Supply chains under the magnifying glass: How the EU wants to keep goods free from child labor and environmental damage

Why is?

Henrik Kafsack

Business correspondent in Brussels.

• Follow I follow

With the proposal, the European Commission wants to ensure that companies do not violate human rights or environmental standards in the manufacture of their goods and the provision of services.

This includes international labor standards such as the ban on child and forced labor and the right to strike.

It is also about climate protection.

The Commission emphasizes that a third of all large companies are already doing this.

What is the Commission asking of the companies concerned?

The companies should check the supply chain for possible violations - the entire supply chain in both directions.

So it's about suppliers and buyers.

The strictest requirements apply to direct suppliers and customers.

When it comes to suppliers of suppliers of suppliers - large companies have up to 100,000 of them - it is sufficient if the companies contractually protect themselves against violations.

Again, that doesn't mean they're "off the hook" if there's evidence of violations far down the supply chain.

So do companies have to replace suppliers?

They must do everything in their power to avoid violations.

In case of doubt, this means doing without certain suppliers.

Therefore, there is also a transition period of two years for companies that are active in high-risk industries.

Which companies are affected?

The due diligence obligations should apply to all companies with more than 500 employees and an annual turnover of more than 150 million euros.

In addition, companies with more than 250 employees and a turnover of more than 40 million euros that are active in the high-risk sectors of textiles, agriculture and raw materials should also be included.

In total, this affects 13,000 European and 4,000 companies from third countries operating in the EU.

So are small and medium-sized companies left out?

They are not directly affected.

99 percent of all European companies are not subject to the new rules.

The commissioner responsible, Didier Reynders, had to give in on this point.

He had argued that even a micro-enterprise could organize the import of textiles containing cotton picked by Chinese forced labourers.

But this met with resistance in the commission.

Indirectly, however, small companies are also affected.

The large companies that supply them are likely to demand that they themselves have a “clean” supply chain.

What about climate protection?

When it comes to controlling the supply chains, it is not initially about negative consequences for the climate.

However, this should be checked in a few years and possibly changed.

However, large companies must present plans on how they want to prevent climate damage.

Reference is made to the Paris 1.5 degree target.

What about goods made by forced labourers?

Commission President Ursula von der Leyen announced an import ban on such goods in autumn.

There should be a law for that.

However, the Supply Chain Act will help companies to “cleanse” their supply chains of such goods.

How are managers held accountable?

The Commission wants to link the bonus payments for managers directly to the control of the supply chain.

They would only get their bonuses paid out in full if they made every effort to minimize violations.

What sanctions are planned?

Two things: States should enact appropriate penalties for violating the requirements of the law.

But that's not all: Under certain circumstances, companies should also be liable under civil law for damage that occurs along the supply chain.

For example, a German company could be held liable in Germany for fires in textile factories in Bangladesh if it purchases goods from there.

What's next?

The Commission's proposal must be approved by both the European Parliament and the Council of Ministers, the body of the member states, in order for it to come into force.

The proposal is likely to meet with approval in Parliament.

In the Council of Ministers things are different.

In the Scandinavian countries there are reservations about the far-reaching encroachments on entrepreneurial freedom, while in Central and Eastern Europe there is little enthusiasm for the entire concept.

What does this mean for the German supply chain law?

This can initially come into force as planned at the beginning of next year.

However, if the EU decides on its own supply chain law, Germany will have to adjust its rules and tighten them accordingly - for example, expand the number of companies affected.

The Commission's aim is to have uniform rules throughout the EU.