Supply chain legislation is coming
The Federal Government wants to oblige companies to better fulfil their global responsibility. Professor Achim Truger, a leading economic expert, explains why.
Clothing from Asia, cocoa and fruit from Africa and coffee from South America: German businesses profit from work done in other parts of the world. The Federal Government now expects companies to better fulfil their global responsibility. For that purpose it has proposed a Law on Corporate Due Diligence in Supply Chains. Its main goal is to improve the protection of human rights in global supply chains and ensure observance of fundamental principles, such as the prohibition of child or forced labour. Achim Truger is professor of socioeconomics, with a focus on government activity and public finances, at the University of Duisburg-Essen. Since March 2019 he has also been a member of the German Council of Economic Experts, who are often referred to in the German press as the “economic wise men”. He outlines the significance of the new law.
Professor Truger, German industry traditionally stands for high quality and high standards. Why is a supply chain law still important then?
Yes, that’s true, but Germany also imports cheap consumer goods and sources many low-cost preliminary goods and services along the supply chain. And that actually does touch on the subjects of decency and justice. The goods that we import and consume should not be produced under conditions that violate human rights. This is something industry promised long ago in 2011 in a voluntary pledge. However, 80% of German firms have not yet fulfilled this promise. That’s why it’s now politics turn to act.
The supply chain law is also likely to increase the incentive for German businesses to advocate corresponding rules at the EU level.
Won’t German industry put itself in a weaker competitive position as a result?
Costs will naturally accrue for the companies that have not yet fulfilled the pledge. However, these costs are low. A European Commission study puts them at only 0.005% of turnover for the relevant companies. Furthermore, the enhanced image that German companies can expect from this could ultimately improve their competitiveness. And, of course, the companies already upholding the pledge are benefiting as a result.
Wouldn’t a European or even global arrangement make more sense than a German one?
Of course, arrangements of this kind are all the more effective, the broader their scope. However, agreement is then also much more difficult to reach. To that extent, national measures are a good start. France and the Netherlands already have similar laws. The supply chain law is also likely to increase the incentive for German businesses to advocate corresponding rules at the EU level.
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