Implications of the new Supply Chain Act for the German defense industry : CONIAS Risk Intelligence a MBI Product

The German parliament passed the new Supply Chain Act on June 11, 2021. It obliges companies to pay closer attention to human rights violations along the supply chain, to take action if violations become known, and to provide a complaints mechanism. But what does this law mean for German arms exports and the companies that produce these goods?

A rational assumption would be to stop arms exports to countries that commit human rights violations. This includes both weapons of war and "armaments"; products made for military use. Countries in which civil war-like conditions prevail, or which are directly involved in wars, would also be affected by a cessation of exports.

Arms deliveries to the Middle East

Examples include the Saudi-led intervention in the civil war in Yemen, known under the code name Operation Restoring Hope, and the Libya conflict. The United Arab Emirates, Sudan, Bahrain, Kuwait, Qatar, Egypt, Jordan, Morocco and Senegal are also involved. Apart from Sudan - which is subject to an arms embargo - Germany supplied weapons and equipment worth a total of 1.16 billion euros to all the above countries in 2020 - including fighter jets and tanks. This number also includes export licenses for Turkey, Jordan and Bahrain. Every single country is involved in at least one of the conflicts mentioned. [1]

A cessation of arms exports would result in high sales losses for the manufacturing companies. After all, exports worth 5.8 billion euros were approved in 2020. [2] It does not require much to anticipate that such a move on the part of politics would be followed by strong opposition from the respective interest groups.

The procedure for issuing export licenses is governed by the War Weapons Control Act (KrWaffKontrG). Companies must apply for licenses from the Federal Office of Economics and Export Control (BAFA). In addition, deliveries to countries that are questionable for various reasons (e.g. human rights violations, dictatorships etc.) require the approval of the Federal Security Council. In general, the federal government pursues a "restrained and responsible arms export policy." [3]

In addition, the guidelines for the approval of arms exports state:

"Respect for human rights is of paramount importance for any export decision, regardless of the potential recipient country. Thus, as a matter of principle, arms exports are not approved if there is 'reasonable suspicion' that the arms in question are being misused for internal repression or other persistent and systematic human rights violations. The human rights situation in the recipient country plays an important role in this question [...]."[4]

Criticism from the opposition

Opposition members have been criticizing the German government's arms export policy for years. The Green Party accuses the federal government of not following its own political principles for arms exports[5] - for example, when weapons are supplied to countries directly involved in wars.

The German government justifies its policy by saying that "a purely numerical analysis [...] is not a suitable means for assessing the restrictiveness of arms export policy." [6] This is a justified objection; after all, it should be examined precisely which military equipment was actually exported. In fact, there is a considerable difference between a Eurofighter and a night-vision device.

Whether the new Supply Chain Act will have an impact on the German government's arms exports is questionable. After all, it could be argued that the requirements for the approval of arms exports already sufficiently ensure that human rights are guaranteed. The future will show whether there will be any changes with regard to this issue.

In order to prepare companies in the best possible way for the challenges of the upcoming Supply Chain Act, we offer training as part of our new CONIAS Academy. For further information please contact us.