The planned EU supply chain law is well on its way to becoming applicable law, despite resistance in the German federal government. The ball is now in the court of the members of the EU Parliament.
After a long struggle, there is obviously a compromise for a weakened European supply chain law that can be won by a majority. Today the EU Parliament in Strasbourg is voting on it. Germany does not support the project, but would still have to implement it.
What is the aim of the EU Supply Chain Act?
The EU supply chain law aims to strengthen human rights worldwide. Large companies should be held accountable if they profit from human rights violations such as child or forced labor. They should also prepare reports on the extent to which their business model is compatible with the goal of limiting global warming to 1.5 degrees compared to pre-industrial times.
How was the law weakened during the negotiation process?
Originally, a compromise between negotiators from the EU states and the European Parliament stipulated that companies with more than 500 employees and a turnover of at least 150 million euros would be affected by the requirements. However, this limit was raised to 1,000 employees and 450 million euros, after a transition period of five years. After three years, the requirements will initially apply to companies with more than 5,000 employees and more than 1.5 billion euros in sales worldwide. After four years, these limits will then drop to 4,000 employees and 900 million in sales.
How do supply chain laws differ?
One of the biggest differences is liability. German law precludes companies from being liable for breaches of their duty of care. The EU version allows this. In addition, the German Supply Chain Act applies to companies with 1,000 or more employees. In the coming years, more companies will be affected by the German version than by the EU version.
What happens if the law is violated?
The EU states should appoint a supervisory authority to keep an eye on companies. This should also be able to impose penalties on companies if they do not comply with the regulations. Fines of up to 5 percent of a company’s global net sales may apply.
How do economists see the project?
The German Chamber of Commerce and Industry (DIHK) is critical of the project despite the changes. From the perspective of business, these are to be viewed positively, but “even if it is slightly slimmed down, the EU supply chain directive remains not very practical and will entail a lot of bureaucracy,” said DIHK President Peter Adrian. Legal uncertainty still exists.
The President of the German Institute for Economic Research (DIW), Marcel Fratzscher, however, spoke out emphatically in favor of the project. Without an EU version of the law, Germany would suffer significant economic damage, he said.
What role does Germany play in the negotiations?
Germany abstained from the vote in the Committee of Permanent Representatives of the EU Member States. This was – as is often the case – due to disagreement within the federal government. Important EU laws are repeatedly passed in Brussels without German consent. If the federal government cannot agree on a uniform position, this will weaken Germany’s negotiating position in Brussels.
In this case, the FDP had pushed for Germany not to agree to the law, out of concern about bureaucracy and legal risks for companies. Politicians from the SPD and the Greens, however, support the project.
Source: Stern
