The new Supply Chain Act, which will come into effect in Germany in January 2023, is intended to put an end to inhumane working conditions in developing countries. The organisation Brot für die Welt (“Bread for the World”), a joint initiative of the Protestant churches in Germany, has taken a critical look at the planned law. Looking at the current situation, the covid pandemic has already plunged millions of people in poorer countries into great poverty. Now, with the Ukraine war, aid deliveries have become even more difficult. Diplomatisches Magazin has spoken to Maren Leifker, Senior Policy Advisor Business and Human Rights at the aid organisation Brot für die Welt about the current situation and the planned supply chain law.
DM: Ms Leifker, first of all, are aid deliveries for people who are in urgent need of food supplies also affected by the delivery problems these days?
Maren Leifker: Yes, wheat deliveries from Ukraine to countries like Lebanon or orders from the World Food Programme for the Horn of Africa that have already been ordered and partly paid for cannot leave the port of Odessa because of the Russian sea blockade of Ukraine. Grain traders are also reluctant to order wheat from Russia for emergency relief because insurance premiums for shipments from the Black Sea have risen enormously. In addition, there is uncertainty about payment processing. Some traders are also withdrawing from the Russian business for political reasons.
DM: Let’s move on from current delivery difficulties to the future supply chain law. By the beginning of next year at the latest, companies will have to ensure that their products have been created under fair working conditions, that their supply chains are free of human rights violations. In which sectors do serious human rights violations occur?
Maren Leifker: In a research report by the Federal Ministry of Labour from 2020, 29 industries with recognisable human rights risks have been identified. These include the automobile sector, the chemical industry, the textile trade and the food industry. One example is the Marikana case, which Bread for the World has been involved with for many years: in 2012, 34 workers were shot dead by local police during a mine strike in Marikana, South Africa – the mine which the German chemical company BASF obtains platinum from. The reason for the strike were the devastating living and working conditions. At the time, around 30,000 workers and their families were living in informal settlements around the mine – without access to electricity, running water or sanitation. The mine operator had not fulfilled its social obligations to build accommodation, which also existed under South African law. Although the conditions became internationally known due to the massacre, no noticeable improvement has been seen until today.
DM: Will the Supply Chain Act significantly improve the living conditions of workers on local production sites?
Maren Leifker: That remains to be seen. In any case, the Supply Chain Act introduces an important paradigm shift. Germany is saying goodbye to the idea that companies can regard respect for human rights as a purely voluntary task. For the first time, companies above a certain size will be legally obliged to reduce or end human rights violations and environmental damage in their own business and in the supply chain. This obligation will have a noticeable effect for those who are affected. They will no longer have to appeal to the voluntary responsibility of companies and hope to be heard. Instead, they can refer to the legal requirements and turn to the Federal Office of Economics and Export Control (BAFA), which is designated to enforce the law, in case of violations.
DM: Is that practicable for those affected?
Maren Leifker: Absolutely. Affected persons, who file an application there, can assume that they will be heard. BAFA must then take action and check whether the company named in the complaint is complying with its due diligence obligations. If this is not the case, it can order the company to take concrete measures to remedy the grievances and, if necessary, also impose sanctions.
The Supply Chain Act also intends that companies must have adequate grievance procedures in place, which people can use to point out violations of human rights and environmental obligations. The company must then discuss the allegations with the whistleblowers. In doing so, the confidentiality of the persons involved must be ensured and they must be protected from disadvantages or punishments as a result of the complaint. However, such procedures do not have to be set up by each company itself. Instead, companies can also participate in external procedures, e.g. within the framework of industry initiatives, if they fulfil the criteria mentioned.
DM: What sanctions are destined for companies that violate the Supply Chain Act?
Maren Leifker: The legislator has opted for regulatory enforcement in the Supply Chain Act. If a company violates the legal obligations, it is an administrative offence that can be punished with fines. In assessing the fines, both the severity of the violation and the economic circumstances of the company must be taken into account. In the case of companies with a turnover of more than 400 million euros per year, fines of up to two percent of the turnover can be imposed. In addition, companies with a fine of 175,000 euros or more are to be barred from being awarded public contracts for up to three years.
DM: Can those affected sue for damages?
Maren Leifker: No. A regulation of a private enforcement of the law in the form of civil suits did not command majority backing in Germany. But precisely this civil liability would be a requirement for action for damages. Without this regulation, effective legal protection is not guaranteed. This gap ought to be closed in the course of future amendments.
DM: The law only applies to companies above a certain size. How sensible is that?
Maren Leifker: The Supply Chain Act will apply to companies with more than 3,000 employees from 2023. The threshold will be lowered to 1,000 employees in 2024. The background: During the legislative process, trade associations particularly drew attention to the danger of small and medium-sized enterprises (SMEs) being overburdened. However, according to the definition in the German Commercial Code, the SME threshold is 250 employees. Due to the relatively high thresholds, the law will, according to estimates by the Federal Ministry of Labour, initially only apply to just under 900 companies from 2023 and then to around 4,800 from 2024. Given that there are around three million German companies, the Supply Chain Act’s scope of application is thus too small to really make human rights and environmental protection the norm. It is also problematic that violations of human rights and environmental standards are only punishable above a certain company size. Even small companies can be involved in the most serious human rights violations.
Interview Marie Wildermann