VDMA Asks For Common Sense on EU Supply Chain Regs

More DEI, more climate change taxes and increasing regs and box ticking goals on vetting suppliers, even for smaller companies. Surely if the EU wants to start penalising companies based on human rights abuses then a blanket ban on all China made products is a good place to start, including electric cars, smartphones, cheap bicycles, e-scooters and most laptops/PCs? No, too scary for you Ursula? Thought so.

Here’s some pushback from the VDMA in Germany;

Safeguarding human rights around the globe is a goal to which German and European companies are clearly committed. This is why high standards apply in their workplaces at home and abroad. Companies make a significant contribution to increasing prosperity in the Global South and improving social standards locally.

However, the serious technical flaws in the EU supply chain directive now being voted on, in particular the lack of harmonisation, could lead to German and European companies withdrawing from markets and countries. The field would then be open to other market participants with significantly lower standards. This would do a disservice to the actual objective of the EU Supply Chain Directive. Therefore, regulation with more practical relevance and a sense of proportion is needed.

The eight business organisations also clearly criticise the proposed civil liability for companies and their management boards, managing directors and supervisory boards. Their incalculable risks would also lead to companies withdrawing from difficult markets. In addition, the scope of the directive is far too broad, extending far beyond the protection of human rights and companies’ own production and labour sites.

It requires companies to monitor almost all stages of their supply chains globally for violations of human rights and environmental or social standards. Industrial companies in particular often have tens of thousands or even a six-figure number of suppliers, a considerable proportion of which change every year. Many companies do not have the negotiating power to gain the required insight into the supply chain from their upstream suppliers. It therefore makes sense to limit the due diligence obligations to what companies can control and influence – their own operations, subsidiaries and suppliers at the first level of the upstream supply chain, where influence is possible due to market power and turnover.

VARYING STANDARDS ACROSS THE EU

An important reason for the negative attitude is the lack of harmonisation in key parts of the directive. The fundamental goal of legislation for sustainability must be maximum harmonisation. This directive does not achieve this.

Without sufficiently binding harmonisation through a directive, there is a risk of fragmentation of the EU internal market, as the same laws and competitive conditions for companies do not apply within Europe. In addition, this leaves the member states a lot of room for interpretation or additional regulations (“goldplating”). At the very least, a so-called internal market clause is needed here. Otherwise, European companies will be confronted with 27 different individual implementations.

The organisations also point out that in December 2022, the German government issued a declaration on the Supply Chain Directive in Brussels, which was agreed by all three governing parties and pointed out red lines. Among other things, the SPD, Greens and FDP demanded that Germany could only agree to a final directive if it contained a “safe harbour” regulation for companies that have joined industry initiatives.

The use of recognised certifications would mean a significant simplification and companies would no longer have to check every single supplier anew. However, the proposal for a directive currently on the table explicitly excludes such a “safe harbour” regulation.