|Pix Credit: Bundestag verabschiedet das Lieferkettengesetz|
On Friday, June 11, 2021, the Bundestag adopted the Federal Government's draft law on corporate due diligence in supply chains (19/28649) as amended by the Committee on Labor and Social Affairs (19/30505). The aim is to better protect human rights and the environment in the global economy. In a roll-call vote, 412 MPs voted for the bill, 159 voted against and 59 abstained. The opinion of the Federal Council (19/29592), which raised no objections to the draft, was also available for voting. A resolution by the FDP parliamentary group (19/30547) did not find a majority with the AfD abstaining. [Der Bundestag hat am Freitag, 11. Juni 2021, den Gesetzentwurf der Bundesregierung über die unternehmerischen Sorgfaltspflichten in Lieferketten (19/28649) in der vom Ausschuss für Arbeit und Soziales geänderten Fassung (19/30505) angenommen. Ziel ist es, Menschenrechte und Umwelt in der globalen Wirtschaft besser schützen. In namentlicher Abstimmung votierten 412 Abgeordnete für den Gesetzentwurf, 159 stimmten dagegen, 59 enthielten sich. Zur Abstimmung lag auch die Stellungnahme des Bundesrates (19/29592) vor, der keine Einwände gegen den Entwurf erhob. Keine Mehrheit fand bei Enthaltung der AfD ein Entschließungsantrag der FDP-Fraktion (19/30547).]
According to the will of the government, the responsibility of the companies should in future extend to the entire supply chain, graded according to the possibilities of influence. The obligations are to be implemented by the companies in their own business area as well as towards their direct suppliers. Indirect suppliers should also be included as soon as the company receives “substantiated knowledge” of human rights violations at this level. [Die Verantwortung der Unternehmen soll sich nach dem Willen der Regierung künftig auf die gesamte Lieferkette erstrecken, abgestuft nach den Einflussmöglichkeiten. Die Pflichten sollen durch die Unternehmen in ihrem eigenen Geschäftsbereich sowie gegenüber ihren unmittelbaren Zulieferern umgesetzt werden. Mittelbare Zulieferer sollen ebenfalls einbezogen werden, sobald das Unternehmen von Menschenrechtsverletzungen auf dieser Ebene „substantiierte Kenntnis“ erhält.] (Bundestag verabschiedet das Lieferkettengesetz)
The German Supply Chain Due Diligence Law (GSCDDL) may be accessed HERE (it runs about 72 pages in German) as amended (HERE). It is far too early to say anything definitive about the measure. I offer just a few preliminary thoughts:
1. To the extent that the GSCDDL ties its provisions to the UN Guiding Principles for Business and Human Rights and to its National Action Plan, an interesting alignment of international norms, national policy and law may be developed.
2. The extraterritorial application of GSCDDL is likely to be troublesome, especially for German operations in China, should Chinese authorities determine that either its provisions or their application violates the newly enacted "Anti-Foreign Sanctions Law of the People's Republic of China" [中华人民共和国反外国制裁法] (discussed HERE).
3. It will be interesting to see the extent to which blocking statutes are enacted. Those may be direct. More likely they may take the form of a refusal on national policy grounds to permit enforcement of any judgment under such an act by the courts of the blocking state.
4. To some extent the GSCDDL may represent the further bifurcation of a transnational law of responsible business conduct--one in which the legislating state retains its national and constitutional normative prerogatives respecting the conduct obligations of enterprises in the home state, but insisting that international law broadly applied might be hardened throughout enterprise supply chains outside of the territory of the home state. This would continue to deepen the divide between the project of the internationalization and legalization of the Corporate responsibility to Respect Human Rights Pillar of the UN Guiding Principles, on the one hand, and the protection of national sovereignty to resist and pick and choose among international obligations with the effect of law in the context of the State Duty to Protect Human Rights.
5. The GSCDDL itself contains enough ambiguity to keep the German courts, and global lawyers, busy for several years. That suggests that the battles over the scope and application of the concept of a legalized human rights due diligence will continue in the courts and in the strategic decisions of enterprises, and indirectly, the financial sector (to the dismay, of course, of the non governmental sector). Pay attention in that respect to the early writings of distinguished German academics as important sources of influence over the course of those events. In that cntext
6. More generally, and with respect to its implications for core movements in fundamental premises about governance:
(a) The GSCDDL appears as another step in the general trend within liberal democratic political orders to deepen the scope of the governmentalization of the private transnational sphere through multinational enterprises. This trend appears to be the answer to the initial challenge posed by John Ruggie as he sought to produce a framework for business and human rights--the core problem of governance gaps in a world legal order in which national law tends to be constrained by the territorial character of sovereign authority. Professor Ruggie proposed a markets driven answer in the form of the corporate responsibility to respect human rights operating in tandem with the formal and legal realm of state duty to protect human rights. States have found it easier to constitute the multinational enterprise as an extension of national territory--including by reason of control relations, all of those foreign legal persons resident or operating abroad.
(b) This process of governmentalization--of transforming the multinational enterprise from an economic organ to an organ through which state power may be applied directly--has a number of collateral effects. One of the most interesting is the acceleration in the transformation of the character of corporate or enterprise governance. Increasingly governmentalization, within a framework of risk version incentives wrapped around concepts like prevent-mitigate-remedy, appears to be changing the working style of multinational enterprises, so that they increasingly adopt the sensibilities and operating style of administrative agencies. MNEs increasingly might be understood by state actors to conveniently serve them as global administrative agencies (with functionally differentiated jurisdiction based on their supply chains) with human rights regulatory authority. That regulatory authoriyy may not be identical to the authority that might be exercised by public regulatory bodies, but the operation of the MNE as administrative agency remains the same, and in that sense extends and internationalizes the reach of host state administrative organs.
(c) These private economic actors now play a double role--they are the instruments of economic activity representing large amounts of aggregated productive forces--and at the same time they serve as the private sector administrative organ of the state that assumes oversight of the enterprise and can hold them accountable (through public elected and administrative bodies). The MNE then serves as the administrative regulator of a double delegation. The first is a delegation of regulatory responsibility for the state; the second is the normative regulatory objectives represented by international norms (that might or might not be incorporated into the domestic legal orders of the states asserting oversight power). The MNE is expected to use its private lawmaking authority (through contract and internal governance mechanisms) to harden internal norms, the success of which is to be a matter of accountability to a national organ asserting a domestic agenda through law.
(d) The consequences are already appearing. The first is regulatory and administrative competition. For every assertion of national legislative power there is the possibility of blocking legislation. These block then reproduce the sort of governance gaps which efforts like GSCDDL are meant to overcome. The second comes in the form of inconsistent or in the extreme incompatible administrative delegations. Germany, for example, is not the only state with ambitions in this regulatory arena, even within Europe. It is not clear, as well how the German measure will align with those of France and its Supply Chain Due Diligence Law, or for that matter the UK's Modern Slavery Act. Reaching father out along complex and interlinked supply chains, the laws of other jurisdictions will also become a factor (e.g. Australia's Modern Slavery Acts). Third, these inconsistencies add not merely to the regulatory burdens of MNEs (and strategic responses) but also enhance the sort of regulatory incoherence that was also one of the great challenges to be overcome through the vision represented by the UNGPs. Enterprises will be required not merely to interalize the regulatory burden of compliance (that is hardly new or unexpected), but also the positive obligations respecting the hardening of international soft law and its adminstraiton is now required. The result, of course, is to augment the incentives toward not just governmentalization but also toward the adoption of the institutional style and practices of an adminstrative agency in the enterprise's relationship to its economic activity. Certainly proponents of a thousand legislative flowers blooming take comfort in the expectation that variations will be minor and eventually there will be convergence. But these are the same hopes built on, for example, a studied ignoring of the muscular development of Marxist Leninist approaches to human rights based economic activity, or to the approach to human rights of developing states. Not everyone shares the same world view, expectations, and experiences of those brought up among the best that Berlin, Paris, or New York can offer those with means enough to enjoy them.
(e) One cannot leave this discussion without, again, underlining the normative obsolescence built into projects like the GSCDDL. It is no longer possible to continue to ignore, or worse, to silo human rights as something that is not also deeply integrated with issues of sustainability and climate change. Accountability for humam rights unconnected to the reciprocal relationships between human rights, sustainability and climate change, can contribute to a distortion of the comprehensive interconnection between these aspects of responsible business conduct.
7. The focus on triggering events and the need to consume and analyze vast amounts of data (the substantiated information requirements and its likely imposition of positive obligations to develop and manage global accountability systems) across states and regions will prove to be somewhat challenging in at least two respect. The first touches on the ability to use data in the face of national restrictions. Foremost among these restrictions are emerging tendencies to prevent the storage or transport of data across borders. Recent Chinese data protection legislation might in that case be extended to more aggressively prevent the inclusion of data form Chinese operations for the purpose of facilitating the requirements of German law. Other states may produce similar restrictions. The second touches on the development of objective standards and coordinated analytics that make make it possible to utilize the data analytics on which compliance is essential in ways that may be used to compare enterprises with each other and against any emerging legal standard. The legal standard against which liability is to be assessed also leaves something to be desired. The effect of the legislation, then, on better developing mechanisms of enterprise and governance trust (and to create a legal basis for presuming the human rights trustworthiness of complying enterprises) remains at best a work in progress, one that might still not be realized.
8. Lastly, the collateral effects of compliance with German law might also produce some interesting extraterritorial effects. This might be particularly the case with respect to the development of human rights trt law in the UK and Canada. It might also contribute to the transformaiton of the agency standards in those states that might make it easier to extend liability through a suply chain while avoiding (and ultimately making less relevant to jurisprudence) the traditional law of veil piercing. Thei remains to be seen, but a litigator in those jurisdictons might well be tempted to use the disclosures and presumptions of the erma (as wella s the French) Acts to advantage.The official discussion of the GSCDDL follows below in the orginal German and in a crude English translation. There is much to be gleaned from that excellent summary.