Mixed results after one year of the Supply Chain Act in Germany
Published: Friday, Dec 29th 2023, 10:40
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Since the beginning of the year, German companies have been required by law to take responsibility for child and forced labor in the supply chain of their products. The responsible federal office has drawn a positive balance - the economy is less satisfied. In the new year, the law will go further than before.
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 have often been through many production stages in different countries. For twelve months now, the Supply Chain Act, which has been sharply criticized by the business community in some cases, has made companies in Germany responsible for ensuring that they do not profit from child and forced labour at their suppliers. According to the Federal Office of Economics and Export Control (Bafa), which is responsible, it has not yet had to impose sanctions for violations in the first year.
As the authority has now announced, there have been 486 inspections of companies since the law came into force on January 1 - mostly in the automotive, chemical, pharmaceutical, mechanical engineering, energy, furniture, textile and food and beverage industries. The Bafa received 38 complaints and contacted the company in six cases.
The authority's initial assessment is positive: according to the report, the obligated companies are taking a closer look at their supply chains and for the most part successfully implementing the requirements of the law. They have also approached their suppliers in order to eliminate or mitigate grievances.
Industry criticizes high costs
However, the business community is still criticizing the rules. "The aim of the law is shared by the German economy, but it is causing difficulties in practice," said the President of the German Chamber of Industry and Commerce (DIHK), Peter Adrian, to the German Press Agency. The effects are already being felt by small and medium-sized companies. "When they do business with large companies, small companies are also required to meet the standards," said Adrian.
"An example from my practice: We supply machines to large companies that expect us to comply with the specifications. We already have 157 upstream suppliers alone, from whom we in turn purchase products, for which we then have to check compliance with the standards right from the start. This is sometimes almost impossible, it doesn't work," said real estate entrepreneur Adrian.
Around 900 companies affected
The German Supply Chain Due Diligence Act (LkSG), as it is officially known, 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 1000 employees.
Among other things, they must analyze how great the risk is that they benefit from human rights violations such as forced labor, set up a risk management system and a grievance mechanism and report on this publicly. In the event of violations in their own business operations or at direct suppliers, the law requires companies to take immediate and appropriate remedial action "to prevent, end or minimize the extent of the violation".
The requirements are monitored by the Bafa, which also investigates complaints. If the Federal Office discovers omissions or violations, it can impose fines. Companies that have not complied with the rules can also be excluded from public contracts.
EU law to follow
In mid-December, negotiators from the European Parliament and the EU member states also agreed on such a law across the EU, which makes companies jointly responsible for respecting human rights in their supply chain. In principle, the rules apply to companies with more than 500 employees and a turnover of at least 150 million euros.
Among other things, it is envisaged that companies can be held accountable before European courts if human rights violations occur in their supply chains.
The planned Supply Chain Act also affects Swiss companies. According to a study by the Federal Department of Justice and Police (FDJP) and the Federal Department of Economic Affairs, Education and Research (EAER), the directive could have a direct impact on several hundred companies.
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