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Supply chain law: Affirming the failure of a development aid policy

By Professor Otto A. Strecker

A textile factory blaze in Bangladesh with over 100 dead, child slaves on African cocoa farms or in Indian backyard workshops, Chinese workers serially committing suicide in electronics factories, pesticides sprayed over South American plantations and the unprotected people working below. These are all pictures that European consumers don’t like to think about when shopping for the latest special offer or even deciding on a premium smartphone.  

How can fair standards be secured?

In Germany, foreign aid minister Dr Gerd Müller and labour minister Hubertus Heil want to end the situation where German businesses source and market products that have been manufactured under unacceptable conditions either by themselves or their suppliers. In other countries too, supply chains come under intense discussion.

The aim deserves respect. But everything else can, at best, only be described as well meaning. That during the corona crisis what should really be on the agenda is the promised economic moratorium for affected businesses is hereby, at most, a minor blemish.

The problem lies deeper. Even the minimum standards vary from country to country.  Significant here is are not only the UN Guiding Principles on Business and Human Rights endorsed by the UN Human Rights Council in 2011, but also the applicable national legislation.  A mandatory requirement for »due diligence« should fundamentally cover all activities and business relationships along the entire supply chain. If human rights are hereby abused through situations that could have been foreseen, or avoided, through more thorough investigation, the company in question is responsible and must compensate those affected for damages incurred.

Enterprises need legal security

In view of the years of discussions that have taken place, a series of companies meantime demand a law themselves that will offer them more legal security. In particular, these very large enterprises including REWE, Nestlé, Tchibo etc. have built up large staff divisions and a reporting system that so far, apart from presentations on sustainability to certain expert audiences, have certainly not led to any noticeable competitive advantages. Others have now the laborious task of catching up under the respective legislation.  From this, one presumably expects an »equality of arms« effect.

Only last year, foreign aid minister Müller launched a massive public attack on discounter Aldi because its banana supply chain featured regular violations against state minimum prices for Ecuadorean producers.  Now, he wants to be in the position to prosecute the dealers involved too. Here quite obviously lies the central misconception of this legislation initiative.

As a rule, a European retailer does not buy its bananas directly from the producer but instead through an importer. Upstream, the delivery chain in this case can include ripening facilities, shippers, wholesale merchants, exporters, local wholesalers, dealers and plantation managers. It is not only Aldi’s right, but certainly also its duty to its owners and customers, to seek out optimisation potentials along this chain. With this number of participants, this doesn’t have to be at the expense of the producers. Now looming, however, is a new role for German retailers whereby they will have to ensure through »due diligence« that all the actors in the value-added chain obey national legislation as well as UN minimum standards in their respective theatres of action. Incidentally, the UN and OECD Guidelines emphatically reject liability only on the grounds of business relationships. The linking of these standards with company liability within the law therefore explicitly contradicts the fundamental requirements.

National rights and obligations

What would we think, for instance, if Chinese, Indian or American trading partners wanted to monitor that the national minimum wage was being paid by German, Dutch or Danish enterprises? Right! The national authorities in each country are responsible for this! And this would also apply in the sovereign states where production conditions are not so stable. The transferring of this requirement onto the companies involved shows, among other things, an apparently patronising understanding of economic and political partnership with the countries involved.

What has failed to be achieved over decades through  development cooperation in establishment of institutions and legislation should now be carried out by companies and, when they take this expensive route, these enterprises are to receive the benefit of a moralistic lecture with admonishing forefinger that they should have done their homework on the subject of due diligence. That this missing European and international dimension within the regulatory plans puts particular pressure on the competitiveness of individual enterprises is hereby yet another blemish, although definitely a more serious one.

Hardly any advance in development policies

In fact, it’s a poor show for the entire western development policy that hardly any notable success can be demonstrated after more than 60 years. Development advances are being reported mainly by countries where the development can be traced back to internal factors as, for instance, in China or Costa Rica. The conceptional »poverty« in the so-called economic cooperation is breath-taking. A country such as Bangladesh continues to be oversupplied with microcredits because there is still nothing better available than this concept by the Nobel laureate Yunus. If this program achieved only partly the effect promised before and after the Nobel prize award ceremony, Bangladesh should have been well ahead in development progress by now. That, in production countries, instead of functioning state controls for fire protection, labour safety and other aspects, such controls should in future be carried out more by German companies, represents obvious overloading of these enterprises. It also represents an incalculable risk. Instead, why don’t development policies put more effort into enforcing and rewarding constitutional standards in the target countries?

Dubious certificates instead of development

Probably a wave of certification will flow in the wake of this law, certifying that all participants have fulfilled their due diligence. NGOs and associated certification societies have already long positioned themselves for business. Regiments of auditors and certifiers sniff their chances for global business. Only: Who is going to trust these certificates? And why should one do so in countries where otherwise there’s little that can be relied upon? The most likely reaction will probably be withdrawal from the regions most difficult to control in this respect. Although these countries would then be completely uncoupled from development advances. What we end up with here is the conclusion that the supply chain law is evidently not the right way to achieve the aimed-for target.