The disastrous consequences of the new EU supply chain guidelines
German liberals have thrown a wrench in the EU’s plans to increase supply chain oversight. And they are right to do so.
The German government finds itself unable to endorse the Corporate Sustainability Due Diligence Directive, a broad proposed EU regulation that would punish businesses for environmental and human rights violations in their supply chains. The Liberals within the governing coalition are withholding their support – a decision made on solid grounds.
The directive mandates that companies with over 500 employees rigorously enforce human rights standards, such as the prohibition of child labor and environmental regulations throughout their entire supply chain and investments. This extends not only to direct suppliers but also to the very beginning of the supply chain. While this might appear ethical in theory, in practice, such regulations have unintended consequences.
This stringent oversight, though aimed at promoting ethical practices, inadvertently stifles the flow of investment and commerce – vital lifelines for growth and development. For emerging economies, particularly in Africa, business investments and trade remain the most effective form of assistance.
The directive poses considerable challenges not only to German businesses but also to those across all EU member states. The administrative burden is substantial, undermining productivity and further diminishing the EU’s already waning competitiveness. It complicates, if not outright obstructs, business operations and investments in many parts of the world. This legislation would not only harm emerging markets, it would also result in Europe losing market share and influence to competitors like China.
The economic toll on an already struggling Europe will be significant, with even greater repercussions for ethical businesses operating in emerging economies.
In Germany, similar obligations are already in place for very large companies employing more than 3,000 people. Despite their greater resources, these firms are struggling and have to withdraw from certain markets. They serve as proof of the adverse effects of overly ambitious and poorly considered regulations. The issue these companies face is not suspicion or evidence of human rights or environmental standards violations, but rather the overwhelming burden of compliance, control and reporting requirements, or the sheer impossibility of meeting these demands.
We must keep in mind that the main obstacle to European productivity and competitiveness is the proliferation of regulations, compliance standards and reporting requirements. The majority of businesses are in favor of upholding high human and environmental standards. But such sweeping regulations do not accomplish this purpose, and the damage inflicted far outweighs their benefits.
This regulation will affect thousands of companies across Europe, including 7,000 in Germany alone. These are the medium and large companies that engage in international trade and investment. This means that nearly all of Europe’s cross-border commercial activity is affected. The economic toll on an already struggling Europe will be significant, with even greater repercussions for ethical businesses operating in emerging economies.
The Liberals are now facing intense criticism from their coalition partners, who accuse them of being shortsighted or ideologically misguided. One hopes – for the sake of all Europe – that they will remain firm in their stance. The Liberals advocate for a lean and practical EU supply chain directive instead.
The Green Minister of Foreign Affairs, who is advocating for a feminist foreign policy, has expressed concern over Germany’s diminishing credibility among EU partners. In reality, the Liberals’ stance defends the interests of all Europeans.
This directive epitomizes the kind of well-intentioned but ultimately harmful “feel-good” policy that unaccountable technocrats and politicians without practical experience and knowledge tend to endorse.
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