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Examining Germany’s Potential Supply Chain Law

Understanding the debates, dates and possible outcomes.

What has happened so far?

In a nutshell: The discussion itself is not new. On a UN level, discussions on regulations of transnational businesses and their global supply chains started to emerge already in the 1970s.

Of those that did answer the survey, only 22% were found to satisfactorily meet the recommendations of the German NAP.

After these results, which clearly demonstrated that voluntary commitments are not enough, the government agreed that a law was inevitable.

Who is drafting the law?

Three ministries are involved in drafting the law. The Ministry of Economic Cooperation and Development, whose Minister, Gerd Müller, has been the main promoter of such a law for quite some time already (the ministry’s first draft for such a law was already leaked in February 2019). The others are the Ministry for Labor and Social Affairs, and the Ministry of the Economy. As might be expected, the latter has been the most vocal critic, warning of the potential negative impact on Germany’s economy, especially now in the midst of Covid-19 recovery.

According to a recent poll, about 75% of the German population favor such a supply chain law. 76% of respondents were of the opinion that victims of human rights abuses in supply chains should be able to sue for remedy in German courts.

What would be in it?

The drafts are still in the process of being aligned and discussed internally between the three involved ministries. Therefore, the contents of the bill that will be presented to parliament are not clear yet. What is more evident, are the demands of the groups lobbying for and against the law.

  • Audits to verify compliance with the law, and sanctions in case of violations
  • The inclusion of environmental protection, and recognition of the interconnectedness between the environment and human rights
  • Liability of the companies in cases of negligence, and the possibility of civil action before German courts for the victims of human rights violations in supply chains abroad
  • The application of the law to companies with more than 250 employees

Spinning the Narrative

What makes the discussion around this law so fascinating? The fact that the line between those supporting and rejecting it does not run between companies and civil society.

Their rationale: a law would create a level-playing field, where all companies are conducting business along the same standards, as opposed to today’s plethora of guidelines and norms that companies can pick from. Not doing due diligence would no longer be an option.

Moreover, many of the companies supporting the initiative are thoroughly evaluating their supply chains already and are putting programs into action on the ground to support their suppliers in improving their employees’ lives.

“The people need to benefit. And people don’t necessarily benefit from an audit….companies need to be creative when they engage with their supply chains, as creative as they are with their products.”

Other panelists supported this way of looking at things, emphasizing not the punishing character of a law, but its potential to push companies to find new ways to engage with their value chains. Essentially to add value, not only to the materials processed along the way, but also to the lives of the people working on them.

“Companies don’t have to guarantee anything, but they have to make an effort to assure responsible behavior along the supply chain. We are not talking about whether a chauffeur has buckled up, but serious human rights abuses.”

For supply chain negligence, liability might be the only option, as Markus Krajewski, Professor of international and public law, pointed out:

“The way a law is sanctioned sends a signal. If it’s a fine, the signal will not be very strong. And if we have a German law, it should fit within the German legal system. This system usually stipulates that there is liability for inflicted damage.”

And for those breaches, audits might indeed not be enough. For example, when trying to ensure there is no child labor at a factory — children can be sent to school the day the auditor has announced the inspection, and be taken back to work the day after. Thorough stakeholder engagement seems to be the more appropriate answer.

“What we want is a change of culture. Right now, social and environmental standards are seen as harmful for companies — this has to change,”

Susanne Gasde emphasized, Head of the CSR Unit in the Ministry for Labor and Social Affairs. So, not only should there be an obligation to report on due diligence, but a standard for overall business conduct is needed. One in which efforts to uphold human rights are treated as a key element.

What’s next?

For the moment it seems like the process has stalled. The three Ministries are still negotiating key points and have dug into their positions, particularly around companies’ liability for human rights abuses.



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