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German government should abstain: New EU regulation threatens to fail in Germany

The planned new EU supply chain law is at risk of failing in Germany. The Federal Ministry of Justice and the Federal Ministry of Finance may not support the plans, it was announced on Thursday from government circles. “In the Council of the European Union, this results in Germany abstaining, which in effect amounts to a ‘no’ vote,” said a letter from Justice Minister Marco Buschmann and Finance Minister Christian Lindner (both FDP), which was available to the German Press Agency. The EU Council is yet to have a final vote among the EU states. “The Pioneer” first reported on the stance of the FDP ministries.

The EU supply chain law aims to hold large companies accountable if they benefit from child labor or forced labor outside the EU. Larger companies must also create a plan to ensure that their business model and strategy are in line with the Paris climate goals to limit global warming.

Germany’s abstention endangers EU supply chain law

Negotiators from the European Parliament and the EU states reached a compromise on the proposal in mid-December. However, there is currently only a political deal. A detailed legal text is being worked on by officials and could be finalized in the coming weeks. After that, it still needs to be finally accepted by the EU states and the European Parliament.

An EU diplomat told the German Press Agency that with Germany’s abstention, it is unclear whether there will be sufficient support among the EU countries for the proposal. There are speculations that other countries may now also not approve the proposal, following Germany’s decision. This puts one of the flagship projects of EU trade policy at risk.

According to another EU diplomat, the Belgian presidency will continue to drive the proposal forward. Efforts are being made to reach an agreement, it was stated.

EU supply chain law would affect significantly more companies

Germany already has a supply chain law, but the EU version goes beyond the requirements of the German law. The German law applies to companies with more than 1000 employees. This threshold is likely to be lowered by the EU version. Additionally, it is envisaged that companies can be held civilly liable and such as claims for damages can be made. This is currently excluded in the German supply chain law.

Buschmann and Lindner criticized that the EU law would lead to companies being civilly liable to a considerable extent for breaches in the supply chain. Furthermore, significantly more companies would be affected than under current German legislation. The construction sector is also to be classified as a so-called high-risk sector. This could be existential threatening especially for small and medium-sized companies in this sector, which is already struggling due to increased construction loan interest rates. “In our impression, many companies simply do not have the appropriate personnel and financial resources,” argue the ministers. “It is feared that there will be even less construction activity in Germany in the future.”

Several leading associations of the German economy recently urged Chancellor Olaf Scholz (SPD) in a letter to refuse approval of the new EU supply chain law. They warned of “legal uncertainty, bureaucracy, and unpredictable risks”.



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