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The new German supply chain law. What EU & UK businesses need to know

A new German supply chain law obliges some companies and holds them liable, to ensure their supply chains worldwide do not violate human rights. Let's look at what the law says and what it means to EU and UK businesses trading with German companies in the future.

Violations worldwide

Human rights violations across supply chains and economic activities worldwide are a big deal. There are an estimated 152 million child laborers, half of them in exploitative conditions. 25 million people work in forced labor. This must stop and EU and UK companies have an obligation to ensure that their supply chains are free of human rights violations.

Ensuring basic human rights for everyone

Last month, German presented the EU’s “strictest supply chain law”, the so-called “Lieferkettengesetz”. It is about compliance with basic human rights standards. If approved by the German Bundestag, it aims improve the protection of human rights across the globe.

No children work, no forced labour

According to the legislation, they should ensure that human rights are respected in their supply chains, that is, essentially,

· no children work or

· forced labour takes place.

· environmental concerns, if they lead to human rights violations (e.g., from poisoned water).

Due Diligence

The German draft law lays down clear and actionable requirements for the due diligence of certain companies in Germany and thus creates legal certainty for companies and those affected. The human rights concerned are:

• Integrity of life and health,

• Freedom from slavery and forced labour,

• Protection of children and freedom from child labor,

• Freedom of association and the right to collective bargaining,

• Protection from torture, and

• Fair working conditions (health and safety, breaks)

• Environmental obligations to protect human health.

Exemption for SMEs

From 2023, companies with more than 3,000 employees (over 600 companies in Germany) need to show compliance, from 2024 its companies with more than 1,000 employees (2,900 companies).

Duty of care

For the first time, there are clear requirements for corporate due diligence- This creates legal certainty for companies and those affected. The duty of care of the company extends to the entire supply chain - from the raw material to the finished product. However, the requirements for the company are appropriate and graded, among others according to the company's ability to influence the person who caused the injury as well as according to the different stages in the supply chain. Many companies already meet these requirements, for example because they implement the EU Conflict Minerals Regulation and / or the EU CSR Directive.

Risk Analysis and ongoing management

Companies wishing to having to ensure due diligence across their supply chain can / are required to

• Adopt a declaration of principle on respect for human rights.

• Carry out a risk analysis to identify the adverse effects on the effective implementation of human rights.

• Adopt risk management measures (including remedial measures).

Companies trading with German businesses may have to ascertain and take measures themselves, that their supply chains do not violate human rights.

BAFA is charge, fines possible

The Federal Office for Economics and Export Control, BAFA, is expected to guarantee the effective enforcement of the law. Fines are possible for violations of the law. In the event of serious violations, companies can be excluded from public procurement for up to three years.

What about the EU? Don't we need Europe-wide rules?

The goal remains a uniform European regulation. It will probably take several years before a uniform European regulation is available. With a national law, Germany can influence EU legislation in our favour.

Action this summer

The draft law should be passed in the Federal Cabinet by mid-March at the latest. The law should be passed by the German Bundestag before the summer break to become. For companies with more than 3,000 employees, it will then apply from 01.01.2023.

Germany is not alone

Other countries have already passed a similar law:

France: Loi de vigilance, protection of human rights

In February 2017, France passed the “Loi de vigilance”, a law establishing a binding corporate duty of care for human rights. French companies are obliged to identify and prevent human rights risks also in subsidiaries and along the supply chain.

Great Britain: Modern Slavery Act

In 2015 the British Parliament passed a law against modern forms of slavery and on reporting and action against forced labor, the Modern Slavery Act.

Netherlands: Child Labor Due Diligence Law

On May 14, 2019, the First Chamber (Dutch Senate) approved the Child Labor Due Diligence Law, which was passed by the Second Chamber in February 2017. The law obliges companies to observe due diligence obligations with regard to child labour and provides for complaints and sanctions in the event of non-compliance.

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