Suspending the German Supply Chain Act is a strategic move. It allows businesses to prepare for unified EU regulations, enhancing competitiveness while ensuring ethical standards aren’t compromised. This balance is crucial for sustainable economic growth.

Dear readers,
In a bold move, Federal Economics Minister Robert Habeck (Greens) has proposed suspending the German Supply Chain Act until the European Supply Chain Act has been implemented. This proposal has triggered a fierce debate: Will this suspension benefit the German economy and how will it affect the supply chains of affected companies?

Understanding the Supply Chain Act
The German Supply Chain Act, officially known as the Supply Chain Due Diligence Act (LkSG), aims to ensure that companies comply with human rights and environmental standards in their supply chains. The law, which came into force on 1 January 2023, obliges companies to identify, prevent and eliminate human rights and environmental risks in their supply chains.

The proposal: a temporary suspension
Minister Habeck’s proposal to suspend the German Supply Chain Act until the European Supply Chain Act has been introduced has provoked mixed reactions. The European Supply Chain Act, which aims to harmonise regulations in the EU member states, promises a level playing field. However, the timetable for its implementation remains uncertain.

Possible advantages for the German economy
Less effort required to comply with regulations: For many German companies, especially small and medium-sized enterprises (SMEs), complying with the strict requirements of the German Supply Chain Act has proven difficult. A temporary suspension could ease these burdens and allow businesses to focus on recovery and growth in the post-pandemic period.

Increased competitiveness: By suspending the national law, German companies could gain a competitive advantage over their counterparts in countries without similar regulations. This could lead to higher profitability and a larger market share, which would benefit the economy as a whole.

Preparation time: A suspension would give companies more time to prepare for the upcoming European supply chain law. This preparation time could lead to smoother transitions and better compliance with European regulations when they come into force.

Possible disadvantages and risks
Human rights and environmental impacts: Critics argue that the suspension of the law could lead to a temporary weakening of the protection of human rights and environmental standards. Companies could neglect their duty of care, which could lead to potential violations and reputational damage.

Legal and ethical concerns: The suspension could give the impression that economic considerations take precedence over human rights and environmental concerns. This impression could tarnish Germany’s image as a pioneer in corporate responsibility.

Uncertainty for companies: Whilst suspension offers temporary relief, it also leads to uncertainty. Companies may find it challenging to navigate the changing legal landscape, which could lead to potential compliance issues when the European law finally comes into force.

Impact on supply chains
The supply chains of companies operating in Germany are likely to experience several impacts as a result of this suspension:

Operational flexibility: companies could experience greater operational flexibility as they temporarily step back from strict due diligence requirements. This could lead to a streamlining of processes and cost reductions.

Supply chain reorganisation: Some companies could use this period to reassess and restructure their supply chains to achieve greater efficiency and resilience. However, without the pressure of compliance, there is a risk that ethical sourcing will take a back seat.

Preparing for future regulations: Companies could focus on adapting their supply chains to the expected European regulations. Proactive organisations will use this time to build robust compliance systems to meet future requirements.

Conclusion
Minister Habeck’s proposal to suspend the German Supply Chain Act presents both opportunities and challenges. Whilst it offers potential economic benefits and preparation time for businesses, it also raises ethical concerns and introduces uncertainty. Companies need to weigh these factors carefully and consider the long-term implications of temporary legislative relief.

As the debate continues, the final impact on the German economy and supply chains will depend on how businesses manage this transition period and prepare for the final implementation of the European Supply Chain Act.

Your
Thomas Hellmuth-Sander