Supply Chain Act

With the aim of reducing child labour and starvation wages abroad, the responsible ministries (Federal Ministry of Labour, Federal Ministry of Development and Federal Ministry of Economics) have recently agreed on a joint draft bill. Accordingly, a new supply chain law is to be passed before the end of this legislative period, which will oblige German companies to comply with minimum ecological and social standards vis-à-vis foreign suppliers. In this way, human rights are to be enforced with the respective suppliers abroad. Although the companies are not supposed to be civilly liable for this – this would result in lawsuits worth billions – violations of the Supply Chain Act could result in a fine and exclusion from tenders for up to three years.
A mandatory regulation in the form of a law seemed necessary, as the companies concerned have so far at best committed themselves to complying with certain standards, but a large proportion of the companies have not adhered to these obligations.
The draft provides for a step-by-step plan for responsibility on the path from end product to raw product, which is to become mandatory for large companies first. In the case of merely indirect suppliers, the company only has to take action if it becomes positively aware of human rights violations. Those affected by the human rights violations are then to receive legal protection in German courts through trade unions and non-governmental organisations (NGOs). According to the draft bill, this requires the violation of “paramount legal positions”. The new regulations are to apply from 01.01.2023 to those companies that have more than 3,000 employees, and from 2024 the regulations are also to apply to companies with more than 1,000 employees.
The introduction of such a supply chain law remains highly controversial. The Ministry of Economics, for example, called for a softening of the regulations for small entrepreneurs, who should not be overburdened. Criticism also comes from entrepreneurs who fear that Germany will be jeopardised as a business location. Some call for regulation at European level or within the framework of the G20. Volkswagen alone, with 40,000 suppliers worldwide, is very strongly affected by the new regulations.
Likewise, despite the already existing draft bill, there is still dispute within the federal government. In a letter from Ulrich Nußbaum, State Secretary at the Federal Ministry of Economics, to Björn Böhning, Federal Ministry of Labour, Nußbaum objected to the procedure regarding departmental coordination and refused to give his consent regarding the publication of the draft on the Ministry’s homepage. The draft does not correspond to the agreements, so that an adjustment is imperative.
It therefore remains to be seen how the situation in dispute will develop. We will keep you up to date on this.