by Christian Scheper and Carolina A. Vestena - Institute for Development and Peace - INEF

The draft for a German 'Supply Chain Act' is an important and overdue regulatory step. However, it does not yet automatically strengthen human rights, but reflects a new legal arena of conflict between human rights and prevailing modes of production. The blog post highlights the conflictual nature of supply chain regulation and argues that the draft law so far misses crucial steps to empower rights holders in global supply chains.

In the shadow of the coronavirus crisis, the Federal Cabinet approved the draft of the "German Supply Chain Act" on March 3. Such laws have long been the subject of international and national debate and have been called for by civil society human rights organizations for years. The proposed law defines standards for the human rights due diligence of German companies in their global supply chains. The draft can be seen as an important milestone in the major conflict over human rights and the transnational production of goods. In view of the new law, it seems important to us to emphasize precisely this conflictual nature of the subject matter: It is not just about setting new standards and thus closing regulatory gaps, but actually about new forms of dealing with a conflict: internationally recognized labour and human rights standards and prevailing forms of production of goods by transnational corporations and their supply chain structures are in many ways irreconcilably juxtaposed. They represent a social conflict over the types and methods of production and the distribution of their costs and profits. The pandemic and its devastating effects on workers in global supply chains and the multiple, sometimes violent conflicts over the recognition of basic rights, for example in textile factories, mining or agriculture in the Global South, demonstrate this particularly clearly. The Supply Chain Act represents a new political development in this conflict, which we would like to reflect on below and evaluate in light of further transformations in the political design of supply chains.

In the words of the Federal Ministry of Labor and Social Affairs, the Due Diligence Act means both "legal clarity for business" and a strengthening of "compliance with human rights by companies". The law achieves this through an "obligation to make efforts", which companies must comply with; it is neither an "obligation to succeed nor a guarantee liability". This means that a company should be held responsible for its own efforts to achieve ecological and human rights-compliant production conditions in the supply chain, but not for the result in the production countries, which can depend on many other factors - such as state institutions. The responsibility to protect human rights enshrined in the law is based on the UN Guiding Principles on Business and Human Rights, which were adopted by the Human Rights Council in 2011 and incorporated into the German government's National Action Plan for Business and Human Rights in 2016. According to the Guiding Principles, the state still has its obligations under international law to respect, protect and guarantee human rights. However, companies themselves also have a responsibility to respect human rights that extends beyond their own operational boundaries and encompasses their entire sphere of influence - such as supplier contracts and other business relationships. As a rule, however, this responsibility tends to reflect a social expectation and is not legally binding. Various countries have therefore begun to discuss corresponding legal changes. Some have already passed due diligence laws for companies (France) or have been discussed by parliaments and civil society groups (e.g. Austria). With the exception of France, however, the laws that have been passed do not establish a general duty of care, but rather relate to specific issues, e.g. slave and forced labor (Australia, UK) or child labor (Netherlands), or they only address certain industrial sectors and trade goods (e.g. EU Conflict Minerals Regulation).

Even before its final enactment, the adopted German legislation has come under criticism from civil society. Aspects that have been criticized include the lack of opportunities for civil action, the narrow scope of application and the severely limited effectiveness in the depths of the supply chain - e.g. in the second, third or fourth link of a supply chain, where largely unprotected, informal work often prevails and the influence of the German company in question is usually unclear due to a lack of transparency. Above all, however, the draft was criticized for taking very little account of ecological due diligence obligations. Following a further round of consultations in the Bundestag, the law will not come into force until 2023 and will initially only apply to very large companies with more than 3,000 employees; from 2024, it will also apply to companies with at least 1,000 employees. EU Commissioner Didier Reynders emphasized on the very day the German draft law was announced that the EU will go further and is planning a due diligence law with a broad scope of application and civil law options. The draft is due to be submitted to the Commission in June 2021.

How is the conflict over human rights in the supply chain changing?

Politically, there are three interesting developments in the current debate on the new regulation of supply chains: Firstly, it shows that the broad social debate on global business and international human rights is now increasingly being played out in a legal arena of conflict. The law plays an ambivalent political role here. Secondly, and closely related to this, the conflict over standards and rights in supply chains is shifting strongly to the management levels of companies with the introduction of due diligence. The company's own procedures for obtaining information about risks and grievances, which are often barely comprehensible to outside actors or completely non-transparent, are increasingly becoming the basis for decision-making and thus the central object of conflict. Thirdly, in view of this shift, it can be assumed that the political organization of global supply chains, i.e. their governance and conflict management practices, are facing profound changes. The availability and relevance of information and data in supply chains is likely to change fundamentally, not only due to the currently visible consequences of the pandemic, but also in view of a broad social trend towards digitalization. In the following, we will take a closer look at the first two developments in particular in order to assess the Supply Chain Act as a new element in the conflict over global production conditions.

Shifting the conflict into the legal field: the ambivalence of law

If we follow the sociologist Pierre Bourdieu (2019: 36), legal norms are neither an expression of purely juridical dogma nor a mere result of economic power. Rather, the law is a "battleground" (Bourdieu 2019: 39) on which social conflicts are fought out. In this arena, lawyers compete with each other and vie for the monopoly to proclaim the good order: "This results in [...] systematic differences in the social use of law and, more precisely, in the role that the reference to the juridical plays in the universe of possible actions, especially in the context of social struggles over certain demands" (Bourdieu 2019: 43). With regard to the Supply Chain Act, Bourdieu's view of the strategic interpretation and structural ambivalence of law in the supply chain problem can be helpful. On the one hand, the new due diligence obligations make problems in the supply chain visible, including the lack of protection of fundamental rights at work, such as fair wages, independent trade unions, occupational health and safety measures and the prevention of forced and child labor. The legal form also opens up some new and long overdue avenues for the justiciability of these abuses - in Germany, even with the new law, not through civil law suits, but at least through the possibility of official fine proceedings.

Shifting conflict management to the management level: diligence as a balancing act between conflicting interests

On the other hand, the legally codified due diligence obligations can have further-reaching consequences for the social debate on the existing normative contradictions and injustices in global supply chains. While the law legally covers certain problems and solutions, others are ignored. In addition to the very limited consideration of ecological aspects, due diligence generally focuses on the perspective of the lead companies on their direct suppliers. In addition to international human rights, the normative standards are essentially the usual "good" industrial practices that are considered appropriate and to which corporate due diligence must be oriented. However, the latter have so far been based, at least in part, on the very tensions between human rights standards and profit models that are at the heart of the conflict: Structural imbalances, such as the discrimination of women and racist imprints on production conditions, socially problematic business models (e.g. fast fashion) and the unjust division of labor between the Global South and North can hardly be legally addressed with the mechanisms of due diligence. The focus on due diligence and transparency of the leading companies reduces the multiple dimensions in the legal dispute that characterize conflicts along the supply chains and, as it were, shifts conflict management to the levels of corporate management itself. Decisions on appropriate measures and prioritization are essentially made in the management departments. This results in an increase in the political authority of companies vis-à-vis rights holders in the aforementioned conflict.

In order to make this assumption plausible, it is helpful to take a closer look at the decisions and changes that companies will primarily have to make in order to fulfill their duty of care. In addition to a general commitment to human rights, companies are expected to carry out effective risk analyses in the supply chain. This is not about operational risks, but about risks for rights holders, e.g. workers in the supply chain. To date, there are international recommendations for such analyses, but there are hardly any established and proven procedures in most companies. Rather, there are initial attempts and pilot projects. The new legal framework will therefore shape the further development and design of such procedures.

If we look at the requirements and incentives for risk analysis in the German draft law, it becomes clear that the main design must be carried out by companies themselves along the premises of "appropriateness". In many decisions, the company must therefore weigh up what the level of human rights protection should be, i.e. which corporate practices should be changed or remain unquestioned, whether and to what extent additional costs should be accepted or to what extent profitable production areas should be restructured in favor of better human rights protection. If we take our conflict perspective as a basis, the law has a signal effect precisely in these questions of consideration, as it would clearly have to shift the premises in favor of the rights holders' options for action in order to be able to meet the claim to improve human rights protection cited at the beginning.

If we stay with the aspect of risk analysis, it becomes clear in the German draft law that the opposite incentive is provided: Companies are only called upon to carry out a risk analysis and take further measures to prevent human rights violations at indirect suppliers - i.e. companies that do not have a direct supply relationship with the German company - if they obtain "substantiated knowledge" of possible violations of protected legal positions. This could certainly be seen as a suggestion that knowledge of working conditions should essentially be restricted (again) to direct suppliers. This would eliminate one of the main problems of global supply chains: the extensive branching out and subcontracting into the more unprotected and informal areas of the economy, where labor rights are hardly protected. Other necessary steps in addition to risk analysis, such as measures to reduce risks, redress or grievance procedures, are also subject to a high degree of discretion on the part of companies and have yet to prove themselves in practice.

From a "regulatory gap" perspective - i.e. one that does not assume fundamentally conflicting interests - there is no objection to such discretionary scope in management. It is pragmatic because it corresponds to a heterogeneous field of company types, sizes and practices and follows the assumption that companies themselves are best able to choose and design the appropriate procedures. However, if we assume a fundamental field of conflict in which companies represent only one party, the decisions on the subject matter and handling procedures of the legal conflict lie unilaterally with this party. In conjunction with the public relevance and the official inspection requirements established by law, this also creates an enormous need for data and information that companies themselves must generate and publicly communicate about their own procedures for monitoring, risk and damage minimization. Corporate knowledge and information are therefore increasingly becoming the linchpin in the political debate on supply chains and human rights.

Conclusion: Understanding supply chains and human rights as an area of conflict

The conflict perspective on global supply chains and human rights highlights the political significance of the shifts associated with the new legal regulations. If we understand the Supply Chain Act as an element of a larger conflict about business enterprises and human rights, it becomes clear that the goals propagated by the German government - more legal certainty for companies and stronger human rights protection - represent two sides of the conflict. To be clear: the proposed law is an important and long overdue regulatory step. But the legally binding form as such does not automatically strengthen human rights. We need to take a closer look in order to understand what new practices and ways of dealing with conflicts will result from the law.

In this respect, we see insufficient opportunities in the current draft for employees to effectively use the law as a transnational instrument for demanding human rights standards from companies. For example, there is a lack of civil legal action and there are contradictory incentives for consistent due diligence in the depths of supply chains. The multiple interactions between ecological consequences in the supply chain and human rights have also been poorly recorded to date - just think, for example, of the effects of regionally concentrated dye works or toxic viscose production for the global textile industry. In addition, the form of due diligence also lacks starting points for how structural problems in the supply chain (e.g. discrimination, different legal certainty for transnational corporate networks and employees, indirect ecological damage, etc.) can be legally challenged in the future. However, it cannot be ruled out that such areas will open up. For the time being, however, the duty of care seems to narrow a broad and complex field of conflict to the perspective of the leading companies. Even in this form, however, the law could provide strong incentives for leading companies to give human rights a different priority in strategic decisions than they have done so far - the corona crisis has made the need for this clearer than ever. This has so far been neglected in the German draft and it is to be hoped that the Bundestag will make improvements. The EU Commission seems to want to move more in this direction, so the proposal announced for June 2021 can also be eagerly awaited.

In addition, data and information are emerging as a new arena that is undergoing fundamental change as a result of Digitalization, but have so far hardly been discussed in terms of their significance for dealing with human rights conflicts in the supply chain. A range of technological solutions for "remote control" of the monitoring of working conditions using digital tools promises to address this problem, but raises new questions. So far, the supply chain debate seems to be primarily about more data and transparency, but not about the question of who gains opportunities for action and influence as a result, who can collect, control and verify data and what liability consequences this should have.