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Planned new EU supply chain laws will hit SMEs

supply chain

Planned new EU supply chain laws will overburden small and medium-sized companies, according to industry group the VDMA.

Small and mid-sized companies in the mechanical and plant engineering sector feel abandoned by politicians and deprived of their competitiveness with regard to the new European supply chain legislation, according to the VDMA (Association for Machinery and Equipment Manufacturing)

Many of the 3,500 VDMA member companies have complained that, while the new rules are supposed to cover only large organisations, the new EU Supply Chain Act and its standards will automatically apply to smaller companies involved in supply chains.

The planned new supply chain legislation only covers larger companies but because these companies will pass on the pressure and obligations to their suppliers, de facto smaller companies must also guarantee the same standards in the depths of their supply chains, even in distant countries or withdraw from many markets and leave them to competitors from countries with fewer due diligence obligations.

The development is further exacerbated by the due diligence obligations along the entire value chain that are being discussed at European level. Having to apply these standards to customers is even less realistic. Export business would then simply be impossible with many countries and European SMEs would be replaced by – often state-controlled – industrial enterprises from other regions of the world. The political goal of diversifying supply chains to make Europe more resilient would thus be reversed.

The VDMA has urged members of the European Parliament to exert their influence in Brussels on the ongoing procedure for the EU Supply Chain Act. “It cannot be that SMEs are praised in speeches as a pillar of prosperity and then overburdened with bureaucratic requirements that noticeably weaken them in global competition,” warns VDMA executive director Thilo Brodtmann. “The EU Parliament’s plans must be prevented from being implemented in the way they are currently being discussed, if it does not want to accept another heavy burden on industrial SMEs.”

Frank Konrad, CEO, HAHN Automation, said: “As a globally active special machinery manufacturer with both an international customer and supplier network, we will be directly affected by the EU Supply Chain Act from 2024.

“For us as a medium-sized company with more than 1,000 active suppliers, this means a considerable additional financial and personnel effort in order to be able to fulfil the prescribed due diligence obligations. In addition, we cannot assess whether all global suppliers can follow these required standards. Due to the new global requirements, we will be asked to pursue continent-specific developments in the medium term, thus limiting our competitive advantage.”

Dr. Markus Baldinger, managing director, Pöttinger Landtechnik, said: “The biggest problem of the EU Supply Chain Act is the requirement of due diligence not only for direct suppliers (direct contractual partners) but also for indirect suppliers (suppliers of our suppliers and in turn their suppliers). It is very difficult to comply with this due diligence requirement because it is almost impossible to locate and influence all suppliers. The current planning of the EU supply chain law represents a substantial additional effort for companies, from risk analysis to bureaucratic and legal effort.”

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