July 14, 2022
SINGAPORE – Germany and Singapore enjoy strong economic and trade relations. In 2020, Singapore’s exports to Germany were around S$7.1 billion and German exports to Singapore amounted to approximately S$8.9 billion.
Both are also export-driven economies that have strong global competitiveness. Under the 2018 Global Competitive Report by World Economic Forum, Singapore was ranked as the second most competitive economy and Berlin the third.
Both countries have also been ranked high when it comes to openness to trade. Trade and international business is of paramount importance to the countries. A robust logistics and
supply chain management is essential to stay relevant and competitive in the global trade arena. Hence there are common interests and values for Germany and Singapore to tackle
disruptions and violations in their supply chains as part of promoting the multilateralism and rules-based international order.
Given these interests and responsibilities, the German parliament, the Bundestag, introduced the Federal Act on Corporate Due Diligence for the Prevention of Human Rights Violations in Supply Chains (Lieferkettengesetz) (GDDL) in June 2021.
The law, that will come into force in January 2023, will impose a set of due diligence responsibilities on German companies, their subsidiaries and suppliers worldwide. Corporations, with a certain number of employees, will need to adhere to social, legal, safety and environmental standards by becoming more transparent pertaining to their supply chains.
The German government argues that the current supply chain frameworks are complex, ambiguous and contain many loopholes. The GDDL will apply to companies with at least 3,000 employees when it comes into force next year. Although the new rule will largely affect bigger corporations, it can extend to SMEs that are part of their supply chain networks. Moreover, the compliance threshold will reduce to businesses with 1,000 employees by 2024.
The law has gained controversy and been criticised from all sides including the business association, companies and NGOs in Germany. On one hand, some argue that the GDDL is not strong enough to tackle violations in supply chains given that it will apply to German companies with a certain number of employees. On the other hand, others argue that the law is punitive in nature and does not offer rewards to companies that adhere to best practices.
Despite the criticism, Berlin has called it the toughest law of the European Union to tackle human rights violations that can reduce the competitiveness of companies in their respective industries. For instance, the fines can increase to two per cent of yearly revenues for companies with an average annual turnover of over 400 million Euros. This can translate to billions of euros in fines for big German corporations. They can also be blacklisted from bidding public contracts for up to three years.
The Singaporean-German Chamber of Industry and Commerce (SGC) and Konrad-Adenauer-Stiftung (KAS) organised a hybrid conference on the GDDL recently to discuss the new legislation and its impact on manufacturing and sourcing in APAC. As the implementation date draws, the issue is becoming more timely and important, and companies are preparing in advance to meet the respective requirements when the law comes into force in 2023.
Although the GDDL is promising to tackle violations in supply chains, there are challenges and limitations. Deputy General Manager of the SGC Margit Kunz said during the hybrid conference that it will be challenging for German companies to ensure compliance from their supply chains in countries where governments have flagged their sovereign right to carry out their internal affairs without outside interference.
In research carried out by the chamber, one in three companies have said that they are likely to relocate their operations to another country to avoid violating the law. Although it is evident that the GDDL cannot tackle all human rights-related issues, there is potential for Germany and Singapore to join hands and place human rights on the highest level.
The strong compliance measures implemented to protect workers in Singapore indicates that the city-state also takes issues of human rights and environmental protection seriously. For instance, Singapore has enforced several employment laws including the Employment Act, the Employment of Foreign Manpower Act and the Workplace Safety and Health Act to safeguard the rights and responsibilities of supply chain workers.
Several other countries including the UK and France have implemented similar legislation, demonstrating that there is a wider effort to prioritise human rights and due diligence duties in the private sector.
For Berlin’s side, many German companies perceive the new regulation as an opportunity to make a positive change to meet their social responsibilities.
Stefan Samse is the Director at Rule of Law Programme Asia (RLPA) at Konrad-Adenauer-Stiftung Ltd (KAS) and Roshni Kapur is a Programme Manager/Political Strategist at RLPA at KAS. The RLPA was founded in Singapore in 2006. The authors contributed this article to Asia News Network, a network of 22 news media titles.
