It's definition
The value chain describes the full range of activities that firms and workers do to bring a product or service from its conception to its end-use.
This includes activities such as design, production, marketing, distribution and support to the final consumer.
Key types
Two types of value chains. The first describes those chains where the critical governing role is played by a buyer. Buyer-driven chains are characteristic of labor-intensive industries such as footwear, clothing, furniture, and toys. The second describes a world where key producers in the chain play the role of coordinating the various links— producer-driven chains. Here producers take responsibility for assisting the efficiency of both their suppliers and consumers.
More than 70% of world trade consists of intermediate goods, services, and capital. The increased significance of global value chains and the fact that the most serious environmental and human rights violations generally occur in producer countries in these chains require responsible business conduct and private sector engagement for sustainable development figuring more prominently in aid and trade policy. With the advent of global value chains, abuses come to light much more quickly, so that companies have an incentive to prevent them.
Background
In 1990, there were fewer than 20 jurisdictions applying competition law. There are now well over 100. There are regional arrangements, notably the European Union, but no global rules. Most competition laws focus on the welfare of consumers, although they differ in the degree to which they explicitly state this.
Current Situation of the International competition system
The international competition “system” contains many different approaches, despite its common basis. There are important procedural differences, particularly between jurisdictions in which competition agencies decide on cases and those where they must apply to a court or tribunal. The substance of laws differs less, but the interpretation of those laws often diverges rather more:
– Enforcement against cartels is the most consistent. In most countries, the company itself is at risk of a fine, although in some countries (mainly Anglophone) individuals can face criminal charges.
– Abuse of dominance is perhaps the least consistently enforced area of competition law globally. The EU and its member states are willing to take action against forms of conduct that US agencies tend to regard as benign. Most newer jurisdictions follow the EU. There is often disagreement among competition professionals as to how to judge which behavior should be considered pro-competitive and which anticompetitive. If there is an area of competition law that is not “joined-up” globally, it is an abuse of dominance.
– Merger laws are very similar in substance in almost all jurisdictions, although large multinational enterprises (MNEs) that are merging need to proceed carefully because timings and procedures vary.
As a result, industries organized as GVCs face gaps or overlaps in the enforcement of competition law. Regional groupings such as the EU have complex rules to ensure that matters are investigated only at one level but, globally, there is no such system. However, there is a principle that helps: Competition law is applied where it has its effects, not where the investigated businesses are located. Reflecting this, a global merger could be investigated by all countries in which sales are made by either of the two merging firms and most likely would be investigated seriously in any countries in which they both made sales. Similarly, cartels with effects in multiple countries will often be investigated multiple times, possibly leading to damages claims pursued in several jurisdictions.
EU competition policy and VGC
The EU has a wide array of instruments and policies at its disposal for external action, particularly on trade and development.
The aim of the European Commission's trade and development policies is to ensure that the widest number of people benefit from trade, through better inclusion of the disadvantaged in business models and value chains. This means making sure that trade and investment policy is effective and tackles real issues based on an up-to-date understanding of the role of global value chains in the world economy.
Global value chains under competition law
According to EU competition policy, A global value chain (VGC) could experience anticompetitive behavior in many ways:
– A cartel emerging at any level of a VGC could raise prices downstream
– More controversially, a buyer cartel might artificially depress prices upstream