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22 Apr 2022

Franziska Korn & Maren Leifker, IPS Journal

Commentary: The proposal for a European Supply Chain Act falls short, we must learn from the Rana Plaza collapse

" European Supply Chain Act: ‘No more Rana Plazas!’", 22 April 2022

Back in 2013, the eight-story Rana Plaza textile factory in Bangladesh…collapsed, killing 1,134 people and leaving at least twice as many injured…Despite several inspections just a few months before the collapse, no deficiencies were found. The collapse has made it clear that voluntary commitments by multinational corporations are disastrously dysfunctional...

...just short of a decade later, the European Union has presented its proposal for a directive on corporate sustainability due diligence. The directive is intended to compel multinational companies to safeguard human rights and protect the environment throughout their supply chains, and to provide remedy and reparations should any breaches occur. If companies fail to comply, penalties and legal action could follow...


Where EU legislation falls short

...One key point of criticism is that the due diligence duties laid down, such those for risk analysis, should be limited to ‘established business relationships’, i.e. suppliers with whom there is a long-term supply relationship…[t]he draft therefore provides an incentive to swap business partners frequently to get around the obligations and liability risks. This is highly problematic, because one of the biggest lessons to learn from Rana Plaza is that long-term cooperation…is needed to tackle human rights abuses in supply chains.

The EU legislation proposal also focuses more on what is feasible for companies in their due diligence…For example…companies can lay down contractual clauses between them and their business partners to ensure compliance with certain standards and monitor this through audits and industry standards and initiatives. Yet, Rana Plaza and countless other disasters worldwide have dramatically shown that these instruments…are…often ineffective…

The European proposal directive seeks to address this by laying down quality criteria for these instruments. But that won’t be enough…A good starting point can be found in the obligations specified under the German Supply Chain Act, which provides that companies must develop and implement appropriate procurement strategies and practices to prevent violations of human rights…Companies are also required to train and educate their suppliers so they can contractually comply with human rights and environmental regulations…

Involve workers and trade unions

…[T]he current EU proposal directive provides that those whose rights are at stake and their representatives need to be involved only if a company deems it relevant. This is highly problematic.

One of the most important lessons from Rana Plaza is that we need listen to those whose rights are at risk of being violated…Even before the collapse, textile workers pointed out the cracks in the building. Workers themselves are also included in the Bangladesh ACCORD…

The EU must learn from Germany here, whose Act strengthens the rights of works councils. Following an amendment to the country’s Works Constitution Act, works councils now have the right to be consulted and involved on matters of corporate due diligence through an economic affairs committee.

While Germany’s Supply Chain Act doesn’t lay down civil liability…corporate due diligence under the European directive is to be enforced through administrative enforcement and civil liability. This combination is important, because administrative enforcement is preventative in nature, serving to stop any breaches from happening in the first place. But civil liability is also required as it allows the injured persons to assert their rights and sue for damages.

We need an effective European Supply Chain Act

However, in the European proposal both enforcement measures still lack details to ensure they will be effective. As far as administrative enforcement is concerned, there is for instance no scope for excluding companies that breach their due diligence duty from public procurement procedures. Effective legal protection via civil liability also requires a reversal of the burden of proof... At present, the burden lies with the injured parties, so it’s the textile workers of Rana Plaza or survivors of victims who have to prove that the company violated its due diligence. How difficult this is was demonstrated...after the Rana Plaza disaster. Human rights activists spent days searching the rubble for labels to show which companies had their goods produced in the building…

With an effective European Supply Chain Act in place, long-term structural change can be achieved, while creating a level playing field for companies on the European market. For without a doubt, legislating on corporate due diligence can close gaps in regulations globally…That way, we can put a stop to immense environmental damage and the weakening of workers’ rights across the world.