German engineering association challenges supply chain legislation

A German industry association is calling new supply chain human rights legislation a “trap” for medium-sized companies.

The Mechanical Engineering Industry Association (Verband Deutscher Maschinen- und Anlagenbau – VDMA) says the German Supply Chain Act has gone too far, and is putting companies at risk by being too restrictive.

“Respecting human rights and preventing child labour – these two central principles of the German and the planned European supply chain law are fully supported by the mechanical and plant engineering industry. However, what the legislators have actually put in place or still want to bring about goes far beyond these basic rights,” the association said in a statement.

VDMA suggests that under the legislation, German companies are supposed to be responsible for ensuring that European environmental and social standards are met around the globe – otherwise they will be penalized.

“This is completely unrealistic. While the EU states are now relaxing their standards for good reason when they buy gas in the world, the companies are to be held all the more liable,” said VDMA president Karl Haeusgen.

“This cannot be good for a nation like Germany, which lives from exports, but also for Europe as a whole. The ability of small and medium-sized industrial enterprises to act is being put at risk here.”

The association has expressed its concerns and criticisms in a letter to German economics minister Robert Habeck, and other ministries.

VDMA’s main points in opposing the law are that, in addition to human rights, companies will be sanctioned for the violation of environmental and climate standards, labour guidelines and good governance rules, instead of states being held responsible. As well, the association says the law covers not only the first stage of the supply chain, but all stages, including subsidiaries, and  customers will be held liable.

VDMA would like to see a”white list” of countries outside the EU that would be deemed ‘safe’ trading partners.

“If the EU supply chain law is passed without urgently needed corrections, our small and medium-sized companies can say goodbye to global competition in parts of the world. And companies from the USA, Great Britain or Asia will be profiting. The EU cannot want that, especially since it contradicts Europe’s objective of strengthening the resilience of the European economy,” Haeusgen emphasized.

According to VDMA, German lawmakers are tightening up the implementation of the Supply Chain Act, which has already been passed, in such a way that it will drive companies out of many markets. For example, it is planned that companies must make their reports on the likely risks of human rights violations, environmental and climate damage available in detail on their websites for all to see – for seven years. This information will then also be available to competitors and customers who have no such obligations.

“This will lead to the withdrawal of our companies from entire countries and thus the local people will be harmed, not helped,” Haeusgen said.

“Basically, the politicians could also tell the companies directly: ‘We no longer want you to do business with this or that country at all’. That would at least be honest. The alleged principle of ’empowerment before withdrawal’ is a cliché. It only shifts responsibility onto the backs of those who provide jobs and tax revenues. Not stopping this process in times of war, high inflation and an unresolved energy supply is irresponsible.”