When a T-shirt arrives in a store in Germany, a chocolate bar in a supermarket or a sofa in a furniture store, the products often have undergone many stages of production in different countries.
For almost twelve months, the supply chain law, which has been harshly criticized by business, has made companies in Germany responsible so that they do not profit from child and forced labor among their suppliers. According to its own information, the responsible Federal Office for Economic Affairs and Export Control (BAFA) has not yet had to impose sanctions for violations in the first year.
As the authority has now announced, there have been 486 checks on companies since the law came into force on January 1st – mostly in the automotive, chemical, pharmaceutical, mechanical engineering, energy, furniture, textile and food and beverage industries . 38 complaints were received and Bafa contacted the company in six cases.
The authority draws a positive initial conclusion: the obligated companies have therefore taken a closer look at their supply chains and have largely successfully implemented the requirements of the law. They also approached their suppliers to eliminate or mitigate grievances.
Business criticizes high expenditure
However, business still criticizes the rules. “The objective of the law is shared by the German economy, but in practice it causes difficulties,” said the President of the German Chamber of Commerce and Industry (DIHK), Peter Adrian, to the German Press Agency. The effects are already noticeable today for small and medium-sized companies. “If you do business with large companies, small businesses are also required to meet the standards,” says Adrian.
“An example from my practice: We supply machines to large companies that expect us to comply with the specifications. We already have 157 suppliers from whom we in turn purchase products from which we then ensure compliance with the standards from the start “It’s almost impossible in some cases, it doesn’t work,” said real estate entrepreneur Adrian.
What the supply chain law requires
The German Supply Chain Due Diligence Act (LkSG), as it is officially called, currently applies to companies with more than 3,000 employees. According to the Federal Ministry for Economic Cooperation and Development (BMZ), around 900 companies are affected. From 2024, the law will apply to companies with more than 1,000 employees.
Among other things, they must analyze how great the risk is that they will benefit from human rights violations such as forced labor, set up risk management and a complaints mechanism and report publicly on them. In the event of violations within their own business or direct suppliers, the law requires companies to immediately take appropriate remedial action “to prevent, terminate or minimize the extent of the violation.”
The specifications are checked by Bafa. It also investigates complaints submitted. If the Federal Office discovers omissions or violations, it can impose fines. Companies that have not adhered to the rules can also be excluded from public contracts.
EU law should follow
Negotiators from the European Parliament and the EU states agreed on such a law across the EU in mid-December, which makes companies responsible for compliance with human rights in their supply chain. In principle, the rules apply to companies with more than 500 employees and at least 150 million euros in sales. Among other things, it is planned that companies can be held accountable in European courts if human rights violations occur in their supply chains.
“What is now on the table in the EU goes far beyond that, because it should not only be about the entire supply chains, but also about the sales chains,” said the President of the Federation of German Industries (BDI), Siegfried Russwurm , the dpa. “This is completely unrealistic for component manufacturers, for example. They don’t know the end customers of the majority of their deliveries.” There is also the threat of civil liability for misconduct by other companies in the supply chain.
“I fear that we will completely overtake ourselves with the LkSG and especially with the EU variant that has now been agreed in Brussels,” says DIHK President Adrian. The uncertainty and burden on companies will increase dramatically as a result of the EU regulations and will further increase the anger of many companies about EU policy.
The agreement on the EU law still has to be confirmed by the European Parliament and the EU states, but that is usually a formality.
