EU Plans Mandatory Diversification Law to Break Single-Supplier Dependence on China
The European Commission is preparing legislation that would force companies in sensitive industries to source from at least three suppliers and eliminate single-source dependence, with China explicitly identified as the primary risk, European Trade and Economic Security Commissioner Maroš Šefčovič announced on Friday. The proposal forms part of a broader review of EU trade defences scheduled for delivery by the third quarter of 2026 and would be the most direct regulatory intervention Brussels has yet proposed to structurally alter corporate supply chains across the bloc.
“Diversification now requires a dedicated instrument,” Šefčovič told a conference of the European Policy Centre think tank in Brussels. The Local
Šefčovič said he would model the new instrument on the manner in which the EU reduced its reliance on Russian energy following Moscow’s invasion of Ukraine in 2022 — a process that used regulatory targets, state support, and emergency procurement frameworks to accelerate a shift that markets alone had not delivered at sufficient speed. Global Banking and Finance
The commissioner identified specific industrial episodes as the trigger for his conviction that voluntary measures were no longer sufficient. “Recent industrial cases, in particular supplies of chips and rare earths, have reinforced my conviction that a step change is necessary. We understand the urgency for critical minerals, but every high-risk sector must be weaned off single-supplier dependence,” Šefčovič said, in a speech at the Brussels Economic Security Forum. Global Banking and Finance
The remarks alluded to Beijing’s export controls on critical minerals and semiconductors imposed during the China-US trade war and to a dispute with Netherlands-based chipmaker Nexperia last year. Each round of controls brought parts of European industry to the brink of pausing production. Global Banking and Finance
Existing EU policy has already set a soft threshold for concentration risk but has not enforced it. Šefčovič noted there were already EU policies encouraging companies to diversify if they relied on one source for 40 percent of certain supplies. “Should this need to be reinforced and made more concrete? I think this is what we will look at,” he said. The proposed legislation would go further, making diversification a legal obligation rather than an encouraged practice. The Local
The commissioner acknowledged the economic timing is difficult. “I know that times are hard and the economic situation is very challenging, but we need to work with them — with industry — on how they would integrate this risk premium into their business operations. It was not needed before… this has changed,” he said. Šefčovič confirmed that any measure would need to be coordinated with industry and include a transition period to avoid abrupt supply chain disruptions. The Local
The proposed policy would target critical industries such as chemicals and industrial machinery. Companies would be required to ensure no single supplier or country accounts for a disproportionate share of their sourcing in covered product categories. Washington Times
The supply chain diversification proposal sits within a larger package of trade defence measures. It would be part of a broader review of EU trade defences due by the third quarter of 2026, including steps to speed up anti-dumping and anti-subsidy cases and potential new measures to tackle overcapacity. That review represents one of the most comprehensive overhauls of EU trade policy in years, addressing structural vulnerabilities that have accumulated across a decade of deepening economic integration with China. pressreader
Šefčovič said he would bring his recommendations to the European Council meeting of EU national leaders on June 18 and 19. That summit provides the next political decision point for the package, giving member state governments their first formal opportunity to respond to the commissioner’s proposals. Global Banking and Finance
Regional and Global Impact
The announcement arrived the same week the EU was also finalising a separate tech sovereignty package covering semiconductors, artificial intelligence infrastructure, and the removal of high-risk Chinese suppliers from critical European networks. Taken together, the supply chain diversification law and the technology sovereignty package represent a structural reorientation of EU industrial policy — one explicitly designed to treat dependence on China as a security risk rather than simply a commercial relationship.
For Beijing, the combined measures represent the most significant institutional challenge to its export-led industrial model from the EU since the bloc began its de-risking agenda. The EU is also considering additional trade measures, including tariffs on selected Chinese industrial products, as part of a broader effort to address its large trade imbalance with China. The combination of forced diversification, faster anti-dumping proceedings, overcapacity measures, and potential new tariffs amounts to a multi-front regulatory pressure campaign. Washington Times
For European manufacturers — particularly those in chemicals, machinery, electronics, and automotive components — the proposed legislation would impose compliance costs and procurement restructuring requirements on a timetable they have not yet seen. Manufacturers may need to redesign procurement strategies, identify new suppliers, and absorb higher short-term costs as they transition away from concentrated Chinese sourcing. The transition period Šefčovič promised would determine how painful those adjustments prove in practice. Washington Times
Background
The EU’s de-risking agenda with China has accelerated sharply since 2022. European Commission President Ursula von der Leyen formalised the de-risking framing — explicitly distinct from full decoupling — at the G7 summit in Hiroshima in 2023. China currently provides 98 percent of the EU’s rare earth inputs and 60 percent of the wider critical minerals list, creating concentrated dependencies in net-zero technologies, digital hardware, aerospace manufacturing and defence supply chains. In December 2025, the Commission launched its ReSourceEU Action Plan, a programme aimed at cutting dependence on China for critical raw materials by 50 percent by 2029. The supply chain diversification legislation Šefčovič outlined on Friday would complement that minerals-focused programme by extending mandatory diversification requirements into the broader industrial supply chain. The EU-China trade relationship remains the bloc’s largest bilateral goods trading relationship, making the scale and speed of any legislated de-risking politically as well as economically consequential. CNN
What Happens Next
Šefčovič is scheduled to present his recommendations to EU leaders at the European Council summit in Brussels on June 18 and 19. The full trade defence review, of which the diversification legislation is one element, is due for publication by the end of the third quarter of 2026. Formal legislative proposals would then follow the standard EU process, requiring approval from the European Parliament and the Council of the EU before becoming law — a process that typically takes 18 to 24 months. Industry consultations have not yet been formally launched. No member state has issued a public response to Friday’s announcement.
