Those that do worldwide business must understand and accept responsibility for their supply networks. The EU now wants to make it a legal requirement for businesses to do so.
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| [Bnagladeshi garments workers in background] |
After a lengthy wait, the European Commission's proposal for sustainable corporate due diligence - known colloquially as the European Supply Chain Act - is finally available. It is now time to defend the draft against industry organizations, eliminate loopholes, and send a strong signal to Brussels by putting the German supply chain law into effect.
There are currently several national regulations and standards for sustainable supply chains that require businesses to respect human rights and the environment. France approved the so-called Loi de vigilance in 2017. Last year, Germany passed a contentious supply chain law. There was encouragement and support for the regulations in the European discussion, but there was also criticism that it was a question of national solo efforts, which resulted in legal ambiguity, competitive disadvantages, and unmanageable bureaucracy for businesses. Not least, since the United Nations adopted the Guiding Principles on Business and Human Rights in 2011, it has been obvious that businesses all around the globe must respect human rights. The EU proposal is thus not just long overdue, but it is also the only appropriate measure to compel firms to respect human rights in their supply chains.
When EU Commissioner Didier Reynders proposed a plan for a European legislation in 2020, there was a lot of excitement. The European Parliament backed it up with a resounding yes. The next year, MEPs passed a legislative proposal on corporate accountability and due diligence with a significant majority and requested that the European Commission submit one as well. But suddenly it came to a halt. The proposed bill was repeatedly halted due to pressure from the business lobby. Their influence was felt to the very end, even when a coalition of progressive corporations issued a public declaration in support of a strong European law.
The long-awaited draft from Brussels is now available. Some rejoice, while others lament their flaws. What is clear is that, as a result of this law, businesses will no longer be allowed to reject sustainability and human rights protection as optional regulations. If you want to do business worldwide, you must not only understand but also accept responsibility for your global supply networks.
The draft law applies to both EU and non-EU businesses participating in the EU's internal market. Companies having at least 500 workers and an annual revenue of more than 150 million euros are distinguished from those with at least 250 employees and an annual turnover of more than 40 million euros. The latter must only satisfy their duty of care if they earn 50% of their revenues in a high-risk business. Textiles, agriculture, mineral extraction, and metal manufacture are only a few examples. According to the European Commission, the regulation would affect around 13,000 European enterprises and 4,000 third-country companies.
Small and medium-sized businesses are not included, although accounting for a sizable portion of the EU economy. However, the tendency toward due diligence is projected to have a long-term impact on them as well.
The draft supply chain law includes a comprehensive list of protected items. A wide range of human rights and environmental criteria are addressed. Child labor, human trafficking, and land grabbing, as well as the trade in endangered species, must be prohibited. Local and national legislation have no bearing on the proposition. In doing so, he emphasizes the significance of international norms such as establishing livable wages and the freedom to strike. Indeed, this would be a long-overdue dramatic shift: employers would no longer be able to depend on national minimum salaries that are below the subsistence level, or on anti-union legislation in their particular nations.
So far, many businesses have been monitoring their supply networks exclusively for product quality. The document now proposes to impose a duty on European corporations to give proof, and supply chains must also be reviewed for conformity with human rights and environmental protection. This involves risk assessments and the development of preventative and corrective actions. The obligation of care extends across the whole value chain. This implies that businesses must inspect manufacturing, sales, and distribution for noncompliance.
Enforcement will be ensured by a combination of governmental oversight and civil culpability. To that aim, each member state will establish a national authority to oversee conformity with the criteria and communicate with a central European body. Affected parties should be able to sue for civil damages if the damage could have been averted by complying with the responsibility to prevent or repair.
The European draft is unique in that the management's responsibilities are openly stated. In the future, it must consider the implications for human rights, climate change, and the environment. This is meant to keep board members from weighing economic profits against claimed exorbitant expenditures for human rights and climate preservation. It remains to be seen whether or not this will be successful. Because corporate relationships have sway to the very end. A direct relationship between board member salary and human rights adherence was not included in the proposal.
This statute, as is so frequently the case, is heavily influenced by the business lobby but not nearly enough by trade unions and civic society. While Germany and France ensure that trade unions have a role in national supply chain regulations, the EU draft law does not include a provision for trade union participation in the design and evaluation of due diligence. This is an issue. Because the goal must be to detect possible human rights and environmental law breaches before they occur. This can only happen with employee engagement, i.e. with the involvement of works councils, trade unions, and civil society movements.
The design of the punishments reflects the handwriting of the trade groups. The option of being barred from participating in public procurement if there are violations has been removed from the draft legislation, as has the option of suspending foreign trade promotion.
The European draft's ability to contribute to a more sustainable and equitable globalization will also be judged by whether victims of corporate human rights crimes have a chance to be compensated. Aside from the prospect of legal action, this necessitates a so-called reversal of the burden of evidence. This would imply that businesses would have to demonstrate that they did not act unfairly. The onus is now on the victims. As a result, the Ethiopian textile worker or the Indian tea worker must demonstrate that a firm violated its responsibilities. This is not the way to attain global justice. Instead, the power disparity between the global south and the global north is widening.
Some commentators compare the discussions and difficulties on the European level to the German supply chain law. A great and broad start was made here as well. Then, not only did the corporate lobby participate in the writing process, but so did certain conservative lawmakers. Despite this, an ambitious law was passed, owing in part to the perseverance of social democratic forces and strong backing from labor unions and civic society.
The German law will go into effect in a few months. The relevant authority, the Federal Office of Economics and Export Control, is currently being established; however, by the beginning of 2023, it should start assessing due diligence obligations. While corporate organisations are still prepared after years of deliberation and accusing politicians of a lack of knowledge, trade unions and civic society have long known where action is needed.
The European draft must serve as a motivator for Germany and the other EU member states. The EU has the unique chance to deliver a worldwide message of solidarity, sustainability, and fairness. The proposal will be defended and fine-tuned over the following three months in accordance with the UN Guiding Principles on Business and Human Rights. Germany may set an example by enacting its own supply chain regulation and demonstrating how successful implementation can be.