Economic Evaluation of a Due Diligence Law

The authors critically examine the "Supply Chain Sourcing Obligations Act" passed by the German Bundestag on June 11, 2021. Overall, they conclude that the Supply Chain Act could have significant developmental side effects that diminish the intended positive impact on the human rights and environmental situation in the countries concerned. Many of these observations are also relevant to related European initiatives. The central problem with the law is that it imposes additional costs and risks on domestic companies if they want to do business with suppliers in poor countries with weak institutions. The authors conclude that good legislation on international supply chains must not increase effective trade costs with poorer countries, because otherwise there is a risk of counterproductive effects. This could turn the ethically sound approach of a supply chain law into an ethically questionable undertaking. It is argued that a European negative list approach is the better solution, as it would be both cheaper and more effective in strengthening human rights. This refers to a centrally administered list of companies that are not allowed to appear in supply chains with European involvement.