Improve Supply Chain Due Diligence or Face Fines
German lawmakers are likely to ratify a bill that will make German companies accountable for supply chain violations. © P_galasso2289 /

Improve Supply Chain Due Diligence or Face Fines

By Simon Johns - Apr 15, 2021

A new federal law could slap German companies with substantial fines if their suppliers use child labor or pollute the environment. Due diligence into fair trade has so far been voluntary in Germany but buyers may now be held accountable for the entire supply chain.

Germany is the European Union’s largest economy and in 2020 had GDP of €3.4 trillion and imported goods worth €1.03 trillion. Imports include raw materials that are sometimes produced in countries with poor human rights and environmental records.

The new law, which has passed the cabinet draft stage and will be presented to parliament, aims to prevent companies from turning a blind eye to violations of widely accepted standards at home by outsourcing production to developing countries, Minister of Economic Cooperation and Development Gerd Müller explained to German media.

“We accept and cement the exploitation of other human beings and nature in developing countries,” Müller said.

Reactions have been mixed. The law gained support from some notable manufacturers, such as food retailers Tchibo and Rewe. The Federation of German Wholesale and Foreign Trade and the Confederation of German Employers’ Associations expressed concerns that companies already have enough to contend with after a year of lockdowns.

Germanwatch, an environment and development NGO based in Bonn, Germany, also has reservations.

“We definitely think it is a concrete step towards reducing human rights violations and environmental damage overseas, even if there is still criticism because the law proposal was watered down in several aspects,” Cornelia Heydenreich, Germanwatch’s head of corporate accountability, told Lubes’n’Greases.

Germanwatch is among a number of civil society groups, businesses and academics that  are urging Parliament to strengthen the law’s provisions. Heydenreich explained that one of its weak points is that it will not improve civil liability (EXPLAIN) or victim’s facility for legal recourse.

In a recent position statement, Germanwatch points out the new law lacks reach beyond immediate suppliers and that the law’s current draft stipulates due diligence obligations only applies “in full to the company’s own business operations and to direct suppliers.”

Heydenreich praised the law for the strength of its regulatory enforcement process

“We do see that the law has got teeth in this regard,” she said.

The law will apply to about 600 companies with more than 3,000 employees in 2023, 2,960 companies with more than 1,000 employees in 2024. Companies with fewer than 1,000 employees will be exempt, reported Reuters.  

Fines could total hundreds of thousands of euros and if they exceed €175,000, companies are excluded from public procurement contracts for up to three years. They increase to 2% of a company’s revenues if annual turnover exceeds €400 million.  

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