Sri Lanka’s smaller exporter of goods or services to Germany may find their relationships with German buyers and partners terminated after a new human rights law comes into effect from 2023 in a drift towards larger suppliers, officials said.
The regulatory burden of complying with the requirement of the German Supply Chain Due Diligence Act (SCDDA) which will come into effect in January 2023 may prompt some German firms to reduce the number of suppliers leading to concentration of supply to a few overseas companies.
Concentration
A European Union wide law is also in the process of being enacted, which may have even tighter requirements.
“Concentration of supply chain could be a challenge,” Andreas Nicolin, from the Eastern Europe and Asia-Pacific unit of Federal Ministry of Economic Affairs and Climate Action said.
“The European Law under discussion will be much sharper.”
German companies with over 3,000 employees will come under the law first. Companies in Germany will be required to ensure that their suppliers and partners in Sri Lanka comply with human rights, labour laws and environment.
Some Sri Lanka manufactured exporters, which have links with global and German brands already comply with some of the principles enshrined in the law.
In the apparel sector in particular organic and sustainable business practices have been applied for two decades or more.
“Given Sri Lanka’s high levels of ethical practices and a history of audits etc it should not be too difficult for companies to abide by the law,” Yohan Lawrence, Secretary General of Sri Lanka’s Joint Apparel Association Forum said.
“That said however the devil will be in the detail and it’s reasonable to expect that there will be a push from buyers for a replication of the requirements that they have fulfill in order to ensure that they have better visibility down the supply chain.
“As with a lot of these new regulations the SME sector will be disproportionately affected as there’s likely to be a greater gap here particularly around the documentation needed – policies, risk analysis etc.
“We need to ensure that we provide a mechanism to build skills in the SME sector around these areas so that they would be in a position to demonstrate their compliance as laid out by the new law. Failure to provide that support mechanism risks companies not placing orders with the SME sector.
Global Trend
Global Organic Textile Standard (GOTS) is one of several organizations, that support companies to comply and maintain required standards.
It has already certified over 12,000 facilities in 79 countries and 835 companies in Germany.
“GOTS supports companies with due diligence criteria along the entire supply chain involving, manufacturers and traders,” Juliane Ziegler, GOTS Representative in Germany, Austria and Switzerland, Global Standard gGmbH said.
The company assesses material usage, waste, minimum wages, living wages, child labour, forced labour and treatment of migrant labour. Human rights were contained in the GOTS Social Criteria Ziegler said.
“It is must that all levels of the supply chain has to be checked,” she said.
Related
Sri Lanka to face human rights rules on exports to Germany from Jan 23
Former Commissioner of Human Rights of the German government now Managing Director Löning Responsible Business and Human Rights said German companies will start conducting risk assessments on suppliers to check compliance.
Each company will have to audit and have knowledge of their supply chain.
The law will also apply to services including software and travel. (
Sri Lanka hotels, software firms with German partners to face human rights law)
German importers and business partners may be forced to drop companies in Sri Lanka that do not treat workers well or do not take precautions to minimize their impact on the environment.
However it is also an opportunity for companies that comply to maintain or expand their business, Löning said.
One of the triggers for the law was the collapse of Rana Plaza in Bangladesh which left over 1,000 people dead and consumers started asking question from apparel brands in particular.
After the disaster many global brands started their own standard which required supplies to audit and show compliance.
“Each company that conforms to OECD guiding principles will be well prepared for the supply chain,” Safarik said.
Tim Richter from the Helpdesk on Business & Human Rights, Agency for Business & Economic Development (support service of the Federal Government) which is advising German companies said more than 2,000 companies have consulted them on the upcoming law.
In Sri Lanka apparel companies and also some food exporters, who already comply with their brand partners’ standards had already made progress, but companies that do not comply may face termination of their business relationships with German buyers.
(Curtesy Economy next)