Finally, the blockade is over and the German cabinet approved a Draft Supply Chain Act in March 2021. While analysing the draft law, we asked ourselves: Is it good news or bad news? Here are two short answers.
Good news: At last, companies are to be legally obliged to examine their supply chains for risks to human rights and the environment and to take remedial action. This is not least a success for civil society campaigning for the law organised as Supply Chain Act Initiative.
Bad news: Business interests have prevailed at key points. The draft has many shortcomings, so the Parliament urgently needs to tighten it up. If the draft remains as it is, or if it even is watered down further, the law will be a toothless tiger that will hardly lead to any improvements in global supply chains.
Read the longer answers to find out how the law would apply to tobacco companies in Germany.
To which tobacco companies does the law apply?
Coming into force in 2023, the law is supposed to apply to companies based in Germany with more than 3,000 employees. From 2024, it will also include companies with more than 1,000 employees.
Thus, from 2024, the law will have an impact on three subsidiaries of international tobacco multinationals: Japan Tobacco International GmbH (2,120 employees), Philip Morris GmbH (1,200 employees) and Reemtsma Cigarettenfabriken GmbH (subsidiary of Imperial Brands) (1,600 employees).
But: All other tobacco companies in Germany also import raw tobacco from countries such as Malawi, Bangladesh or Zambia, where child labour on tobacco fields is widespread and where tobacco curing causes immense environmental damage. The law is not supposed to apply to them, even though they use the same supply chains and even though child labour in tobacco cultivation is one of the worst forms of child labour (according to ILO Convention 182).
Does the law apply to all stages of tobacco supply?
No. The draft law speaks of graduated due diligence. Companies would solely be obliged to exercise due diligence for their immediate suppliers. Only in case the company obtains verified knowledge of human rights violations, due diligence must also be performed for indirect suppliers.
That means: If Philip Morris GmbH buys tobacco for its cigarette production from a tobacco leaf merchant in Germany, that’s where its due diligence ends – in Germany. All other stages of the supply chain would not be covered by the law, unless the company has substantiated knowledge of existing human rights violations. The consequence: Those who know nothing need do nothing.
This approach falls far short of the UN Guiding Principles on Business and Human Rights (UNGPs). The precautionary principle at the center of the UNGPs is intended to prevent human rights violations and environmental degradation before they occur, throughout the supply chain.
However, the violation of the rights of children and women in tobacco production occur precisely at the beginning of the supply chain: in the tobacco field, at the curing barns, and while sorting tobacco leaf – in low- and middle-income countries.
Does the law protect the environment?
No, not sufficiently. The draft law does not include the environment as an independent good to be protected. The due diligence obligations related to environment are severely limited: two specific agreements and some environmental goods such as water or soil in conjunction with human rights violations. The law does not include progressive environmental degradation that does not directly lead to the violation of human rights. As well, neither biodiversity nor climate are considered in the law.
With a climate footprint of 84 million tons of CO2 equivalents annually, the tobacco industry emits as much CO2 as twice the emissions of Denmark or about as much as Austria. Most of these damages to the climate are caused by tobacco cultivation and tobacco curing that lead to deforestation and contamination of water bodies by pesticides. In the current Draft Supply Chain Act, tobacco companies would not have to take responsibility for destroying the environment.
Could tobacco farmers file a claim for damages?
No, they cannot. The draft law does not contain any civil liability provisions. People whose rights are violated by the activities of companies cannot sue these companies for compensation by themselves.
Instead, the draft law provides that aggrieved parties can authorize German trade unions and non-governmental organizations to take civil action in Germany. However, this does not replace a civil liability rule that would strengthen the basis for claims by affected parties in German civil courts in the event of damage abroad.
The importance of such liability can be observed in the United Kingdom. In December 2020, thousands of tobacco farmers from Malawi and their children filed a claim in the High Court in London against British American Tobacco and Imperial Brands in order to get compensated for the system of exploitation in tobacco cultivation. The legal basis is the British Modern Slavery Act 2015 in conjunction with the UN Convention on the Rights of the Child and the European Convention on Human Rights.
Who monitors the companies’ compliance?
According to the draft law, 65 full-time positions are to be created at the Federal Office of Economics and Export Control (BAFA). They are supposed to verify the companies’ reports and carry out risk-based checks.
The design of the authority and its competencies is not specified in the draft law and is to be regulated by an ordinance of the Ministry of Labour and the Ministry of Economics. However, the effectiveness of the law is heavily dependent on this.
In addition, BAFA reports to the Ministry of Economics. This ministry has been the biggest roadblock to an effective supply chain law in recent months and is also heavily lobbied by the tobacco industry, among others. This conflict of interest is likely to have a decisive influence on the extent to which compliance with the law is monitored.
We demand an effective law!
The Supply Chain Act must be effective against child labour in tobacco cultivation, against the violation of women’s rights in tobacco production and also against deforestation. Therefore, we call for significant improvements:
- Full due diligence obligations for the entire supply chain at home and abroad (direct business environment and indirect suppliers)
- Explicit civil liability: Companies must be liable in German civil courts for damage caused by failure to comply with their due diligence obligations
- Independent environmental due diligence obligations
- Extension of scope to all companies based in Germany or doing business here
Europe leads the way!
In contrast to the German government, the European Parliament wants effective legislation that is much more closely aligned with the principles of the UNGPs. With a large majority, MEPs passed a resolution for an ambitious European supply chain act in March 2021.
At EU level, the law is supposed to:
- Introduce due diligence requirements for the entire value chain and start from a risk-based approach,
- include a civil liability regime,
- apply to all large companies operating in the EU single market, listed small and medium-sized enterprises (SMEs), and SMEs operating in high-risk sectors; and
- impose an import ban on commodities produced by modern slavery.
Of particular interest for the German audience: Almost all German MEPs voted in favour of a binding, effective protection of human rights and the environment along the entire supply chain.
If the EU leads the way, Germany can and must follow suit. Together with the Supply Chain Act Initiative, we are continuing to campaign for the draft law to be significantly tightened up. Now it is up to the members of the Bundestag to advocate for binding, effective rules in the parliamentary process.
To be effective against child labour and environmental damages, a supply chain law must cover the entire supply chain and include civil liability regulation.
Video footage from tobacco fields