Following the fundamental agreement between the European Parliament and the Council, the EU supply chain law is on the home stretch. In the future, large companies will have to control and document their supply chain; they can also be held accountable if they profit from child or forced labor outside the EU.
If this directive is finally confirmed by the EU member states, it would be stricter than the existing German supply chain law: It should apply to companies with more than 500 employees and a global turnover of over 150 million euros. The obligations should also come into force for companies with 250 employees or more and a turnover of more than 40 million euros, if at least 20 million of them are implemented in certain risk sectors. These include textiles, agriculture, fishing, food production and mining of mineral raw materials.
Civil liability is also envisaged – this means that injured parties could sue the companies at the end of the supply chain in Europe for damages. This is a breakthrough for the SPD and the Greens – but the FDP complains that it has previously been against such a directive. Will the Brussels decision be another test for the traffic light coalition in Berlin? Reinhard Houben, the economic policy spokesman for the FDP parliamentary group, is critical of the agreement in Brussels.
Mr Houben, how did you react to the agreement in Brussels on an EU supply chain directive? We are still in the middle of the process. With this agreement, not everything is fixed.
So the fair hasn’t been said yet? That’s how I see it. In the last legislative period, the FDP argued as an opposition against the German supply chain law – from a fundamental position: it should be a task that the public sector actually has to take on be transferred to the private sector? In my opinion, the question of whether human rights are being observed and whether labor standards are being adhered to must be taken care of by the state and not a company.
The state cannot easily look into company books. In the books you will not find anything about whether someone is complying with labor standards. This can only be checked precisely on site. In any case, the current agreement at EU level means a tightening of the German supply chain law because smaller companies will also be affected. I can’t go there. I’m already experiencing it in Germany, where I personally manage a company that has fewer than 20 employees: the problem is passed down the line, we have of course been asked about the topic by major customers – so we basically control their work of supply chains. I’m worried that we’re getting some kind of confirmation industry.
What would that be? So large law firms say to a company: I specialize in the control of supply chains or value chains. I have international offices that can check this. Now give me 20,000 euros every year and then I will check for you and then confirm it.
So basically you now see companies facing more bureaucracy that is not justified? Yes. Nobody wants to buy products that are made through child labor or forced labor. Now such a directive could introduce a mechanism that does a lot of work but doesn’t achieve the goal at all. A few days ago I read that Volkswagen received exculpatory confirmation for a factory in China’s critical Xinjiang province. So now the Chinese are running around claiming that all reports of human rights violations there are false.
Now this is an example. Do you really think that it is generally not affordable for a company to comply with documentation obligations? Of course a giant company like VW can do something like that. But in the end, is the result what we actually wanted to know? Isn’t such a result used to create a smokescreen to hide real problems?
Then let’s push the fog aside. Actually, every company should have an interest in keeping their store clean. Then there’s actually nothing wrong with this guideline. Yes, but the difference is that you have to prove it. And an entrepreneur can expect to be sentenced to significant fines under threat of punishment. The large companies will therefore pass these risks on downwards.
The Federal Office of Economics and Export Control (BAFA) says that this downward transfer mechanism is not legal and that you can defend yourself against it. I’m not laughing. Do you really believe that a company with less than 20 employees would say to its largest customer: I won’t take on your documentation obligations?
Because this customer would then switch to a competitor? No, I see pressure on the supplier. The larger the customer, the sooner what they want will be confirmed. There is already an effect that Zara no longer wants to have its sewing done in Myanmar – or that a large number of roasters no longer want to buy coffee in Ethiopia. Why? Because it is difficult to check on site whether everything is running smoothly.
There is now this agreement paper. What adjustments do you want to make now? They then have to prevail in the traffic lights because the SPD and the Greens are in favor of this directive. Well, they will be happy. Now we have to get to the fine print. I don’t particularly like the fact that France has made it a condition of its approval that the financial sector be excluded. This means that the financing of a factory in which labor standards are broken remains irrelevant. But if any plastic product is now installed in cars or televisions, it is suddenly outrageous.
I think the Greens and the SPD wouldn’t have had anything against including the financial sector. But this concession was only made to get France on board.
This is called a political compromise. And of course you have to ask yourself: Do you want to go along with this compromise? And that’s why, of course, there needs to be a debate about how the federal government responds to this. On the one hand, this agreement entails unreasonable tightening, but on the other hand, it creates blind spots such as the exclusion of the financial sector. I think that’s wrong. In Germany we have a relatively unique corporate structure with a broad middle management, which is a five-digit number of companies. Conversely, there are countries in the European Union where only a handful of companies are involved.
Does this mean that the German economy would then come under even greater scrutiny as a result of this directive? Exactly. Compared to German law, the current EU agreement reduces the number of employees in companies above which the directive applies. In France, this is apparently viewed as uncritical for its own market. They don’t have a classic middle class like us.
Stern and the freelance authors and photographers collective Times Mirror Reports are dedicated to one of the most important new German economic laws – the Supply Chain Due Diligence Act, which came into force in January 2023. What do the new rules mean for German companies? What kind of people in the Global South? What kind of customers and consumers? This project is funded by the European Journalism Center and supported by the Bill
Do you see any points that you want to negotiate away? I don’t want to commit to that now. But I think it comes down to a top or a flop.
Do you want to prevent the directive? We’ll see what we can do. It should be sent completely back to the workshop.
The business associations will storm this agreement. I don’t care at all whether the business associations will storm it or not. As an MP, I have to answer the question: Are we achieving something on the ground with our supply chain law to protect people from oppression, poor working conditions and poor pay? My impression is that we cannot achieve this goal at all with such laws.
Once again: Why shouldn’t it be the responsibility of companies to ensure fair production conditions? Because the state thereby shifts its tasks onto the private sector. Why doesn’t the German ambassador in Beijing go to the Chinese government and say: We have information that there are human rights problems in this province?
For diplomatic reasons? Yes, but why then send medium-sized companies with 250 employees forward? I just think that’s wrong.
China is a glaring example of centralized rule. However, the EU directive would also apply to businesses in regions where the state hardly intervenes. Why shouldn’t it be possible to achieve something locally in cooperation with companies? I belong to a party that is concerned with the question of responsibility. And I think, as a first step, it is a state responsibility.
And where does the entrepreneur’s responsibility begin? Above all, the entrepreneur’s responsibility begins where the national laws of this country apply. It is the task of the nation state to ensure that its laws are implemented locally.
What does your critical attitude mean for the traffic light coalition? Coalitions are not without conflict.
To what end will this conflict be pushed? Could it lead to a break in the coalition if an agreement is not reached? This is not a question that would cause the FDP to leave the government alliance – just as I assume that this applies to the Greens or the SPD.
