The Global Value Chains (GVCs) account for nearly 70% of international trade and are increasingly seen as a key avenue to address environmental, labour, and human rights issues, among others. Over the past three decades, this has led to the proliferation of Voluntary Sustainability Standards (VSS) and other voluntary commitments. On top of these, mandatory approaches (including due diligence requirements, certifications, and others) have more recently emerged, mostly in the Global North, with the adoption of demand-side measures and unilateral approaches such as the Carbon Border Adjustment Mechanism (CBAM), the EU Corporate Sustainability Due Diligence Directive (CS3D), and the European Union Deforestation Regulation (EUDR).

While regulations are key in promoting supply chain sustainability, the current framework generates a complex landscape of multiple coexisting and overlapping commitments and obligations, with uncertain potential impacts, within a turbulent and volatile global context. Some studies highlight excessive and, in some cases, infeasible compliance costs on Emerging Markets and Developing Economies (EMDEs), which might generate exclusionary effects, market segmentation, and loss of competitive advantages. While these new compliance challenges come on top of the existing ones that EMDEs face in integrating into GVCs, as recognised by the “G20 Generic Framework for Mapping GVCs”, some argue that they could lead to market access advantages. It is important to find ways to foster inclusiveness and to avoid goods that cannot meet these regulations being redirected to markets with lower sustainability requirements.

The WTO has not made enough progress in fostering discussions on the implementation and resolution of conflicts regarding these new sustainability-linked trade regulations. Consequently, global governance institutions need to evolve to surpass these trade challenges and provide adaptive and collaborative responses.

This policy brief recommends the G20 to launch a G20-backed “Global Coalition for Sustainable and Inclusive Trade” that will serve as a dedicated platform to share knowledge, foster dialogue, and align efforts for sustainable and inclusive trade. Ultimately, the Coalition will strengthen global governance and support businesses, especially Micro, Small and Medium Enterprises (MSMEs), in their integration into GVCs, which is crucial in an increasingly uncertain and fragmented global regulatory landscape.