EU supply chain law threatens to fail because of Germany

The newly planned EU supply chain law is in danger of failing because of Germany. The Federal Ministry of Justice and the Federal Ministry of Finance could not support the plans, according to government circles on Thursday.

"In the Council of the European Union, this will result in Germany abstaining, which will have the effect of a 'no' vote," reads a letter from Justice Minister Marco Buschmann and Finance Minister Christian Lindner, both FDP, which was obtained by the German Press Agency. A final vote by the EU member states is still pending in the EU Council. The Pioneer [newspaper] first reported on the position of the FDP ministries.

The EU supply chain law is intended to hold large companies accountable if they profit from child or forced labour outside the EU, for example. Larger companies must also draw up a plan to ensure that their business model and strategy are compatible with compliance with the Paris climate targets to limit global warming.

Negotiators from the European Parliament and the EU member states reached a compromise on the project in mid-December. However, there is still only a political deal. A precise legal text is currently being drafted by officials - this could be finalised in the coming weeks. It must then be finalised and approved by the EU member states and the European Parliament.

An EU diplomat told the German Press Agency that if Germany abstains, it is unclear whether there will still be a sufficient majority in favour of the project among the EU countries. There is speculation that other countries will take their cue from Germany's decision and also not vote in favour of the project. This means that one of the flagship projects of EU trade policy is on the brink of collapse.

According to another EU diplomat, the Belgian Council Presidency will continue to press ahead with the project. An agreement is being worked on, they said.

There is already a supply chain law in Germany, but the EU version goes beyond the requirements of the German law. The German law applies to companies with more than 1,000 employees. This limit is likely to be lowered by the EU version. It also provides for companies to be held liable under civil law and for claims for damages to be asserted, for example. This has so far been excluded in the German Supply Chain Act.

Buschmann and Lindner criticised that the EU law would lead to companies being held liable under civil law for breaches of duty in the supply chain to a considerable extent. In addition, significantly more companies would be affected than under current German law. The construction sector would also be categorised as a so-called risk sector. This could jeopardise the existence of small and medium-sized companies in this sector in particular, which has already been hit by higher interest rates. "Our impression is that many companies simply do not have the necessary human and financial resources," argue the ministers. "It is to be feared that even less will be built in Germany in the future."

In a recent letter to Chancellor Olaf Scholz (SPD), several leading German industry associations called for the new EU supply chain law to be rejected. They warned of "legal uncertainty, bureaucracy and incalculable risks" (DPA).