In cooperation with Executive Member CMS Hasche Sigle, AmCham Germany hosted an Expert Webinar titled “Responsible Sourcing: Developments and Practical Implications of Managing Global Supply Chains” on May 11, 2021. To commence the webinar, Dr. Andreas Lohbeck, Attorney-at-Law and Counsel at CMS in Stuttgart, welcomed a diverse audience of AmCham Germany members as well as other interested participants. Dr. Lohbeck is a member of the NextGen Program Steering Committee and the Corporate & Business Law Steering Committee, where the idea for the topic was first introduced. Dr. Christoph Schröder, Counsel at CMS in Hamburg, Mollie Sitkowski, Counsel at Faegre Drinker Biddle & Reath LLP in Chicago, and Daniel Crampton, business and human rights consultant and former Human Rights Manager at Daimler AG in Stuttgart, joined the webinar and took a closer look at the recent and upcoming legal developments in the European Union, Germany, and the United States and their practical implications for companies.
The webinar began with an overview of due diligence obligations in existing laws of the European and German legislatives, such as the CSR directive, the conflict minerals regulation, and timber regulation. The current judicial situation was also compared to examples from California, the UK, France, Australia, the Netherlands, and Switzerland. It was pointed out that taking a look at foreign jurisdiction is important, especially when considering what cases foreign laws are relevant for German companies.
Subsequently, the current draft laws of the “Lieferkettengesetz” in Germany and the European Union were compared side by side in great detail with regards to their respective recommendation on due diligence and corporate responsibility. The thematic relevance is tied to the date when the law is planned to enter into force on January 1, 2023, giving German companies less than two years to prepare. However, adjustments of the German law are likely to be required until its enforcement on EU level in 2024. Furthermore, the scope of application of the German draft was compared to the EU range, i.e. which companies must comply with the law. In particular, the extraterritorial effect of the EU draft was pointed out, according to which companies based outside of the European Union must nevertheless comply if they act within the EU market. The primary objectives of protection are human rights, as well as the environment. At the EU-level the aspect of good governance of a country is another primary objective of protection. All of these mentioned objectives are summarized under the main target to contain corruption and bribery.
This results in a vast catalogue of due diligence obligations, such as the set-up of risk management, conducting regular risk analyses and supply chain checks as well as taking preventive and remedial measures. These steps then will be published in a report submitted to the supervising authorities. In the case of a violation of the law, companies will be sanctioned with penalty payments, administrative fines, and at the EU-level they face temporary or indefinite exclusion of their undertakings as well as seizure of commodities.
The second part of the presentation focused on the laws and regulations enforced by the US Customs and Boarder Protection (CBP) and the US definitions of forced labor in various acts, illustrated through the example of merchandise produced in North Korea under certain circumstances of prohibited labor. Broadly speaking, the CBP’s power was analyzed, among it the issuance of withhold release orders (WROs) and findings. This was illustrated by the very broad WRO example on cotton and tomatoes (partly) produced in the Xinjiang Uyghur Autonomous Region (XUAR). Companies must prove to the CBP that the purchased goods were not produced with forced labor, which requires very good compliance standards and meticulous documentation including audit reports. This is possible and must be done within a timeframe of 90 days. A closer look was also taken on the California Transparency in Supply Chain Act (CTSCA) that became effective in 2010. Finally, the Uyghur Forced Labor Prevention Act (UFLPA) was discussed, which is currently being reintroduced in the US Congress and House of Representative and is awaiting either approval of both bills or needs to pass reconciliation.
Ultimately, the webinar concluded with a detailed inspection of the concept of human rights due diligence, who needs to implement it, what kind of human rights risks exist in general, and how does one find these risks. Consequently, the implementation of human rights due diligence was emphasized as a possibility to understand a business from a new perspective and its impact on people. Furthermore, the recommendation was given to use systems that are already in place and incentives that can be further expanded while also discovering new business cases, increasing supply chain stability and convincing investors and shareholders of the new strategy to tackle this topic, new laws and expectations. It was summarized as a field of business in which companies still have a lot to learn and where experts are needed to introduce how the reality works rather than dealing with abstract ideas.
The presentation was followed by a panel discussion and the identification of specific implications for companies through the drafts. According to the speakers, the main difference currently is that the US laws take export activities into consideration and while the German and EU draft laws present a challenge, criminal liability will help to drive change forward.
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