EU Core Raw Materials Law Does Not Include Provisions Discriminating Against Foreign Companies…Limited Impact on Korean Companies
Supply Chain Due Diligence Guidelines, Scope Significantly Reduced… Expected to be Approved by the EU Parliament in April

Since the EU's Core Raw Materials Act does not include provisions discriminating against foreign companies, its impact on Korean companies is expected to be limited, and although the scope of the supply chain due diligence guidelines has been significantly reduced, it seems necessary to keep a close eye on legislative trends within the EU Parliament until April.

On the 26th, Shim Jin-soo, Director General of the New Trade Strategy Support Division of the Ministry of Trade, Industry and Energy (MOTIE), held a meeting of relevant organizations related to supply chain and climate energy trade, and reviewed recent legislative trends in the European Union (EU) and their impact on our companies.

The EU's core raw materials law and supply chain due diligence guidelines, which have been promoted so far, are nearing final approval and entry into force, and the Carbon Neutral Industry Act has been agreed upon among three parties (Commission-Council-Parliament) in February 2024.

The Core Raw Materials Act, which aims to secure a stable supply of raw materials, sets goals for strengthening the production capacity of strategic raw materials within the region (10% for local extraction, 40% for processing, and 25% for recycling) and reducing import dependency (less than 65%), and stipulates support for strategic projects and risk mitigation measures.

Since it does not include provisions discriminating against foreign companies, its impact on our companies is expected to be limited.

A company of a certain size (1,000 employees, global net sales of 450 million euros or more, etc.)The supply chain due diligence guidelines, which are centered on human rights and environmental obligations within the supply chain for domestic and foreign companies, are evaluated to have been significantly reduced in scope, thus easing the burden compared to the draft.

Meanwhile, the three-party agreement on the Carbon Neutral Industry Act, which aims to improve carbon-neutral technology manufacturing capacity, stipulates related support such as simplification of licensing procedures for target technologies such as nuclear power, solar power, and wind power, and it is understood that there are no elements of discrimination against foreign companies.

The government has been communicating closely with experts from academia, industry, and research through meetings and countermeasure conferences, sharing legislative trends in the European Union and examining their impact, and has been working to resolve uncertainty by conveying our industry’s concerns and requests to the European Union through various occasions, such as high-level meetings between the two countries.

Shim Jin-soo, Director of the New Trade Strategy Support Office, said, “We will closely monitor the corporate burdens and opportunities resulting from the European Union’s legislation and implementation, communicate closely with the industry and research institutes, and promote corporate briefing sessions.”

Meanwhile, the 'EU Corporate Sustainability Due Diligence Directive (EU CSDDD),' first proposed by the European Commission in February 2022, went through amendments in the Council and Parliament over the past two years, and was expected to pass smoothly as the Parliament and the Council reached an interim agreement in December last year.

However, the bill's existence was put on the line after it was initially rejected at the EU27 permanent representatives meeting in February 2024, which was initially thought to be a formality. This was because Germany's Free Democratic Party (FDP) abstained from voting, citing concerns about stifling corporate activities, and Italy, France, and others joined in.

After fierce negotiations, the 'EU CSDDD (hereinafter referred to as the final draft)' was passed at the Permanent Representative Meeting on the 15th with conditions that greatly eased the applicable companies.It was dramatically passed in the legislature.

Lee&Ko analyzed in their newsletter that the current EU Parliament session is scheduled to end around April, two months before the upcoming EU Parliament elections, and that the final draft is expected to be approved by the EU Parliament in April of this year after review by the Legal Affairs Committee.

▲Application period according to the final draft of the EU Supply Chain Due Diligence Guidelines (Image source: Lee&Ko Newsletter)

Lee & Ko continued, “It should be noted that even if the applicable companies and application period according to the final draft have been significantly relaxed compared to the original Commission draft, any company within the supply chain (activity chain) of the applicable company will have a contractual obligation to respond to the due diligence request as a subject of due diligence.” They emphasized, “Both applicable companies that do business with the EU and companies subject to due diligence should keep a close eye on legislative trends within the EU Parliament until April and prepare for supply chain due diligence, which is becoming mandatory worldwide.”