The German supply chain law was hotly contested – and Berlin could soon have to tighten it up significantly: Before pretty much a year the federal government agreed on the legal act that forces companies to ensure that suppliers around the world comply with human rights. This is to ensure, for example, that no forced or child laborers are involved in the production of a T-shirt or chocolate bar. The law will come into force in January 2023. But the EU Commission will present a draft directive this Wednesday that goes far beyond the German rules.
The EU legal act to audit sustainable corporate governance would force all member states to enact much tougher supply chain laws than Germany has done. First, however, the European Parliament and the Council of Ministers, as the body of EU governments, have to deal with the directive; they could amend the Commission’s proposal before it enters into force – probably not before 2024. Member States would then have another two years to implement it. the Süddeutsche Zeitung there is a 61-page draft. Compared to German law, it would cover more companies and impose more obligations and heavier penalties on them.
The German law initially applies to companies with more than 3,000 employees, in 2024 the limit will drop to 1,000 employees. EU Justice Commissioner Didier Reynders has now written a limit of just 500 employees and 150 million euros in annual sales in his draft. If at least half of the turnover comes from risk sectors such as textiles, food, raw materials and metal processing, the employee limit is even halved. Groups from outside the EU should also fall under the directive if they exceed a certain turnover in the Union. The CDU MEP Markus Pieper is angry: “The proposal exceeds the fears,” says the middle-class politician. The German law covers 3000 companies; the Commission’s draft “makes it necessary for almost 14,000 German medium-sized companies alone to check whether they are affected”.
The Green MEP Anna Cavazzini, on the other hand, would have liked the directive to apply to even smaller companies, especially in risky sectors: “The risk of human rights violations is not always related to the size of the company, but often to the respective economic sector,” says the chairwoman of the Internal Market Committee. The Commission’s proposal has now been “watered down at a crucial point after months of intense lobbying pressure”.
Does the law benefit Chinese rivals?
Another important difference to the German law concerns the extent to which companies must control their supply chains. In Germany it is enough if companies concentrate on direct suppliers. The Brussels directive requires companies to look out for violations of human rights and environmental pollution throughout the supply chain. The suppliers in Asia, South America or Africa should commit themselves to compliance with standards in the purchase agreements. The EU companies should help their partners to achieve them and draw up action plans to improve the situation.
If EU companies violate the guidelines, they face fines. In this case, they can also be sued for damages in civil courts; they are therefore liable for environmental pollution and human rights violations by their suppliers on other continents – at least if it can be proven that the damage is the result of the EU company’s negligence. The German law does not provide for such a possibility, the French supply chain law does.
The CSU MEP Markus Ferber considers this regulation to be dangerous: “The provisions on civil liability create a sword of Damocles for European companies,” says the economic policy spokesman for the Christian Democratic EPP group. “It would not be surprising if European companies withdrew from some regions of the world as a result of this proposal. If Chinese competition then filled the gap, people in developing countries would be of little help,” complains Ferber.
The Commission has postponed the submission of the draft directive several times. In the meantime, the authority has also discussed including an import ban on products that were manufactured using forced labor, for example by Uyghurs in China. But now the Commission wants to deal with it separately from the Supply Chain Act, in its own initiative.