The words 'the law be withdrawn' sound subjunctive. I am not sure. However, it should be 'the law should be withdrawn'.

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Dominique de Villepin offered to meet students on Saturday to discuss the controversial law after the proposals sparked nationwide protests and riots.
On Friday, talks with trades unions ended in deadlock after the government said it would not agree to demands that the law be withdrawn.

The impasse brings a general strike planned for Tuesday a step closer.

According to the AFP news agency, the students will deliver a letter to Mr de Villepin instead of meeting him.
Yes, "demands that the law be withdrawn" is a subjunctive. I think both contructions are OK after verbs like "demand".
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Do you mean the word 'demand' needs subjunctive?
You can demand something, demand to + intinitive, or demand that + subjunctive. If it's a substantive, you can make a demand for something, or a demand that + subj.