Potential Impacts of EU Due Diligence Obligations on Companies’ Suppliers in Developing Countries

This report is about the impact EU legislation on due diligence could have on EU companies’ suppliers in developing countries. Trade Policy Adviser Kim Larsson tells more.

Due diligence is the process through which companies can identify, prevent, mitigate, and account for how they address their actual and potential adverse impacts on, for example, the environment or human rights. We think that it is good that the EU is requiring companies to take more responsibility, but the due diligence obligations are extensive and could have a negative impact on companies’ suppliers.

Why has the National Board of Trade looked into this matter?

The National Board of Trade wants to draw attention to the fact that while EU legislation on due diligence is well-intentioned, it also brings a risk of negative consequences for EU companies and their suppliers, including impacts on the EU’s trade with countries outside the Union. EU decision-makers should be aware of this and take these consequences into consideration to a greater extent.

What are the most important conclusions?

One of the report’s main conclusions is that the combined impact of the EU legislation on due diligence could have the opposite effect from its indented purpose, i.e., enhancing human rights and improving the environment. Since suppliers may struggle to comply with the extensive due diligence obligations, there is a risk that the new requirements may jeopardise their relationship with EU companies. Thus, there is a possibility that suppliers will say that they comply when that is not the case.

Another conclusion is that if suppliers find it too complicated to engage in business relationships with EU companies because of the burdensome due diligence obligations involved, those suppliers could choose to sell their raw materials and products to other companies outside the EU. This in turn could impact on the EU’s trade with countries outside the Union.

What do you hope to achieve by publishing this report?

We hope that this report will help EU companies and their suppliers to better understand how EU due diligence legislation could affect them. We also believe that it can be a useful heads up for EU decision-makers and thus we end our report with recommendations to them and to EU companies and their suppliers.