Agricultural supply chains + Finland’s social policy + Hydrogen

When the supply chain becomes a sword of Damocles

The German Supply Chain Due Diligence Act (LkSG) has raised concerns among many players in the agricultural and food industry. The regulation, which applies to companies with over 3,000 employees since the beginning of 2023, obliges firms to scrutinize their own work processes and supply chains for violations of human rights, environmental protection and labor rights. Companies are also required to define measures to mitigate these risks, including establishing a complaints system and holding suppliers accountable.

For the globally operating agricultural trading and energy conglomerate Baywa AG, based in Munich, the LkSG has been in effect since the beginning of the year. The company, with more than 24,000 employees and activities in around 40 countries, reports that it established its own Corporate Social Compliance unit in September 2021, which has been dealing with the implementation of the LkSG since then. According to Baywa, it has direct business relationships with around 50,000 suppliers and, at the participation level, with around 30,000 additional suppliers. Accordingly, the implementation of the LkSG “requires a high level of personnel and time expenditure“, as per Baywa’s assessment.

In addition to allegedly incalculable liability risks, business associations complain of high bureaucratic burdens. Now, business associations in the agricultural and food industry fear that things could get even worse. The cause for concern is the EU Supply Chain Law (CSDDD). In June, the Parliament agreed on a position regarding the planned directive. Since then, the EU Supply Chain Law has been in trilogue negotiations between the EU Parliament, EU Commission, and EU member states. The three negotiating parties still need to reach a compromise, which is typically a lengthy and challenging process. However, the proposals from the Parliament and Commission already go beyond the provisions of the German LkSG in several respects.

Demand for due diligence throughout the product cycle

The German Raiffeisenverband (DRV), headquartered in Berlin, which is the umbrella organization for cooperatively organized companies in the German agricultural and food industry, among others, complains that the EU Supply Chain Law considers the entire lifecycle of a product when assessing the supply chain. In contrast, the German LkSG only covers a company’s activities and those of its direct and indirect business partners.

According to the EU Parliament’s proposal, the product cycle extends from product development to disposal, unlike business associations, environmental organizations like Greenpeace have consistently criticized the German LkSG for inadequately addressing the supply chain and have viewed proposed enhancements in the EU Supply Chain Law positively. However, Baywa fears increasing bureaucracy: “This will significantly expand the effort because many products have countless links in the supply chain. Especially when they consist of many components, are mixed or processed,” says the Munich-based conglomerate. Highly complex supply chain structures are common in international grain trading, and the required due diligence obligations throughout the entire product cycle are “hardly manageable”, according to the company.

From South America to the EU: Ownership changes multiple times

Baywa provides an example: In the trade of grain from South America, the supply chain initially consists of many small farmers. Regional cooperatives purchase their products and sell them to regional dealers. The regional dealers market the raw goods to exporters, who then ship the grain to the EU. “During transportation, it is not uncommon for contracts to change hands multiple times. So, the ownership of the goods changes multiple times,” explains the Munich conglomerate. It’s only in the European internal market that companies like Baywa come into play. “As traders, we urgently need more information on how the implementation will work in practice to meet the due diligence requirements of the EU Supply Chain Directive,” emphasizes Baywa.

The DRV is also concerned about the civil liability claim provided for in the EU Supply Chain Law in its current form, which is explicitly not included in the LkSG. According to the EU Commission’s proposal, companies could be held civilly liable for their own violations of the law. For violations by business partners, companies could be held responsible if it is reasonably foreseeable that they are in breach of environmental and labor protection regulations or human rights.

Fines of up to five percent of global annual revenue

Despite the absence of civil liability claims, companies that violate the German LkSG already face substantial fines: These can reach up to €800,000 or up to 2 percent of a company’s global annual revenue if it reports more than €400 million in annual revenue. In addition to a civil liability claim, the EU Parliament’s proposal for the EU Supply Chain Law includes severe penalties: Sanctions include measures such as public shaming, the forced withdrawal of a company’s products from the market or fines of at least 5 percent of global net sales.

“Companies are burdened with high administrative and bureaucratic duties and bear significant liability risks,” notes the DRV. While the association emphasizes that its member companies support the enforcement of human rights throughout the supply chain, it demands that “implementation should be practical and consider the individual risk profile of medium-sized companies“.

Unlike the German LkSG, the proposals from the EU Parliament and Commission also require companies to develop plans to ensure that their business activities align with the 1.5-degree climate goal. Moreover, as per the current discussion, significantly more companies in the agricultural and food industry would be directly affected by the provisions of the EU Supply Chain Law compared to the German LkSG. Currently, companies with more than 3,000 employees fall under the scope of the LkSG; this threshold will decrease to 1,000 employees by 2024.

Threshold decreases to 250 employees

According to the plans of the EU Commission, companies based in the EU with at least 500 employees and a net annual turnover of at least €150 million will be required to implement the provisions of the law. Certain risk sectors, including agriculture as well as producers and food distributors, should already be subject to the law with 250 employees and €40 million in turnover. The Parliament sets the threshold at 250 employees and €40 million in turnover for all industries. Member states provide for staggered timelines, according to which companies with more than 1,000 employees must comply with the directive initially, and this threshold decreases to 250 employees five years after its introduction.

Even if the positions of the trilogue partners are currently still divergent in this regard, Dr. Julia Hörnig, a lawyer at the Graf von Westphalen law firm (GvW) in Hamburg, sees one thing as foreseeable: Several agricultural companies that were not previously obligated under the LkSG would be affected by the EU Supply Chain Law. Taking the German agricultural trade as an example, the LkSG currently applies to heavyweights like Baywa AG, Agravis Raiffeisen AG in Hanover, and Team SE; from 2024, the main cooperatives RWZ Köln, Raiffeisen Waren Gruppe in Kassel, and ZG Raiffeisen-Gruppe in Karlsruhe, as well as the private company BAT Agrar, will be added. According to the current proposals for the EU Supply Chain Law, primary cooperatives like Raisa eG in Stade, Lower Saxony and GS-Agri-Gruppe in Schneiderkrug, Lower Saxony, would also be affected.

Vulnerable areas from pesticides to forced labor

The risks that agricultural companies face after the German LkSG, according to supply chain expert Hörnig, are as follows: “For the agricultural sector, the industry risk concerning human rights issues such as forced labor, inadequate labor protection, forced relocations, and, in some cases, the deprivation of livelihoods due to factors like waterway contamination, is likely significant. An environmental risk relates to persistent organic pollutants, including pesticides.” According to the EU Supply Chain Law, there is also the issue of climate action or the failure to meet the 1.5-degree target.

According to Hörnig, the German LkSG already includes a so-called “trickle-down effect“, meaning that partners in the supply chain pass on the requirements regarding human rights, labor and environmental protection along the chain. In other words, many companies in the value chain are affected indirectly, even if they do not fall within the scope of the law themselves. In practice, this means that customers have their suppliers sign corresponding codes of conduct, the “Supplier Code of Conduct“. “While the law stipulates that companies’ demands on their suppliers should be reasonable, the pressure on those indirectly affected in practice is growing,” notes Hörnig.

Supplier declarations ‘go overboard’

This aligns with the observations of the German Food Industry Association (BVE): “Initially, some obligated companies here have also clearly gone overboard with requirements for suppliers, as they have not only demanded information and declarations from suppliers based on risk,” says the BVE. The association draws the following conclusion: “For suppliers, this means that they currently have to carefully review the new contract terms with their customers, as an inappropriate shift of responsibility onto suppliers would be impermissible.” The DRV also observes that pressure on companies not directly within the scope of the LkSG is increasing through contractual agreements: In some cases, the catalog of obligations in the terms and conditions of buyers is very broadly defined, according to the association.

Pressure along the supply chain is likely to increase rather than decrease if the EU Supply Chain Law is implemented in its current form. In any case, after its implementation, the directive will be transposed into national law, which will entail an adjustment of the LkSG. “For agricultural companies, it is advisable to follow the negotiation process and be aware of the risks in their own supply chain. These risks, regardless of the legal basis, include the risk of forced labor, inadequate worker protection, environmental pollution and possibly forced evictions,” emphasizes lawyer Hörnig. By Stefanie Pionke

Right-wing changes in Finland impact social standards

By

Alina Leimbach

Finland, often classified as a “Nordic welfare state,” has been known for its relatively generous social benefits, with collective agreements covering nearly all employees. No wonder the Bertelsmann Stiftung lists the country as number five among all OECD and EU countries in terms of social policy.

However, the new right-leaning government under Prime Minister Petteri Orpo of the conservative-liberal National Coalition Party has proposed substantial cuts in social benefits shortly after taking office.

Bundle of cuts and relaxations

“The government will implement significant reforms to social security and the labor market to make it easier and more profitable to find employment or work as an entrepreneur,” the four-party government announced in June when it took office. International competitiveness is also to be strengthened, and the state deficit is to be limited. The right-wing True Finns party is part of the government.

A whole raft of cuts and relaxations is planned, spread across various ministries. The Finnish Trade Union Confederation SAK has compiled a list. Among them are changes in the following areas:

Working conditions

• No pay for the first day of sickness
• Easing of job security rules: In the future, “relevant” reasons instead of “relevant and serious” reasons would suffice for terminations
• Increased use of fixed-term contracts: Contracts lasting fewer than twelve months could be established without specific justifications
• Elimination of the obligation for companies with fewer than 50 employees to rehire employees laid off for operational reasons if the company rehires personnel in the affected area within a certain time frame

Corporatism and the right to strike

• Strengthening of company-level collective agreements, which can now be negotiated without the involvement of trade unions
• Company-level agreements would be allowed to deviate from national laws, whereas this was previously only possible through industry-wide collective agreements
• Reduced powers of the “National Mediator” in labor disputes
• Political strikes limited to one day
• Increased fines for employees and unions engaged in illegal strikes (€200 for employees)

Social benefits

• Reduction in income-based unemployment benefits after two months
• Extended waiting period for unemployment benefits and longer qualifying periods than before
• Cuts in housing allowances
• Obstacles to claiming social assistance
• Elimination of the increased parental allowance paid during the first 16 days after childbirth
• Abolition of adult education allowance

A government spokesperson told Table.Media that Finland’s declining demographics and labor shortages are already challenging the capacity of the Finnish welfare society. The government’s goal is to ensure that “Finland continues to be a Nordic-style welfare state in the future, providing good services and the necessary benefits for future generations”.

Number of employees to increase by 100,000

Specifically, the number of employees is planned to increase by 100,000 people. In June 2023, Finland’s unemployment rate was around seven percent, slightly higher than the EU average of 5.9 percent. The spokesperson stated that other Nordic countries had already reformed their labor markets.

These reforms come as a shock to Finland’s strong labor unions. Pekka Ristelä, Head of International Affairs at the Central Organization of Finnish Trade Unions (SAK), criticized them, saying, “These are the most far-reaching labor market and social reforms Finland has seen in a long time.”

Only a few company-level collective agreements to date

Finland has been a leader in EU countries regarding collective bargaining. In 2017, nearly 80 percent of employees were covered by collective agreements, compared to the EU average of 60 percent. Unlike other countries, Finland has few company-level collective agreements; they mostly complement industry-level agreements.

The unions particularly criticize the strengthening of company-level agreements and the ability to negotiate without unions. “There is a risk that this will weaken the regional collective agreements,” says Riestelä. He also sees the system of social partnership in danger as a result. “Then there will also be less motivation for employers to organize themselves in the employers’ associations.” He is also critical of the fact that company collective agreements are to allow deviations from national law in the future.

Loss of power for trade unions

Markku Sippola, a labor market researcher at the University of Helsinki, also says that if the reforms go through like this, it could have long-term consequences: “It’s a power shift.” The unions could potentially lose influence as a result. However, they also need this influence to negotiate collective agreements that complement the company agreements.

In response to a Table.Media inquiry, the Finnish government did not want to be specific about why it wants to allow more company-level collective agreements.

BDA also wants to reform industry-level agreements

Sippola told Table.Media, “For several years, Finnish employers have been less interested in collective agreements.” They have gradually fought for the dismantling of the system, and their concerns seem to have found a receptive audience in the new right-wing government.

In fact, there have been heated debates in various EU countries for years about increasing company-level collective agreements, or at least providing more room for company-specific arrangements within industry-level agreements. For example, the Federal Association of German Employers’ Associations (BDA) advocates that industry-level agreements should only set minimum standards, allowing companies more flexibility or the ability to select individual parts. The OECD and the IMF have also called for more decentralization, arguing that it could lead to greater productivity and flexibility.

Minimum wage directive wants stronger collective bargaining

This trend is concerning for trade unions. They warn that more company-level agreements could lead to lower wages and worse working conditions and could also harm companies by creating uneven competition.

At the EU level, there has been a shift in this regard. The Union now supports stronger collective agreements. Besides adequate minimum wages, increasing the coverage of collective agreements in member states is the central goal of the 2022 Minimum Wage Directive. Countries with less than 80 percent coverage by collective agreements are required to submit action plans to achieve this level and involve the social partners.

Sweden and Denmark challenge EU requirements

While the directive does not explicitly state that it must be industry-level agreements, it is essentially the only logical consequence of the requirement. Achieving such coverage with company-level agreements is unlikely. Sweden and Denmark are currently attempting to challenge the directive before the European Court of Justice. The Finnish government spokesperson did not provide information on how their plans align with the directive’s goals.

Esther Lynch, Secretary-General of the European Trade Union Confederation (ETUC), criticized the reforms accordingly to Table.Media: “Austerity measures have fallen out of favor across Europe. The only growth they create is growth in poverty and support for extremists.” She argued that the Finnish government’s proposals would “destroy one of the most successful systems of labor relations in Europe and the world” and lead to more precariousness and inequality.

Social partners involved late

The path to these reforms already indicates that Finland’s new government relies less on social partners, complained trade unionist Ristelä. “Whenever reforms in the industrial relations field were needed in Finland, trade unions and employer organizations were in the lead and involved early.” Now, the government has essentially confronted the social partners with nearly finalized plans. He wondered how much room there still is for input from social partners.

However, political scientist Sippola expects that not all parts of the proposed reform will be implemented because Finns strongly support their welfare state. “Support for the welfare state and high taxes for redistribution is higher here than elsewhere. That hasn’t fundamentally changed in recent years.”

So far, the protest against the reforms in Finland has been relatively subdued. Recently, the country has been primarily focused on racist remarks made by some government politicians, and the newly elected government had to survive a vote of no confidence.

When the supply chain becomes a sword of Damocles

The German Supply Chain Due Diligence Act (LkSG) has raised concerns among many players in the agricultural and food industry. The regulation, which applies to companies with over 3,000 employees since the beginning of 2023, obliges firms to scrutinize their own work processes and supply chains for violations of human rights, environmental protection and labor rights. Companies are also required to define measures to mitigate these risks, including establishing a complaints system and holding suppliers accountable.

For the globally operating agricultural trading and energy conglomerate Baywa AG, based in Munich, the LkSG has been in effect since the beginning of the year. The company, with more than 24,000 employees and activities in around 40 countries, reports that it established its own Corporate Social Compliance unit in September 2021, which has been dealing with the implementation of the LkSG since then. According to Baywa, it has direct business relationships with around 50,000 suppliers and, at the participation level, with around 30,000 additional suppliers. Accordingly, the implementation of the LkSG “requires a high level of personnel and time expenditure“, as per Baywa’s assessment.

In addition to allegedly incalculable liability risks, business associations complain of high bureaucratic burdens. Now, business associations in the agricultural and food industry fear that things could get even worse. The cause for concern is the EU Supply Chain Law (CSDDD). In June, the Parliament agreed on a position regarding the planned directive. Since then, the EU Supply Chain Law has been in trilogue negotiations between the EU Parliament, EU Commission, and EU member states. The three negotiating parties still need to reach a compromise, which is typically a lengthy and challenging process. However, the proposals from the Parliament and Commission already go beyond the provisions of the German LkSG in several respects.

Demand for due diligence throughout the product cycle

The German Raiffeisenverband (DRV), headquartered in Berlin, which is the umbrella organization for cooperatively organized companies in the German agricultural and food industry, among others, complains that the EU Supply Chain Law considers the entire lifecycle of a product when assessing the supply chain. In contrast, the German LkSG only covers a company’s activities and those of its direct and indirect business partners.

According to the EU Parliament’s proposal, the product cycle extends from product development to disposal, unlike business associations, environmental organizations like Greenpeace have consistently criticized the German LkSG for inadequately addressing the supply chain and have viewed proposed enhancements in the EU Supply Chain Law positively. However, Baywa fears increasing bureaucracy: “This will significantly expand the effort because many products have countless links in the supply chain. Especially when they consist of many components, are mixed or processed,” says the Munich-based conglomerate. Highly complex supply chain structures are common in international grain trading, and the required due diligence obligations throughout the entire product cycle are “hardly manageable”, according to the company.

From South America to the EU: Ownership changes multiple times

Baywa provides an example: In the trade of grain from South America, the supply chain initially consists of many small farmers. Regional cooperatives purchase their products and sell them to regional dealers. The regional dealers market the raw goods to exporters, who then ship the grain to the EU. “During transportation, it is not uncommon for contracts to change hands multiple times. So, the ownership of the goods changes multiple times,” explains the Munich conglomerate. It’s only in the European internal market that companies like Baywa come into play. “As traders, we urgently need more information on how the implementation will work in practice to meet the due diligence requirements of the EU Supply Chain Directive,” emphasizes Baywa.

The DRV is also concerned about the civil liability claim provided for in the EU Supply Chain Law in its current form, which is explicitly not included in the LkSG. According to the EU Commission’s proposal, companies could be held civilly liable for their own violations of the law. For violations by business partners, companies could be held responsible if it is reasonably foreseeable that they are in breach of environmental and labor protection regulations or human rights.

Fines of up to five percent of global annual revenue

Despite the absence of civil liability claims, companies that violate the German LkSG already face substantial fines: These can reach up to €800,000 or up to 2 percent of a company’s global annual revenue if it reports more than €400 million in annual revenue. In addition to a civil liability claim, the EU Parliament’s proposal for the EU Supply Chain Law includes severe penalties: Sanctions include measures such as public shaming, the forced withdrawal of a company’s products from the market or fines of at least 5 percent of global net sales.

“Companies are burdened with high administrative and bureaucratic duties and bear significant liability risks,” notes the DRV. While the association emphasizes that its member companies support the enforcement of human rights throughout the supply chain, it demands that “implementation should be practical and consider the individual risk profile of medium-sized companies“.

Unlike the German LkSG, the proposals from the EU Parliament and Commission also require companies to develop plans to ensure that their business activities align with the 1.5-degree climate goal. Moreover, as per the current discussion, significantly more companies in the agricultural and food industry would be directly affected by the provisions of the EU Supply Chain Law compared to the German LkSG. Currently, companies with more than 3,000 employees fall under the scope of the LkSG; this threshold will decrease to 1,000 employees by 2024.

Threshold decreases to 250 employees

According to the plans of the EU Commission, companies based in the EU with at least 500 employees and a net annual turnover of at least €150 million will be required to implement the provisions of the law. Certain risk sectors, including agriculture as well as producers and food distributors, should already be subject to the law with 250 employees and €40 million in turnover. The Parliament sets the threshold at 250 employees and €40 million in turnover for all industries. Member states provide for staggered timelines, according to which companies with more than 1,000 employees must comply with the directive initially, and this threshold decreases to 250 employees five years after its introduction.

Even if the positions of the trilogue partners are currently still divergent in this regard, Dr. Julia Hörnig, a lawyer at the Graf von Westphalen law firm (GvW) in Hamburg, sees one thing as foreseeable: Several agricultural companies that were not previously obligated under the LkSG would be affected by the EU Supply Chain Law. Taking the German agricultural trade as an example, the LkSG currently applies to heavyweights like Baywa AG, Agravis Raiffeisen AG in Hanover, and Team SE; from 2024, the main cooperatives RWZ Köln, Raiffeisen Waren Gruppe in Kassel, and ZG Raiffeisen-Gruppe in Karlsruhe, as well as the private company BAT Agrar, will be added. According to the current proposals for the EU Supply Chain Law, primary cooperatives like Raisa eG in Stade, Lower Saxony and GS-Agri-Gruppe in Schneiderkrug, Lower Saxony, would also be affected.

Vulnerable areas from pesticides to forced labor

The risks that agricultural companies face after the German LkSG, according to supply chain expert Hörnig, are as follows: “For the agricultural sector, the industry risk concerning human rights issues such as forced labor, inadequate labor protection, forced relocations, and, in some cases, the deprivation of livelihoods due to factors like waterway contamination, is likely significant. An environmental risk relates to persistent organic pollutants, including pesticides.” According to the EU Supply Chain Law, there is also the issue of climate action or the failure to meet the 1.5-degree target.

According to Hörnig, the German LkSG already includes a so-called “trickle-down effect“, meaning that partners in the supply chain pass on the requirements regarding human rights, labor and environmental protection along the chain. In other words, many companies in the value chain are affected indirectly, even if they do not fall within the scope of the law themselves. In practice, this means that customers have their suppliers sign corresponding codes of conduct, the “Supplier Code of Conduct“. “While the law stipulates that companies’ demands on their suppliers should be reasonable, the pressure on those indirectly affected in practice is growing,” notes Hörnig.

Supplier declarations ‘go overboard’

This aligns with the observations of the German Food Industry Association (BVE): “Initially, some obligated companies here have also clearly gone overboard with requirements for suppliers, as they have not only demanded information and declarations from suppliers based on risk,” says the BVE. The association draws the following conclusion: “For suppliers, this means that they currently have to carefully review the new contract terms with their customers, as an inappropriate shift of responsibility onto suppliers would be impermissible.” The DRV also observes that pressure on companies not directly within the scope of the LkSG is increasing through contractual agreements: In some cases, the catalog of obligations in the terms and conditions of buyers is very broadly defined, according to the association.

Pressure along the supply chain is likely to increase rather than decrease if the EU Supply Chain Law is implemented in its current form. In any case, after its implementation, the directive will be transposed into national law, which will entail an adjustment of the LkSG. “For agricultural companies, it is advisable to follow the negotiation process and be aware of the risks in their own supply chain. These risks, regardless of the legal basis, include the risk of forced labor, inadequate worker protection, environmental pollution and possibly forced evictions,” emphasizes lawyer Hörnig. By Stefanie Pionke

Right-wing changes in Finland impact social standards

By

Alina Leimbach

Finland, often classified as a “Nordic welfare state,” has been known for its relatively generous social benefits, with collective agreements covering nearly all employees. No wonder the Bertelsmann Stiftung lists the country as number five among all OECD and EU countries in terms of social policy.

However, the new right-leaning government under Prime Minister Petteri Orpo of the conservative-liberal National Coalition Party has proposed substantial cuts in social benefits shortly after taking office.

Bundle of cuts and relaxations

“The government will implement significant reforms to social security and the labor market to make it easier and more profitable to find employment or work as an entrepreneur,” the four-party government announced in June when it took office. International competitiveness is also to be strengthened, and the state deficit is to be limited. The right-wing True Finns party is part of the government.

A whole raft of cuts and relaxations is planned, spread across various ministries. The Finnish Trade Union Confederation SAK has compiled a list. Among them are changes in the following areas:

Working conditions

• No pay for the first day of sickness
• Easing of job security rules: In the future, “relevant” reasons instead of “relevant and serious” reasons would suffice for terminations
• Increased use of fixed-term contracts: Contracts lasting fewer than twelve months could be established without specific justifications
• Elimination of the obligation for companies with fewer than 50 employees to rehire employees laid off for operational reasons if the company rehires personnel in the affected area within a certain time frame

Corporatism and the right to strike

• Strengthening of company-level collective agreements, which can now be negotiated without the involvement of trade unions
• Company-level agreements would be allowed to deviate from national laws, whereas this was previously only possible through industry-wide collective agreements
• Reduced powers of the “National Mediator” in labor disputes
• Political strikes limited to one day
• Increased fines for employees and unions engaged in illegal strikes (€200 for employees)

Social benefits

• Reduction in income-based unemployment benefits after two months
• Extended waiting period for unemployment benefits and longer qualifying periods than before
• Cuts in housing allowances
• Obstacles to claiming social assistance
• Elimination of the increased parental allowance paid during the first 16 days after childbirth
• Abolition of adult education allowance

A government spokesperson told Table.Media that Finland’s declining demographics and labor shortages are already challenging the capacity of the Finnish welfare society. The government’s goal is to ensure that “Finland continues to be a Nordic-style welfare state in the future, providing good services and the necessary benefits for future generations”.

Number of employees to increase by 100,000

Specifically, the number of employees is planned to increase by 100,000 people. In June 2023, Finland’s unemployment rate was around seven percent, slightly higher than the EU average of 5.9 percent. The spokesperson stated that other Nordic countries had already reformed their labor markets.

These reforms come as a shock to Finland’s strong labor unions. Pekka Ristelä, Head of International Affairs at the Central Organization of Finnish Trade Unions (SAK), criticized them, saying, “These are the most far-reaching labor market and social reforms Finland has seen in a long time.”

Only a few company-level collective agreements to date

Finland has been a leader in EU countries regarding collective bargaining. In 2017, nearly 80 percent of employees were covered by collective agreements, compared to the EU average of 60 percent. Unlike other countries, Finland has few company-level collective agreements; they mostly complement industry-level agreements.

The unions particularly criticize the strengthening of company-level agreements and the ability to negotiate without unions. “There is a risk that this will weaken the regional collective agreements,” says Riestelä. He also sees the system of social partnership in danger as a result. “Then there will also be less motivation for employers to organize themselves in the employers’ associations.” He is also critical of the fact that company collective agreements are to allow deviations from national law in the future.

Loss of power for trade unions

Markku Sippola, a labor market researcher at the University of Helsinki, also says that if the reforms go through like this, it could have long-term consequences: “It’s a power shift.” The unions could potentially lose influence as a result. However, they also need this influence to negotiate collective agreements that complement the company agreements.

In response to a Table.Media inquiry, the Finnish government did not want to be specific about why it wants to allow more company-level collective agreements.

BDA also wants to reform industry-level agreements

Sippola told Table.Media, “For several years, Finnish employers have been less interested in collective agreements.” They have gradually fought for the dismantling of the system, and their concerns seem to have found a receptive audience in the new right-wing government.

In fact, there have been heated debates in various EU countries for years about increasing company-level collective agreements, or at least providing more room for company-specific arrangements within industry-level agreements. For example, the Federal Association of German Employers’ Associations (BDA) advocates that industry-level agreements should only set minimum standards, allowing companies more flexibility or the ability to select individual parts. The OECD and the IMF have also called for more decentralization, arguing that it could lead to greater productivity and flexibility.

Minimum wage directive wants stronger collective bargaining

This trend is concerning for trade unions. They warn that more company-level agreements could lead to lower wages and worse working conditions and could also harm companies by creating uneven competition.

At the EU level, there has been a shift in this regard. The Union now supports stronger collective agreements. Besides adequate minimum wages, increasing the coverage of collective agreements in member states is the central goal of the 2022 Minimum Wage Directive. Countries with less than 80 percent coverage by collective agreements are required to submit action plans to achieve this level and involve the social partners.

Sweden and Denmark challenge EU requirements

While the directive does not explicitly state that it must be industry-level agreements, it is essentially the only logical consequence of the requirement. Achieving such coverage with company-level agreements is unlikely. Sweden and Denmark are currently attempting to challenge the directive before the European Court of Justice. The Finnish government spokesperson did not provide information on how their plans align with the directive’s goals.

Esther Lynch, Secretary-General of the European Trade Union Confederation (ETUC), criticized the reforms accordingly to Table.Media: “Austerity measures have fallen out of favor across Europe. The only growth they create is growth in poverty and support for extremists.” She argued that the Finnish government’s proposals would “destroy one of the most successful systems of labor relations in Europe and the world” and lead to more precariousness and inequality.

Social partners involved late

The path to these reforms already indicates that Finland’s new government relies less on social partners, complained trade unionist Ristelä. “Whenever reforms in the industrial relations field were needed in Finland, trade unions and employer organizations were in the lead and involved early.” Now, the government has essentially confronted the social partners with nearly finalized plans. He wondered how much room there still is for input from social partners.

However, political scientist Sippola expects that not all parts of the proposed reform will be implemented because Finns strongly support their welfare state. “Support for the welfare state and high taxes for redistribution is higher here than elsewhere. That hasn’t fundamentally changed in recent years.”

So far, the protest against the reforms in Finland has been relatively subdued. Recently, the country has been primarily focused on racist remarks made by some government politicians, and the newly elected government had to survive a vote of no confidence.