May 16, 2023 – as published by (German) WELT :
Where does the cotton in our T-shirts or the metal in our cell phones come from? How were our consumer goods produced? Or how do you get to us? Such facts, which have often been in the dark over the past decades of growing world trade, are now intended to be clarified and controlled by the Supply Chain Act. Producers or suppliers who do not comply with international rules would therefore have to be excluded from trading. Markus Jerger, Managing Director of the Federal association of medium-sized businesses says that it is mainly small and medium-sized companies that would have to bear the burden of control as a result of the new law and would have major problems as a result.
WELT: Sustainability is one of the major social issues. The German supply chain law is intended to ensure international compliance with standards in environmental protection and labor law. What are the advantages and disadvantages of the law from the point of view of medium-sized companies?Markus Jerger: Basically: Compliance with labour, environmental and social standards is a matter of course for medium-sized companies, in Germany and of course also in countries from which we purchase advance services. Whether this law serves to achieve the ethical principles that we all want is more than questionable. I would even say almost impossible. There are conditions in other countries that cannot be treated according to German and international principles. I will cite the eight ILO core labor standards as examples. It regulates basic standards for labor relations. Something like this is practically impossible to record in other countries. Not only large, but also many medium-sized and small companies in Germany are now being held liable for this.WELT: SMEs are still the backbone of the German economy. How many companies in this country does the law affect?
Jerger: It will affect many thousands, probably around 100,000 companies, even if other figures are given. It doesn’t just affect a few big ones, who are fine with that, but the whole range of medium-sized companies. This is because they cannot pass on the obligations to their suppliers, and these are mostly medium-sized companies. They then have to pass this on to their suppliers, which are often even smaller ones. This entails a considerable and continuous control effort for all those involved. In an ethical sense this is possible, in an organizational and economic sense it is not feasible. Different regulations between states are needed, as well as other control mechanisms. For example, an importer of plastic bathtubs cannot verify whether a logistic company in the country of origin complies with certain labour, environmental or other standards. I speak for these companies here. Of course nobody wants people to have to work under degrading conditions anywhere. But you can’t burden companies with something they can’t deliver. Nobody can check from here which specific working conditions can be reasonably implemented on site in the countries of origin.
WELT: What exactly do you mean by that?
Jerger: The controls produce high costs and a lot of bureaucracy. If suppliers are also forced to provide proof, two things can happen: The supplier says: You get the proof, but it costs you extra money, or he says: If you don’t take the material, someone else will take it. Then a German producer no longer gets the goods that he needs to complete his product. I believe that we are wrong to try to regulate how the world should work in interaction with us from Germany or Europe with one or five percent of the world population. This is only possible in the long term, but not at the expense of medium-sized entrepreneurs in particular.
Jerger: Neither the level and detail of the requirements, nor the costs can be estimated at the moment because it was initially extrapolated by how much the products would become more expensive in percent. It must therefore be broken down what it costs to obtain the information from abroad, to translate it, to log it, so that when it arrives here it can be allowed to be signed by a German entrepreneur. Many new business models, platforms or consulting firms are emerging that want to make money with them. How do you want to control companies in Asia that have several suppliers themselves? That’s very difficult. Or how do you want to control the working conditions for the sailors on a ship on which my goods are being transported? German companies are expected to exercise regulatory and almost police control over other companies. This will not work. The law ends up being very complicated. Enormous costs and expenses will arise for companies. Then there is the question of who controls this vast amount of information.
WELT: Where do you see a possible solution?
Jerger: One should not generally oblige everyone to provide positive proof. Negative lists would be better, as it works in the USA via sanctioned countries, companies or individuals. That would be a good solution, because you don’t place all companies under general suspicion, but only take action against those where there are strong suspicions.
WELT: German companies operate in a larger context. Could there be more to be achieved within the European framework?
Jerger: The planned European law will be worse because there are still many more regulations to be observed. There are also other sales figures and specific sectors that are affected, such as agriculture, where the provisions go far beyond those directly affected. As an importing nation, Germany is dependent on countries that are still relatively at the beginning of their economic development when it comes to raw materials, for example. The conditions, for example for work there, are not comparable to ours and are therefore much more difficult to control. I doubt that this will be easier with European guidelines. Incidentally, reducing bureaucracy is right at the top of the agenda for our companies. Many can no longer cope with the requirements of the many regulations that are constantly being added. This may be easier for large companies to do.
WELT: What happens if companies violate regulations or laws?
Jerger: You can be held liable for up to five percent of your worldwide turnover. This is seen as justified in Europe. Under certain circumstances, it can affect the entire annual profit. This can massively threaten or ruin the existence of a company. We are in a dilemma here. Germany or Europe cannot impose their standards on the world.
WELT: How do you see the future development?
Jerger: Even after Corona, companies are under great pressure. For example, there are high energy costs. But the pressure from foreign competition is also growing. An example is the sale of Viessmann to an American player. Ultimately, such sales lead to company locations in Germany disappearing. At the same time, the expectations of the corporations are that medium-sized suppliers should not increase their prices even though their costs continue to rise, as the example of the supply chain law shows.
WELT: And what would be your ideas? How could the objectives of the law be made achievable in a way that is feasible for everyone?
Jerger: It would be best if a company that wants to continue importing could be confirmed by a simple procedure comparable to the DIN standards that it adheres to regulations such as fair wages or working hours. Certification via a number similar to an IBAN number at a bank would be conceivable. The whole thing would have to take place via a global and digital entity and be designed simply and well thought out by a European or German government, in cooperation with the International Labor Organization (ILO) and the United Nations. If that were the case, well thought out and understandable, I would give it a chance and would even think it was a good thing. If it stays the way it is now and everything falls on the shoulders of the companies, it cannot work and the chaos will be great.