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German firms fear new supply chain law

PEtter Bokelmann It’s been a busy few months. Machine tool maker Trumpf’s general counsel is overseeing the company’s efforts to comply with new laws on supply chain due diligence that went into effect Jan. 1. Mr Bokelmann has been working on the law since its passage in mid-2021. “The sheer effort required is underestimated,” he sighs.

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Do not make jokes. Many German companies are only just waking up to new rules requiring companies with more than 3,000 employees in Germany to monitor whether their global suppliers meet human rights and environmental standards. From 2024, the law will apply to companies with 1,000 German workers. Supplier misconduct could result in fines of up to 8 million euros ($8.6 million) or 2 percent of the German company’s global sales, whichever is higher. Bosses have warned it would disadvantage their companies, create more red tape in an already tangled country and could hurt rather than help workers in emerging markets.Law is ‘well-intentioned but poorly done’, sums up vDMAthe leading lobby group for the mechanical engineering industry.

Germany is not the first member state European Union Make such a law. But German regulations are stricter and apply to more companies than their counterparts in France or the Netherlands. Businesses say the government’s own estimates of the law’s direct cost in time and labor to the country’s businesses – 110 million euros this year and 4,355 euros a year thereafter – are unrealistically low.

In Trumpf’s case, 5,000 of its 15,000 suppliers are considered low risk by the company. Of the remaining 7,000, Trumpf has so far assessed 800; Mr Bokelmann said assessing the rest would take years of work. This may not be over yet. In October, the federal Office for Economic Affairs and Export Control, which oversees implementation, sent companies a 35-page questionnaire containing 437 data fields that included details not mandated by law.In addition, civil society activists want the German government to push for stricter European Union– Extensive legislation.

tougher European Union Rules are already being made. They will require companies with 500 or more employees and annual sales of 150 million euros to monitor environmental and labor standards in their supply chains and ensure their operations are in line with the decarbonization pathway envisioned in the Paris climate change agreement. Mistreatment of workers is more common in industries such as agriculture or textiles, European Union The law will apply to companies with just 250 employees and 40 million euros in sales. It is likely to be presented to the European Parliament and the European Council this year.German companies will need to comply with both domestic and European Union rules, adding a layer of cost and complexity.

A company like Trumpf, which employs more than 16,000 people worldwide and generates annual sales of 4.2 billion euros, has the resources to deal with the challenges that come with it. The Kiel Institute for the World Economy argues that the easiest way for Germany’s smaller pocket multinationals to comply is for developing countries with poor records on human rights and environmental standards. For this reason, the German-African Business Association opposed the law.

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