What are the implications of the Supply Chain Law for German companies in China?
In 2021, the German government decided that a new supply chain law would come into force from 2023. This law is intended to ensure that wherever a company is active, care must be taken to ensure that there are no human rights violations and no environmental pollution. If this is not the case, the companies have to pay heavy fines and they are held liable for the human rights violations. This was not the case until now, which is why it was tolerated. The new law is intended to change this.
For German companies that are also active in other countries, this could lead to problems, as human rights are not respected in all countries. Therefore, they should be even more careful than before when choosing their business partners. Attention should also be paid to the Supply Chain Act when working with Chinese partners, as unfortunately there are human rights violations in some companies there, such as child labor, forced labor, inadequate occupational safety and exploitation. Especially in certain Chinese regions where there are major human rights violations against ethnic minorities, this is also the case in factories. German companies should also pay attention to environmental pollution, as some manufacturers do not properly dispose of their waste, for example. In many textile factories, for example, the chemical dyes are discharged into nearby rivers. Therefore, compliance with certain environmental standards is also an important part of the new law. Compliance with the Supply Chain Act is monitored by the German Federal Office of Economics and Export Control, and violations can result in fines or exclusion of companies from public procurement. This new supply chain law is intended to remind German companies of their corporate duty of care so that they can better fulfill their global responsibility to respect human rights and environmental standards.
Initially, the Supply Chain Law will come into force for companies with more than 3,000 employees, and from 2024 it will also come into force for companies with 1,000 employees. It is assumed that smaller companies will also have to pay attention to the law in the long term. The EU is even calling for a ban on imports of products linked to human rights violations in the future. However, it is still unclear whether and if so, when this law would come into force.