HomeEconomicWhat kind of supply chain law will the EU introduce?

What kind of supply chain law will the EU introduce?

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While the EU’s supply chain legislation is under way, past incidents, such as the 2012 fire in a Pakistani factory that mainly supplies Kik, a German chain of cheap textiles, killed 258 people, and were revisited in the process. . The family of the deceased and the survivors believed that KiK was responsible for the failure of the supply factory to comply with fire safety regulations, and filed a lawsuit in Germany, demanding compensation. KiK argued that the fire was started deliberately and that the factory did not fail to meet fire safety standards. More than six years after the accident, the German court dismissed the claim, ruling that KiK was not liable and that the statute of limitations had expired under Pakistani law. Similar tragedies have happened many times. The EU wants to change this situation, and establish the due diligence obligations of enterprises in their supply chains in the form of law, so as to identify, prevent, terminate or mitigate negative impacts on human rights and the environment. negligent or intentional conduct.

Some EU member states have introduced corresponding laws. Beginning in January this year, Germany’s supply chain law (LkSG) came into effect. The law applies to companies in Germany with at least 3,000 employees. About 700 companies are affected. From 2024, it will apply to companies with at least 1,000 employees. Employees’ companies in Germany will be affected by about 2,900 companies. In February last year, the European Commission published a draft supply chain law at the EU level. So far, the difference between the supply chain law at the EU level and the supply chain law in Germany is that the former applies to a wider range of objects: for EU companies, the threshold is set at more than 500 employees and an annual net sales of at least 150 million euros , About 9,400 enterprises were affected. In high-risk industries such as textiles and agriculture, there are more than 250 employees, annual net sales of at least 40 million euros, and about 3,400 affected companies. For non-EU companies, the scope of application is to be active in the EU market and meet any of the two conditions mentioned above, and the affected companies are 2,600 and 1,400 respectively. In terms of strength, German legal requirements are more focused on direct suppliers of enterprises, while EU legislation may cover the entire supply chain.

Human rights and environmental groups, among others, are calling for tougher laws in the name of sustainability and fairness, while business and economic circles are scrambling to weaken and dilute such a law in order to protect European businesses competitiveness, even in the name of globalization. In such a game of interests and demands of all parties, whether to give consideration to both human rights and the environment or to choose one, whether to cover every link in the supply chain, how to set the degree of duty of care for enterprises, and whether to establish a positive The list is the focus of controversy.

The basic position of the supply chain law initiative by more than 130 non-governmental organizations is that Germany has introduced a supply chain law to confirm the possibility of legislation, but the law has loopholes and deficiencies, and legislation at the EU level must correct it. They worry that the resulting law will be nothing more than a paper tiger.

According to a report jointly released by the relief organization Misereor and the global policy forum GPF, in the EU, resistance from the EU Internal Market Commissioner Breton and the Regulatory Review Board (RSB) has pushed back the publication schedule of the European Commission’s proposal. In Germany, various German economic associations, including the German Employers Association (BDA) and the Confederation of German Industries (BDI), have blocked the introduction of German laws before and are now trying to weaken the strength of EU-level laws. rule. According to non-public documents disclosed by the German investigative media Correctiv and SWR, the German Employers Association believes that the German business community expects a European-wide regulation, its implementation must be operable and proportionate, and there are clear boundaries: the obligation to protect human rights should belong to State power and government agencies are not easily outsourced to corporations. Business associations also argue that such a law would sever global supply chains and lead to deglobalization. Economic interests including Denmark, Sweden and especially Germany are putting pressure on it.

In EU legislation, the German government’s position stands out. In the alliance agreement at the end of 2021, the German federal government promised to support supply chain laws that are effective at the EU level, comply with the United Nations’ guiding principles on business and human rights, and are within the reach of small and medium-sized enterprises. In Germany’s three-party coalition, the Social Democrats and Greens are leaning toward tougher legislation, while the Liberal Democrats are in the opposite direction. One of the Green Party’s campaign slogans was better protection of human rights. The then chairman of the Green Party, Harbeck, said in early 2021 that whether it is the clothes or shoes we buy, child labor and exploitation are not allowed to be part of their production, and a film with “teeth” and “will bite” Supply chain law can guarantee all this. At the beginning of 2022, the labor minister from the Social Democratic Party expressed a similar position, saying that there are no “ifs and buts” without compromise. However, the internal documents of the German federal government in September 2022 disclosed by the German TV channel 1 Monitor show that Germany is trying to weaken and dilute EU supply legislation, especially on the civil liability of companies. Under the initial draft EU supply chain law, victims would be able to sue companies for negligence in EU courts. The German side proposed a “safe harbor” plan to reduce the responsibility of enterprises. That is to say, enterprises can allow third parties to certify products or production processes, and only in cases of gross negligence or intentionality can enterprises be held liable. At the time of the fire in Pakistan, the plant had been certified safe by a certification body. Critics argue that through safe harbors, companies can take responsibility away from themselves.

In addition to special rules, another point of discussion is risk analysis. According to Monitor, the European Commission draft requires companies to report possible serious risks of human rights violations in their supply chains, while the German government wants to limit the risk of corporate responsibility to the scope of companies that may have an impact. That is to say, if enterprises can prove that they cannot affect the working conditions of a certain mine or factory in a certain country, they do not need to perform the duty of care in this regard.

What does such a law mean for business? Entrusted by the IMPULS Foundation of the German Machinery and Equipment Manufacturing Association, the Kiel Institute for the World Economy (Ifw) assessed the impact of supply chain laws on the German machinery and equipment manufacturing industry and released an assessment report in August 2021. The report pointed out that supply chain laws will increase the supply risk of enterprises, and in order to reduce risks, enterprises tend to choose to reduce suppliers, and at the same time transfer supply chains from high-risk countries to industrial countries, thereby increasing production costs, weakening competitiveness, and increasing Dependency on remaining suppliers. From the perspective of suppliers, especially those from developing countries, their export costs will increase, resulting in loss of exports or even elimination from the market. Generally speaking, exporting companies, including exporting companies in developing countries, pay higher wages, employ higher-skilled employees, and pay more attention to corporate social responsibility than companies that are only active in the domestic market. In view of this, supply Chain laws will only bring about the opposite of the original intention. The research suggests to establish a negative list as an alternative, that is, to establish a list of companies that cannot establish trade relations due to human rights and environmental conditions, which can not only reduce the burden on companies and suppliers, but also more effectively protect human rights and the environment in the countries where suppliers are located. .

At least from the current trend, the supply chain law at the EU level will be stricter than that of Germany. Once the EU directive takes effect, member states including Germany must adjust the corresponding domestic laws within two years, so as to reflect and Comply with EU directives. Of course, all the debates and differences mentioned above are within the existing trend of “the EU advancing legislation”. In addition to the existing trend, there is the ultimate torture: Can the EU really end or effectively reduce the global Are there negative phenomena such as child labor, forced labor, labor exploitation, and environmental pollution?

(This article only represents the author’s own opinion, editor in charge: Yan Man man.yan@ftchinese.com)

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