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Towards a European Supply Chain Law

In October 2021, the European Commission plans to table a legislative proposal on due diligence requirements to protect human rights and the environment in the supply chain. The European Parliament and Council welcome these plans. The success of a European supply chain law will strongly depend on its concrete design: The due diligence requirements to be met must be proportionate and feasible for companies to implement in daily practice.

A clear and strong political signal for a European supply chain law also comes from the European Parliament. In March 2021, MEPs adopted by a large majority their legislative proposal on corporate accountability and due diligence and hereby call on the European Commission to propose a corresponding directive. Overall, the European Parliament's proposal provides for very extensive due diligence obligations and goes far beyond the obligations for companies debated at national level. In future, for example, not only risks to human rights are to be examined, but also environmental and good governance risks. In addition, parent companies based in the EU are also to be held liable in courts of EU member states for damages caused by their business partners or subsidiaries in third countries. The question whether companies will even be able to monitor and meet the planned requirements, does not seem to be of great importance to some MEPs.

Preparations for a European supply chain law are moving forward 

As part of its preparations for the official draft Directive scheduled for October 2021, the European Commission will also consider the report submitted by the Parliament. Meanwhile, it remains to be seen what exactly the Commission's legislative text will cover. EU Justice Commissioner Didier Reynders has already announced several times that he will propose cross-sectoral rules that would oblige companies to comply with human rights and environmental standards in their supply chains. Clear enforcement mechanisms and a system of sanctions would also have to ensure that the standards are met . The approach is based on a study commissioned by the Commission on due diligence in the supply chain. This study shows a clear preference for tightening up the existing rules. Results showed that only one in three EU companies carefully reviews its global supply chains in terms of human rights and environmental impacts.

Similarly, the EU member states agree that a European legal framework should regulate corporate due diligence along global supply chains. In early December 2020, they unanimously adopted European Council conclusions on this matter. 

Companies prefer a uniform European solution to national special paths 

Companies prefer a European solution to national special paths. Particularly when it comes to global business, a uniform solution is needed to prevent distortions of competition in the European Single Market and reduce the existing complexity of hybrid regulatory mechanisms. But even with a European solution in mind, it is important to recognise the complexities and limitations of legislative measures. Even European regulation should not be overestimated in its impact on effective human rights protection on the ground. The enforcement of human rights is a sovereign task. European companies can make an important contribution to this with their involvement in developing and emerging countries - but they cannot shoulder it alone. National governments are responsible for enforcing human rights in their countries. Therefore, the framework should focus on the impact on the EU's partner countries and regions, as well as on feasibility. 

Businesses need workable frameworks 

The question  whether a European supply chain law is coming is no longer up for discussion. The task now will be to create practicable and SME-friendly framework conditions for internationally active companies. A statutory catalogue of criteria must clearly define what companies have to do in concrete terms as part of their due diligence obligations. Otherwise, there is a risk of withdrawal from countries in which European companies are already operating and thereby contributing to higher standards, better education and thus to local growth and prosperity.