Position paper on EU supply chain legislation

General assessment of the EU Supply Chain Act

The final compromise proposal for the EU Supply Chain Act, adopted by the EU Member States on 15 March 2024, continues to present companies with enormous – almost insurmountable – challenges: The EU Supply Chain Act affects a wide range of business areas and – in order to comply with the law – requires a high degree of innovative, collaborative and interdisciplinary solutions with regard to data volumes, responsibilities, business processes and reporting.
It is not only large companies that are affected by existing national and planned European supply chain laws, as is often claimed. Small and micro-enterprises are also affected by these regulations as (in)direct suppliers.
Compliance with the legal requirements often entails disproportionately high costs for the companies concerned. Large companies and corporate groups may, under certain circumstances, still be able to cover these costs or outsource the relevant tasks. However, small and medium-sized enterprises generally do not have these capacities or the means to handle such tasks in-house.
Implementing the Supply Chain Act requires staff with specific expertise. As the resources available on the labour market are currently limited, the pressure on companies is increasing. Companies must either procure this expertise externally, train existing staff accordingly, or – if such staff are available at all – recruit additional staff.
The existing legal and regulatory requirements already place a considerable burden on companies and jeopardise their economic competitiveness on an international scale.
Without a paradigm shift in the EU, a further tightening of European regulations and the associated additional costs are to be expected. However, some of these measures have already been adopted (the Green Deal, Green Finance, the EU Taxonomy, the CSRD, etc.). This raises the legitimate question of whether further additional burdens on these companies – and thus on national and European economies – are still proportionate.
Many national and EU-wide regulations target the same areas. The EU would therefore need to review all regulations to avoid cumulative burdens or, in the worst case, conflicting regulations (e.g. regarding deadlines).
For instance, the EU Supply Chain Act, in its current version, goes significantly beyond the German Supply Chain Act (LkSG) in some respects, but is expected to lag behind German law in terms of its scope of application until 2029. The use of AI could be helpful here in identifying and resolving conflicts.
It is highly doubtful whether the noble and legitimate environmental, social and climate objectives can be achieved at all. Does a mere ban on child labour actually lead to an improvement in the third countries concerned? Poverty, for example, is the main cause of exploitative child labour. Will the Supply Chain Act resolve this complex cause? No, because without the creation of alternative sources of income, the EU Supply Chain Act will in reality only reduce existing sources of income and thus lead to even greater impoverishment in these countries. So, before the EU believes it can bring about positive global change through the Supply Chain Act, it must ensure that alternative sources of income, decent working conditions for parents and opportunities for social education form part of global solutions – naturally, always through dialogue and with the involvement of the relevant local economic stakeholders. Otherwise, the situation will not improve; the problems will simply be shifted elsewhere and may even be exacerbated.
Greater burdens and a deterioration in economic living conditions for all, without any discernible benefit, are not a solution for European companies, nor for consumers in the EU, nor for people in third countries. In particular, we must prevent European companies from ultimately being simply replaced by other ‘suppliers’ with lower standards, who would then drive our companies in Europe out of the market with their products.
It is more than regrettable that there appears to be no public debate on alternative ways of achieving the objectives (incentives and local support).
A comprehensive legal impact assessment of the EU Supply Chain Act would indeed have to take all risks and consequences into account, and the EU Supply Chain Act would not come into being in its current form. In this context, it is more than surprising that policymakers are paying so little attention to the expected negative impacts of the Supply Chain Act.
On 24 April 2024, the European Parliament is due to vote on the EU Supply Chain Act. However, the EU is in no hurry to force this decision through now. On the contrary: a pause would mean that everything could be reassessed on the basis of the results of negotiations to date and, in particular, in consultation with third countries. The Supply Chain Act and its implementation would be designed in a targeted and results-oriented manner, without time pressure and without ideological constraints – with the sole aim of actually improving the situation in third countries at minimal cost.

Conclusion

Sustainability and the careful use of finite resources, the protection of the environment, the fight against climate change and the assumption of social responsibility are important and worthy objectives for the EU and the world. At the same time, only an economically strong Europe can set global standards and thus bring about global improvements. These two aspects are inextricably linked. This means that we must continually work towards the ethical and sustainable standards we wish to see for all people, without weakening our own economic strength in the process. Increasing bureaucracy would have the opposite effect. In this context, it is also worth mentioning policies that are fair to all generations through sustainable public finances, such as the efficient use of taxpayers’ money. Furthermore, before introducing EU-wide regulations, it should be examined which national regulations already exist and whether these contradict one another.

The use of public funds by the EU or national governments to achieve set objectives must always ensure maximum benefit at minimum cost. Performance monitoring is essential for the efficient use of public funds; this involves answering the following questions: Are the objectives being achieved? Are the resources allocated for this purpose being used efficiently? Are there alternatives that would achieve the same objectives at a lower cost? Are the costs incurred by the measures/requirements/laws proportionate? Are the set deadlines sufficient or too strict? To minimise negative impacts, a comprehensive impact assessment should always be carried out.

When it comes to EU objectives formulated in the interests of third countries – such as combating child labour or protecting species – it is essential that the third countries concerned are consulted and involved in the decision-making process.

Taking these aspects into account, the following can be observed:

At present, only a few EU countries have national supply chain laws (e.g. the Netherlands, France and Germany). This results in varying regulatory burdens for companies based in Europe. In this context, uniform, Europe-wide CSDDD legislation would be of great significance.
The EU Supply Chain Act (CSDDD) is rushed and premature. It appears that the legislation is to be adopted under an accelerated procedure before the European elections.
The
European Parliament’s approval of the CSDDD on 24 April 2024 must be prevented.
The aim should be to renegotiate the CSDDD during the new parliamentary term,
in order to make it more practical and to avoid unnecessary hardship or harsher provisions. Examples of this include burdens such as the proposed civil liability, the extension of requirements to downstream links in the supply chain (distribution) and the tightening of requirements for indirect suppliers.
The third countries concerned should be consulted and involved in the decision-making process in order to avoid any potential negative impacts in the countries affected.
Third countries.
Problems should first be resolved locally before legislative measures are introduced (incentives, use of quality labels, development measures).

Dr Richard BEYER Director of the European Institute of Public Finance (EIPF)	Dr Ingo Friedrich, President of the European Economic Senate (EES)	Dipl.-Ing. VW. (Univ.) Gregor HÄMMERLE Chartered Accountant

Dipl.-Kfm. Michael JÄGER President Taxpayers’ Association of Europe (TAE)	Rolf VON HOHENHAU President Bavarian Taxpayers’ Association

Download the position paper

Brussels/Munich, 2 April 2024