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28th Feb 2024

EU supply chain law faces scrap amid German coalition row

  • Germany's late decision to oppose an EU due diligence law has raised fears of its collapse at a key vote on Friday (Photo: Adeolu Eletu / Unsplash)
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Business and civil society groups have made a last-ditch effort to urge EU ministers not to collapse a key law on company due diligence ahead of a decisive vote on Friday (9 February) — which was finally postponed.

EU governments had been expected to rubber-stamp the new law at a meeting in Brussels on Friday. But its passage could be derailed after Germany's 11th-hour decision to abstain prompted Finland to follow suit.

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Earlier this week, the neo-liberal Free Democrat Party, the smallest member in Germany's three-party 'traffic light' coalition, publicised their opposition to the directive.

German justice minister Marco Buschmann, who leads one of two senior ministries held by the FDP, sent a letter to all member states in the Council ahead of the meeting urging them to vote against the directive.

The Finnish government has indicated that they will also abstain on the grounds that parts of the law are incompatible with Finnish law. Amid rumours that Sweden's centre-right government could follow suit, a group of 20 leading Nordic businesses urged their minister, conservative Ebba Busch, to support the law.

A handful of other EU governments are also believed to be wavering, say insiders.

Originally tabled by the European Commission in February 2022 after years of pressure from the European Parliament, the corporate sustainability due diligence directive was intended to hold big companies responsible for violations of human rights and environmental standards in their value chains.

In December, officials from the European Parliament and Council agreed on a compromise text following months of negotiations.

Insiders in the talks have pointed out that the deal saw Germany and France obtain a series of concessions on the civil liability of their firms under the directive and to the businesses that will fall within its scope.

The compromise deal excludes the core business of financial actors, including their investment and lending activities, from the scope of the law.

Companies in high-risk sectors such as textiles, agriculture, and minerals, which have over 250 employees and a turnover of more than €40m will fall under the scope of the directive, which will also apply to companies with more than 500 employees and a worldwide annual turnover of more than €150m.

The new directive also includes provisions for victims of environmental or human rights abuses as a result of a company's actions to claim reparations from a company in a European court.

Meanwhile, companies found to have failed to implement their due diligence procedures could face fines of up to five percent of their global turnover.

The FDP's move has caused an angry reaction from the social democrat and Green parties in the German coalition, with Green foreign minister Annalena Baerbock warning that it would "damage our reliability as a partner and our clout in Europe."

Baerbock added that having been at the heart of the trilogue negotiations with MEPs, abstaining on the law "shows a lack of respect towards other EU member states as well as towards the European Parliament."

"It is in the interest of German businesses that we have standardised rules and fair competition in Europe rather than making their lives difficult with a patchwork of national regulations," she added.

This article has been updated to indicate that Friday's vote was postponed

Analysis

Final steps for EU's due diligence on supply chains law

Final negotiations on the EU due diligence law begin this week. But will this law make companies embed due diligence requirements in their internal processes or incentive them to outsource their obligations to third parties?

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For Ukraine's sake, pass the EU due diligence directive

The EU Commission's 2022 CSDDD proposal did not include provisions incorporating "conflict due diligence", they were added, after the Russian invasion, by the European Parliament and Council into the final directive text — for Ukraine's sake, vote for it.

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