The Role of Law in Global Value Chains: A Window into Law and Global Political Economy

The Role of Law in Global Value Chains: A Window into Law and Global Political Economy

NB: This is the introduction to a symposium on law and global value chains co-convened with the Institute for Global Law and Policy’s Law and Global Production Working Group.

Dan Danielsen and Jennifer Bair–

The ideas that form the basis for this Symposium have emerged through an ongoing discussion among critical legal scholars, sociologists, geographers and political economists that began in 2014 under the auspices of the Institute for Global Law and Policy (IGLP) at Harvard Law School. From diverse disciplinary locations and substantive research interests, we were all engaging with the concept of global value chains (GVCs)—that is, functionally integrated but geographically dispersed networks through which many goods and services are produced. While we agreed that studying GVCs was integral for understanding the nature of the global political economy, our collaboration, which we named the IGLP Law and Global Production Working Group, was inspired by our shared sense that the role of law in the organization, operation and effects of Global Value Chains (GVCs) was little understood and significantly undertheorized in the burgeoning social science and policy literatures on GVCs. Moreover, legal scholars had barely begun to consider the rich body of scholarship tracking GVCs in numerous industries and geographic contexts, nor had they appreciated the degree to which the study of GVCs was shedding empirical and theoretical light on the governance structures and distributional dynamics of the dominant form of doing business in the global economy. (According to UNCTAD’s 2013 World Investment Report, GVCs account for 80% of world trade, while a more recent OECD estimate puts the number at 70%.) Finally, we shared a deep skepticism of what seemed an emerging consensus among mainstream GVC scholars and policymakers that the most promising (and perhaps only) path to development today is via participating in, and ideally moving up the value chain by capturing additional rents through innovation-based upgrading. Our intuition was that diverse legal arrangements were enabling and sustaining the current asymmetrical distributions of resources, rents, and power in GVCs and that developing richer maps of these key legal drivers would make more legible the geographies of value and vulnerability in particular chain configurations, and perhaps suggest new strategies for resistance, solidarity and distributive intervention.

These shared ideas and intuitions led us to the core research question that remains at the heart of our work, even as we explore different aspects of it in diverse sectors and contexts: how does law shape the structure and organization of production and distribution globally, and how do structures of production and distribution in turn reconfigure what law is and how it works in this dynamic process? Our preliminary thoughts and methods for exploring this question were first articulated in a piece entitled “The Role of Law in Global Value Chains: A Research Manifesto” (the “Manifesto”), which was published in the London Review of International Law. In our introductory essay to this Symposium, we share some of the insights from the Manifesto and our ongoing work in order to frame the interventions to follow.

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Free Trade Free for All: Market Romanticism Versus Reality

Jamee K. Moudud – 

The drama surrounding President Trump’s decision to impose import tariffs on steel and aluminum has roiled the Republican Party and wide swathes of the corporate elite. The tariff decision comes on the heels of political bluster about the US being treated “unfairly” by other countries. This accusation of “unfairness” when it comes to US trade deficits is well worn. In a previous era, Japan was the alleged culprit of “unfair” trade practices because of its persistent trade surpluses with the U.S.

This type of political theater draws on a romanticized view of international trade and its persistent conflict with empirical reality. As an explanation of global trade relations,  the Heckscher-Ohlin-Samuelson (HOS) model of foreign trade relies on both of the standard neoclassical assumptions about “efficient” markets. First, it assumes perfectly competitive markets, composed of many, small firms, each without any  ability to set prices. Second, it assumes that there are zero externalities to economic transactions, meaning that transactions do not have any un-priced, third-party effects. And of course, the model assumes the economy  is fundamentally based on barter, according  no roles for money, credit, and effective demand. The absence of money implies that there is no possibility of an increase in liquidity preference (a term coined by Keynes to describe the desire to hold cash rather than illiquid assets) in uncertain times and thus no possibility of shortfalls of effective demand. Together, these propositions of the HOS model predict that a legal framework of “free trade” will produce balanced trading relationships on the international level and full employment in each domestic economy. Significantly, assuming that there is perfect competition implies that firms in each country, regardless of its level of industrialization, have access to the same technology needed to produce goods for the international market. Perfect competition implies that no firm injures others, a point of view that has been challenged by many authors. (See the edited volume by Moudud, Bina, and Mason Alternative Theories of Competition: Challenges to the Orthodoxy). The core aspect of the broad alternative perspectives is that firms do seek to damage each other by attempting to take away market shares via price-setting and cost-adjusting processes. This has nothing to do with either “perfect” or “imperfect” markets.

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International Investment Arbitration in Critical Focus

David Schneiderman – 

How might we come to better understand the complex, multilevel, and interdependent world in which we live? This is a particular challenge for international and global legal scholars whose methods of analysis typically are confined to empirically observable legal phenomena in the form of international conventions, treaties, custom, and the like. In this post, I propose bringing international legal studies into conversation with a particular branch of international political economy (IPE), one that brings both an interdisciplinary and a critical edge to the global study of law.

The field of IPE in the English-speaking world has been described as being divided between two competing schools. A U.S. version emphasizes the testing of scientific models via empirical methods, focusing on state behavior as its unit of analysis. Modeled on ‘hard science,’ the U.S. version adopts a state-centric view. A more ambitious British version aims to be more qualitative and normative, emphasizing society, power, and history. It is this latter version that merits attention from legal scholars. It is a mode of analysis that is more interpretive than narrowly empirical, asking what values are promoted and who benefits from particular institutional arrangements. Susan Strange, one of the founders of the British school, has defined the study of IPE as concerning: ‘the social, political and economic arrangements affecting the global systems of production, exchange and distribution and the mix of values reflected therein. Those arrangements are not divinely ordained, nor are they the fortuitous outcome of blind chance. Rather they are the result of human decisions taken in the context of man-made institutions and sets of self-set rules and customs.’

This is a mode of analysis that will be familiar to critical scholars working in many disciplines, but an IPE approach has the advantage of thinking about contemporary global problems on multiple scales. Critical IPE is ontologically inclined, in other words, to theorize law as interacting with actors operating at various levels. It looks to the ‘complex whole,’ Robert Cox writes, rather than to the separate parts.’ Cox, in his own work, helpfully distinguishes between ‘problem solving’ theory and critical theory. The first has as its object the smooth operational working of international institutions. Such approaches serve ‘particular national, sectional or class interests.’ Problem solving is about managing the world, not changing it. Critical theory within IPE, by contrast, does not take institutions or relations of power for granted. It attends instead to how they arise and change. This is a style of understanding the world that is both multidisciplinary and normative.  It is, as Benjamin Cohen puts it, about ‘making the world a better place.’

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