Comply with supply chain due diligence

On June 11, the German Parliament, the Bundestag, passed a law entitled “Law on Due Diligence of Companies in Supply Chains”. This law obliges professional organizations to fulfill their due diligence obligations in their supply chains with regard to respect for internationally recognized human rights and certain environmental standards.

In other words, companies must take responsibility for any abuse of labor or the environment in their global supply chain; they will be held responsible for any violation of human rights in the exercise of any activity, from the supply of raw materials to finished products.

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This law stems from the UN Guiding Principles on Business and Human Rights, which are the most important international standards for corporate responsibility.

This law will come into force in 2023. As a first step, German companies with 3,000 or more employees will be subject to this law.

From 2024, companies with 1,000 or more employees will be subject to this law. By law, companies will need to ensure that there are no human rights violations in their immediate business activity and the business operations of their direct or primary suppliers.

Risk analysis for indirect or secondary suppliers is only required when a German company becomes aware of a human rights violation. In this case, they must also carry out a risk analysis and put preventive measures in place, although the requirements are less stringent in these cases.

If companies do not comply with the law, they will face heavy fines of up to 2% of annual turnover for those whose average turnover exceeds 400 million euros per year.

The maximum fine for companies with annual turnover below this threshold is € 800,000. For some of Germany’s biggest companies, that could mean billions of euros in fines per incident. German companies can therefore be expected to be extremely compliant with this law.

This law will have a profound impact on Bangladeshi exporters. Germany is Bangladesh’s largest trading partner in Europe and second globally.

According to the Export Promotion Bureau (EPB), Bangladesh’s exports to Germany amounted to $ 5.95 billion in fiscal year 2020-21. Germany alone contributed 15 percent of the country’s total export earnings for the year, ranking second on the list after the United States with $ 6.97 billion in exports.

The main products Bangladesh exported to Germany were knitted t-shirts ($ 1.23 billion), unknitted men’s suits ($ 1.09 billion) and knitted sweaters ($ 975 million). dollars).

Over the past 24 years, Bangladesh’s exports to Germany have grown at an average annual rate of 12.4 percent.

These figures explain the importance of Germany to Bangladesh in terms of the country’s economy.

To keep trade relations in place, Bangladeshi exporters have enormous responsibilities.

So, let’s focus now on how our exporters need to prepare in order to comply with the new regulations. First and foremost, knowledge of the law, its details and areas that could impact local suppliers.

In short, this legislation emphasizes the social and political rights of workers; more specifically, it concerns the right to life, to health, to fair working conditions and to a decent standard of living; child protection; freedom from slavery and working conditions assimilated to slavery; as well as the right of association, the right of assembly and the prohibition of torture.

In terms of environmental protection, the project only covers exposure to mercury as defined in the Minamata Convention and persistent organic pollutants as defined in the Stockholm Convention.

The next step would be to define the policies and processes so that all of the above points are taken into account.

For example, an employment policy that would make it clear that the company cannot hire child labor and ensure that anyone applying for a job must present a birth certificate or national identity card as proof of his age.

Once a business has set its policies and processes right, the next step is to execute and monitor them regularly so that nothing slips. Another key step would be to update the required documents and keep them as evidence.

Approval by a competent third party always adds credibility and therefore a periodic audit by any reputable and trustworthy organization should be part of the practice.

A concerted effort is needed to raise awareness and build the capacity of our exporters.

Trade bodies such as the Bangladesh Garment Manufacturers and Exporters Association, Bangladesh Knitwear Manufacturers and Exporters Association as well as trade should come together to form a joint committee that will guide exporters and help them get started. compliance.

This committee should liaise proactively with German importers to align export industries with their requirements and expectations. Any approval by German government organizations, such as the German Embassy in Bangladesh, would go a long way in building a positive image of Bangladeshi suppliers.

Besides Germany, there are other European countries like France and the Netherlands which have already instituted their own legal frameworks. The equivalent French law known as the “Vigilance Law” introduces the principle of civil liability.

The UK Modern Slavery Act, the Swiss Responsible Business Initiative and similar regulatory measures are being developed in a number of other countries such as Belgium and Finland. At European level, there is a broad consensus behind ambitious legislation on business due diligence.

Obviously, in the near future, most of Bangladesh’s major export destinations are expected to pass similar laws to those already passed by Germany. Bangladesh must respond quickly to avoid any last-minute rushes, setbacks, disruptions and, most importantly, prepare well in advance to maintain its hard-won export trajectory.

The author is Chairman and CEO of BASF Bangladesh and Chairman of the German Business Council.


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About Chris McCarter

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