New Regulations: The Challenge of Supply Chain Due Diligence

New global due diligence laws will take effect in Germany, the US, Norway and other countries by 2023. In this QAD Precision Report, we share the regulations global supply chains should be aware of and the solutions to implement to ensure compliance.

Countries across the globe have held human rights and environmental protection legislation for decades. However, the standards of compliance are evolving to ensure greater accountability for corporations and their supply chains. In fact, corporate accountability plays a major role in meeting human rights and environmental protection standards. While many mandatory regulations will not begin to take effect until 2023, companies will need to significantly ramp up their due diligence efforts and ensure compliance—or face major penalties. 

Nearly all due diligence legislation seeks to implement the standards set by the UN Guiding Principles on Business and Human Rights. One example of such legislation is the German Supply Chain Act (GSCA), formally the Act on Corporate Due Diligence in Supply Chains. 

This act seeks to eliminate forced and child labor as well as provide additional environmental protections. The legislation intends to improve working conditions for all. In addition, it also seeks to completely eradicate human rights abuses from all commerce and production activities. After only 22 percent of companies were found to be compliant with the German National Action Plan in 2020, the German parliament enacted GSCA and voted to make participation mandatory in June 2021. 

The GSCA goes into effect January 1, 2023 for companies with 3,000 or more employees in Germany. As of January 1, 2024 the law will extend to companies with 1,000 or more employees. The legislation also applies to foreign-based companies with registered German branches. From 2023 onward, applicable businesses in the German market must:

• Establish preventative measures within their supply chains

• Provide annual reports of due diligence activities

• Establish risk mitigation and risk management systems

Any companies that do not comply with the GSCA could face repercussions through the Federal Office for Economic Affairs and Export Control (BAFA), including fines up to €800,000 and up to a three-year exclusion in public contracts. 

A Global Movement

Regulations like GSCA are a growing global movement. In December 2021, US President Joe Biden signed the Uyghur Forced Labor Prevention Act (UFLPA) that states all goods fully or partially manufactured in China's Xinjiang Uyghur Autonomous Region are products of forced labor and are not eligible for US entry. Even smaller scale legislation like the Fashion Sustainability and Social Accountability Act (FSSAA) introduced in New York has real global regulatory and compliance implications. 

Other due diligence directives include:

• EU Mandatory Human Rights Due Diligence Directive

• Norwegian Transparency Act

• Swiss Human Rights Due Diligence Law

• Dutch Due Diligence Act

In order to ensure due diligence up and down their respective supply chains, companies are going to face much greater accountability standards and consequences—adding another layer to an already complex international trade compliance ecosystem. The protection of human rights and sustainability standards comes at a very real monetary cost. However, corporations will have to put due diligence at the forefront of their business practices to remain viable in the global market. 

A Compliance Solution

Partnering with an expert in global trade compliance can be a first step in ensuring these regulations are met. This includes supplier risk assessment. This needs to be done sooner rather than later.  

Should you uncover non-compliance with environmental, social or human rights standards, you will need to act swiftly. Finding and qualifying new suppliers is time-consuming. These kinds of supply chain risks could significantly impact business operations as well as your reputation.

Global trade compliance software offers solutions like:

• Restricted party screening

• Trade compliance analytics

• Supplier management

• Import and export management

Digitizing the supply chain is the proactive approach to meeting these new and evolving compliance regulations, while cutting costs and ensuring customer loyalty. A global trade expert like QAD Precision is not only a great step toward compliance and risk mitigation, but a leap towards a better world. 

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Further Reading

IF YOUR TRADING PARTNERS ARE CRIMINALS, SO ARE YOU

3 MINUTE EXPLAINER: WHAT IS RESTRICTED PARTY SCREENING?

3 MINUTE EXPLAINER: WHY YOU SHOULD AUTOMATE TRADE COMPLIANCE