Economic Evaluation of a Due Diligence Law

In a study commissioned by Gesamtmetall, the Kiel Institute for the World Economy examines the effects of the German Due Diligence Act, which was passed by the Bundestag in June 2021. The planned EU directive is also addressed. The law will increase costs and risks for companies trading with suppliers in poorer countries with weak institutions. It can therefore be assumed that German companies will reduce the number of suppliers from these countries or withdraw from them altogether. This development weakens the development-promoting integration of these companies into global value chains, which can lead to a reduction in per capita income in poor countries. At worst, the human rights situation in some countries could worsen. Effective supply chain legislation should not increase trade costs with poorer countries in order to avoid negative effects on the ground. The study therefore proposes a so-called "negative list approach", i.e. sanctioning foreign enterprises which disregard human rights. This would be cheaper and more effective in strengthening human rights in third countries.