Key facts
- EU is weighing legislation to force companies to diversify supply chains away from China.
- The proposed rule would require companies to use at least three different sources for critical supplies.
- The measure is intended to shield companies from supply chain disruptions and export restrictions.
- The proposal is modeled on the EU's strategy to reduce reliance on Russian energy.
- EU leaders will discuss economic security and potential tools at an upcoming summit.
The European Commission is considering new legislation that could mandate companies, particularly those in sensitive sectors, to reduce their reliance on single suppliers, with a specific focus on China. European Trade Commissioner Maros Sefcovic stated on Friday that the bloc is weighing rules that would require companies to diversify their supply chains to at least three different sources for critical supplies. This proposed 'dedicated instrument' is intended to protect businesses from general supply chain disruptions and government policies, such as China's export restrictions on rare earths. Sefcovic indicated that the measure would be modeled after the EU's successful strategy to decrease its dependence on Russian energy. The proposal is part of a wider review of EU trade defenses, expected by the third quarter, which also includes measures to expedite anti-dumping and anti-subsidy cases and address overcapacity. EU leaders are scheduled to discuss economic security and potential tools at a summit on June 18-19. Sefcovic noted that existing EU policies encourage diversification when a single source accounts for 40% of supplies, and the Commission is evaluating whether this needs reinforcement. He also emphasized the need for coordination with industry and a transition period for implementation, acknowledging the current challenging economic climate and the need to integrate risk premiums into business operations.