The German government agreed Wednesday a new law allowing fines worth millions of euros for companies which abuse labour and environmental rights in their global supply chains, ministry sources said.

Under the law approved by Chancellor Angela Merkel's cabinet, companies with annual revenues of 400 million euros ($484 million) or more can be fined up to two percent of that amount if their contractors abroad are found to breach human rights or environmental rules.

Companies could also be excluded from public procurement processes in case of violations.

"This law protects workers from exploitation across sprawling supply chains and protects human rights across the world," Finance Minister Olaf Scholz said.

"In future, it will be clear that 'Made in Germany' also means respect for human rights," he added.

The so-called Lieferkettengesetz -- meaning "supply chain law" -- obliges companies to track workers' rights and environmental standards, not just in their own structures but also at their sub-contractors or suppliers at home and abroad.

Companies will have to verify possible standards violations in their supply chain and take corrective measures.

Though businesses will not be made systematically liable for any shortcomings, NGOs and trade unions will be able to bring lawsuits against German companies on behalf of foreign workers.

Germany's economy ministry will also establish a body to carry out checks and impose fines if necessary.

The catalogue of fines agreed by cabinet on Wednesday includes penalties ranging from tens of thousands to millions of euros.

It will at first apply only to Germany's largest companies with over 3,000 employees, before being expanded to include those with 1,000 employees from 2024.

A hard-fought compromise between conservatives and social democrats of Germany's ruling coalition, the law still must be approved by parliament later this year.

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