German supply chain law: Boon or bust?
The timing of this law is particularly interesting, as Bangladesh is poised to graduate from its LDC status and much of the trade privileges that it had enjoyed with Germany is at the cusp of being rewritten
As the new German Supply Chain Due Diligence Act comes into effect from this month, questions have arisen internationally on how it will impact partners having business ties with Germany. The act effectively encompasses German owned companies with 3,000 or more employees to ensure that effective human rights, governance and environmentally sustainable production methods are being carried out across its supply chain.
The law has been drafted in line with the UN guiding principles for Sustainable Development Goals (SDGs) and aims to bring more transparency across the value chain for large German companies. And since Germany is a significant trading partner for Bangladesh, the question arises how the passing of this new law will affect the trade relationship of the two countries.
The timing of this law is also particularly interesting, as Bangladesh is poised to graduate from its LDC status and much of the trade privileges that it had enjoyed with Germany is at the cusp of being rewritten.
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As an export driven economy, Bangladeshi exporters are not new to supply chain laws governing their trade relationships. The US, UK and Australia all have supply chain laws — namely the California Supply Chain Act 2010, the Modern Slavery Act 2015 and the Commonwealth Modern Slavery Act 2018. Bangladeshi exporters have had to abide by the stipulations given in these laws as these three countries are the major export destinations of Bangladeshi-made products.
It is noteworthy that these laws primarily focus on human rights and working conditions, whereas the German Supply Chain Due Diligence Act takes a more holistic approach by incorporating the three pillars of sustainability — environmental, social and governance. The road to GSP plus also holds a prerequisite for Bangladeshi businesses to commit to a 360-degree sustainability approach.
In a post-Covid world, Bangladeshi exporters have already taken commendable strides to set themselves apart. The business climate of the country, boosted by a timely vaccine rollout, has proven to be one of the most resilient economies in South Asia. Additionally, the focus on sustainable manufacturing practices, with world class multi-award-winning factories, reinforced by a strong scrutiny from customers and compliance agencies, has enabled Bangladesh to have multiple manufacturers who not only meet the terms stated by the Act, but in fact go beyond it.
In fact, with the global pressure for transparency and with the country being an open information economy, Bangladesh, for the first time might have a clear competitive advantage over China.
Most Bangladeshi exporters already adhere to most of the rules and stipulations outlined in the German Supply Chain Act, especially the conditions pertaining to human rights and governance. There is ample opportunity for Bangladesh to actually use this scope and communicate to the world how well aligned the country's manufacturing sector is in terms of sustainable production practices.
The attention that the German Supply Chain Due Diligence Act is garnering can provide a platform to brand Bangladesh as a country that has really taken its Sustainable Development Goals (SDGs) seriously.
However, considerable work needs to be done by the bilateral trade agencies, Bangladeshi missions abroad and policymakers so that the country can herald the German Supply Chain Act as a boon to rebuild its image as a major sustainable sourcing destination.
The author is the deputy managing director of Picard Bangladesh Limited
