IThe German supply chain law takes effect in six months. It forces larger companies to comply with certain social, human rights and environmental standards throughout their supply chain, otherwise there are penalties. A lot of criticism is sparked by the sometimes vague specifications, and there is great legal uncertainty. The Scientific Advisory Board at the Federal Ministry for Economic Affairs and Climate also considers these concerns to be justified. This Wednesday, he is presenting an expert opinion on the German Due Diligence Act and the far more comprehensive plans of the EU Commission, which contains an interesting proposal for a solution.
A list of “safe countries of origin” should be drawn up within the framework of European rules, is the most important recommendation of the independent economists and lawyers to the Green Federal Minister for Economic Affairs, Robert Habeck. Suppliers from these safe countries would then not have to be checked in advance by EU companies. Safe countries of origin should be countries that both “have ratified the relevant conventions for human and labor rights” and “have a functioning constitutional system,” according to the report, which was previously available to the FAZ. In such countries, violations of human and labor rights could be effectively brought to justice, the Advisory Board said. It is therefore inefficient to oblige EU companies to “monitor” these suppliers.
In order to facilitate cooperation with companies from unsafe countries of origin, the EU should also draw up positive and negative lists that certify that human and employee rights are respected or that point to systematic violations, the scientists propose. Such lists can reduce the control effort. The Advisory Board points out the unnecessary effort that arises when companies operating abroad have to be checked by each of their business partners in the EU as a preventive measure.
Unsure if these laws had the desired effect
The advisory board, led by Munich economics professor Klaus Schmidt, warns against making the planned European supply chain directive too strict and basing it on the often higher standards in the EU in terms of labor market regulation, consumer, animal and environmental protection. In the opinion of the Advisory Board, these differences alone do not provide any reason for expanding corporate due diligence: “If universal human and employee rights are protected, it would be presumptuous to require companies operating in other EU countries to comply with EU regulations there to have to.”
The researchers also look at a possible conflict between competition law and sustainability standards. Because consumers are increasingly interested in maintaining sustainability standards, companies must be allowed to react to them efficiently: “This may require coordination between companies, an agreement on standards and a voluntary commitment to sever business relationships with suppliers considered problematic.” it in the report. To ensure that such agreements do not violate competition law, EU competition law must be changed.
Are legal regulations on corporate due diligence even desirable? “There are different opinions on this, also in the scientific advisory board. Skepticism stems from the fact that such laws can also serve protectionist purposes by inducing companies to change supplier relationships,” the advisory board reveals the internal conflict. Better protection of human rights would then be missed, and such laws could also harm developing countries economically. It is not certain that these laws will have the desired effect. It is therefore important to evaluate their consequences for supply chains, the human rights situation and companies. The Cologne finance scientist Felix Bierbrauer was in charge of the report, and many prominent economists contributed.