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EU agrees on supply chain law

The European Parliament has agreed on a supply chain law together with EU states. It is intended to make it possible for large companies that profit from child or forced labor outside the EU to be held accountable.

Negotiators from the European Parliament and the EU states have agreed on a supply chain law. This will allow large companies to be held accountable in the future if they profit from child or forced labor outside the EU, as can be seen from communications from the European Parliament and the EU states.

Larger companies must also create a plan to ensure their business model and strategy are compatible with the Paris Agreement on climate change. According to the planned rules, companies are responsible for their business chain, including for the company’s business partners and, in some cases, for downstream activities such as sales or recycling. The financial sector should initially be excluded from the requirements.

Large companies affected

In principle, the new rules apply to companies with more than 500 employees and at least 150 million euros in sales. Companies that are not based in the EU are subject to the law if they have a turnover of more than 300 million euros in the EU. The EU Commission should publish a list of affected non-EU companies. The agreement still has to be confirmed by Parliament and the EU states, but that is usually just a formality.

The chairwoman of the Internal Market Committee in the EU Parliament, Anna Cavazzini, spoke of a good day for human rights, but she would have liked even stricter rules for climate and environmental protection. The Green politician also emphasized that the EU supply chain law goes beyond the German law. In the future, more companies will have to record risks across their entire supply chain.

German Supply Chain Act not that far-reaching

There is already a supply chain law in Germany. It currently applies to companies with more than 3,000 employees. According to the Federal Ministry for Economic Cooperation and Development, around 900 companies are affected. From 2024 it will apply to companies with more than 1,000 employees.

Affected companies must also analyze under the German requirements, among other things, how great the risk is that they will benefit from human rights violations such as forced labor. If they have evidence of violations, they must take action “to prevent, stop, or minimize the extent of that violation,” the law says.

The specifications are monitored by the Federal Office of Economics and Export Control. It also investigates complaints submitted. If the Federal Office discovers omissions or violations, it can impose fines. Companies that have not adhered to the rules can also be excluded from public contracts.

Criticism especially from business representatives

The EU Supply Chain Act now goes even further than the previous German regulation and is a so-called directive that the federal government still has to implement into national law. The European law professor and SPD MEP René Repasi pointed out that the EU law makes German companies liable for breaches of duty of care, which was previously excluded in the German supply chain law. Companies could be held liable under civil law and claims for damages could be asserted, for example.

Union politicians, like business representatives, had repeatedly expressed criticism of the EU supply chain law. They feared that there would be too much bureaucracy for companies and that this would put them at a competitive disadvantage compared to companies from third countries that are not affected by the rules.

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