BERLIN — Most people are against child labor, corruption and environmental pollution. The problem is agreeing on how to clear such abuses out of global supply chains.
That’s the debate swirling within Germany’s ruling coalition government as it mulls a sweeping new law aimed at making sure everyone from carmakers to coffee sellers and fashion retailers root out wrongdoing in their suppliers. It’s also the subject of a nascent effort in Brussels to set similar rules that would make the EU more accountable.
“Europe is the largest single market in the world and it must use that power to set a global standard for responsible business,” said Lara Wolters, a Dutch Socialist MEP who on Monday launched an attempt to shape future EU legislation on the topic.
A study by the European Commission published earlier this year concluded that just one in three EU companies surveyed are carrying out due diligence on human rights and environmental impacts along their supply chains.
The European Commission is considering proposing a framework on corporate governance and plans to open a public consultation on new regulations in the coming weeks. Like efforts to get a German law in place, that timeline has slipped.
Boosting requirements for due diligence, the process by which firms assess whether they are tacitly supporting bad practices, is a good way to figure out if companies rely on suppliers that pollute rivers or use child labor or engage in other unethical practices.
The debate comes as European governments are looking to bolster physical supply-chain links disrupted by the coronavirus pandemic. “COVID has shown the fragility of these hyper-efficient supply chains with very limited slack, because some of the risks are being outsourced,” Wolters said. “In a way, there is no better moment” to legislate.”
German splits
What’s dividing German politicians is how heavily to police big corporations, whether smaller firms should face the same red tape as global titans, and if it’s fair to punish executives rather than issue fines.
The draft covers everything from unsafe working conditions to environmental damage. One version would impose fines of up to €5 million against companies for breaching standards and — even more contentiously — prison sentences for company executives and designated compliance officers.
Social Democrat Labor Minister Hubertus Heil and conservative Development Minister Gerd Müller want the law to apply to any company with at least 500 employees, while making sure that those in charge are criminally liable for grave violations. Economy Minister Peter Altmaier and Germany’s big industry lobbies want the law to apply only to firms of more than 5,000 workers and to limit the liability to fines.
“A supply-chain law must be workable in order to function properly,” Germany’s big corporate lobby groups said in a joint statement this month, adding: “We urge the federal government to limit the due diligence requirements to pure human rights issues and direct, verifiable suppliers.”
A spokesperson for Altmaier, a powerful ally of German Chancellor Angela Merkel, said it’s important the law is “feasible in practice” and that it does not lead to firms “withdrawing from certain countries” in order to limit their risk profile. “We must not forget that in view of the corona crisis we are currently in a recession,” the spokesperson said.
The government’s goal is to have a national law in place by the end of the current political term in October 2021, but the dispute could delay or kill the project.
Berlin is acting because voluntary efforts to tackle the issue have fallen short.
In 2016, German companies were urged to check and report — voluntarily — if human rights standards were respected along their supply chains. The idea was that if every second business met these criteria, the government would not legally mandate new standards. The government gave German businesses four years to opt in, but just 455 of the 2,254 selected companies took part in the survey and only 17 percent of those met the criteria.
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“There is no alternative to it being compulsory,” said Peter Gailhofer from the German Öko-Institut environmental research group. “The voluntary process brought us nothing.”
European solutions
Germany is hoping its rules can be the kernel of a future EU standard, but such corporate governance rules aren’t novel. France, the U.K. and the Netherlands already have similar laws, though the Dutch one only applies to selected industries and covers solely child labor, and the French one only affects companies with more than 5,000 workers.
The EU already mandates some due diligence for importers of tin, tantalum, tungsten and gold, for example. On Tuesday, it will set out plans for a new public-private Raw Materials Alliance, a platform to help companies secure access to resources critical for European industries.
In her report, which hit the Parliament’s legal affairs committee on Monday, Wolters wants to hold executives criminally responsible in extreme cases of wrongdoing, and also make it possible for non-Europeans who can’t find justice at home for alleged major violations to seek recompense in EU courts.
But she sees problems with using the size of a company to calibrate the law. While micro-businesses such as neighborhood shops should clearly be exempt, the same shouldn’t hold for a diamond trader in Antwerp with only five staff, for example, but who is part of an international mining industry that could include child labor and the exploitation of conflict minerals.
Even if her draft report is accepted by the European Parliament by the end of the year as scheduled, it would likely take years for any EU standard to become law and there’s no guarantee the Commission will go as far as MEPs would like.
But the pressure to tackle the issue is growing.
In Germany, debate on new supply chain compliance rules was triggered by the collapse of the Rana-Plaza factory in Bangladesh in 2013, which killed 1,100 and injured 2,000.
That hasn’t stopped people from buying cheap T-shirts, and there are other problems with popular products. At the end of August, German union Verdi co-published a study on the abuses that go into the production of a bottle of cheap South African wine sold in German supermarkets, including dirty rivers as the only source of drinking water for employees, low pay and the use of dangerous pesticides.
It doesn’t stop there. “Unfortunately, Europe is the largest financial beneficiary of child labor in coffee, cocoa and many other products,” said Fernando Morales-de la Cruz, who lobbies for better human rights under the banner of Cafe for Change and says the proposed German law doesn’t go far enough.
This article has been updated with Monday’s proposal from MEP Lara Wolters.
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