Human Rights and Germany’s New Supply Chain Law

Thomas Klikauer & Norman Simms

In February 2021, Germany’s main business daily, The Handelsblatt, reported that Germany’s grand coalition, consisting for the social-democratic SPD and Angela Merkel’s conservative CDU –reached an agreement on the introduction of a new Supply Chain Law, which in German goes by  the unpronounceable word Lieferkettengesetz.

The new supply chain act is intended to hold companies liable for human rights, labour standards, minimum wages, and environmental protections that purchase goods and finished products from abroad. This applies to all stages of their supply chain. The goal of the law is to eliminate or minimize  harm done to the environment, violate working conditions and abuse human rights.

For years, if not for decades, German companies and corporations have violated basic human rights and damaged the environment when operating global value chains. Until now, companies could not be sued for the damages they create. In global trade, many questionable production practices have been outsourced to low-wage countries with little or no respect for human rights. Such companies and corporations were difficult to control when operating a long distance away.

For many years, too, there have been specific criticisms of excessive workloads, lax or non-existent occupational health and safety regulations, long working hours, exploitation, child labour, lack of compliance with local environmental standards—the list is almost endless. Many of these problems have fallen to the legal responsibility of enterprises in the Global South where local authorities mis-(or non-) supervise these regulations.

Even today, it remains difficult to sue corporations in industrialized countries for crimes committed elsewhere. The only weapon available to hold such corporations to account has been to boycott foreign suppliers who allow inhuman working conditions to flourish. This has rarely been effective in doing more than having foreign enterprises make superficial changes or close down and move elsewhere.

In recent months the Coronavirus pandemic has dramatically worsened the situation at overseas textile production facilities, for example, in Africa or Southeast Asia. Most of which are located in so-called developing countries (what rare better denominated deliberately un-developed). After the temporary lockdown in the Western industrial nations, orders were initially cancelled, leading to an immediate loss of wages at 98% of production sites. Later, some factories re-opened, often in complete disregard of local hygiene rules.

To alleviate this problem, Germany’s federal government committed itself in its Coalition Agreement of 2018 to introduce a supply chain law. After delaying the supply chain law for three years, Merkel’s government is now finally edging closer to turn the promise into reality.

Over the last few years, Germany’s government has been monitoring the extent to which companies that operate inside Germany with more than 500 employees comply with the duty of care and protect workers in their supply chain. A report on this was presented in October 2020. The report showed three things:

1. Just 13% to 17% of the surveyed companies fulfilled their voluntary human rights, environmental, and decent working conditions requirements;
2. Another 10% to 12% of companies simply announced they were on track to meet these requirements but did nothing;
3. At least 50% of companies and corporations missed their target.

Faced with such devastating figures, the neoliberal illusion of self-regulation evaporated into thin air, and Germany’s government saw itself forced into a position where it had to act on its 2018 promise. After all this scurrying about, the final text of the law has still not been published. The federal government admits that, because of “internal considerations”, no draft for the supply chain law has been presented. Does this mean anything or is it all window-dressing?

Despite all these glitches, Germany’s chancellery now wants to close the issue. The government sees a need for action because so far only around one in five companies have complied with its human rights due diligence obligations. This is nothing less than an abysmal showing, given the widespread ideology of business ethics and corporate social responsibility.

Most recently, the supply chain bill was blocked by Merkel’s pro-business Minister of Economics Peter Altmaier, even though Germany’s Development Minister and its Labour Minister pressed for an agreement on the supply chain law.

Despite this, there were movements in the legislative process. On 12 February 2021, for instance, all three ministers agreed on a compromise to act on the supply chain act. However, the law has yet to be approved by Merkel’s cabinet and eventually it will have to pass the parliament – the Bundestag. In order to give companies and corporations a sweet run, the supply chain law will come into effect only in 2023.

In other words, companies and corporations have been given another two years of inaction on humane working conditions, decent wages, and the environmental vandalism they often cause. Another spanner in the works: initially the law applies to companies with more than 3,000 employees and only from 2024 will it apply to companies with more than 1,000 employees. The bigger the business the bigger the win, as they have more time and more money to implement the measures of the law, and, of course, to work out means for getting around it.

Disapproval of the supply chain act came above all from corporate entrepreneurs and business lobbyists. As always, they fear negative consequences for the economy – the mythical end of capitalism as we know it. As Frederic Jameson once said, It has become easier to imagine the end of the world than the end of capitalism. Painting an utterly apocalyptic picture, corporate lobbyists warn against uncontrollable legal consequences and complaining that Nanny State (another character in their allegorical drama) is trying to impose unnecessary controls on companies and corporations.

Germany’s powerful corporate lobbying organisation, the Federal Association of German Employers’ Associations, sees a few small problems in the implementation of the law, considering it impractical. Together with other corporate lobbyists, they aim to exploit to the full the period until the law take effect. These corporate lobbyists find themselves in a rather isolated position, even among German companies and corporations.

Today, according to German pollster Infratest, 75% of Germans supported the new supply chain law. Only 22% reacted negatively to the concept. On the upswing, there are plenty of large German companies that are hopeful the new law will create an equal playing field. By December 2019, forty-two German companies had called on the federal government to introduce a legal framework to ensure fair competition. These companies and corporations begged for binding and comprehensible guidelines for all companies, so that fair supply chain management won’t become a competitive disadvantage.

Since 2019, many organisations from human rights, environmentalism, aid organisations, as well as trade unions and churches have joined forces. They set up the Supply Chain Law Initiative. After years if not decades of human rights violations and environmental destruction, Germany’s government finally brought forth (or eventually will introduce) a law covering the entire corporate value chain. The new law even provides sanctions in the case of corporations breaking the law. The Initiative groups want to monitor and ensure proper implementation of the law as it comes into effect.

There are encouraging signs from within the government. During a trip to Ethiopia, Germany’s Development Minister expressed his interest in the law. Support also came from Germany’s neoliberal and conservative Institute for World Economics. It considers the law feasible while stressing its positive impacts on environmental and working standards in the global supply chain.

With clear support for a supply chain law, more than seventy economists contradicted Germany’s business lobbyists and its conservative Minister of Economics. At the same time, the economists outlined a multitude of market and policy failures in the production of goods that had let to a considerable social and environmental cost. Yet Germany is not alone in working on such a law.

The European Union’s Justice Commissioner announced in 2020 that the EU would present a draft law on corporate due diligence in 2021. This was welcomed by MEPs and supporters of a German supply chain law. On 26 October 2020, the EU Commission launched a public consultation on sustainable corporate governance in which various economic actors and public institutions participated. Meanwhile, the European Parliament has adopted its own initiative, one which provides for strict due diligence obligations for companies.

These obligations will require companies and corporations to avoid negative impacts on human rights and the environment and to establish good corporate governance in their production and business. Like the German law, the European Parliament’s due diligence strategy also covers the entire value chain. This is intended to ensure that goods produced under forced labour can no longer enter the EU’s $15 trillion market of 450 million people. This will affect not only imports from China and other offending countries by them to adhere to human rights.

Human rights are universal. They apply to everyone, worldwide. Yet in many places these rights exist only on paper. Inside companies and corporations, the rights are often not enforced. Many companies can also easily escape national legal frameworks. Neoliberal globalization and pro-business regulation – framed as deregulation, getting rid of red tape and the demonizing Nanny State – allows this to occur on a massive scale. Germany’s and eventually the EU’s supply chain law will hopefully counteract this.

Since civil society’s most effective lever against the worst excesses of corporate exploitations is the law, legal regulation is the future. It is better than actions by civil rights organizations and trade unions. With the new law, Germany’s Office for Economic Affairs (Bafa) will be responsible for monitoring the law. It is likely that this will increase effectiveness of the law.

There are sanctions against corporate criminality, but sanctioning remains a hotly debated issue in Germany. Nevertheless they have entered into the design stage of the supply chain law. The NGO Supply Chain Law Initiative has identified two approaches to corporate liability:

1. The first approach is Germany’s civil code, while the other is
2. Administrative law used to reprimand violations of bureaucratic rules and regulations.

The key to understanding the lobbying power of corporations rests in the fact that Germany’s criminal law does not apply to corporations operating overseas when they violate human rights, labour rights and environmental standards. In short, companies and corporations that kill 1,000 women in a fire in a textile factory like that in Bangladesh in 2018, will still not be seen as corporate criminals. This is not just part of the high cost of fashion we pay. It is also a fact that corporate criminality of this scale is – even after the new law came into effect–still seen as being merely a side issue of compensation and administrative rule-breaking, not a major crime.

Today, Germany’s power, including its corporate power, is not exercised in counties where legal standards are low to non-existent and certainly not enforced. Rather, on the contrary, this laxity is the very reason why companies and corporations produce in the Global South. Depending on the legal basis of the country concerned, this free-for-all can significantly complicate civil, never mind criminal, liability. As a consequence, a legal liability regime needs to be designed in such a way that companies with business activities or headquarters in Germany may be held accountable in German courts for their crimes.

Overall, the supply chain law acts as a sort of interventionist standard check. As a result, a legal case against violating companies and corporations can be made, even though such a company does not have to do damage inside Germany. Yet purely administrative liability, on the other hand, is to be enforced by the public prosecutors’ offices in Germany. Under the new law companies would have to prove that they comply with their duty of care. In the end, Germany’s supply chain law seems to be a step into the right direction, even though corporations can continue to get away with a small fine when violating human rights, labour standards, or environmental regulations. He results remain to be seen. So don’t hold your breath.