Regulating Contracting in Global Value Chains

27 Pages Posted: 1 Dec 2019

Date Written: November 15, 2019

Abstract

GVCs are both instruments to organize production and vehicles to implement transnational standards to improve sustainability and to ensure compliance with regulatory requirements. GVCs present a very high degree of interdependence among the enterprises.

GVCs are not uniform universes. Part of the production process is organized through subsidiaries of the chain leader, partly with independent suppliers linked to the chain leader by long term and stable contractual relationships, partly with spot contracts. Hence, different modes of contracting are needed to ensure coordination and uniformity of principles along the chain. The differences within the chain suggests that a modular approach that permits adaptation to the various types of relationships is more effective than a uniform approach that applies indifferently to intrafirm (subsidiaries) and inter-firm (relationships with independent suppliers) contracting.

While acknowledging the relevance of institutional and legal framework, including applicable law, this article focuses on the contractual structure of chain governance. We propose a modular architecture that integrates general principles of global trade in supply chains with local regulations. This approach will better integrate the supplier codes, the framework agreements between parties and the individual contracts that regulate specific exchanges.

Keywords: contractual governance, regulatory power, supplier codes, default rules

JEL Classification: K00, K12

Suggested Citation

Cafaggi, Fabrizio and Iamiceli, Paola, Regulating Contracting in Global Value Chains (November 15, 2019). Available at SSRN: https://ssrn.com/abstract=3487960 or http://dx.doi.org/10.2139/ssrn.3487960

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