The German Supply Chain Act and its Economic Impacts

Table of Content

List of Abbreviations

List of figures and Tables

1 The Introduction
1.1 Problem Definition
1.2 Definition of Supply Chain management
1.3 Definition of due diligence

2 What does the Supply chain due diligence act exactly mean?
2.1 Background
2.1.1 Protection of human Rights objectives
2.1.2 Creating accountability

3 Examples of previous human right violation incidents
3.1.1 Child Labor prevention
3.1.2 Poor working conditions in Textile Industry
3.1.3 Oil Spillage using Niger Delta Nigeria as an example

4 Key Stakeholder Analysis
4.1.1 The law enforcement and monitoring authorities
4.1.2 Companies
4.1.3 Worker in producing countries and civil organization

5 Economic Impacts
5.1 Impacts on Businesses
5.2 Consumer
5.3 German FDI and Import

6 Conclusion

List of references

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of figures and Tables

Figure 1: Cocoa bean production worldwide 2018/19 & 2020/21, by country

Figure 2: Share of children in child labor worldwide in 2020, industry sector

Figure 3: Two steps forward, one step back: gender inequality in selected garment manu-facturing countries in 2005 and 2015

Figure 4: Garment workers living on a shoestring

Figure 5: Region of alleged abuse

Figure 6: Shell’s oil spills in the Niger Delta (pictured) mean the region needs the world’s largest clean-up, says the United Nations Environment Programme

Figure 7:Survey on the introduction of statutory due diligence in retail on Germany 2020

Figure 8: Survey on social and ecological responsibility as a purchase criterion by 2021

Figure 9: Also, the willingness to pay more has been increasing over the last four years, however not with a great speed.

Figure 10: social and ecological responsiblity as a purchase criterion according to income groups 2020

Figure 11: Leading import countries worldwide in 2020

1 The Introduction

The previous administration in Germany passed the German supply chain due diligence law known as ,,das Lieferkettengesetz‘‘ in June 2021. Now, what does this mean and what impact does it have on the supply chain processes of companies located in and outside Germany? The reason why the German parliament known as ,,Bundestag‘‘ passed this law will be addressed in full details.

1.1 Problem Definition

Recent incidents like The Rana Plaza Accident in Bangladesh, Child labor in Agricultural sector in Africa and oil spil in Ogoniland Nigeria and so many more has not only shown the negative effects of globalization but also how the state has failed in its duty to protect human rights and environment which is anchored in the UN guiding principles on Business and Human Rights, which is the most paramount internationally recognized standard of corporate responsibility for human rights. One can argue that the government of a producing country has the sole responsibility of enforcing a legitimate human right rule to protect its workers. However, brands also have a big role to play by ensuring that no form of modern slavery is taking place during the acquisition of goods they sell.

In line with the UN guiding principles, the German government took a bold step to play its impact in strengthening the rights of people along global supply chains and ensuring that companies play their role in creating a good and human working environment and maintaining sustainable standard for the environment.

Possible sanction as enforced by the government by violation of this law ranges from;

1.Exclusion from awards of public contracts: Until they have proved that necessary measures has been adapted to avoid further violation, companies who has been charged guilty for violating the law with financial fine of at least one hundred and seventy-five thousand euros will be excluded for three years from participation in procedures for the award of contracts, works or service contracts by the contracting authorities according to section 99 and 100 of the Act against Restrains from competition (Gesetze gegen Wettbewerbsbeschränkungen)¹
2.To Financial penalties:Failure to comply with the law’s obligations may result in administrative fines against the company ranging from EUR 100,000 to EUR 8 million for each violation.² For companies with annual turnover of more than EUR 400 million the fines will be up to 2 percent of average global turnover.

1.2 Definition of Supply Chain management

Supply chain can be understood as a channel of distribution beginning with supplier of raw materials, components needed to assemble goods, this extends to the manufacturing processes, the distribution, and the retail and finally to the final consumer, with the primary goal of creating high level of competitive advantage. The popular definition of supply chain is that it is a set up approaches utilized to efficiently integrate suppliers, manufactures, warehouses and stores, to enhance the production and distribution of merchandise at the right quantities and the right location and right time. The purpose is to minimise costs and satisfy service-level requirements.³

1.3 Definition of due diligence

Due diligence is an on-going, proactive, and reactive process through which companies can ensure that they respect human rights and do not contribute to conflict. With the primary purpose of helping companies ensure they observe international law and comply with domestic laws, including those governing the illicit trade in minerals and United Nations sanctions. Risk-based due diligence refers to the steps companies should take to identify and address actual or potential risks to prevent or mitigate adverse impacts associated with their activities or sourcing decisions.

Risk in this context can be understood as factors related to forced and child labour, discrimination, violation to freedom of forming or joining trade association, unethical unemployment, unsafe working conditions, environmental degradation.

2 What does the Supply chain due diligence act exactly mean?

With effect from January 1st 2023 companies operating in Germany employing certain number of employees regardless of their legal form, central administration, principal place of business are required to adapt measures that will ensure human rights and environmental protection are respected in their business operations. Before we highlight the impacts of this law on the business environment in Germany and economy in general, lets detail out the background and reasons for passing this law.

2.1 Background

2.1.1 Protection of human Rights objectives

Following several years of research and consultation led by UN special representative Prof. John Ruggie, the United Nations council, acting by consensus adopted the guiding principles on Business and Human Rights known as UNGPs. Which was based on the following three pillars:

- Duty of the state on human rights protection
- Cooperate responsibility to the respect human rights
- Access to remedy

In this project, we will emphasis on how the states’ (German Government) intend to its duty on human right law.

2.1.2 Creating accountability

By implementing this law, companies operating globally are held responsible for their activities and that of their business associates overseas for maintaining human, social and environmental standards. The accountability is not limited to production in developing countries, rather also within Germany.⁴

3 Examples of previous human right violation incidents

Considering recent unpleasant tragedies in business practices between developed and less developed nations, many argue that regulatory changes are necessary to foster and underpin the transition to more sustainable business models.

The following example should create an insight on the purpose for implementing this law.

3.1.1 Child Labor prevention

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Figure 1: Cocoa bean production worldwide 2018/19 & 2020/21, by country

Source: ICCO

The Chocolates we enjoy today are originally extracted from cocoa beans which mainly grow in Asia, Latin America and with the highest number in West Africa namely Ghana, Ivory Coast, Nigeria, and Cameroon. 70% of the world cocoa production comes from these countries. Accounting for more than 50% of the global cocoa production, Ivory coast and Ghana are by far the largest producers in this sector (see Figure 1)

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Share of children in child labor worldwide in 2020, industry sector

Source: Child Labour 2020, page 13

According to the bar chart above, 70% of the global child labor occurs in the agriculture sector, this shows the high level of child labor attached with the cocoa farming.

Furthermore, a study conducted by National Opening Research Center (NORC) in collaboration with the U.S. Department of Labor, the government representatives of Ghana and Ivory Coast representatives from the international cocoa and chocolate industry, civil society organizations, and several international organizations with an interest in child labor, including UNICEF, the International Cocoa Initiative, and the International Labor Organization has come to the finding that among children living in agricultural households in cocoa growing areas 45 percent were engaged in child labor and 43 percent were engaged in hazardous child labor in cocoa production in aggregate such as working with sharp tools and agricultural chemicals and carrying heavy loads.

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¹ Ct. , S. 16, Act on corporate Due Diligence Obilgations in Supply chain of July 16 2021,.

² Ct. Covington, A., 2021, Germany Passes Supply Chain Due Diligence Act,.

³ Cf. 2018, S. 133 quotted from: Simichi-Levi et al. (2007).

⁴ Ct. The Federal Foreign Office on behalf of und The Interministerial Committee on Business and Human Rights, 2017, S. 4, National Action Plan Implementation of the UN Guiding Principles on Business and Human Rights,.