New German law may affect trade with Bangladesh

Bangladesh businesses will have to ensure the protection of basic human rights and the environment in production to keep trading with Germany, as the biggest economy in Europe is going to adopt a new due diligence law from 2023, said experts.

The remarks came from various diplomats, policy-makers, stakeholders and business leaders at a webinar recently.

The Bangladesh-German Chamber of Commerce and Industry (BGCCI) organized the webinar, in view of the new law related to basic human rights and the environment in Germany.

The new law will be applicable to any country that does business with Germany, they also said at the webinar titled "German Due Diligence Act – Implications for Manufacturers and Exporters in Bangladesh".

The new due diligence law will come into effect from January 2023 for companies with more than 3,000 employees.

It will be applicable to companies with 1,000 workers from January 2024.

The German Act on Corporate Due Diligence in Supply Chains (the “Supply Chain Due Diligence Act” - SCDDA) aims to protect the rights of people who produce goods for the German market.

Goods would include, for example, garments from Asia. Other examples are cocoa and fruit from Africa, and coffee from South America.

The German legislation has been adopted with a view to obliging German companies, and foreign companies with a branch or subsidiary in Germany, to better meet their global responsibility.

Violations targeted by the SCDDA include, in particular, child labour, forced labour, exploitation, discrimination, and inadequate labour legislation, as well as environmental destruction such as illegal logging, inappropriate use of pesticides, contamination of water resources and air pollution.

Companies will be required to exercise due diligence in their supply chains in accordance with human rights and environmental requirements as set out in an Annex which lists, among others, international Conventions of the International Labour Organization (“ILO”), the Minamata Convention on Mercury, the Stockholm Convention on Persistent Organic Pollutants (“POPs”) and the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, they added.

While speaking as the chief at the webinar, Bangladesh Ambassador to Germany Md Mosharraf Hossain Bhuiyan emphasized early completion of the construction of the central effluent treatment plant at the Savar Tannery Industrial Estate with a view to maintaining social, business and environmental issues.

Bhuiyan, also former chairman of National Board of revenue (NBR), said that the Bangladeshi leather and leather goods sector should comply with the law to retain its market in Germany.

He cautioned that the leather and leather goods exports may face difficulties if the construction of the central effluent treatment plant (CETP) is not completed in time.

The former NBR chairman also suggested that the government may invite German companies to partner with Bangladesh companies to expedite construction of the CETP.

However, he also said that eventually the Bangladeshi businesses will have to incur added expenditure. But in the long run the businesses will improve and prosper.

Bhuiyan also mentioned that the new supply chain act will affect German companies more than Bangladeshi businesses.

The German legislation has been adopted with a view to obliging German companies, and foreign companies with a branch or subsidiary in Germany, to better meet their global responsibility.

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"Fines will be heavy if a company violates the new law," said Manfred Junkert, general manager of the Federal Association of the German Footwear and Leather Goods Industry.

A separate federal body on exports and imports will oversee the implementation of the law that will focus on human rights, green production facility and environmental protection in the supply chain, said Karl Borgschulze, managing director of Consulting Service International (CSI), a German social auditing and certification firm.

Impact on global supply chain

Karl Borgschulze, managing director of Consulting Service International (CSI), stated in his remarks that the new law will have a knock-on-effect on global business supply chains of German businesses.

He also stated that manufacturers and exporters in Bangladesh are in a good position for previous work and projects in the area of transparency, traceability and compliance. This is a high chance for Bangladesh to further strengthen their position by proactively offering solutions to German buyers.

Manfred Junkert, general manager of the Federal Association of the German Footwear and Leather Goods Industry, also mentioned about the fines related to violating the new law.

A separate federal body on exports and imports will oversee the implementation of the law that will focus on human rights, green production facility and environmental protection in the supply chain.

Matthias Rosenthal, VP of TUV SUD Product Service Division, stated the act is intended to improve the protection of basic human rights and enforce the ban on forced labor.

Companies need to adopt a policy statement on respecting human rights, doing risk analysis, engaging in risk management, establishing a grievance mechanism and need to implement transparent public reporting in both their own and in direct suppliers’ business operations to comply with the law.

Asif Ashraf, director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and managing director of Urmi Group, said: "The local garment factories are the safest workplace in the world after the implementation of the recommendations of the Accord and the Alliance, the two factory inspection bodies. "

He emphasized that most of the Bangladeshi garment factories were certified by Sedex and Higgs Index, meaning they are maintaining compliance beyond standards.

Sedex is home to one of the world’s largest collaborative platforms for sharing responsible sourcing data on supply chains, while the Higg Index is an apparel and footwear industry self-assessment standard for assessing environmental and social sustainability throughout the supply chain.

Germany is the second-largest export destination for Bangladesh after the US.

Last fiscal year, the country shipped over $5.6 billion worth of goods to the European country. Of the goods, more than 95% are garment items.

At 148, Bangladesh has the highest number of green garment factories in the world. Another 500 are waiting to be certified by the US Green Building Council (USGBC).

Amrita Makin Islam, deputy managing director of Picard Bangladesh, said there is a need to disseminate information about the new law among the business community.

She focused on the risk management aspects of the law, and stated that if there is a situation where a supplier is noncompliant with the act, the necessary remedies should be examined by Bangladeshi suppliers.