DIHK (Deutsche Industry und Handelskammer)

The entity does not support the current draft directive and suggests to limit the human rights due diligence duties significantly

The entity indicates 'An effective supply chain law requires practicability, proportionality and legal certainty. From the point of view of the industry, these principles are not respected in the¬draft directive (draft directive). Therefore, there is a risk of heavy red tape and high liability risks at a time when the-negative economic impact of the pandemic and the war in Europe is shaped. ... • The draft directive overestimates the possibilities for business control.' It goes on to suggests several caveats to the due diligence duty, such as an exception for member states and instead focus exclusively on third countries. It further suggests introducing lighter requirements for countries which have entered into relevant commitments in EU trade agreements with sustainability chapters or alternative negative lists of companies that have to be considered non-compliant.

The entity suggests limiting the scope of the directive in line with the German LkSG as well as introducing sector-specific approaches to reduce indirect burden on SMEs outside of the direct scope of the legislation.

The entity states 'SMEs must be placed more at the centre of the planned EU Directive: In line with the German Supply Chain Due Diligence Obligations Act (LkSG), only companies above 1000 or 3000 employees should be covered. The ‘think small first’ principle¬is to minimise the administrative burden on businesses directly and indirectly¬affected by a consistent sector-specific, risk-based approach.' The entity further questions the inclusion of third country companies as 'It is true that the majority of undertakings consider positively that, in the interests of¬competition, undertakings from third countries are also covered by the draft directive. However, part of the concern is that the additional compliance rules could affect the location attractiveness of the EU in general, as well as of individual Member States in particular, which interpret the Directive’s discretion more strictly.'

The entity raises concerns with the enforcement provisions.

The entity states 'From an economic point of view, it is essential for the Commission to take action to address this distortion of competition within the internal market until a real harmonisation of the quality of control is achieved. ... Such a broad discretion creates the risk of unequal framework conditions and distortions of competition¬within the internal market and thus implicitly contradicts the chosen legal basis of Article 114 TFEU. ... It is also questionable why all decisions of the supervisory authorities containing penalties in the-relevant text of this Directive should be published. This is because media support for human rights-related legal proceedings also poses a considerable reputational risk for¬businesses.'

The entity does not support a requirement to terminate business relationships if a company does not have enough leverage to ensure human rights are respected

The entity states 'Since indirect business partners are usually unknown and the temporary suspension or termination of all business relationships along the entire value¬chain may cause disruptions to production and disposal, only direct business relationships should be suspended or terminated. ... Where there is a serious potential or actual negative¬impact, the business relationship should be terminated provided that another criterion is met: Termination must be seen as a ‘last resort’ (EC 32) but should not further aggravate the negative¬effects. ... Overall, the Commission’s intention to create a new ground for terminating an existing contractual relationship is, from the point of view of the economy, understood by the majority as an excessive interference with private autonomy and is rejected on account of¬the legal uncertainty involved.'

The entity requests to limit the access to the complaints mechanism to trade unions in the member states and affected stakeholders.

The entity states 'In view of the limited capacity of undertakings¬, in particular small mid-caps covered by the draft directive, the right to lodge a complaint should be limited¬to trade unions in the Member State and to those directly affected. ... The fact that, in accordance with the draft directive, interested parties and interest groups can turn to the company¬along the entire value chain,¬sometimes extending across several countries, also in response to offences committed by indirect suppliers and customers, raises serious concerns on the part of industry, including with regard to practical feasibility. Companies should be allowed to address complaints¬first to the national supervisory authority or, alternatively, to the National Contact Point for the OECD Guidelines, which then decides whether and in what form a Tref is¬to be carried out.'

The entity opposes the inclusion of civil liability in the directive and requests removal of draft provisions.

The entity raises several concerns with the way the civil liability provisions are designed, indicating they are relying on insufficiently defined legal concepts and causing legal uncertainty and would not be enforceable. It states 'Overall, this legal structure of civil liability does not prove to be adequate for judicial purposes. The due diligence obligations (effet responsibilities) must¬be formulated in the same way as the imputability of damage to a protected¬person. There is also a need for a legally secure exculpation option for companies.' The entity further raises concerns with liability for the behvaiour of a third party 'Politically intended civil liability, for which there are no valid legal grounds, is considerably reinforced, in its potentially arbitrary effects, by the reference in¬Article 22(2) to the result of the activities of an indirect partner.' It concludes that 'In view of the immense legal uncertainty for businesses, the vast majority of companies are therefore in favour of excluding civil liability in the Directive or deleting all the relevant rules. Otherwise, there is a risk of creating a certification industry, causing negative economic development, and abusively because it is only possible¬to provoke publicity. The objective of the protection of human rights is not served by the¬present Haf tung Regulation.'

The entity opposes full value chain coverage. It suggests limiting the scope upstream and downstream to direct contractual relationships.

The entity states 'Only a contractual relationship based on a contractual relationship should be¬regarded as established. Consequently, it can¬only refer to a direct supplier or customer. As companies usually have no or very limited influence on the extraction of raw materials and the¬actual use and disposal of a product, the right to check the value¬chain over the life cycle of a product for risks cannot be met in practice. .. For these reasons, the requirements of the future Directive should be limited to their¬own smell and to the activities of the direct supplier' (sic)

The entity indicates concern that contractual cascading may become a burden for SMEs and suggests ways to resolve this issue using standard contract clauses and industry collaboration

The entity states 'Since the Code lays down the rules and principles of a particular undertaking and forms an integral part of specific business guidelines, it must be held that¬undertakings which are indirectly affected are faced with different codes, all of which they are required to ensure by contract. ... . In order to reduce the administrative burden in the¬context of the contractual cascading, businesses in particular indirectly affected would also like¬to use standardised questionnaires. ... Joint industry, product and¬networking initiatives should be strengthened instead of questioning their suitability and thus ensuring legal uncertainty¬on the part of businesses.'