The German Supply Chain Act Requires in China Compliance

The new German Supply Chain Act (LkSG) brings far-reaching new due diligence requirements for managers. They must strive to avoid risks related to the violation of human rights and the environment and to manage the company responsibly across borders. The law, which will apply from 2023, initially only affects German companies with more than 3,000 employees; from 2024, the law will already apply to companies with 1,000 employees. It cannot be ruled out that, in the long term, smaller companies will also be made to comply.

The EU Parliament goes even further, calling for a ban on imports of products that are linked to human rights violations. Companies should therefore thoroughly check their entire supply chain for possible forced labor and consider geographical relocation or withdrawal in serious cases. It is expected that foreign companies linked to forced labor and exporting to the EU will be under close scrutiny by European authorities. This may put them in a dilemma: Compliance with the LkSG could be interpreted in China as a violation of the new Anti-Foreign Sanctions Law, which could lead to severe penalties. 

Violations of environmental and occupational health and safety standards are not uncommon in China. Companies should already review their Chinese supply chains and plan and implement appropriate compliance structures. Supply chains can be investigated, suppliers and partners can be checked through audits. We recommend introducing an electronic reporting system and documenting all audit results in a court-proof manner.

Photo: Robert Scoble

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