Scope of EU supply chain rules cut by 70% ahead of key Friday vote

The number of European companies impacted by EU corporate due diligence rules (CSDDD) has been squeezed by almost 70% of the original EU co-legislators agreement in December, to about 5400 companies – or 0.05% of the total – according to data seen by Euractiv ahead of Friday’s (15 March) crucial vote.

The latest tweaks to the CSDDD scope, delivered by Belgian diplomats to national ministries’ desks on Wednesday night ahead of a key vote among national envoys at 10.30am today, increased the threshold based on a company’s annual turnover from €300 million to €450 million compared to the draft circulated last week.

According to preliminary data analysed by the Centre for Research on Multinational Corporations (SOMO)* and seen by Euractiv, just 5,421 companies will now fall under the current draft’s scope, a 67% reduction from the 16,389 under the rules tentatively agreed between co-legislators from the European Parliament and the Council in December.

More specifically, this further cut would result in an additional 1444 companies being spared from the legislation compared to the draft circulated last week, which would have impacted 6885 companies – and is therefore poised to appease concerns from Italy and France, the ‘swing states’ on the file, where the decision rests in the offices of Prime Minister Giorgia Meloni and President Emmanuel Macron, while also handing Germany a few extra benefits despite its expected continued opposition.

The latest tweak of the Belgian compromise means that EU legislation would spare more companies than existing German national due diligence rules – whose scope is currently only determined by a company’s number of employees – 1,000 or more as of 2024.

Due to the dual criteria for applying the CSDDD (annual turnover and number of employees—the latter threshold also at 1000 or over), Germany would now see 65% fewer domestic companies impacted, bringing the number of German companies in scope down to 1,489. 

This is roughly 500 less than last week’s draft and as many as 2800 less than in the original December compromise.

Italy would also receive a 67% reduction, with 737 affected compared to 926 in last week’s draft and 2,260 in December’s text.

Meanwhile, in-scope French companies would drop to 481 from 571 last week and 1,140 in the original agreement – a 57% cut.

Endorsement of forced labour law squeezes room for political resistance on CSDDD

Several sources told Euractiv that the preliminary endorsement by envoys of the bloc’s 27 member states on Wednesday of a separate but closely interconnected legislation—the Forced Labour Regulation, or FLR— would also have ramped up pressure on wavering countries to support CSDDD on Friday, reducing the political room to justify continued resistance to the law.

EU rules aimed at banning goods linked to forced labour from European markets snapped a large qualifying majority two days ago when, Euractiv understands, only Germany, Latvia, and Hungary abstained.

“Overall, any member state claiming to be supportive of ending forced labour – as indicated by their positive vote in the FLR vote – can only make such a claim if they also vote in favour of the CSDDD,” Chloe Cranston, head of thematic advocacy at Anti-Slavery International, told Euractiv.

”The two files are complementary,” she said, “and If the EU fails to endorse the file now, this sends both an incoherent message to businesses on their responsibilities.”

“No CSDDD means massively weakening the impact of FLR, given due diligence is everywhere in the text,” a source close to CSDDD negotiations also warned. 

Johannes Blankenbach, senior researcher for EU/Western Europe at the Business & Human Rights Resource Centre, added, “the Forced Labour Regulation will only work properly if the CSDDD is in place.”

“The product import ban is a sharp enforcement instrument for specific situations of forced labour, while the CSDDD is key to tackling root causes of corporate abuse and strengthening prevention, engagement with suppliers, and remediation for victims,” he said.

A second source close to negotiations on both files argued that the more thorny discussions around the corporate due diligence law compared to the forced labour legislation highlight “that broader political interests are at play on the CSDDD.”

“It is fortunate that the FLR did not fall to these interests, and we must now see the same happen with the CSDDD,” she said.

*Source: SOMO with some data from Orbis and Eurostat

[Edited by Alice Taylor]

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