1. Introduction: The political economy of corporate accountability for human rights
The legal framework of corporate accountability along global value chains (GVCs) is developing at a high pace. Drawing on the power of human rights as a vernacular of change, debates on ‘business and human rights’ have adopted the guiding narrative surrounding human rights as a persistent ‘arc of progress’.Footnote 1 The shift of the dominant regulatory paradigm of corporate responsibility from voluntary and reporting-based instruments to ‘mandatory due diligence’ is commonly portrayed as a linear trajectory towards more demanding and effective legal mechanisms. Debates within international organizations, parliaments, or civil society campaigns confidently radiate this belief in incremental reforms. Each level of reform responds to shortcomings of the previous one by imposing tighter standards, leaving fewer loopholes, and allowing stricter enforcement.Footnote 2 However, it paints an incomplete picture to view the legal genealogy of corporate human rights violations as a sequence of gradual improvements. It emphasizes ‘progress’ over continuity and overlooks the deeper political dynamics involved in the design and construction of regulatory ‘innovations’. Moreover, it diverts attention from shared and structural deficits of the regulation of corporate responsibility that persist across different modes of regulation. Most importantly, the legal regime of transnational corporate responsibility since the UN Guiding Principles on Business and Human Rights (UNGP) does not aim to challenge established patterns of wrongful corporate conduct, but suggests that wrongs along value chains arise from a small range of identifiable types of illegal conduct. Such wrongs are portrayed as exceptional, outside of common commercial practices, and exogenous to companies’ business models. If the problem is one of abnormal and excessive corporate conduct, it can allegedly be fixed while existing business models are left in play.
This article challenges this bracketing of business models and of the broader political economy of global value chains in the current human rights regime applicable to corporate conduct. More specifically, it uses the example of sourcing and pricing practices by lead firms at the head of a value chain to argue that due diligence neither exposes nor prevents pervasive business practices that are the breeding ground for many rights violations. Price or margin squeeze towards suppliers,Footnote 3 often combined with abrupt increases in order volumes, short timelines and general volatility of commodity prices at the international level have been identified as contributing to a cycle of exploitative wage levels and extensive vulnerability at the factory level.Footnote 4 Prices, in other words, are determined at the lead firm level and on respective commodity markets and are transmitted along the value chain.Footnote 5 Global price dynamics typically supplant local factors in price formation, with immense implications for development in the Global South.Footnote 6 For primary commodities, lead firms will often refer to global benchmark prices to hedge their risk from price variation and thereby connect value chain pricing to the dynamics of financial investors and speculators.Footnote 7 Yet, due diligence legislations with its current legal and conceptual registers does little to mandate lead firms to revisit such practices. There is hardly any discussion of possible distributive repercussions of due diligence on lead firms’ pricing and business models – besides companies lamenting additional costs of verifying compliance, while achieving compliance by conforming with human rights in GVCs in the first place is presented as economically insignificant.
Overall, this article argues that due diligence exercises a form of ‘distributional self-restraint’: It carefully circumvents the macro-level questions of value generation and capture in the political economy of global value chains, and the micro-level questions of pricing and wages in such an economy. In terms of political communication, this lacuna has allowed portraying due diligence as representing a win-win scenario in which different actors, including business, would allegedly have symbiotic interests. However, this orientation restricts or even forfeits due diligence’s ability to critique material inequalities that are entrenched in global value chains and affect small-scale suppliers, farmers, and workers.Footnote 8 It downplays, rather than clearly exposes and denounces, the gap between the status quo of global production and the target scenario under perfectly enacted due diligence.Footnote 9 The result is a focus on compliance practices that remains detached from the substantive transformations necessary to meet the vision of value chains consistent with human rights. This conceptual decoupling is reflected also in business practice where corporate responsibility and pricing are usually dealt with by separate corporate units.
Engaging with this limitation of due diligence is particularly salient at a moment where this mechanism is poised to become the bedrock of regulating value chains for the years to come. Without addressing the distribution of value, pricing, and wages as reflected in lead firms’ business model, the reach of corporate responsibility in value chains falls structurally short of attaining ‘root causes of human rights violations.Footnote 10 Such ‘root causes’ generally represent entanglements between the conduct of individual economic actors and structural conditions in the respective market, regulatory environment, or other institutional context in which this actor intervenes. Reorienting due diligence in a more distributively aware manner and enabling it to permeate to such root causes will be a critical task moving forward. While the spread of due diligence legislation is an important achievement for a broad coalition of civil society organizations that seemed highly unlikely still some years ago, concerns are real that their critical gist ‘runs out of steam’Footnote 11 before it could even leave a mark. Importantly, the ultimate effects of these legislations can hardly be assessed at present as they will likely depend on factors that reach far beyond the adopted legislative texts and will only crystallize over time.Footnote 12 Due diligence establishes a dynamic and learning regulatory regime that involves multiple actors with distinct roles and interpretive authority, draws on novel compliance techniques to navigate internal tensions and ambiguities, and is animated by a distinct imaginary of law’s engagement with (international) political economy.Footnote 13 The future of due diligence is thus not set in stone and some caution seems warranted both towards overly embracing and blanket dismissive accounts that either anticipate catalytic effects for human rights protection or see comprehensive corporate capture as unavoidable.
A distributive analysis of due diligence foregrounds questions regarding the costs and burden-sharing of a green transition, all of which are particularly virulent in a climate of political economy marked by rising costs of living, inflation, and ongoing logistical and geopolitical value chain distortions.Footnote 14 It allows demystifying the corporate narrative that any increase in factory wages and compliance costs will directly and inevitably affect consumer prices. A look into the manifold mechanisms of value capture and pricing techniques along value chains quickly reveals this immediacy to be simplistic. First, the political economy behind the consumer welfare standard, e.g., as the vantage point of competition law analysis, requires seeing consumer price as in many ways ‘made’ rather than ‘given’.Footnote 15 Second, value chain pricing and wages tie in with nascent debates on profit margins as exemplified by energy and rent caps and, more generally, the rediscovery of price as a tool of political planning.Footnote 16 These broader perspectives on pricing and valuation are productive lenses for putting this debate in perspective.Footnote 17
Methodologically, the article explores intersections of two nascent scholarly approaches to transnational economic law, that is ‘business and human rights’ and ‘law and political economy’. While the former has evolved in parallel to, and in close engagement with, the juridification of corporate accountability roughly over the past decade,Footnote 18 the latter serves as an umbrella term for scholarship united in the commitment to trace social, economic, and ecological change within legal thought and make legal methodology, doctrine, and practice sensitive towards matters of social justice and inclusivity.Footnote 19 Combining both approaches allows the detection of hidden economic underpinnings of ‘business and human rights’ and its instruments. In particular, the article seeks to trace and explicate how particular economic concepts (i.e., neo-classical price theory, economic upgrading) are often implicitly translated into or trickle into legal thought and policy analysis where they function to normalize and bracket certain features of the global political economy. This occurs at both the macro- and the micro-level of analysis which the article therefore puts in relation to one another. Exposing the role of pricing inscribes into the recently growing attention to the intersections between public and private legal institutions in the international political economy, including contract and corporation as building blocks of corporate power within GVCs.Footnote 20
The remainder of the article is structured as follows. I will first explore the intersections of power, pricing, and inequality in GVCs (Section 2), before illustrating how these intersections have formed a blind spot in the regulatory framework of corporate accountability (Section 3). In the subsequent step, I shall discuss routes to overcome this blind spot within the current architecture of corporate accountability (Section 4). A brief outlook for future research concludes (Section 5).
2. Power, pricing, and inequality in global value chains
GVCs are networks of economic actors that serve as basic operative units of today’s economic organization and transnational production. Conceptualized by some as ‘global inequality chains’,Footnote 21 they set the conditions for participation and (in-)equality in the global economy and form the infrastructure that captures, relocates, and appropriates value.Footnote 22 Others have suggested a framing as ‘global wealth chains’Footnote 23 to denote how value chains use the institutional and legal context to reshuffle the geographies of wealth. Generally, the proliferation of GVCs is founded on a combination of outsourcing and offshoring, whereby firms focus on their most value-producing core competences, such as research and development, product design, marketing, and intellectual property, while transferring less-value generating aspects of production, such as manufacturing, component design and back-office functions, to entities and jurisdictions with the lowest costs related to these tasks. Cost discrepancies between suppliers, jurisdictions and locations are a key driver for value chain structures.Footnote 24 The organizational complexity of value chains, often composed of tens of thousands of legally distinct companies, has long haunted the debate around corporate responsibility that arose since the 1970s around multinational corporations (MNCs), conceptualized as unitary and integrated actors.Footnote 25
Much of the appeal of the leading GVC analytic by Gereffi et al.Footnote 26 for policy analysis stems from its attempt to trace ‘value added’ at each chain juncture. In development discourses, involvement in GVCs and upgrading to higher value-added segments in the chain has long been portrayed as a key to economic development and possible mitigation of North-South.Footnote 27 While illustrations of such upgrading exist, they have often not been accompanied by broader social or ecological upgrading and remained restricted by power dynamics within GVCs and value capture with lead firms that deepen inequalities. GVCs, in other words, are both a possible mitigation to and a source of inequalities, generating new winners and losers across and within countries.Footnote 28 This requires a closer look at the specific internal dynamics within GVCs and how they generate inequality and vulnerability. To decipher the role of pricing in this, the interdependencies between pricing and value chain structures must be uncovered. Such insights remain hidden when debates on prices are either focused on the first tier (without discussing how pricing trickles down the chain), or at the final tier of worker wages (without discussing upstream factors).
2.1. Vulnerabilities created through lead firm sourcing practices
Within GVCs, lead firm sourcing practices – referring to timelines, pay, and other specifications – play a central role for stable and fair supplier relationships that can avoid poverty wages and the vulnerabilities to exploitation emerging from them.Footnote 29 Sourcing practices are important determinants of wage and working conditions at the factory and producer level. Attempts by production countries to adopt counterstrategies, e.g., by regulating farm-gate prices or attracting other premiums have rarely been able to halt the pass-through of prices from the global to the local level.Footnote 30 In turn, many of the most severe human rights violations along value chains – such as modern slavery – need to be understood as endemic to the business models and current dynamics of value chains. Rather than constituting occasional ‘bad apples’, brought about by particular criminal intent or individual moral turpitude, such violations result from what are common commercial sourcing practices.Footnote 31
Over the past decade or two, lower-tier suppliers find themselves confronted with increasingly contradictory expectations from lead firms, that is to increase both productivity as well as labour and environmental conditions. These demands are passed on to lower-tier suppliers often through powerful middlemen, that is large and consolidated supplier firms which coordinate deeper supplier networks and hence serve as mediators of lead firm power.Footnote 32 In the words of scholars of compliance and organizational studies, such conflicting results in ‘decoupling’ between lead firm governance and factory-level conditions.Footnote 33 A recent study conducted by the ILO in five major markets sheds light on purchasing practices’ effects on wages.Footnote 34 When lead firm purchases occur with low forecasting accuracy, with inaccurate technical specifications, or require suppliers to sell production below costs, the data shows repercussions both on the timeliness and the level of wage payments, as well as on overtime.Footnote 35 Suppliers react to highly fluctuating order volumes and changing specifications by resorting to temporary workforce, further outsourcing, and lower pay. Lead firms, in other words, find contractual strategies to mitigate or externalize risks arising from volatile commodity market prices.Footnote 36 A cross-country and cross-sectoral Global Supplier SurveyFootnote 37 conducted by the ILO in 2017 provides a snapshot of the pressure that buyers’ pricing exerts on suppliers. More than a third of the suppliers reported having accepted orders below their production costs, a number reaching more than half in the textiles sector. Suppliers located in countries with a lower Human Development Index (HDI) were shown to be much more likely to sell below costs, reflecting a lower bargaining position compared with suppliers in more developed countries that have access to more diversified buyers and countries and may also offer products with higher value added. Smallholders that rely on export-related income often have limited alternatives to selling to large operators and are likely to accept (too) low prices. Many suppliers reported that the need to secure future orders in a highly competitive environment generates a lock-in effect that mandates accepting orders below pay.Footnote 38 This is corroborated by data showing how prices paid by lead firms for garment have remained relatively stable over the past years, indicating that the rise and proliferation of corporate responsibility has had little repercussions.Footnote 39 Moreover, at the level of worker wages, studies have demonstrated how wages around the poverty line as well as wage theft and delayed payment exacerbate worker vulnerability to forced labour.Footnote 40 Generally, the degree of a power imbalance, complexity and volatility of a chain appears to amplify the impact of pricing down the chain.
2.2. Lead firm power and the making of prices in GVCs
Pricing in value chains is both a result of and a means of lead firm power.Footnote 41 To understand how power imbalances affect the distributive outcomes of value chains, it is important to stress that GVCs and pricing practices are no mere result of a ‘natural’ market order, but designed as a consequence of a strategic play with legal niches and the blind spots of legal institutions.Footnote 42 Located between ‘make’ or ‘buy’, between market contracting and hierarchical corporate integration, GVCs are marked by different means of governance through which lead firms build and employ their power to orchestrate their supplier networks.Footnote 43 Through governance, lead firms seek to leverage the benefits of decentralization while ensuring that their interests and standards are respected along the chain.Footnote 44 Towards this, lead firms utilize various governance techniques, all of which set GVC transactions apart from a textbook market exchange. While in such an exchange, the price of a good is typically the central parameter and functions to absolve contracting parties from knowing or inquiring deeper into production conditions, the scenario differs in most GVC transactions. Here, parties establish an entire relational infrastructure that binds them together and turns powerful lead firms into price-setters. At the same time, lead firms need to deploy more subtle strategies to dissociate themselves from harmful production conditions – legally, economically, geographically, environmentally, culturally.
Why is it that pricing and wages are barely present in debates of value chain governance, despite the importance of lead firm governance techniques for value chain dynamics, as we have just seen? Such sanctity of prices follows from an implicit adoption of neo-classical economic thought in legal conceptualizations (and, to some extent, in GVC studies) that have bracketed prices. As Robert Hale has famously argued, the liberal architecture of the modern state, especially through the institutions of property and contract, serves to obscure its coercive and distributive effects.Footnote 45 In a long pedigree of economic thought,Footnote 46 the price system has been portrayed as ‘natural’ and spontaneous outcome of decentralized economic organizing, making it ‘distinctly unfashionable’Footnote 47 to talk about ‘just’ prices, despite the century-old fascination with the topic.Footnote 48 Information economics sees prices as information signals that allow market actors to make transactional decisions in the absence of centralized coordination.Footnote 49 A particular appeal has been identified in the fact that prices overcome the epistemic problem of value difference among market participants and serve as a shared scale of valuation that makes individual preferences commensurable even in the eye of deep disagreements on base values. The formal equality with which the price system treats everyone in its orbit has been positively connotated even by critical scholars.Footnote 50 This vision has become so consolidated that two important normative consequences were at least implicitly derived from it. The price system, at the macro level, is credited for a fair distribution of the shares of production, and at the micro level for the a priori fairness of a contractual transaction. It is this aura of prices as ‘natural’ that can ‘do no wrong’ that has placed prices in value chains largely outside of critique in legal debates and outside the scope of policy intervention as possible contributor to human rights violations.Footnote 51 This has been refuted in recent years by authors who, like Patel and Moore, have shown how the ‘cheapness’ of natural resources and labour results from a complex institutional setupFootnote 52 – reviving Karl Polanyi’s famous argument that there is an element of design behind allegedly ‘free’ market setups.Footnote 53 As much as value chains themselves are determined by background rules that determine modes of economic exchange, the same holds true for prices that do not ‘just happen’ in the decentralized and spontaneous way that neo-classical price theory purports.Footnote 54
While economic sociologists have stressed how prices are formulated as the outcome of social relations that reflect an intersubjective creation of meaning as well as respective power dynamics and competitive pressures,Footnote 55 the analytical framework has usually been a horizontal market segment, not a vertically disintegrated value chain. Such value chains function as a specialized price system where the idea of a decentralized agnosticism as to prices appears even more misplaced. For example, lead firms growingly turn to the predictive power of big data and algorithmic governance along the value chain to tailor their demand.Footnote 56 Lead firms’ superior bargaining power allows them to engage in a specific pricing strategy that is commonplace in GVCs. Management literature distinguishes a multiplicity of such strategies, i.e., the different processes and modes of assessment within a company that will guide the pricing decision. A common typology distinguishes between a cost-, competition-, or value-based pricing practice.Footnote 57 All three accounts expose that there is an element of strategic decision-making in price setting. Cost-based pricing orients prices around companies’ production costs, while competition-based pricing draws reference to competitors. Cost-based pricing in particular bears the risks of misalignment with customers’ willingness to pay, which has recently bolstered value-based pricing that takes the customers’ perception of a product’s use value as key criterion. This last strategy amounts to top-down pricing. Here, a designated retail price from which all internal costs are deducted forms the starting point of all pricing agreements down the chain. In a value chain context, this means that prices paid to suppliers and ultimately worker wages down the chain are largely conditioned upon valuations that take place on legally and geographically distant consumer markets. In a stylized understanding of ‘supply and demand’, the complexity of value chains is flattened to aggregate ‘costs of production’, without attention to the distribution of those costs. Consequently, such price engineering is structurally insensitive to the wage level and the number of tiers down the chain. In such a setting of prices being strongly determined by one or several parties, the normative appeal of prices – their ability to commensurate and allow exchange in the eye of different sets of preferences – diminishes and can no longer serve to justify price levels.Footnote 58
The following section will turn to the mechanism of human rights due diligence to argue that value, pricing, and wages have remained conceptually peripheral.
3. The distributional self-restraint of human rights due diligence
Human rights due diligence is referred to as the ‘lingua franca’Footnote 59 or the ‘gold standard’ of corporate accountability. Introduced to the international legal scene through the UNGP, the idea of a company-led, risk-based assessment of human rights impacts has become the regulatory mode of the hour.Footnote 60 It forms part of companies’ ‘responsibility to respect’ human rights as put forward in the UNGP. At its conceptual heart, due diligence requires companies to identify, prevent, mitigate, and account for their adverse human rights impacts in a proactive manner. As a central innovation of the UNGP, the corporate responsibility is extended beyond impacts that business enterprises cause or contribute to through their own activities to also encompass impacts that are ‘directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts’.Footnote 61 Due diligence forms the core of several national legislations, such as the French Duty of Vigilance law of 2017,Footnote 62 the German Supply Chain Act of 2021,Footnote 63 the Norwegian Transparency Act of 2021Footnote 64 and the Dutch Child Labour Law of 2019Footnote 65 . Besides, it features prominently in European legislation, most notably in the recent Corporate Sustainability Due Diligence Directive (CSDDD),Footnote 66 the Deforestation Regulation,Footnote 67 the Conflict-Minerals Regulation,Footnote 68 and more indirectly also in the recent EU Forced Labour BanFootnote 69 . Lastly, due diligence is the focal point of international legal developments, such as within the OECD.Footnote 70 The concept owes its rapid dissemination in legislation, litigation, and advocacy to the vision and consensus-seeking agenda of the late John Ruggie, then UN Special Representative of the Secretary-General on human rights and transnational corporations and other business enterprises.Footnote 71 Since the conceptual groundwork was provided in the UNGP which now radiate into and inspire to a large degree European and national legislation, the primary focus in this article will be on the UNGP. Ruggie sought to overcome the political deadlock that had arisen after the opposition by certain states and the international business community against previously developed rules that postulated a direct extension of human rights obligations on transnational corporations.Footnote 72 However, the UNGPs are no mere middle-ground compromise, but a fundamental and pragmatic reformulation of human rights under conditions of polycentric governance which amalgamizes public and private elements.Footnote 73 The underlying regulatory vision dovetails with Ruggie’s earlier scholarly work, rooted in international relations, in which he characterized the post-Second World War international economic order as ‘embedded liberalism’.Footnote 74 Growing liberalization at the international level would be cushioned domestically through various policies of social protection (in what he labelled ‘advanced’ economies). Where such cushioning (or ‘re-embedding’) was not comprehensive or effective because of the apparent inability or unwillingness of many states to address adverse effects of transnational business, Ruggie diagnosed ‘governance gaps’.Footnote 75 He noted:
The root cause of the business and human rights predicament today lies in the governance gaps created by globalization – between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse consequences. These governance gaps provide the permissive environment for wrongful acts by companies of all kinds without adequate sanctioning or reparation.Footnote 76
When taking the incongruence in scope and reach between state-centered human rights law and transnational corporate conduct as the diagnostical starting point, the deterritorialization and proceduralization of human rights through companies’ responsibility to respect appears as a possible remedy.Footnote 77 Yet, while this incongruence is real, it is enshrined in qualitatively new and structural threats to human rights in the global economy. These threats are no mere matter of norm application or gap-closing, but require human rights to redefine and defend their place in the rebalancing of power relations between capital, labour, and the environment. My argument is that human rights due diligence has not sufficiently embraced this role (yet), but instead cultivates a ’distributional self-restraint’ that derives from the intellectual and political history of human rights law, especially as represented in the UNGP (Section 3.1), and the lasting impact of what is often termed the ‘business case for corporate social responsibility’, a line of argument which foregrounds economic viability as key motive for human rights compliance (Section 3.2). Ultimately, this ‘distributional self-restraint’ also manifests itself in the legislative texts and debates around the EU Corporate Sustainability Due Diligence Directive (Section 3.3).
3.1. Human rights’ accounts of inequality: Locating human rights due diligence
Human rights due diligence (HRDD) opens a new chapter of the turbulent and much-debated relationship between human rights and social and economic inequality.Footnote 78 This relation cannot be retraced in full here, but I shall present central arguments of the most poignant critics before discussing how these arguments resonate with HRDD. Samuel Moyn, in his powerful account of human rights, noted how the rise of human rights to a universal political grammar coincided with neoliberal shifts around the globe.Footnote 79 The force of human rights has been so mesmerizing, Moyn argues, that earlier aspirations of distributive equality were replaced by that of ‘sufficiency’. In this depiction, human rights have proven malleable to ultimately conform to, rather than put into question, different modes of political economy over time. In the classical liberalism of the nineteenth century, human rights placed respect for freedom of contract and a Lockean sanctity of property front and center.Footnote 80 In the post-Second World War period, the advent of economic and social rights reintroduced egalitarian elements which remained, however, strictly confined to the national level of a welfare state model which only few countries reached. In the era of neoliberal globalization after the end of the Cold War, lastly, human rights have fortified the normative individualism that undergirds neoliberal policies and is employed to oppose economic planning.Footnote 81 The broad (even if of course never universal) consensus around human rights rests on a class compromise, achieved at the cost of a very abstract and depoliticizing formulation of core values and legal structures that made human rights agreeable also to corporate interests. The opening of pandora’s box by recognizing corporate ‘human’ rights was but one consequence of this.Footnote 82 Importantly, the language of rights entailed and purported a specific political culture and vision of change that closed off or made less likely certain alternative paths.Footnote 83 Human rights transited ‘from a language of revolution to that of routine governance’,Footnote 84 and – as a central argument by Moyn – a range of international legal actors, including policy makers, human rights advocates, development economists, and political philosophers contributed to and internalized the underlying shift from ‘equality’ to ‘basic needs’. While empowering and liberating on matters of status equality, they developed in isolation from broader redistributive agendas. One example is the new international economic order (NIEO) developed by states in an early post-colonial setting in the 1970s that advocated for an institutional framework for a global and post-colonial scaling of welfare mechanisms.Footnote 85 The NIEO was developed in reaction to the absence of such redistributive ambitions in the International Covenant on Economic, Social, and Cultural Rights (ICESCR) of 1966. Importantly, a predecessor text to the UNGP, the UN Code of Conduct on Transnational Corporations, was developed from 1975 onwards as part of the larger NIEO initiative.Footnote 86 Up until 1992 when the project was discontinued as political support dwindled, the draft Code had become a pioneering initiative to reconcile transnational corporate conduct with Global South countries’ development agendas – illustrating that today’s human rights lens on the matter is not without historic alternatives. The rules addressed host states’ regulatory sovereignty, principles of good corporate governance, financing, taxes, IP, and environmental protection, among others.Footnote 87 In line with the dominant developmental perspective – which was also reflected by the institutional competences for the dossier within the UN – only a brief paragraph was dedicated to human rights. This changed drastically when the UN Human Rights Commission became in charge of transnational corporations in the late 1990s, and a development policy dimension receded in favor of a human rights framing. A similar development exists at the level of the International Labor Organization (ILO) which, despite dealing extensively with networked and disaggregated production in recent years, maintains the less evocative ‘global supply chain’ term, concerned that the ‘global value chain’ nomenclature makes underlying questions of valuation and distribution all too apparent and pressing.Footnote 88
This is not the place to engage in detail with the extensive critical scholarship on the disenchantment with human rights, and many commentators have argued that the human rights movement is cognizant of these strategic fallacies, or at least can be.Footnote 89 This certainly holds true for large parts of the ‘business and human rights’ movement as well. Even from this sketch, however, at least three aspects seem to resonate with the intellectual genesis of the UNGP and HRDD. First, the UNGP’s emphasis on ‘adverse human rights impacts’ reflects the negative, protective dimension of human rights (‘avoid infringing’Footnote 90 ), rather than a positive transformative aspiration. Given Ruggie’s aim to secure backing for the UNGP also by the business sector, the negative phrasing – calling for the cessation of an allegedly narrow set of conduct – was much more palatable. The UNGP have abandoned the language and normative ideal of structural reform and global redistribution that animated the NIEO. The second aspect concerns the broad leeway and interpretive authority granted to companies under HRDD. Often, companies recur to private compliance initiatives whose own business model makes them entangled in the power structure of the value chain they are supposed to assess.Footnote 91 In the absence of strong stakeholder engagement, companies are the masters of their due diligence, with very few in-built mechanisms of scrutiny, and hence few safeguards against a levelling down of human rights in their managerial and risk-based interpretation. This generates by now well-established risks of ‘cosmetic compliance’Footnote 92 and corporate capture.Footnote 93 A third aspect is that the aspirational and universal language of human rights which fuels also the UNGP has as its flipside the absence of a clear problem diagnosis of root causes beyond the idea of ‘governance gaps’. Not only does the metaphor of ‘gaps’ suggest a rather accidental, residual, and passive nature of the legal framework of globalization. It also does not specify what actors and institutions contribute to the construction and now exploitation of such ‘gaps’. Footnote 94 While polycentric governance opens up a productive space by acknowledging the limits of states’ regulatory capacity in a globalized and fragmented World SocietyFootnote 95 and by tapping into the problem-solving potential of private and societal actors, this must not overshadow the contribution of private actors and pervasive business models to the problem creation in the first place. The liberal roots of the UNGPs and the discursive power of human rights have been powerful to achieve a broad consensus,Footnote 96 possibly because of their portrayal of human rights violations as a circumscribed category of harm that can be eradicated without altering business models.Footnote 97 In the UNGP debate, discussions around ‘business models’ only became a reference with the rise of digital platforms and their data-driven models of value creation.Footnote 98
These three aspects suggest that HRDD as a new (‘polycentric’) generation of human rightsFootnote 99 remains rather symbiotic with structures of power and existing distributive arrangements in the global economy. Unlike previous conceptualizations rooted in developmental policy and the NIEO, human rights due diligence draws chiefly on the legacy of human rights and their rise over the twentieth century. It in fact presents itself as a somehow obvious continuation of this development which naturally deserves endorsement and outshines alternative ‘paths not taken’.Footnote 100
3.2. The long shadows of the ‘business case for corporate social responsibility’
A second conceptual reason for the ‘distributional self-restraint’ of human rights due diligence stems from the economic narrative cultivated around (what was then mostly referred to as) corporate social responsibility (CSR) before it became juridified, e.g. through due diligence legislation. In the foundational days for thinking about corporate responsibility, around the year 2000, the so-called ‘business case for CSR’ was built around the idea that ‘responsible’ corporate behaviour was appealing economically, rather than warranted by moral, legal, or other reasons.Footnote 101 This framing of CSR working within a market rationality, rather than mitigating or circumscribing it was eagerly adopted by company leaders, economists, and policymakers.Footnote 102 Critics lamented that it subverts moral considerations to market rationality and expands market rationality to non-market realms.Footnote 103 Prioritizing the economic reading of CSR indeed missed the opportunity to understand tools of CSR as open-ended institutions of colliding discourses expressing economic, legal, social and other rationalities.Footnote 104 What is more, despite the gradual juridification of CSR in international standards, in the UNGP and ultimately in national and European legislation, the ‘business case’ of the earlier days of CSR remains a key conceptual and political reference and highly influential in the background. It undergirds much of the legal and policy debate in the EU that routinely refers to this motive to advocate for due diligence legislationFootnote 105 and has served to fend off calls for deeper transformations of business models. The simultaneous framing of ‘risks to human rights’ as material ‘risks to business’, such as through reputational or capital markets-driven impacts has exposed the UNGP to the language and logic of business.Footnote 106 Legal discourse, in other words, has not been able to recalibrate an inclination (or bias) towards business interests (‘CSR has to pay off’) that took root when CSR was still treated as decidedly ‘extra-legal’.
We have seen how the UNGP’s intellectual history has favoured a ‘distributional self-restraint’ – a self-inflicted reluctance to engage with deeper underpinnings or root causes of human rights violations that is however not inherent to due diligence and hence not inevitable. Turning now to the most influential current legislative project around due diligence, the EU Corporate Sustainability Due Diligence Directive, we will detail how such a regulatory paradigm manifests itself in legislative texts and debates.
3.3. Pricing and sourcing practices in the EU Corporate Sustainability Due Diligence Directive
The EU Corporate Sustainability Due Diligence DirectiveFootnote 107 that entered into force on 25 July 2024 represents the most significant legislative text inspired by the UNGP. The final text as well as the legislative process and the positions taken by the co-legislatorsFootnote 108 corroborate a reluctance to address pricing and sourcing practices. This is also reflected in the political framing during the legislative debate that did not, even from progressive voices, evoke a distributive assessment of EU trade relations but strongly adhered to the idea that human rights and environmental compliance was possible within the business model of value chain capitalism. ‘Sustainability due diligence’ makes such compliance manageable by singling out a small number of actionable ‘risks’ among which companies enjoy wide discretion to prioritize.Footnote 109 Addressing those risks that are presented as sporadic and exceptional is deemed possible without contextualizing causes that are either intrinsic to the business model or lie beyond individual company conduct. As the controversial political debate on the effects of the EU CSDDD on SMEs has shown,Footnote 110 the economic effects of the Directive are predominantly seen as ‘compliance costs’, understood as the managerial efforts to verify compliance, rather than ‘transition costs’, understood as investments into structural transitions and capability-building along the chain. The EU Commission’s Impact Assessment, for instance, comprises an extensive data collection on ‘compliance costs’ while it excluded ‘transition costs’ from the survey, calling them ‘difficult to estimate’ and depending on individual companies’ ‘risks, impacts and preparedness’.Footnote 111 What is more, the burden of compliance costs is often pushed down the chain to smaller suppliers.Footnote 112 Due diligence legislation effectively creates additional bottlenecks which suppliers, workers, and farmers need to pass for access to GVCs, including bearing extra costs of audits and adjustment of standards, while the respective value is largely captured by lead firms in the Global North.Footnote 113
Turning to the different iterations of the CSDDD throughout the legislative process, a ‘distributional self-restraint’ is particularly recognizable in the Commission proposal which makes only very limited and cautious mention of pricing practices, not in its normative provisions but in a recital.Footnote 114 The list of human rights treaty provisions to be considered in the due diligence process, presented as Annex to the proposal, comprises references to ‘fair wages’ and ‘decent living’ as stipulated in Article 7 of the International Covenant on Economic, Social and Cultural Rights.Footnote 115 The amendments proposed by the European ParliamentFootnote 116 made two important contributions that are relevant in this context. First, they include the right to a living wage and the right to a living income explicitly in the AnnexFootnote 117 as well as in the recitalsFootnote 118 and provisions.Footnote 119 This came after broad advocacy by companies and NGOs alike that asked to ‘not compromise on the definitions’ of both terms.Footnote 120 While ‘living wage’ refers to payments received by a worker from their employer for a particular amount of working time, a ‘living income’ is earned by an independent worker through the sale of their good or service and is often composed of different sources. Second, the amendments placed ‘business models’ and purchasing practices more central, reflecting a possible connection between human rights impacts and day-to-day business operations that can be in line with companies’ overall strategy.Footnote 121 Moreover, the European Parliament proposed to expand the scope of a Code of conduct already foreseen in the Commission proposal (Article 5(2)) to apply to ‘all relevant corporate functions and operations, including pricing practices and purchasing decisions, for instance on trading and procurement’.Footnote 122 The explicit reference to pricing was erased in the final text.Footnote 123 The only remaining mention of prices in this text relates to ‘price pressures’ in the agricultural sector which have been an important concern to producers in the Union.Footnote 124
Overall, the CSDDD still reflects the idea of a bracketing of pricing and business models which was prevalent in the legislative history and especially the Commission proposal, even if some of the Parliament’s proposals to mitigate this lacuna found their way into the final text. Taking the Parliament’s ambition further, we will now turn to additional strategies of a more distributively aware due diligence regime.
4. Taking human rights due diligence seriously
We have seen the tension between the aspirational tone of HRDD and its ‘distributional self-restraint’ – as long as questions of value, pricing and wages are bracketed, HRDD will not be able to penetrate to economic root causes. A change of perspective that connects the concept of ‘adverse impacts on human rights’ explicitly to business models and sourcing practices appears necessary. The argument is that because of the cascading effects that lead firm pricing generates down the chain, lead firms need to assess and reflect how their upstream pricing and wider sourcing practices affect lower tiers of their value chain. To be sure, pricing is far too multi-factorial and dependent on various influences for due diligence to require certain substantive price floors or ceilings. Rather, due diligence mandates lead firms to design the procedure of pricing-setting in a reflexive and informed manner. Pricing can no longer benefit from the naturalist imaginary of its spontaneous emergence, but lead firms shall actively reflect the impact of their pricing-setting and sourcing conditions, especially with regard to volatile price changes and price squeeze. Importantly, this concerns not merely the price level, but includes payment conditions and meeting of payment terms, conduct in case of default and price adjustments. Pricing and sourcing conditions need to be understood as a means of conducting due diligence, not just corporate conduct subject to due diligence.
In principle, due diligence’s reliance on the notion of ‘impact’, understood as the empirical manifestation of consequences of corporate conduct, can open the door to legally mandating such a change. If sourcing squeeze is recognized as a root cause, a literal reading of companies’ obligations to identify and remedy ‘adverse human rights and environmental impacts’ suggests that such business practices need to consider their ‘impact’ along the chain. In such a perspective, the UNGP’s tacit replacement of a deontic rights-based understanding of human rights by a consequentialist or managerialist understanding can be turned into a critical feature. Through the lens of ‘impact’, human rights would confront the use of power discrepancies in value chains, as well as the opacity, informality, and complexity of global production. This would, to be sure, shift the focus towards questions of institutional design and its entanglement with international political economy, and hence rather further away from a perspective of individual entitlements of rightsholders.Footnote 125 An increased deindividualization of human rights might, somewhat counter-intuitively,Footnote 126 offer a strategy to confront business dynamics along value chains that generate individual and collective vulnerabilities but are usually ‘too far’, ‘too indirect’ or ‘too unspecific’ to be addressed by human rights.
4.1. Moving beyond the factory-level: Embedding the quest for living income and living wages in the political economy of value chains
We have seen that until now, in both legislative texts and conceptual debate, living income and living wages are portrayed as a factory-level issue that companies need to be attentive towards,Footnote 127 but which is not, in turn, seen as shaped by their own corporate conduct. In the terminology of the UNGPs, companies are seen at best as ‘directly linked’, but not as ‘contributing’ to wage-related adverse human rights impacts. In the UNGP framework, human rights impacts that a company is ‘contributing to’ need to be ‘addressed’ (Guiding Principle 13 (a)), while for those impacts that a company is ‘directly linked to’, this company needs to ‘seek to prevent or mitigate’ (Guiding Principle 13 (b)) them.Footnote 128 We have also seen above that price squeeze and sourcing practices materialize down the chain so that there are good reasons to see lead firms as ‘contributors’. This then raises the intricate question of how the trickling down of pricing and sourcing practices can be grasped in normative and governance terms: What establishes the contribution and what are companies expected to do to ‘assess’ the negative impacts?
The key normative contention of ‘reflexive pricing’ is that companies ought to develop inclusive mechanisms of assessing and reflecting, with stakeholders at different tiers of the chain, the impacts of pricing, including for primary commodities down the chain. This does not suggest that lead firms are key shapers of, e.g., primary commodity prices, which, in fact, are determined through institutional mechanisms including financialization that reach beyond lead firms’ influence.Footnote 129 But by deploying their own pricing and sourcing practices down the chain, including based on primary commodity prices, lead firms are under a legal responsibility to assess their own impact. Several initiatives and governance tools offer support to lead firms in this regard, even though it requires critical scrutiny to see how well they align, ultimately, with the stated objectives. Voluntary living wage commitments by global brands, in particular, have not materialized in changes of commercial practices in part because they were not grounded in the political economy and power dynamics of value chains, but have been externalized to Multi-Stakeholder-Initiatives that have often diluted and distorted the definition of ‘living wage’.Footnote 130 Following the disillusionment with such initiatives, Enforceable Brand Agreements (inspired by the Bangladesh AccordFootnote 131 ) seek to make such commitments more robust. One example is ‘Wage Forward’,Footnote 132 an initiative calibrated on the US Fair Food Program run by the Coalition for Immokalee workers in Florida. A second example with a different governance setup is the Fairtrade premium for producers that certain standards in the Fairtrade certification system foresee.Footnote 133 Besides, several toolkits have emerged that assist lead firms in assessing what is referred to as the ‘full price’, ‘hidden price’, or ‘true costs’ in their production.Footnote 134 These tools serve however primarily as quantitative indicators of sustainability performance, especially in life-cycle analysis (LCA), that make various forms of externalities visible at the point of sale, without a clear direction of changing pricing practices.
4.2. Building blocks of reflexive pricing governance
Placing HRDD firmly within the political economy of value chains cannot be achieved by due diligence rules and processes alone. In fact, it is the very idea of HRDD to mandate a corporate process which translates into and is guided by legal mechanisms, doctrines and institutional arrangements that stem from outside of HRDD legislation. Put differently: The due diligence process deliberately cuts across existing legal fields and manifests itself in many legal venues that complement the rules on due diligence strictly speaking. Some of those venues already exist while others will still need to be developed so that only initial orientations are possible at this point.
One such lever comes from contract law, a field not unfamiliar with thinking about fairness and control of pricing. Contract thinking about equality in exchange historically had a certain substantive vision of what constitutes a just price (iustum pretium) as developed by Thomas Acquinas and taken over by natural law scholars, before these questions were rescinded behind the supply-demand theories of liberal market economists, especially Adam Smith.Footnote 135 In this paradigm, a ‘just’ price became associated with the market price voluntarily agreed upon under competitive conditions, with the law being mostly limited to procedural control and the doctrine of ‘just price’ falling dormant.Footnote 136 To be sure, in extreme cases, substantive revision is also possible, such as in usury. Several authors in legal and political philosophy have suggested that prices which abuse and entrench exploitative conditions, e.g., of workers, need to be considered as unjust.Footnote 137 Both the doctrinal and the theoretical efforts remain however largely limited to bilateral constellation of exchange and do not capture the cascading of prices in GVCs and its macro-economic environment.Footnote 138 In a GVC setting, the conditions for price squeeze typically result from contractual cascading and its enabling conditions in the political economy of the value chain, i.e., factors reaching beyond the individual contract. Despite a recent surge in interest in prices in private law debates,Footnote 139 a reformulation of ‘just price’ theory reflective of macro-economic conditions of value chain capitalism is still to be developed.Footnote 140 How can contract law react if contractual obligations upstream generate a demand for illegal labour practices? One venture in this direction comes from the Model Contract Clauses for Human Rights Projects by the American Bar Association.Footnote 141 Another one – taking a more anthropological perspective on contracts – would be to develop practical governance tools through which companies can grasp impacts of their pricing policies along the value chain. Given that commercial pricing is today largely algorithmic, the underlying calculative models – part of what could be called the ‘code’ of global value chainsFootnote 142 – set the course for price policies. At the operational level, these translate into revenue plans, audits, contract forms, order and pricing sheets, and related documents. These documents are the interface through which lead firms ‘see’Footnote 143 their value chains, and – as Annelise Riles has shown for the financial sectorFootnote 144 – small adjustments to such documents can at times provoke tangible changes in perspective.
Next to contract law, it is the interface between due diligence and competition law that offers guidance on the powers and limitations of due diligence. Competition law both serves as a complementary legal lever that ties in with and even moves beyond the aspirations of due diligence. At the same time, competition law may be invoked as a shield against a redistributive amplification of due diligence. As a starting point, competition law, while limited in its enforcement at the transnational level, seems conceptually more equipped to address imbalances of power in the broader political economy of value chains.Footnote 145 Unlike contractual means to redress bargaining power that remain tied to a bilateral perspective on ensuring fairness of the process of exchange, competition law embraces an institutional understanding of markets and value chains and considers itself as part of the legal ground rules of exchange.Footnote 146 Compared to the due diligence mechanism, this results in a greater openness of competition law, including unfair trading practices law, towards addressing business models as such, especially in nascent approaches of a ‘holistic’ competition law that understands competition law instruments as means of social regulation pursuing a multiplicity of goals.Footnote 147 The underlying idea is that in globally interconnected markets that directly impact all spheres of life and determine ecological futures, competition law cannot remain agnostic towards wider policy goals.Footnote 148 Moreover, these strands of competition law trace corporate power and the diverse means of its manifestation, both formal and informal, legal and technological, and identify the incentive structure within which central actors are operating. Take the example of the EU Directive on Unfair Commercial Trading Practices in the agri-food chain.Footnote 149 Unlike in the due diligence context where rights violations are framed as singular instances of disregard of basic and essential norms, rather than animated by economic incentives, the law of unfair trading practices recognizes a potential economic appeal of the practices which are banned as illegal.
Overall, both contract and competition law can serve important complementary functions in the due diligence process and both regimes should be placed more prominently in debates on business and human rights. Coincidentally, this will allow connecting rich scholarly work that traces the political economical effects of both regimes to the mechanics of due diligence.
5. Conclusions
Global value chains are the institutional form of today’s global economy. They create links of interconnectedness between actors, places, and economic dynamics and gradually replace a territorial conception of markets by a functional conception of vertically disintegrated economic cooperation. As such, GVCs function as a distributive arrangement at a global scale, generating and relocating wealth while often exacerbating inequalities between and within countries, especially along the lines of class, gender, and race as well as colonial cartographies. The recent ‘GVC turn’Footnote 150 in transnational corporate regulation, wherein regulators growingly target GVCs, both directly and as a proxy for other transnational policy goals, must hence also be assessed in its distributive implications. This includes both its ability to alter the existing political economy of GVCs and the political economy of due diligence as a regulatory regime itself, i.e., who bears costs of required transitions and compliance. Human rights due diligence, the current heart of the playbook of GVC regulation, offers significant advances as opposed to previous paradigms of self-regulation and transparency regulation.Footnote 151 There are, however, broader lines of continuity than is commonly acknowledged, since all modes of regulation suggest that compliance is possible while leaving existing GVC business models largely intact. HRDD currently displays what I have labelled ‘distributional self-restraint’, i.e., a bracketing of questions of upstream business models and related questions of pricing and sourcing practices. Important contributing factors to the current political economy of GVCs as expressed in pricing, such as weak collective bargaining and competitive pressures on host states, are blind spots from the perspective of due diligence. Given the thick evidence that sourcing squeeze translates into vulnerabilities on the ground and forms a root cause of many rights violations, the distributive blind spot of HRDD makes it unlikely for this mode of regulation to be an effective challenge to rights violations that are entrenched in economic inequality, such as modern slavery. Importantly, the ‘distributional self-restraint’ is not only anchored in positive law and the policy debates around the EU CSDDD. Rather, it is a direct continuation of the political and economic imaginary that inspired John Ruggie in the development of the UNGP as well as of the naturalizing narrative from neo-classical economics around ‘free markets’ and ‘market prices’ that have immunized prices in value chains from being seen as conducive to harm. Legal debates and doctrines have at least indirectly internalized such conceptions and hence remain insensitive to the strategic uses of lead firm power in GVCs, inter alia through sourcing squeeze. To overcome such limitations, this article has called for a reflexive governance of pricing and sourcing practices that requires companies to assess and reflect, with stakeholders at different tiers, the impact of lead firm pricing down the chain, especially on living wages and incomes. This goes beyond the mere amount of prices, but it includes payment conditions more broadly. Two practical steps seem central. First, HRDD should be seen as connected to and complemented by the various legal regimes that enable and regulate global production, such as contract and competition law. Pricing and sourcing practices are so deeply woven into the legal fabric of GVCs that HRDD cannot be effective if it remains detached from it. Second, overcoming HRDD’s ‘distributional self-restraint’ requires solutions of institutional (re-)design that reach beyond categories of individual rights. If HRDD ought to contribute to a less unequal global economy and reflect some of the impetus of the NIEO which preceded it, it will need to develop a conceptual register of institutional transformationFootnote 152 that complements a framing of individual rights. This also allows bridging micro-, meso-, and macro-level perspectives on inequality in GVCs. Despite the multiple analytical and methodological frames in which pricing and sourcing practices in GVCs can be placed, the different levels are profoundly connected and should be read as such.
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