EU supply chain law threatens to fail because of Germany

It is a flagship project of EU trade policy. And the plans for the supply chain law were actually already in place. But now two German ministries are opposing each other.

The planned new EU supply chain law threatens to fail because of Germany. Federal Finance Minister Christian Lindner and Justice Minister Marco Buschmann (both FDP) announced that they could not support the result of the discussions between the EU Commission, Parliament and member states. “In the Council of the European Union, this results in Germany abstaining, which ultimately has the effect of a ‘no’ vote,” says a letter from the two FDP politicians. According to government information, the letter is addressed to business associations.

Large companies affected

The EU Supply Chain Act aims to hold large companies accountable if they profit from child or forced labor outside the EU. Larger companies must also create a plan to ensure their business model and strategy are consistent with meeting the Paris climate targets to limit global warming.

In Germany, the major business associations had called for a no to the EU plans. They criticized the fact that the plans went far beyond the current German supply chain due diligence law. European companies are already withdrawing from third countries where they could run into problems. The FDP presidium had already spoken out clearly against the EU directive in mid-January.

“Self-strangulation ours business location”

Lindner and Buschmann attested to the Labor Minister Hubertus Heil (SPD), who was leading the EU negotiations, “considerable negotiation successes”. Nevertheless, both ministries could not agree. “The trilogue result would lead to companies being significantly liable under civil law for breaches of duty in the supply chain,” write the two FDP ministers. The scope of application of the draft is also very broad, meaning that significantly more companies would be affected than under the current German legal situation.

Buschmann told the dpa news agency that “the protection of human rights is part of the EU’s self-image.” He therefore fully supports the aim of the directive to ensure better protection of human rights and the environment in the supply chains of European companies. However, this goal should not lead to a “self-strangulation of our business location”. It was important to him to negotiate until the very end in order to then examine whether the result was acceptable as part of an overall assessment, said Buschmann. In the end, he came to the conclusion: “Our concerns have not been allayed, the risks for the European and German economy outweigh them.

During the dispute over an end to new cars with combustion engines, Germany had already made additional demands – primarily at the insistence of the FDP.

Federal Labor Minister Heil, in turn, wants to use proposals to reduce bureaucracy to prevent the FDP in the federal government from blocking approval of the EU Supply Chain Directive. According to information from his ministry, he initiated the departmental vote on his recommendation to approve the EU project. Heil linked this to key points to relieve the burden on companies, which the cabinet should deal with on February 7th. The changes are linked to the government’s approval of the EU directive. Specifically, it is about making reporting obligations easier for companies. Exculpatory parts of the directive should also be applied early.

Lighthouse projects EU trade policy is in jeopardy

Negotiators from the European Parliament and the EU states agreed on a compromise on the project in mid-December. But there is still only a political deal. A precise legal text is currently being drafted by officials – this could be finalized in the coming weeks. It then has to be finally approved by the EU states and the European Parliament. An EU diplomat told the dpa news agency that with Germany abstaining, it was unclear whether there would still be a sufficient majority among EU countries for the project. There is speculation that other countries will follow Germany’s decision and now also do not agree to the project. This means that one of the flagship projects of EU trade policy is in jeopardy.

German Supply Chain Act not that far-reaching

There is already a supply chain law in Germany, but the EU version goes beyond the requirements of the German law. German law applies to companies with more than 1,000 employees. This limit is likely to be reduced by the EU version. It is also envisaged that companies can be held liable under civil law and, for example, assert claims for damages. This has so far been ruled out in the German supply chain law.

In addition, significantly more companies would be affected than under the current German legal situation. The construction sector should also be classified as a so-called risk sector. This could be a threat to the existence of small and medium-sized companies in this area, which has already been hit by increased building interest rates. “In our opinion, many companies simply do not have the appropriate human and financial resources,” argue the ministers.

BDI President “relieved”

“German industry is relieved,” said BDI President Siegfried Russwurm. The EU plans are unrealistic and would burden companies with irredeemable obligations that would also involve additional bureaucratic effort. “It’s good that Berlin doesn’t support this wrong path.”