Green Export

Scope of Vietnamese suppliers potentially affected from the supply chain due diligence requirements of European markets

1. Classification by business activities

Germany’s SCDDA and the EU’s CSDDD Directive set out different specific due diligence requirements for suppliers/business partners of companies within scope. However, both frameworks are broadly consistent regarding the scope of suppliers/business partners that are required to participate in the due diligence processes of regulated companies.

Specifically:

- Germany’s SCDDA requires companies within scope to conduct supply chain due diligence not only within their own business operations (including subsidiaries), but also in the operations of suppliers across the entire “supply chain”.

- The EU’s CSDDD Directive requires companies within scope to conduct due diligence not only within their own operations and subsidiaries, but also in the activities of “business partners” within the company’s “chain of activities”.

A review shows that although different terminology is used, Germany’s SCDDA and the EU’s CSDDD Directive share a similar understanding of “business partners” (under the EU Directive) and “suppliers” (under German law), as well as “chain of activities” (under the EU Directive) and “supply chain” (under German law).

Accordingly, all suppliers/business partners (hereinafter collectively referred to as “suppliers”) of companies within scope may be affected by the corresponding requirements under these legal frameworks.

Definition of “Chain of activities” and “Business partners” under the EU CSDDD Directive

Article 3.1(g) of the CSDDD Directive defines a company’s “chain of activities” as including:

- The activities of upstream business partners, relating to the production of goods or provision of services by the company (including activities such as design, extraction, sourcing, manufacturing, transport, storage, and supply of raw materials, products or components, and the development of products or services); and

- The activities of downstream business partners, relating to the distribution, transport, and storage of the company’s products, provided that these partners carry out such activities for or on behalf of the company.

Article 3.1(f) of the Directive defines “business partners” as:

- Direct partners: entities that have a commercial agreement (contract) with the company within scope relating to its operations, products, or services, or that use the company’s services;

- Indirect partners: entities that do not have a direct contractual relationship but whose business activities are related to the company’s operations, products, or services.

 

Definition of “Supply Chain” and “Suppliers” under Germany’s SCDDA

Article 2(5) Clause 1 of the SCDDA defines the “supply chain” as:

- Including all steps necessary for the production/provision of all goods and/or services of a company (from the extraction of raw materials to delivery to the final customer), regardless of whether these steps are carried out in Germany or abroad;

- Covering the business activities of (i) the company itself, and (ii) its direct and indirect suppliers.

Articles 2(7) and (8) Clause 1 of the SCDDA define “suppliers” as follows:

- A direct supplier is any partner that has a contractual relationship with the company to supply goods or services necessary for the production, provision, or use of the company’s goods or services;

- An indirect supplier is any supplier necessary for the production, provision, or use of goods or services but is not a direct supplier (i.e., has no contractual relationship with the company).

From Viet Nam’s perspective, business entities in Viet Nam (including enterprises, household businesses, cooperatives, and other economic organizations, hereinafter collectively referred to as “Vietnamese enterprises”) participating in any stage of the “chain of activities/supply chain” of companies within the scope of these two legal frameworks may be affected by the relevant due diligence requirements.
Specifically, the following Vietnamese enterprises may be affected by supply chain due diligence requirements in the European market: 

Upstream Suppliers

This group includes Vietnamese enterprises involved in supplying goods or services to EU/German partners that fall within the scope of the Directive/Law, for example:

- Enterprises engaged in manufacturing, exporting, or providing goods and services to EU/German partners;

- Enterprises supplying raw materials, components, equipment, or other inputs to the above-mentioned manufacturers, exporters, or service providers;

- Enterprises providing transportation, logistics, and related services supporting the production and export of such goods and services.

The majority of suppliers participating in export supply chains to the EU/Germany fall into this group. Therefore, this will be the primary focus of the subsequent sections of this Study.

Downstream Suppliers

This group includes Vietnamese enterprises providing services that bring the goods/services of EU/German partners within scope to the final customer, for example:

- Enterprises providing transportation, logistics, and related services for the distribution of goods of EU/German partners;

- Enterprises providing warehousing and distribution services (wholesale, retail, etc.) for goods/services of EU/German partners to buyers (manufacturers or end consumers).

This group is mostly associated with import-related activities involving goods/services from the EU/Germany.

How to determine whether Vietnamese enterprises must comply with the EU CSDDD Directive / Germany’s SCDDA?

In principle, companies within the scope of the CSDDD Directive/SCDDA are responsible for communicating due diligence requirements, including standards and specific obligations, to their suppliers where relevant.

Therefore, Vietnamese enterprises do not need to independently determine whether they are affected suppliers or are required to comply with EU/German supply chain due diligence requirements. Only when EU/German partners impose specific due diligence requirements will Vietnamese enterprises need to comply with such requirements.

However, ensuring that business operations consistently comply with human rights and environmental due diligence standards will be a significant competitive advantage for Vietnamese enterprises when EU/German partners consider supplier selection.

2. Classification by Level of Impact

Based on the level of impact, Vietnamese enterprises potentially affected by the SCDDA/CSDDD can be divided into two groups:

Direct suppliers:

These are Vietnamese enterprises that have direct contractual relationships with EU/German companies within scope. Their responsibilities in the due diligence process are greater and more frequent.

Indirect suppliers:

These are Vietnamese enterprises that participate in the supply chain of EU/German companies within scope but do not have direct contractual relationships with them. Their responsibilities in the due diligence process are more limited, often applying only in specific circumstances.

There are differences in how the EU Directive and German law approach these two groups:

- EU Directive: With minor exceptions, the Directive imposes generally uniform due diligence requirements on suppliers, without distinguishing between direct and indirect partners.

- German SCDDA: Clearly differentiates between the two groups. The business activities of direct suppliers are subject to regular and comprehensive due diligence, while indirect suppliers are subject to due diligence only when there are substantiated indications of potential violations.

- Under the SCDDA, in cases where a company deliberately circumvents obligations, indirect suppliers may be treated as direct suppliers.

Source: Compiled by the TTWTO-VCCI Research Group

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