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The future of sweeping EU legislation to punish companies for environmental and human rights abuses in their supply chains has been cast into doubt after German government ministers pledged to oppose it.
Germany’s Free Democrats (FDP) — the third party in the coalition government of chancellor Olaf Scholz — said on Thursday they would force a German abstention on the proposed law at a vote next week in Brussels. Under the terms of the coalition agreement, the FDP’s consent is needed for the government to take a position in Brussels.
The move threatens to undo an only recently secured compromise on the legislation, which gained political agreement among EU member states in December. German support is seen by many diplomats as crucial to holding the agreement together.
“I have to admit that there is no consensus [in Berlin] that the agreements we have reached in Europe are adequate,” said Scholz, speaking in Brussels on Thursday after his FDP finance and justice ministers declared they would not support the package going further in its current form. “Sometimes progress is a snail’s pace.”
The Corporate Sustainability Due Diligence Directive is intended to ensure that the largest EU companies report and take action on any social, environmental or human rights abuses in their supply chains. It marks one of the bloc’s most ambitious efforts to try to raise standards in countries outside the EU as well as among its own member states.
But critics, including Germany’s powerful business lobby, say the proposed legislation places a huge burden on businesses and in many instances is unworkable.
Berlin has faced growing pressure over the law amid a stagnant economy and questions over the future of the country’s once mighty industrial sector.
EU ambassadors were due to give an initial green light to the draft law on February 9. For the legislation to be approved, member states representing a majority of the bloc’s population must vote in favour. The European parliament will also have to vote on the rules.
The proposals are a “self-strangulation of our [attractiveness as a] business location”, German justice minister Marco Buschmann said, in explaining the FDP’s decision.
“We need solutions that do not overwhelm small and medium-sized companies in particular and that do not paralyse Germany and Europe in international competition with even more bureaucracy,” he added.
“What is now being sold as a compromise [in Brussels] is not only bad, it simply doesn’t work,” said Siegfried Russwurm, president of the federation of German industries last month. “The government of the largest exporter in the EU simply cannot accept such a thing.”
One EU diplomat involved in the discussions said negotiators were “still positive for an agreement”.
But talks over the rules, first proposed by Brussels in 2022, have been fraught. France and other member states have already sought looser criteria for banks.
Many in Brussels fear that if Germany pulls out of the agreement, other member states will follow. Sweden, Austria and Estonia are among those that may decide to vote against the plan, according to diplomats involved.
The German cabinet is due to address the issue next Wednesday.
This is not the first time the FDP, the smallest of the three governing parties in Germany, has forced the hand of its Green and Social Democrat partners in Brussels. Last February the party also blocked Germany from supporting a new law to ban internal combustion engines in new cars after 2035.
The last-minute move resulted in Brussels allowing exemptions for certain carbon-neutral fuels.