Bangladeshi suppliers must operate with the necessary transparency in order to allow their German sourcing companies comply with a new supply-chain law that requires them to actively prevent human rights abuses in their global supply chains.
If any of their foreign suppliers is found to be in violation of the rules, penalties could reach up to 8,000,000 or 2% of their annual worldwide turnover.
Furthermore, enterprises may be excluded for up to three consecutive years from public procurement if an administrative penalty is imposed above a specific minimum level.
According to a letter sent by the German Embassy to Bangladeshi exporters associations, they will insist that all relevant norms and standards are followed by their partners along the supply chains.
The bill is similar in concept to a UK move to tag fashion industry more strictly with ESG issues, social governance (ESG), to stop “greenwashing”. Companies and organisations that use greenwashing to project an environmentally responsible image are known as “greenwashing”.
The Fashion Sustainability Act and Social Accountability Act, which was similar in the USA, would require the fashion industry to disclose if its products are sourced in areas with reported forced child labour or “sweatshop”, working conditions. New York’s fashion product suppliers will need to disclose information about the social and environmental practices used at every stage in the supply chain, raw material sourcing through to finished goods.
The Federal Ministry for Economic Cooperation and Development of Germany spoke out about the imposition of such rules across Europe.
It noted that it will likely take several years to have such a European set, of rules.
The law was passed last year by Germany’s parliament and will apply initially to companies with more than 3,000 employees. This threshold will be lowered to 1,000 employees starting in 2024.
Achim Trster, German Ambassador to Bangladesh, stated that due diligence obligations will also apply for actions of indirect suppliers to the German enterprises and their business areas, as well as actions of their contractual partners.
The ambassador stated that this means that a company’s responsibility does not end at its factory gate, but extends to the entire supply chain.
He stated that Germany’s due diligence obligations can be violated by any company. The competent authority can fine it based on the severity of the offense and the company’s total turnover.
Leaders of Bangladesh Garment Manufacturers and Exporters Associations BGMEA and Bangladesh Knitwear Manufacturers and Exporters Associations BGMEA acknowledged that they had received such a correspondence recently and that they would respond to it after reviewing the German government’s directive.
Faruque Hassan, President of BGMEA, told The Business Standard that Bangladeshi apparel exporters won’t have any problems complying with the new law.
Vice-president of BKMEA Fazlee Shamim Emim Ehsan stated that large exporters might not be affected by this law.
He said that a few vendors could be removed from the supply chain because they will not comply with the new due-diligence procedures.
Ehsan explained that “we are creating opportunities for small entrepreneurs because they provide us with some goods and services, such as label printing.”
He explained that exporters now need to do small jobs such as setting up their own facilities in order to protect workers’ rights and prevent environmental abuse.
The letter states that Germany is Bangladesh’s largest trading partner in Europe, and second globally. This law is likely to have significant impacts on Bangladeshi exporters.
According to the letter, the new law requires enterprises with their central administration, principal business place, administrative headquarters, statutory or branch offices in Germany to respect human rights by following defined due diligence requirements.
President of Bangladesh Garments Accessories and Packaging Manufacturing and Exporters Association Md Moazzem Hossain Moti stated, “We do business as suppliers to export-oriented industries by complying local laws regarding labour and the environment.”
If Germany has additional requirements for Bangladesh to comply with, a government-to-government initiative is needed in this regard, he added.
As a backward linkage sector, apparel exports are supported by accessories suppliers that contribute $6.9 trillion. He noted that the association has approximately 1,450 export-oriented suppliers, which exported goods worth $900 million in FY21.
MoazzemHossain stated that “our business costs will rise if we have to comply with due diligence obligations, and which buyers will have to shoulder.”
Monsoor Ahmed (chief executive officer) at Bangladesh Textile Mills Association said, “We have 200 textiles and spinning mills that are export-oriented, and 220 that are fully compliant to local laws.” However, the German new law may place additional pressure upon their suppliers,” he said.
The supply chain law
According to Germany’s Federal Ministry for Economic Cooperation and Development, the new law is very focused on freedom of association and preventing discrimination in employment and wages.
The law also requires that harmful changes to soil, air, and water pollution be prevented.
German companies will be required to stop sourcing goods directly from suppliers factories that acquire, develop, or otherwise make use of land, water, or forest from illegally evicting people who depend on them for their livelihood.
According to law, it is illegal to commission or use private or public security force to protect a business venture.
The law also prohibits any action or inaction that is directly susceptible of infringing on a protected legal right in a particularly grave manner.
What are diligence procedures?
Companies falling within the purview of the act need to establish a risk management plan and define their internal responsibility to comply with it.
They must also conduct regular risk assessments and adopt a policy statement regarding the company’s overall human rights strategy.
The law also requires them take corrective action if a violation has occurred or is imminent.
Companies will also need to document due diligence, identify risks and take appropriate measures. Then, they will need to publish a free annual report on their website.
This is why Germany made this move
Globalized trade means that value and supply chains are all over the globe. According to the DLA Piper (a global law firm), international corporations that don’t voluntarily comply with environmental and human rights standards along their supply chain (83-87% of German businesses), have been criticised for decades for profiting off weak and poorly enforced national regulations, especially in the Global South.
These standards are important because the International Labour Organisation estimates that 25,000,000 people worldwide are forced to work, and that global environmental destruction is steadily increasing, according the UN.
This backdrop was reinforced by the fact that the Rana Plaza textile factory collapsed in Bangladesh in 2013, claiming the lives of more than 1,000 people. It was clear that German lawmakers had to adopt a stricter and legally binding liability regime for corporate supply chain.
The new law was passed by the German legislature in June 2021.