German Supply Chain Law: Monitoring employment practices and environmental issues in the Philippines

last updated on 5 May 2022 | reading time approx. 4 minutes

• Which risks occur along supply chains in the Philippines? »

• Which industries appear particularly vulnerable to adverse impacts of human/labor rights or environmental issues in the Philippines? »

• Is there any legislation in the Philippines which addresses these risks? To what extent is it enforced in practice? »

• Can you provide a case example (e.g. taken from local media coverage) in which a foreign or local company had to deal with such adverse impacts? »

Which risks occur along supply chains in the Philippines?

In the past years the Philippine Government occasionally made international headlines about alleged human right violations related to its so called “War on Drugs”. This has to be distinguished from the human rights situation and business practices from a corporate and economic perspective.

Certainly the human rights situation and corporate conduct of a developing country like the Philippines may not be compared to Germany or other European countries. Consequently, in its practical application the German Supply Chain Law will potentially require a medium to higher level of risk analysis and risk management with regards to a country like the Philippines. However, with the exception of Singapore, the diligence that may be required for the Philippines will be similar to many of its ASEAN peers.

Summarizing the corporate compliance related human rights situation in the Philippines with reference to the UN Global Conduct or other international recognized human rights best practices is a challenging task. In summary, for readers not familiar with the Philippines (yet), it might be of interest that the Philippines were for more than 300 years a colony of the Spanish Empire which was followed by American rule until its full independence in 1946. This left its mark in the socio-economic, political and legal system of the country. Thus, in some areas many laws and business practices are more familiar to European-Western (business) culture than other ASEAN countries.

The Philippines is also one of Asia´s oldest democracies.

In the last decade the Philippines became an increasingly important player for German companies in the region. Not only with regards to the sales of their products but more so also within their own supply chain, being particularly well known for the Business Process Outsourcing Service on a global scale.

Risks for the supply chain with reference to the supply chain law may be primarily in the compliance with employment practices. The Philippine Labor Law is in principle employee friendly. Violation of an employer against the laws may be addressed to the Department of Labor of Employment and (thereafter) the competent courts. However, the practical implementation and enforcement of the laws, particularly with regards to local labor practices to circumvent the minimum labor standards may become a risk (e.g. so called labor only contracting/outsourcing). Even within a regular employment relationship such areas like working hours, observance of minimum wage, payment of social security payments or even payment of the applicable taxes etc. need to be monitored.

The strict observance of environmental standards may be another area that needs to be monitored.

For all areas it is important to be well aware of its local partners and to conduct its due diligence, to some extend preferably on site.

In this regard we would also like to address, probably similar to many other ASEAN countries,  that the “standard of compliance” may vary depending on the proximity to the major business hubs and thus the regulatory authorities. This is also linked to a fragmentation of rules and regulations on various administrative levels, depending on the location of the business.

Which industries appear particularly vulnerable to adverse impacts of human/labor rights or environmental issues in the Philippines?

In terms of biodiversity the Philippines is ranked number 1 in the world. Thus, the Philippines is also rich in many different areas of natural resources. For example the Philippines has 41 nickel mines and is the largest ore producer in the world. The exploitation of natural resources is strongly regulated in the Philippines and foreign investment restrictions apply. Particularly, in areas like mining a professional risk assessment for compliance with regulatory standards may be advisable. Risks of human right violations can particularly occur in labor intense industries.

Is there any legislation in the Philippines which addresses these risks? To what extent is it enforced in practice?

There are several legislations in place with regards to human rights, in fact the Philippines was amongst one of the first in Asia addressing such matters, but also related labor and environmental standards. This legislation is also enforced by various agencies.

Notably, With regards to the overall human rights framework, the Philippines, for example, was noticeably involved  in the drafting of the Universal Declaration of Human Rights and is also one of 48 states that voted in favour of the declaration at the UN General Assembly in 1948. Since then the Philippines was involved and signed many of the relevant multinational agreements in this area.

However, the enforcement of the laws is a main challenge in this regards, e.g. due to backlogs at the respective agencies; to some extend corruption; long proceedings and bureaucracy.

Can you provide a case example (e.g. taken from local media coverage) in which a foreign or local company had to deal with such adverse impacts?

The mining industry and exploitation of natural resources in the Philippines, in combination with environmental and labor issues is regularly a topic in Philippine politics and media. Companies and investors are accused of polluting rivers, rice fields and aquaculture facilities, illegally relocating entire communities, “land grabbing”, obtaining dubious concessions etc. not only harming the environment, but also threatening the habitat of indigenous people and animal species. In relation thereto violence against lawyers, law enforcers, journalist and victims of such practices are also in the news.