Spillover Effects of the EU Supply Chain Legislation

Our key takeaway: What will the effect of EU supply chain legislation (especially the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) proposal) be on countries outside of the EU? This is a question that a new report commissioned by The Greens/European Free Alliance (Greens/EFA) group of the European Parliament seeks to answer. Four case studies in Brazil, Chile, Kenya and Uganda demonstrate that governments are already responding to this legislation and adapting their national laws—albeit to varying extents—and that many local companies are observing this with some anxiety because they lack clarity on how exactly the different laws will overlap and impact their business. Companies subject to the EU legislation in their supply chains are well advised to take several key steps: (1) account for country-specific differences in the legal and business landscape, including the differences in national human rights laws; (2) engage stakeholders in a rights-respecting, culturally appropriate manner to understand particular impacts of their business and sourcing practices and “ensur[e] the involvement of stakeholders towards the base of the value chain in due diligence processes”; and (3) engage with their suppliers to build capacity and technical knowledge of the legislation in order to encourage implementation of their own meaningful, effective human rights and environmental due diligence. They can also encourage their own governments and EU institutions to engage in constructive dialogue with Global South partner countries to facilitate their understanding of and compliance with EU legislation and ease the transition.

The Greens/European Free Alliance (Greens/EFA) group of the European Parliament has published Spillover Effects of EU Supply Chain Legislation – Perspectives from Third Countries (November 2023):

• Effects on national laws and policymaking: The report examines the impact of EU supply chain legislation, especially the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) proposal, in four countries: Brazil, Chile, Kenya and Uganda. While the report points out that it is too early to really understand the full effects of EU supply legislation in exporting countries, the country case studies have provided learnings for three core actors in third countries. For governments, the extent to which they have adapted to the EU legislation depends on “the country’s engagement in trade relations with various countries, as well as the governments’ involvement in business and human rights initiatives globally.” While governments show different levels of progress in adapting national laws to international standards on human rights and environmental due diligence or to country-specific laws (as in France and Germany), “[i]n all cases, concrete steps are being taken, and none of the countries remains indifferent.” For example, in Brazil EU supply chain legislation “is regarded as a crucial tool for ensuring transparency, enforcing human rights and investigating violations.” Likewise, “Uganda bases its supply chain legislation on the UN Guiding Principles and has also created a NAP on business and human rights, aiming to serve as a procedural model for other African nations. The government actively focuses on NAP implementation and policy reform to enhance human rights and labour conditions.” However, the overall “number of current business and human rights laws and standards globally, and particularly in the EU, creates confusion among researched countries as to which legislation to follow and focus on.”
  

• Effects on the private sector: The report finds that “[t]he reaction of the private sector is divided not only country by country but also within different states, as there are already companies that have been aligning their activities with due diligence initiatives and legislation and that therefore are likely to align with the EU’s CSDDD and Forced Labour Regulation.” There remains a lack of clarity and some “alarm” about the effects of the EU’s supply chain law on local companies. “The fear is related to being excluded from the market due to lack of resources and/or lack of willingness to implement the EU laws.” For instance, although Kenya launched its National Action Plan on Business and Human Rights (NAP) in 2016, aligning with the UN Guiding Principles, the NAP is not yet formally adapted into law and the implications for companies are not yet clear, “likely due to the potential implications of new EU supply chain legislation.” For companies in Kenya, “[s]low implementation of agricultural reforms, delayed because of the influence of powerful landowners and companies, poses challenges, and both multinational and local companies in Kenya express concerns about legislative demands.”
  

• Recommendations: The report poses recommendations both for EU institutions and for the private sector. For one, “[e]stablish mechanisms that give a seat at the table to stakeholders at all stages of the value chain, including workers, supervisors and managers. These consultations should be ongoing, proactive and culturally sensitive, taking into consideration any barriers to participation and specific needs of vulnerable stakeholders.” Civil society organisations should also be brought in and engaged early on about the implications of the legislation, especially as they tend to have the least information about EU legislation compared to governments and companies. In addition, EU institutions should engage in “constructive dialogue with Global South partner countries to facilitate their understanding of and compliance with EU legislation” and ease the transition. They should also consider the country-specific context during stakeholder engagement and when implementing legislation, adapting “legislation to fit the local context to ensure it is effective and aligned with the existing legal and cultural environment.” Companies and institutions alike can provide capacity building, training and technical support to their respective peers in third countries and “[e]nsure that compliance is not burdensome and share best practices.” To build up local knowledge of the legislation and overall expertise on due diligence, “local representatives should be available to assist with inquiries and ensure that affected parties are aware of their presence and role in the region.” For companies, this could entail building the capacity of country offices and local staff or among suppliers and other business partners to understand and implement human rights and environmental due diligence practices.