German proposals for supply chain law spark fierce debate

A plan by two German ministers to propose a due diligence law for supply chains has sparked a fierce debate in Europe’s largest economy over how to meet human rights and fair competition standards in a globalised world — and who is responsible for ensuring it.

For years, German activists have said fair global business practices necessitated a supply chain law that would require companies to check human rights and environmental standards — not just in their home country, but in every location, from the places where raw materials are extracted and assembled to their final destinations.

“The exploitation of people, nature, and child labour must not become the basis of the global economy and our prosperity,” said Gerd Müller, Germany’s minister of economic co-operation and development. “That would be a boomerang that would strike back at us. Our socio-economic model can be a model for a global economy.”

Mr Müller and Hubertus Heil, minister of labour and social affairs, are planning to propose a law to parliament, which has its next session in September. Mr Müller told journalists that about 70m children worldwide still work in exploitative conditions.

Angela Merkel’s ruling coalition had previously vowed to introduce a law if companies did not devise better due diligence for themselves, but subsequently put the brakes on any acceleration of that effort. Peter Altmaier, minister for economic affairs and energy, continued to express misgivings over the two ministers moving ahead without consensus in the cabinet.

But Messrs Müller and Heil said results from a survey released last week were too disappointing to ignore: only 455 of 2,250 companies contacted provided “valid answers” on their practices, and only half of these respondents met due diligence standards.

Companies and business associations say this and an earlier survey carried out in 2018 have methodological and design flaws, and are pushing back on the principle of the law itself. They argue it puts too much responsibility on small companies that cannot properly assess an entire supply chain. They also warn that German groups could be put at a disadvantage, and say that Berlin should use its current presidency of the EU to push for Europe-wide regulation.

“One law alone cannot solve these problems,” said Stefan Genth, secretary-general of the German Retail Federation. “It would make much more sense to regulate at a European level, not nationally in Germany, and in particular to ensure structures are established in procurement countries, like Bangladesh. That way, trade unions, for example, can agree on local solutions to their existential problems.”

Gerd Müller Gerd Müller: ‘The exploitation of people, nature, and child labour must not become the basis of the global economy and our prosperity’ © Tobias Schwarz/Pool/AFP

Although Germany is the fourth-largest economy in the world, Mr Genth said it was not powerful enough to enact change alone. He cited conversations with factory owners on a visit to Bangladesh, where he said manufacturers warned they may not fulfil orders if forced to meet higher standards.

Advocates for the law say companies could only be penalised for local abuses if they had not devised oversight measures that attempted to prevent exploitation. An EU-wide response could take years to finalise, they argue, whereas Germany might help push other European countries to act if it moved first.

Johanna Kusch, co-ordinator of the Initiative for a Supply Chain Law, has campaigned on the issue for 20 years, and feared the economic costs of the pandemic might play in companies’ favour. Instead, campaigners received an unexpected boost.

“Covid-19 could have been an end to this debate but instead, it made people realise how close these supply chains are to their own lives,” she said. “People started asking: what is a supply chain? It made people much more aware about people on the other end, the workers who got sick or who got fired from one day to the next.”

As an example of costs, Mr Heil estimated that due diligence regulations would raise the price of manufacturing jeans in Bangladesh from €5 to €7.

About 60 big companies support the law, including Nestlé, the German chocolate company Alfred Ritter, Tchibo, and the German supermarket chain Rewe.

Large business bodies such as the German-African Business Association, however, say many other companies may “withdraw from challenging markets and thus leave the field to other investors who do not care about human rights,” chairman Stefan Liebing told the German newspaper Handelsblatt.

Ms Kusch does believe companies will leave countries with cheap labour. She worries more about the law being diluted as it goes through the German cabinet and parliament — and eventually through the EU. Many campaigners also worry about companies “ticking boxes” to evade the spirit of the law, and not truly improve oversight.

“This law is one stepping stone on the far greater project of fair globalisation,” Ms Kusch said. “There are still so many steps and hurdles. Of course it’s not over.”