Korean exporters anxious ahead of EU's supply chain law

The majority of South Korea’s small and medium-sized exporters are concerned about a possible cancellation of orders or difficulty in winning new contracts from Europe, as the European Union prepares to adopt stricter standards for human rights and environmental protection.

A recent survey of 300 Korean exporters shows that 52.2% of the respondents feel vulnerable to the risk of failing to win new orders, or their contracts being canceled due to the forthcoming European supply chain law, according to the Korea Chamber of Commerce and Industry (KCC) on July 17.

South Korea is the world's seventh-largest exporter of goods. The survey was conducted between June 20 and 30 as the law is likely to pass through the European Parliament next year.

Asked about their preparation to meet the new rules, 77.2% of the companies said they are not fully prepared for new European standards, including the 41.3% that see the level of their preparation as “very low.”

Only 22.8% of the respondents rated the level of their compliance with the upcoming European supply chain law as “very high.”

How much are South Korea's small and medium-sized exporters willing to spend on European supply chain law-related due diligence?
Amount	Percentage of respondents
Less than 500,000 won ($380)	29.9%
More than 2 million won	29.2%
Between 500,000 won and 1 million won	26.3%
Source: Korea Chamber of Commerce and Industry

Last February, the EU Commission presented a European supply chain law on corporate accountability and due diligence, which covers both EU members and other countries.

Under the proposed law, large companies will oblige SMEs to review their supply chains and comply with due diligence requirements in the area of human rights and environmental protection.

Regarding concerns over the new EU law, 48.1% of the Korean SMEs cited a lack of in-house experts on environmental, social and governance (ESG) principles.

Costs for ESG-related consulting and education come next with 22.3%, followed by the lack of information on supply chain-related due diligence with 12.3%.

How much are South Korea's small and medium-sized exporters willing to set aside for ESG-related consulting services and sustainability report publications?
Amount	Percentage of respondents
Between 10 million and 20 million won	26.7%
Less than 10 million won	35.1%
Source: Korea Chamber of Commerce and Industry

SMEs are placed in the middle of the supply chain, sitting between large-sized exporters and subcontractors. Thus, they need to meet the ESG standards required by overseas buyers and at the same time review their subcontractors’ supply chains, according to KCCI’s sustainable development head Cho Yong-joon.

“The proposed law stressed human rights and dignity, meaning companies could be sued over their subcontractors’ human rights issues,” said a South Korean company official.

Write to Shin-Young Park at nyusos@hankyung.com
Yeonhee Kim edited this article.