China Chamber of Commerce to the EU

Although the entity agrees with its ultimate objectives, it does not express explicit support for the legal framework, pointing out what it considers to be its shortcomings

The entity states that: ‘even though the CCCEU agrees with the ultimate objectives that the CSSDD pursues, the proposed framework raises a number of concerns for our members. In essence, we believe that the CSSDD Proposal, as it stands now, contains a number of shortcomings, which are likely to create unbalanced, disproportionate and ambiguous obligations for all business operators, including our members. As such, we fear that these obligations will eventually hinder the Commission’s target of creating more legal certainty and a level playing field for all businesses in the EU. Therefore, we invite to the Commission to reconsider these aspects and to improve the Proposal accordingly’. It then describes its considerations regarding, ‘legal certainty, the level-playing field and better regulation’. The entity is in favour of periodic reporting, as long as overlapping and duplicative reporting is avoided.

The entity considers that the European Commission underestimates the number of Companies that will be subject to the legislation and advocates for raising thresholds.

The entity states that: ‘Based on the Commission’s estimation, the Directive will cover about 13,000 EU companies and about 4,000 non-EU companies. Nonetheless, the CCCEU believes that this is an underestimation. It argues that thresholds prescribed are lower than those in the existing due diligence law in some member countries, that it is much easier to meet the thresholds laid down in the CS3D, contrary to the estimation of the Commission and that ‘although not directly falling within the scope the CSDD, companies along the entire supply chain of the subject company will be also subject to the due diligence obligations and will become liable for any breach, through the contract cascading. As such, the companies eventually covered by the CSDD are multiplied by hundreds or even thousands’. It then suggests the following: ‘The applicable thresholds of the CSDD should be considerably raised, in particular with regard to the number employees, and at least aligned with the national thresholds in EU Member States like Germany and France’.

The entity considers that the proposal adopts a decentralised and fragmented approach in terms of enforcement and advocates for centralising enforcement in ENSA (European Network of Supervisory Authorities)

The entity states that: ‘we find that the Proposal adopts a decentralised and fragmented approach in terms of enforcement. Firstly, the proposed Directive will need to be transposed into national law of the Member States to become enforceable. Yet, the Directive only provides for high-level principles and requirements without any implementation details, and this will give EU Member States large discretion in the transposition process to fit it in their own - often very different - national legal system and traditions. … Secondly, Article 17 of the CSDD Proposal allows each Member State to designate one or more supervisory authorities to supervise compliance with the obligations laid down in the national rules transposing the Directive, and to enforce these rules. … Thus, we find that this structure does not alleviate the abovementioned concerns relating to the inconsistent implementation of the same rules amongst different Member States, or even between different supervisory authorities within the same Member State … As a result of these three considerations, ours members are concerned that … this will lead to competitive advantages or disadvantages for companies located in the different Member States, because the obligations and liabilities will not be consistent across the EU, and thus a level playing field cannot be guaranteed’. It suggests the following: ENSA might be best positioned to ensure consistent implementation among the EU Member States where questions relating to critical application standards arise, or when enforcement across Member States so requires’.

The entity advocates for removing civil liability provisions, relying in the existing national liability rules.

The entity argues that: ‘Article 17 of the CSDD Proposal allows each Member State to designate one or more supervisory authorities to supervise compliance with the obligations laid down in the national rules transposing the Directive, and to enforce these rules. … we find that this structure does not alleviate the abovementioned concerns relating to the inconsistent implementation of the same rules amongst different Member States … we expect the situation to worsen and become more controversial when it comes to judicial enforcement in relation to the civil liabilities endorsed by the proposed Directive. In fact, it cannot be excluded that the Member States courts will apply the legal standards prevailing in their respective national legal system for the interpretation and application of civil liability. As a result of these three considerations, our members are concerned that uniform and harmonised implementation of the proposed rules is unlikely to be ensured. In turn, this will lead to competitive advantages or disadvantages for companies located in the different Member States, because the obligations and liabilities will not be consistent across the EU, and thus a level playing field cannot be guaranteed’. It then suggests the following: ‘Civil liability provisions shall be completely excluded from the Proposal, thus leaving the existing national liability rules of each Member State to play the major role, in line with its established judicial system’.

The entity considers that the proposed due diligence entails excessive administrative burdens and disproportionate liabilities, and that the scope of the value chain covered is too wide.

The entity states that: ‘companies will assume general obligations to identify, prevent or mitigate potential human rights and environmental adverse impact, and to end or minimise their actual ones. The Proposal lays down a list of specific measures to fulfil those due diligence obligations. However, the latter go much farther than existing practices and national supply chain laws in some EU member states, not least by introducing a civil liability regime, and by imposing disproportionate, administratively burdensome and cost-intensive obligations on companies, with the consequent liabilities. This can be observed in three aspects: in the much wider scope of subject companies along the entire value chain as opposed to direct suppliers; in the much severe sanction and liability regime; and in the trickle-down effect created by the contract cascading. The most problematic aspect of the CSDD Proposal is that it requires subject companies to exercise due diligence along the entire value chain, both directly and indirectly’. … ‘the CSDD Proposal results impractical in light of its implementation requirements. It imposes overly burdensome compliance obligations on companies, it entails excessive administrative costs for them, and it breaks the balance between rights and obligations. Consequently, companies will have to limit and severe ties with most of their supplying sources to limit their exposure to the due diligence, which in turn puts at risk the security of supply and the already vulnerable supply chains’.

The entity considers that contractual assurances may have negative consecuences in supply chains, particularly SMEs and non-EU companies, which will assume most of the burdens and costs.

The entity states that: ‘details on what needs to be covered in such “contractual assurances” are missing in the Proposal, and the guidance about voluntary model contractual clauses are yet to be adopted by the Commission. The CCCEU members voiced strong concerns about the practicality of such contractual assurances and about the negative consequences of such contractual cascading in the supply chains, in particular towards SMEs and non-EU companies. These will eventually become the ultimate obligation performers and will assume most of the burdens and costs, given their comparatively lower, or even nil, bargaining power in the business relationship, even though the Proposal suggests that fair, reasonable, and nondiscriminatory contractual terms ought to be used in such contracts’. It calls ‘on the Commission to adopt guidelines on practical issues, as well as guidance on model contract clauses as soon as possible, so as to provide the necessary clarifications to the above mentioned issues’.