European Commission to draft law forcing EU firms to diversify supply chains from China

The European Commission will propose legislation that obliges companies operating in the EU to diversify the sources of critical inputs, aiming to reduce reliance on Chinese manufacturing. Commission President Ursula von der Leyen said firms have de‑risked “far too slow a pace” and that a legal measure may become redundant only if companies step up their diversification efforts. The proposal follows concerns about a €1 billion‑per‑day trade deficit with China and recent Chinese export restrictions on rare‑earth minerals. EU leaders agreed the measure should improve transparency, require firms to document multi‑source procurement strategies and subject non‑compliant companies to regulatory exposure, including possible exclusion from EU‑funded subsidies. The law is expected to raise procurement costs and push firms to audit Tier‑2 and Tier‑3 suppliers, shifting from a “just‑in‑time” to a “just‑in‑case” model. European Council President Antonio Costa called the deficit “simply unsustainable,” underscoring the political drive behind the initiative.