Germany debates law to make Global Value Chains fair

Global Value Chains (GVCs), the international fragmentation of production, have changed and are changing the international trade. There was much hope that developing countries can realize the benefits of GVCs in the World Development Report 2020. The inequalities in social and environmental conditions, however, have sparked a strong debate in Germany. Despite the global meaning, the debate is rather a domestic issue in Germany. This is why I would like to get here some comments from other perspectives.

Germany is closely integrated into Global Value Chains.  In Germany, the textile industry (63 percent of foreign added value), electronics (45 percent), chemical and pharmaceutical industry (39 percent), food industry (37 percent), automotive industry (29 percent) and mechanical engineering (28 percent) are particularly dependent on imported inputs.

German companies do not care enough whether their global suppliers comply with labour and social standards. Therefore, they should now be legally obliged to control this. For years, German activists have said fair global business practices necessitated a supply chain law that would require companies to check human rights and environmental standards — not just in their home country, but in every location, from the places where raw materials are extracted and assembled to their final destinations.

A Due Diligence Act (Sorgfaltspflichtengesetz, commonly known as Lieferkettengesetz) has been introduced to the Bundestag parliamentary debates by the Federal Ministers for Cooperation and Labour. “The exploitation of people, nature, and child labour must not become the basis of the global economy and our prosperity,” said Gerd Müller, Germany’s minister of economic co-operation and development. “That would be a boomerang that would strike back at us. Our socio-economic model can be a model for a global economy.” German consumers benefit from the fact that people around the world work under devastating conditions. Nobody in Germany would be willing to take on the jobs of the global south even for a day, he added. “This supposedly functioning system of externalization, which is familiar to many generations, is now producing damage and costs that are no longer just incurred far away, but are increasingly falling back on us, for example with climate change”, Ministry’s Website details. 

“Anyone who can ensure that product quality is maintained,” says Federal Labour Minister Hubertus Heil, “can also do the same with human rights.” Human rights have universal validity and Germany has a responsibility as a state, as an economy and as a society, Heil says. The German economy is intertwined like no other worldwide and has “to take care of”. Globalization should not be confused with exploitation.

“Do not confuse globalization with exploitation”

It doesn’t work voluntarily. A survey of more than 5500 large German companies with more than 500 employees in December 2019 and June 2020 revealed that less that a fifhh of the companies had set up a functioning monitoring system. The governing party coalition has previously agreed to introduce a legal framework if voluntary action should be too low. The draft law was introduced into the cabinet in August and sent to the Bundestag for the legislative process. The law should be in place at the beginning of 2021.

The Law would require German companies with more than 500 employees would therefore have to check in future whether their activities have a negative impact on human rights and take appropriate preventive and remedial measures. Furthermore, they should report once a year on how they avoid human rights violations. Relevant companies may face potential civil liability for damages for any human rights violations occurring where they have failed to take adequate steps. There is also a reporting element with companies being required to disclose their efforts in this area.

The economy reacts in two ways

While more than 60 companies are in favour of a supply chain law – including the coffee roaster Tchibo, the food groups Rewe and Nestlé, and the chocolate manufacturer Alfred Ritter – some trade associations are protesting sharply. The companies are shaken enough by the corona pandemic. “An additional introduction of a due diligence law would bring us to the limits of our resilience and thus only delay the economic recovery,” says the foreign trade association BGA. Business associations argue it puts too much responsibility on small companies that cannot properly assess an entire supply chain. They also warn that German groups could be put at a disadvantage, and say that Berlin should use its current presidency of the EU to push for Europe-wide regulation.

Do everything humanly possible

Labour Minister Heil considers this to be reasonable. There is only liability for damage that was foreseeable and avoidable by German companies. “We want to oblige companies to take care of themselves and if they do everything humanly possible that is available to them, then they will not be liable,” added Development Minister Müller.

But even if Heil and Müller are determined to get the Supply Chain Act on the way as quickly as possible, they cannot be absolutely certain that it will succeed. Because in the cabinet there are also opponents of the law, above all Federal Minister of Economics Peter Altmaier.

Wait and see what the EU does?

The conservative politician announced that the results would be carefully analysed by the entire federal government. “We will examine exactly what gaps there are and how we can use our German Council Presidency to achieve a responsible design of supply and value chains across the EU.”

For Armin Paasch from the catholic aid organization Misereor, however, the problem lies precisely here: “All attempts to outsource the debate at EU level would and would also be aimed at delaying a law for years. And that would also result in all possible blockages and dilution Open the door to the EU within the framework of the EU. “

Petition for a Supply Chain Law in Berlin, 9 September 2020. Picture: Greenpeace

In front of the Chancellery, Greenpeace activists of the Supply Chain Law initiative have set up a stage in the form of a paragraph. They present the petition “Human rights and environmental protection need a legal framework at last“, signed by more than 222,000 people, addressed to Chancellor Angela Merkel. They call for a supply chain law which includes a civil liability of companies with regard to environmental protection and occupational safety.

The alliance of over 100 civil society organizations is calling on the federal government not to postpone the law any longer, but to finally ensure effective protection of human rights and the environment.

Background Weblinks and publications

Initiative Lieferkettengesetz

European Coalition for Corporate Justice (ECCJ)

Corporate Responsibility (CORE) Coalition (UK)

Treaty Alliance

Initiative for Sustainable Agricultural Supply Chains

Association of Ethical Shareholders Germany

OECD Guidelines for Multinational Enterprises