the availability of capital for supply chain sustainability initiatives and weaken the financial incentives that underpin compliance with due diligence laws, thereby reducing the effectiveness of regulation well beyond the current political cycle [see Figure 4].

The regulatory challenges surrounding due diligence and corporate sustainability in Europe could have wide-reaching and even unintended consequences for the global economy. Some major suppliers to Europe, such as those in Bangladesh, Vietnam and Brazil, are under increased pressure to comply with new regulations from their customers, often without adequate support for capacity building or facilitating market access. There is also a risk that leading companies will outsource their obligations to suppliers without reviewing and reforming their own purchasing practices and GVC strategies with regard to risk. Some companies change suppliers to fulfil their due diligence obligations more easily, for example by using certified raw materials, purchasing from larger suppliers with better risk management systems or greater transparency, or bundling their purchases from suppliers over whom they have greater influence. Some suppliers and export-oriented countries may therefore view the regulatory changes as a threat to their profits. Others, however, see them as a competitive opportunity and are increasing production capacity in line with international sustainability standards. To date, there is a lack of empirical knowledge about the global spillover effects of legal due diligence requirements. We can, however, assume that several structural factors amplify the transnational consequences of regulatory shifts. Firstly, the global character of production with its unequal global distribution of buying power but also of critical raw materials, such as rare earths or agri-food, means that regulatory changes in major markets such as the EU and the U.S. have repercussions worldwide. Resources such as cobalt from the Democratic Republic of the Congo, and palm oil from Indonesia and Malaysia, are essential to numerous global production processes. Any new due diligence or traceability requirements imposed by large economies impact market conditions and regulatory responses in supplier countries. Secondly, the highly financialized character of the global economy can act as a significant amplifier or brake on regulatory change. Large institutional investors, asset managers and rating agencies incorporate ESG factors into their risk assessments and investment decisions. This creates cross-border pressure on companies and governments, even in countries without formal due diligence requirements, as access to global capital increasingly depends on sustainability credentials. At the same time, the anti-ESG pressure that we are currently seeing in the U.S. will have a global impact. The consequences for Europe and other parts of the world are not yet clear. It could either exert additional pressure or drive ESG investments to other parts, especially to Europe. These investments remain hugely important, as due diligence requirements alone cannot bring about change – they only regulate management processes, not human rights or environmental outcomes. Change in GVCs eventually depends on changing corporate strategies. In turn, the strategies of large companies and small and medium-sized enterprises alike will depend on financial investment decisions. Thirdly, accelerated digitalization is changing the way regulatory requirements are disseminated and enforced. Indeed, the GVC perspective on issues of structure, agency, and governance must be reviewed considering an increasing relevance of platform economies and Artificial Intelligence (AI) developments. Increasingly, strategies for implementing private governance measures along the GVC seem to be determined by questions of data manageability. While platforms, digital data management for certification, and supply chain management can greatly increase the speed and reach of governance, the types of data collection may not adequately represent real-world production conditions and their impact on humans and the environment. The genuinely political nature of GVC governance then might become increasingly invisible and appear to be merely a technical challenge. AI technologies and their integration into all areas of life raise new questions about human work behind the supposedly purely automatic AI machinery. This is likely to cause ongoing problems for workers and trade unions trying to collectively defend their rights. Fourthly, in the wake of ESG and due diligence regulations, transnational legal mobilization is also intensifying. For example, there have been border-crossing lawsuits in cases of industrial catastrophes in Brazil’s mining sector, which is a bottleneck of the steel industry in the Global North. Interestingly, the German LkSG was not in effect when legal proceedings began. However, local claimants and international NGOs refer to due diligence in the course of the still-pending processes. If references to ESG regulations and due diligence norms prove to be part of a broader trend, then we could speak of a shift towards due diligence legal consciousness. This shift could alter the role of NGOs and civil society by influencing how non-governmental actors approach global corporate accountability in the future. Thus, it will contribute to the legal transformation of how GVCs are interpreted, which is indispensable for further legal mobilization. This could create future opportunities to strengthen related transnational production agendas, such as those of trade unions. Strategic adaptation by key supplier countries is already underway. China, in particular, plays a dual role as both a regulatory shaper and a competitor. While selectively aligning with Western sustainability standards, China actively promotes its own GVC structures and regulatory frameworks through initiatives such as the Belt and Road Initiative, the Digital Silk Road, and domestic ESG standards tailored to national priorities. Regional regulatory cooperation mechanisms, such as the Association of Southeast Asian Nations (ASEAN), also reflect efforts to establish alternative sustainability frameworks outside the dominant EU and U.S. models. Competing norms require a comprehensive understanding. It should be noted that effective regulation of GVCs is only one consequence of due diligence norms. Even outdated norms may still create a consciousness able to mobilize interest groups in trade unions, civil society and NGOs. In this sense, the effects ofGVC norms extend beyond the scope of regulations, obligations, and enforcement structures.

As we shown, a years-long trend towards more comprehensive GVC regulation has recently given way to a backlash. The future of human rights and sustainability policies in GVCs is uncertain. Against this backdrop, it is important to highlight some key requirements of GVC regulation that take underlying political conflicts into account. Poverty wages, high health and environmental risks of production, and problems with education and social security for workers persist when GVC norms are not implemented or dismissed. Ambivalent experiences with soft law demonstrate that regulation should enable employees’ and other rights holders to assert their own claims, organize themselves and take legal action, even against the interests of powerful companies or governments in cases of conflict. This is central to making transnational regulations effective. As long as companies are more or less solely responsible for implementation along GVCs, today’s human rights and environmental problems along GVCs will not be solved. Given the uncertain future in the current backlash, one undeniable fact remains: regulations may be repealed, but conflicts persist. We should under no circumstances assume that the automatic response will be lengthy projects returning to GVC legislation. However, we should expect civil society protests, new regulatory demands, strikes and transnational legal actions, as well as people in the Global South who feel they have been treated unfairly. The current backlash may affect grievance instruments and regulations. Nevertheless, those in power should be aware that this will pave the way for civil societies and electorates who are outraged by the unequal distribution of risks and gains around the world. 

Over the past two decades, regulation has shifted from voluntary soft law to binding hard law, with Europe at the forefront. Yet this chapter has shown how this trajectory is increasingly contested: governments and business lobbies frame due diligence as a bureaucratic burden, while civil society critiques its limited effectiveness and corporate bias. The following recommendations outline how existing regulations can be further developed and more effectively implemented in the interest of rights holders. They highlight key levers such as accessible remedies for rights holders, stronger public institutions, coherent implementation of core regulatory frameworks, responsible purchasing practices, the use of digital tools for transnational enforcement, and meaningful stakeholder participation. Together, these measures help close protection gaps, strengthen the enforceability of rights, and ensure regulation remains aligned with the overarching objectives of human rights due diligence. 

• Put rights holders at the centre to enable effective remedy: Establish accessible administrative complaint mechanisms (clear timelines, anti-retaliation safeguards, local languages) and expand civil liability, including options for collective redress. Protect human rights defenders and pilot worker-led processes and monitoring in GVCs. 

• Strengthen the role of public institutions to support rights holders: Establish, maintain and develop public institutions such as public defenders, ombuds institutions and legal aid services that support rights holders in usingavailable complaint mechanisms and legal remedies for effective assistance. Pay particular attention to gender equality and sensitivity to minorities, including persons with disabilities. 

• Consolidate the rule-based core of regulation by putting substance over form: Implement CSDDD, CSRD/ESRS, EUDR and flanking regulations coherently, without dilution and overwhelming red tape, i.e. resource supervisory authorities, provide clear guidance, and apply proportionality without hollowing out material due diligence duties. 

• Focus on purchasing practices to introduce shared responsibility in buyer-driven GVCs: Mandate responsible purchasing (prices, lead times, order variability, supplier onboarding and disengagement) and link compliance expectations to buying behaviour. Strengthen enforcement of trading rules and leverage public procurement to reward credible due diligence. 

• Use digital tools to build transnational enforcement capacity, but not “dataonly”: Support cross-border cooperation and joint investigations; co-invest with producing countries in supplier upgrading and audit alternatives. Use open, interoperable data standards (e.g., product passports) with privacy protections, and track outcome metrics (e.g., living wages, zero deforestation) alongside Key Performance Indicators. Support worker-driven digital platforms and initiatives. 

• Deepen institutional pathways for better participation by applying gender, intersectionality and vulnerability lenses to regulation: Define meaningful stakeholder engagement with minimum standards (including unions and communities). Require gender-responsive due diligence and explicit consideration of migrants and informal workers; embed stakeholders in grievance handling and follow-up to ensure remedies are implemented.