EU's new supply chain law to improve labour conditions in Bangladesh

The new supply chain law approved by the European Parliament is expected to improve labour and environmental standards at the garment factories in Bangladesh since more than 64 percent of the country's apparel exports are destined for the world's largest trade bloc.

The European Parliament yesterday adopted the Corporate Sustainability Due Diligence Directive (CSDDD), which is expected to establish a corporate due diligence standard on sustainability for businesses operating in the EU. It aims to enhance the protection of the environment and human rights in the EU and globally.

The law now needs final approval from EU member states and the EU ministerial vote is expected to take place in May.

The Parliament's vote came on the 11th anniversary of the tragic collapse of the Rana Plaza building, which killed 1,138 garment workers and injured more than 2,000 others.

The new law, which will come into effect gradually up to 2030, may cause a significant shift in production, compliance, and responsible business behaviour by both supplying companies and importing companies.

This is because, for the first time, importers will have to bear the responsibility for any violation of compliance standards in the supply chain.

For instance, international clothing retailers and brands that used to source garments from the factories housed inside Rana Plaza were not held responsible for the deaths of the workers. Only the manufacturers were held responsible.

The global buyers were not legally bound to pay compensation to victims. Rather, they took part in the process willingly.

However, the passage of the CSDDD ensures that the EU will take proper steps and hold both supplying companies and importing companies responsible.

What does the law mean for Bangladesh?

In some cases, Bangladesh is ready to comply with the CSDDD. However, there are areas where the country needs to improve to meet the standards.

For example, Bangladesh is a global champion in green factories, with 215 such units already operational and another 500 in the pipeline, which indicates the country has done a commendable job in protecting the environment.

However, Bangladesh will have to ratify 32 United Nations conventions, including four core conventions on human rights, labour rights, good governance and environmental protection.

Bangladesh has ratified all of the core conventions of the International Labor Organisation as per the commitment made in the National Action Plan.

Another area where the country is still lagging is in terms of reducing carbon emissions, with nearly 95 percent of the country's exporters dependent on fossil fuels. They will have to switch to renewable sources of energy as per the CSDDD.

European buyers of Fakir Apparels Ltd, a garment factory in Narayanganj, have already asked the supplier to move towards renewable energy and reduce carbon emissions by 50 percent by 2030.

"We are getting ready to switch to renewables, but it requires a lot of investments," said Bakhtiar Uddin Ahmed, chief operating officer of Fakir Apparels.

Fakir Apparels, which supplies 95 percent of its products worth $160 million to Europe annually, is also preparing to use recycled yarn and new technologies to comply with the law, he said.

In Bangladesh, labour rights are still being questioned as living wages have not been introduced and workers are still facing challenges in forming unions in factories because of stringent conditions in the labour law.

Md Towhidur Rahman, president of the Bangladesh Apparels Workers Federation, said Bangladesh has improved labour rights by ratifying the core ILO conventions.

However, the lax implementation in the areas of decent working conditions, collective bargaining, and living wages could pose a challenge since they are at the heart of the new law, he said.

He suggested a gradual implementation of the law to ensure that all parties, including suppliers, importers and workers are satisfied and the industry is not damaged.

"Owing to Bangladesh's higher production capacity and the readiness for the law, we may not face a loss of work orders due to the new law," said Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association.

He, however, warns that if buyers do not pay ethical prices to suppliers, it will be a one-sided and ineffective law, as it will increase the cost of business.

According to experts, the protection of the environment as well as human and labour rights is necessary. Likewise, it is also important to safeguard both exporters and importers.

The strict implementation of the new law may bring positive changes to the global supply chain, but the new law needs to be implemented equally for all countries, they say.

In a press release, Aruna Kashyap, associate director on corporate accountability at Human Rights Watch, said: "The 11th anniversary of the Rana Plaza disaster is a somber reminder of why a due diligence law is long overdue."

"The European Parliament's vote sends a strong message that the EU should no longer let large corporations get away with human rights and environmental abuses."

However, the new law is a watered-down version.

The Belgian government, which holds the rotating presidency of the EU Council, thrashed out a compromise that limits the number of companies expected to comply. The new agreement applies to companies with more than 1,000 employees, up from 500, and a net turnover of 450 million euros – triple the amount previously agreed.

Environmental groups estimate the changes will exclude 70 percent of the companies the law was meant to cover.