Why do we need a Supply Chain Law?

We live in a world of global trade, where the production of goods is often spread across several countries. For example, cotton from Brazil that has been used to produce fabric in China, which has been processed into jeans in Turkey, can be offered in a German clothing store. Unfortunately, basic human rights are often violated and environmental standards disregarded in international production. 

While in Europe, for example, strict laws exist to protect workers and the environment, in African and Asian production countries workers are often poorly paid, do not have adequate occupational safety when working with dangerous equipment or chemicals, and critical substances can escape uncontrolled into the environment.

Therefore, the German government is now planning a Supply Chain Law that obliges companies to ensure the protection of people and the environment along a company's entire supply chain. Back in 2018, the federal government promised such a law because, according to a survey by the federal government, less than 50 % of companies voluntarily complied with their corporate duty of care.

The reason for this, according to Dieter Overath, CEO of TransFair e.V., is that companies which act sustainably, respect human rights in their supply chains and work for better living and working conditions face higher costs and thus have an economic disadvantage.

At the beginning of March this year, after lengthy debates, the governing coalition finally agreed on a draft law: German companies are to be required to monitor compliance with social and environmental requirements and provide evidence of a risk analysis.

The draft stipulates that from 2023 companies with more than 3000 employees and from 2024 companies with more than 1000 employees will monitor their supply chains accordingly. However, companies with fewer than 1000 employees will be exempt. In addition, the actions of direct contractual partners or direct suppliers will be monitored, but not the suppliers' suppliers. The scope of the compliance checks is therefore limited.

On the positive side, provision has been made for German non-governmental organizations to file lawsuits on behalf of foreign workers against human rights violations.

To date, 400 companies in Germany already control their supply chains in accordance with the standards of the World Fair Trade Organization, which promotes fair trade. Since 2016, there has been a Fairtrade textile standard and a textile program through which all stakeholders along the textile supply chain can be reached. The Supply Chain Act is therefore expressly welcomed by fair trade campaigners. 34 municipalities, 32 of which are Fairtrade municipalities, have signed a resolution for a binding supply chain law.

If the supply chain law would meet all fair trade requirements, Fairtrade organizations would no longer be necessary. However, it remains to be seen if, when, and in what form a supply chain, law worthy of the name, will come into force.

© Mona Tootoonchinia