There is already a German supply chain law – the EU version is even stricter. The federal government did not support the plan, but that did not stop the new rules.
There has been a long struggle – now the last vote on the EU supply chain law is imminent. It is now to be finally adopted at a Council of Ministers in Brussels. The plan and its effects at a glance:
What is the aim of the EU Supply Chain Law?
The aim of the EU supply chain law is to strengthen human rights worldwide. Large companies should be held accountable if they profit from human rights violations such as child or forced labor. They should also draw up a plan aimed at ensuring that their business model is compatible with the goal of limiting global warming to 1.5 degrees compared to pre-industrial times.
According to the EU Parliament, affected companies must obtain contractual assurances from their suppliers. If necessary, they must also support small and medium-sized companies with which they do business so that they can meet the new obligations.
What does the law mean for consumers?
Jochen Geilenkirchen, the speaker for sustainable consumption at the German Consumer Organisation (vzbv), sees the EU supply chain law as a relief for consumers. “It makes those who can really ensure sustainable products in the supermarket responsible: the companies,” he emphasised. Consumers cannot correct what goes wrong in the supply chain through their purchasing decisions anyway.
A report by the Scientific Advisory Board at the Federal Ministry of Food and Agriculture has shown that the expected cost increases due to the EU Supply Chain Act are manageable. In addition, according to the report, it is less likely that certain products will be eliminated than under the existing German Supply Chain Act. The association is not aware of any products from certain regions being eliminated as a result of the introduction of the German law.
How do European and German law differ?
One of the biggest differences is liability: German law excludes companies from being liable for breaches of duty of care – EU law allows this. In addition, the German supply chain law applies to companies with 1,000 or more employees. In the coming years, more companies in Germany will be affected by the German version than by the EU version.
How was the law weakened during the negotiation process?
Originally, a compromise reached by negotiators from EU member states and the European Parliament stipulated that companies with more than 500 employees and at least 150 million euros in turnover would be affected by the requirements. However, this limit was raised to 1,000 employees and 450 million euros after a transition period of five years. After three years, the requirements will initially apply to companies with more than 5,000 employees and more than 1.5 billion euros in turnover worldwide; after four years, these limits will then be reduced to 4,000 employees and 900 million euros in turnover.
What happens if EU law is violated?
The EU states should appoint a supervisory authority to keep an eye on companies. This authority should also be able to impose penalties on companies if they do not comply with the regulations. Fines of up to five percent of a company’s global net turnover can be imposed.
What do economic experts think of the regulations?
The German Chamber of Industry and Commerce (DIHK) is critical of the regulation despite the changes. From a business perspective, these are to be viewed positively, but “even slightly slimmed down, the EU supply chain directive remains unsuitable for practical use and will bring with it a lot of bureaucracy,” said DIHK President Peter Adrian. Legal uncertainty still exists.
The President of the German Institute for Economic Research (DIW), Marcel Fratzscher, however, spoke out strongly in favor of the plan. Germany would suffer considerable economic damage without an EU version of the law, he said.
What role did Germany play in the negotiations?
When a sufficient majority of EU countries signaled their approval in the Committee of Permanent Representatives of the Member States in mid-March, Germany abstained. The reason: disagreement within the federal government. Important EU laws are repeatedly passed in Brussels without German approval. If the federal government cannot agree on a unified position, this weakens Germany’s negotiating position in Brussels.
In this case, the FDP had urged Germany not to agree to the law, fearing bureaucracy and legal risks for companies. Politicians from the SPD and the Greens, on the other hand, support the regulation.
What happens next?
The text of the law now only needs to be published in the EU Official Journal. After that, the EU states have a good two years to implement the new rules into national law. Federal Labor Minister Hubertus Heil (SPD) has already announced that there should be no double burden from the German and European supply chain laws. In legislative terms, the traffic light system will ensure that bureaucracy is limited. The Federal Ministry for Economic Cooperation and Development announced that it will support companies in implementing the law. Among other things, there will be free advice for companies.
Source: Stern
