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5 Mar 2024

David Ollivier de Leth, MVO Platform, & Joseph Wilde-Ramsing, SOMO

Law of unintended consequences: Rejection of the EU Due Diligence Directive will bring back Dutch Child Labour Act, driving legal fragmentation

The failure of EU Member States to endorse the Corporate Sustainability Due Diligence Directive (CSDDD) last week leaves the future of this landmark corporate accountability legislation hanging in the balance. Beyond the immediate disappointment for the protection of human rights and the environment if the CSDDD is not adopted in the final vote, there are wider implications: without a unifying directive, companies will face varying standards and expectations as important domestic legislative processes will develop - and resume - across the economic bloc.

One such example is the Child Labour Due Diligence Act in the Netherlands. The law is currently on hold pending the outcome of the negotiations on the CSDDD, which are set to come to a close in the next week or so – meaning if EU Member States fail to adopt the CSDDD, companies operating across the EU will have to contend with the Dutch law. It would add to the web of national due diligence laws in Europe, including those in France, Germany, and Norway.

The Child Labour Due Diligence Act imposes a duty of care on companies to prevent child labour in their entire supply chains by conducting due diligence. It applies to both Dutch and non-Dutch companies that sell goods or services on the Dutch market. In a first for due diligence laws across Europe, the law contains criminal liability for repeated failures to conduct due diligence. This provision makes it possible for company directors to either be ordered to personally pay fines or to be imprisoned for up to two years.

Further delay “no longer tenable”

The Child Labour Due Diligence Act was adopted by the Dutch Senate in 2019. The Dutch government subsequently announced its intention to integrate the Child Labour Due Diligence Act into comprehensive due diligence legislation at the EU level, which, in addition to the issue of child labour, would also cover a broad range of other human rights and environmental issues.

Since 2020, subsequent Dutch governments have expressed that if the EU were to fail to adopt comprehensive due diligence legislation, the Netherlands would move to implementing national legislation for responsible business conduct. In 2021, the government explicitly positioned its efforts to realise the adoption of CSDDD at the EU level as part of its implementation of the Dutch Child Labour Due Diligence Act. The government also stated it was “no longer tenable” to not implement “a law that had been passed by parliament”, but that it was aiming to integrate the Act into EU legislation.

Should the EU fail to adopt the CSDDD, the Dutch government will no longer be able to further postpone the implementation of the Child Labour Due Diligence Act. It is also highly unlikely that any attempt to repeal the Child Labour Due Diligence Act without the introduction of alternative legislation would be able to secure the required majority in Dutch Parliament.

Web of national due diligence laws

If EU leaders decide to reject the CSDDD, this comes with a very clear consequence: the existing landscape of national due diligence laws, varying in scope, material focus, liabilities, and regulatory regimes, will persist, and even proliferate. Companies operating in Europe will be facing varying national due diligence laws in France, Germany, Norway, and now the Netherlands, with other European countries joining in the near future. Last week, the Luxembourg Parliament and government announced the implementation of national due diligence in case the CSDDD fails. The Spanish government held consultations on a proposal for national due diligence legislation in 2022, with similar bills being tabled in Austria and Belgium in the past years as well.

Companies have always been highly averse to the risk of a “legal patchwork” of national due diligence laws in Europe, leading to fragmentation of the EU internal market. Failure to adopt the CSDDD would only lead to further variation in the regulatory landscape for due diligence in the EU. The coming days and weeks will be crucial, with EU leaders facing a clear choice: adopt the CSDDD without further delay – or face the consequences for businesses, human rights, and the environment across the globe if they fail to do so.

David Ollivier de Leth is a Policy Advisor at the MVO Platform, the civil society and trade union corporate accountability network in the Netherlands.

Joseph Wilde-Ramsing is Director of Advocacy at the Centre for Research on Multinational Corporations (SOMO).

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