Here’s how and why Germany is also putting a spoke in the wheel for Italian companies
The effects of the law making German companies liable for abuse, child labor and inhumane working conditions throughout the supply chain. And this responsibility involves German companies even if such abuses occur in subcontracting supplier companies.
The first to end up under the magnifying glass of the supervisory authorities were two giants of the caliber of Ikea and Amazon. The two companies have been denounced by a group of human rights organizations to the Bundesamt für Wirtschaft und Ausfuhrkontrolle (BAFA), literally the Federal Office for Economic Affairs and Export Control. It is the body which, from its headquarters in Eschborn near Frankfurt, has been assigned the task of verifying compliance with the regulations of the Lieferkettensorgfaltspflichengesetz (LkSG). Behind this umpteenth 35-letter word in the German vocabulary hides the law that makes German companies responsible for abuse, child labor and inhumane working conditions throughout the supply chain. And this responsibility involves German companies even if such abuses occur in subcontracting supplier companies.
The law went into effect at the beginning of the year. After a few months and the first complaints were made. Surely the Swedish and American giants would have gladly done without setting this record too. Among the accusations of the organizations – for the record the European Center for Constitutional and Human Rights (Ecchr) and Femnet – there is that the retailers have not signed the so-called Bangladesh Accord, an agreement aimed at improving safety in the textile factories of the Asian country. In addition, safety deficiencies and labor law violations were allegedly found in the factories that supply Amazon and Ikea.
If Bafa were to find a violation, it could become very expensive for the two companies involved. The law provides for fines of up to two percent of the world's annual turnover. For Ikea, this limit would be around 800 million euros, while for Amazon, in extreme cases, it could be up to ten billion euros.
Ecchr and Femnet filed the complaint together with the National Garment Workers Federation (NGWF) of Bangladesh. During a search conducted last March, NGWF had found safety deficiencies, such as the lack of inspections, and violations of labor rights, such as the lack of trade union freedom in factories. Hence the complaint: on the other hand, the law on the supply chain also obliges companies with more than 3,000 employees in Germany to respect the rights of workers along their supply chain.
Until some time ago, the consequences of the new law had remained confined to the internal debate in Germany, but now we have realized the international dimension of the matter. Even in Italy, where Il Sole 24 Ore recently reported the concerns for Emilia-Romagna companies expressed by Michele Bulgarelli, secretary of the Bologna CGIL. “Whether we are talking about mechanics, I am thinking of the automotive sector and the Volkswagen, BMW, Deimler groups or the agri-food sector, with large-scale retailers such as Lidl and Aldi, but also chemicals or textiles, there are thousands of our companies that will have to adapt to the new rules on respect for workers and the environment,” Bulgarelli told the business newspaper.
And of course the discussion does not only concern Emilia-Romagna. Just look at the numbers of trade with Germany, of the close corporate relationships and of the intersection between the Italian supply chain and German industries in almost all sectors to understand the impact of the German law on the Italian economy. And on the bureaucratic management of the companies, which – just like their German counterparts – will have to draw up continuous reports to certify that they do not break pollution laws, do not circumvent the rules protecting child labour, pay fair wages, ensure trade union rights and not to discriminate of any kind. The industrial geography of Italy indicates that the problem mainly concerns the North, where the shares of exports to Germany range from 13-14% in Emilia-Romagna, Lombardy, Piedmont and Veneto up to 25% in Trentino-Alto Adige.
The adjustment is inevitable, also because a similar law, with even more restrictive outlines, is under discussion in the European Parliament and will soon see the light.
But even in Germany, where times have been anticipated, companies have not arrived well prepared for the appointment with the introduction of the rules. In January, the month of entry into force of the law, a study on its implementation in German companies carried out by the Association for Management of Materials, Purchasing and Logistics (BME) revealed that only 4% of them believed they were " very prepared" at an organizational level, while 70% considered themselves "just sufficiently", "little" or "very little" prepared.
In particular, the answer to the question "to what extent companies are clear about their direct suppliers" was defined by the researchers as discouraging: only 13% of companies with more than 1,000 employees stated that they had the suppliers' situation under control with respect to risks such as possible human rights violations.
Six months later, we don't know how much things have improved. The University of Ansbach has set up a new study, the results of which will be available this autumn. Stefanie Fehr, who coordinates the work, has already revealed a trend after the first evaluations: "It shows that companies that have implemented processes with digital tools are more likely to meet the legal requirements".
So far, companies with more than 3,000 employees are covered by the new law. On 1 January 2024, the scope of application will be significantly expanded. At that point, even companies with more than 1,000 employees will be obliged to set up a management system for compliance with human rights and environmental due diligence obligations for their area of activity, for direct suppliers and for the entire chain of supply.
The law was drawn up in full bipartisan atmosphere by the last Grosse Koalition government led by Angela Merkel. Authors: the then (and current) Labor Minister Hubertus Heil (SPD) and his colleague at the time in Cooperation and Economic Development Gerd Müller (CSU). Objective: to flush out the irregularities that lurk in activities relocated abroad, especially in developing countries. The reason why Merkel's government decided to speed things up was that self-regulation hadn't worked. In fact, German companies had verbally undertaken to voluntarily monitor respect for human rights and working conditions in companies in the supply chains, but in reality this had not happened.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/non-solo-ikea-ecco-come-e-perche-la-germania-mette-i-bastoni-fra-le-ruote-anche-alle-aziende-italiane/ on Fri, 07 Jul 2023 05:42:53 +0000.