Germany and Italy torpedo EU supply chain law
Germany and Italy have torpedoed an EU law imposing liability on companies for alleged human rights abuses in their supply chain, such as in China’s Xinjiang region.
At a meeting of EU ambassadors on Wednesday, no majority could be established for the law, which had been previously agreed, due to Berlin and Rome’s last-minute objections reflecting concerns that the new legislation would hurt their industrial base.
The aim of the due diligence law is for companies to take responsibility for any human rights abuses or environmental damage found in their supply chains. It would also enable campaigners to take businesses to court for harm they cause.
Xinjiang, where the Chinese government has been accused of using forced labour and ordering the mass detention of local Uyghurs, has become a significant issue for German chemical maker BASF and carmaker Volkswagen. Both companies have come under intense criticism from human rights activists and investors for their plants in the region. Beijing denies repressing the Uyghurs.
The US has already banned imports from north-west China and the EU is separately seeking to adopt similar restrictions regarding forced labour. Even companies that avoid Xinjiang but source parts or raw materials from China are at risk of falling foul of the US rules, as evidenced by a recent report by Human Rights Watch, which showed that many of the world’s biggest carmakers were buying aluminium sourced in Xinjiang.
French officials made a last-ditch attempt to bring Germany and Italy back on board by suggesting that the scope of the law could be drastically reduced, officials and EU diplomats said. Paris proposed options including raising either the threshold for the number of employees or for the revenue to establish which companies will have to comply, officials and EU diplomats said.
The Belgian government, which currently holds the EU’s rotating presidency and is chairing the negotiations, said it would now have to “see if it’s possible to address the concerns put forward by member states” and rescue the law in coming months.
Two EU diplomats said a deal may be struck involving amendments to a different law to reduce packaging waste, which Italy has opposed. “There is hope and days left to find a solution,” one said.
Human rights groups criticised the governments’ failure to agree on the law.
“This is a major setback for human rights and the environment,” said Beate Beller, corporate accountability campaigner at Global Witness, a non-governmental organisation.
She said EU countries were “threatening a once-in-a-generation opportunity to protect some of the most vulnerable people on the planet, safeguard the climate and protect nature”.
The future of the law, initially agreed in December, was thrown into doubt after Germany’s industry-friendly Free Democratic party, which is a member of Chancellor Olaf Scholz’s coalition government, withdrew its support, forcing Berlin to abstain in a vote normally regarded as a rubber-stamping exercise.
Germany is one of few countries in the EU that has already adopted its own supply chain law. The legislation, passed last year, was criticised by corporate lobby groups as making it near impossible for small companies, without big due diligence, to source parts internationally. Some executives have privately complained that by thwarting the EU-wide legislation, small German companies will be less competitive than their European counterparts.
The issue many companies face is that the sheer complexity of global supply chains means it is near-impossible to know where parts and raw materials come from. Cobalt, which is needed to power the battery-driven cars European regulators want to replace combustion engine vehicles with, is extracted in countries such as the Democratic Republic of Congo, in mines that often do not comply with the EU’s environmental and human rights standards.
German liberal justice minister Marco Buschmann said on X on Wednesday that “there were too many objective reasons against the current proposal: too much bureaucracy, too many new liability risks, unmanageable due diligence requirements — and too few clearly visible benefits”.
The German abstention emboldened other countries, including Italy and Bulgaria, to also abstain, which meant there was no majority in favour given that nations such as Sweden, Austria and Finland were already opposed to the law.
Richard Gardiner, head of EU policy at the World Benchmarking Alliance, said that “in 15 years following EU legislation, this is one of the messiest and disappointing processes I have ever witnessed”.
The “simple goal” of greening the EU economy had “ended up [with] member states pushing national self-interests and intentionally disrupting any attempt to form a consensus”.