January 22, 2024 | Well-intentioned, but poorly done: The planned EU supply chain directive would in practice overwhelm medium-sized businesses in particular and lead to a withdrawal of European companies from many countries.
In a joint letter to the federal government, the EU Council Presidency and other European decision-makers, the business organizations BGA, Gesamtmetall, Mittelstandsverbund – ZGV, Foundation for Family Business and Politics, textil+mode, VCI, VDMA and ZVEI are calling for the European supply chain directive to be stopped. The vote of the ambassadors in the Permanent Representatives Committee and then the vote of the Council of EU Member States will soon take place.
“The requirements of the German Supply Chain Act have already resulted in small and medium-sized companies being completely overwhelmed by the burdens within their supply relationships. An EU supply chain directive, as now planned, would result in a new dimension of bureaucratic overload and legal uncertainty,” warn the associations.
The directive makes foreign trade more difficult and is at the expense of European jobs and added value.
Problems in detail
This applies in particular with regard to three aspects of the directive:
- Companies should therefore monitor almost all stages of their supply chains globally for violations of human rights and environmental or social standards. Industrial companies in particular often have tens of thousands or even a six-figure number of suppliers, a significant proportion of which change every year. The costs alone for complying with the guidelines would often reach millions for individual companies.
- The directive does not make any clear exceptions – not even for supply relationships within the already highly regulated EU internal market. However, an explicit exception for all suppliers and customers based in the EU internal market would be urgently required – as a risk-based approach.
- According to the EU plans, not only suppliers and their suppliers should be controlled, but also business customers. However, it is a completely unrealistic assumption that medium-sized companies could dictate to their business customers how and where the products sold are ultimately used.
Criticism of the proposed civil liability
“It is simply impractical to demand that companies from EU member states be liable for breaches of duty that occur in their supply chains – and this worldwide,” the appeal says.
While non-governmental organizations should benefit from their own legal standing, companies may face additional evidentiary requirements.
“In this way, the often incalculable liability risks can lead to companies withdrawing from affected regions,” warn the associations.
A new lawsuit industry would emerge, leading to more administrative costs for companies. Uncertainty in foreign trade is increasing. Protecting human rights around the globe is a goal that companies are also clearly committed to.
“The UN Guiding Principles on Business and Human Rights are authoritative for European companies. They are already basing their global supply relationships on this and are spreading European standards around the world through their international partners,” emphasize the associations.
However, putting European companies under general suspicion would prove to be counterproductive in practice; “the loss of economic substance in the EU would be further exacerbated by such a supply chain directive,” it is said.
“Instead of taking the route via the directive, let us take a new approach together and, through dialogue, consider how we can enforce our standards for the protection of human rights and the environment across global supply chains even more effectively around the world,” conclude the business organizations.
You can view the VDMA’s urgent call to stop the EU supply chain law here free of charge.