EU supply chain law postponed amid German FDP opposition

Under the legislation, EU companies would have to be more mindful of what their supply chains are doing abroad

A blockade by Germany’s business-focused Free Democrats, part of the country’s governing coalition, has halted the adoption of a proposed EU law that would require large companies to assess whether their supply chains use forced labor or cause environmental damage.

The Belgian EU presidency postponed the vote, which had been scheduled for Friday, at the last minute.

A “qualified majority” of 15 EU countries representing 65% of the EU population is needed for the corporate sustainability due diligence directive (CSDDD) to proceed to a final vote in the European Parliament, where lawmakers are expected to support it.

On Friday, it was not clear whether a sufficient number of envoys from the 27 EU countries would support the legislation, with Germany set to abstain. The Belgian EU presidency said the item would be postponed to a date to be announced.

What is CSDDD?

Under the CSDDD, which would come into force in 2027, large companies in the EU will have to identify and take remedial action if they find that their supply chains use forced or child labor or cause environmental damage, such as deforestation.

The rules will apply to EU companies with more than 500 employees and a global net turnover of more than €150 million ($161.5 million), and to non-EU companies with an EU turnover above that amount, but with a three-year delay. Fines for violating the rules could be as much as 5% of a company’s global turnover.

The law has stirred controversy in other countries, such as the United States, because it covers some 4,000 companies that do business in the EU but are headquartered elsewhere.

Why does Germany block the law?

The proposed supply chain law is not popular in German business circles.

The Association of the German Textile and Fashion Industry called on EU countries to withdraw it altogether. The directive is a “completely unrealistic bureaucratic monster,” said the association’s managing director, Uwe Mazura.

The law would cost companies “unnecessary resources,” Mazura added.

Germany’s pro-business Free Democrats opposed the supply chain law, arguing it would burden business with excessive bureaucracy. They also raised late objections to an EU law to end sales of CO2-emitting cars by 2035 and to EU plans to reduce truck emissions.

However, their coalition partners, the center-left Social Democratic Party (SPD) and the environmentalist Greens, supported the legislation and warned that Germany would lose credibility in the EU with its last-minute opposition.

dh/wd (Reuters, AFP)

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