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ECONOMYNEXT – The smallest exporter of goods or services from Sri Lanka to Germany could see its relations with German buyers and partners severed after the entry into force of a new law on human rights from 2023 in a drift to 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 force in January 2023, could encourage some German companies to reduce the number of suppliers, which which would lead to a concentration of supply towards a few foreign companies.

Concentration

A European Union-wide law is also being enacted, which may have even stricter requirements.

“The concentration of the supply chain could be a challenge,” said Andreas Nicolin, from the Eastern Europe and Asia-Pacific unit of the Federal Ministry for Economic Affairs and Climate Action.

“The European law under discussion will be much sharper.”

German companies with more than 3,000 employees will be the first to be affected by the law. Companies in Germany will be required to ensure that their suppliers and partners in Sri Lanka respect human rights, labor laws and the environment.

Some Sri Lankan exporters of manufactured goods, which have ties to global and German brands, already adhere to some of the principles enshrined in the law.

In the apparel sector in particular, organic and sustainable business practices have been applied for at least two decades.

“Given Sri Lanka’s high levels of ethical practices and a history of audits etc., it shouldn’t be too difficult for companies to comply with the law,” said Yohan Lawrence, Secretary General of the Forum of the Joint Garment Association of Sri Lanka.

“That said, the devil will be in the details and it’s reasonable to expect that buyers will push to replicate the requirements they’ve met to ensure they have better on-chain visibility.” supply.

“As with many of these new regulations, the SME sector will be disproportionately affected as there is likely to be a bigger gap here, especially when it comes to the necessary documentation – policies, risk analysis, etc.

“We need to ensure that we provide a mechanism to develop skills in the SME sector around these areas so that they are able to demonstrate compliance as required by the new law. If this support mechanism is not in place, companies may not place orders with the SME sector.

Global trend

Global Organic Textile Standard (GOTS) is one of many organizations that help businesses comply with and maintain required standards.

It has already certified more than 12,000 installations in 79 countries and 835 companies in Germany.

“GOTS supports companies with due diligence criteria throughout the supply chain involving manufacturers and traders,” said Juliane Ziegler, GOTS representative in Germany, Austria and Switzerland, Global Standard gGmbH.

The company assesses the use of materials, waste, minimum wages, living wages, child labor, forced labor and treatment of migrant workers. Human rights were contained in the GOTS social criteria, Ziegler said.

“It is essential that all levels of the supply chain are checked,” she said.

Related

Sri Lanka will face human rights rules on exports to Germany from January 23

The German government’s former human rights commissioner, now managing director, Löning, Responsible Business and Human Rights, said German companies will start conducting risk assessments on suppliers to verify compliance.

Each company will need to audit and be aware of their supply chain.

The law will also apply to services, including software and travel. (
Sri Lankan hotels, software companies with German partners to deal with human rights law)

German importers and business partners could be forced to drop businesses in Sri Lanka that don’t treat workers well or take precautions to minimize their impact on the environment.

However, it is also an opportunity for companies that comply to maintain or expand their operations, Löning said.

One of the triggers for the law was the collapse of Rana Plaza in Bangladesh, which left more than 1,000 people dead and consumers began asking questions of clothing brands in particular.

After the disaster, many global brands launched their own standard that required supplies to audit and demonstrate compliance.

“Every company that complies with the OECD guidelines will be well prepared for the supply chain,” Safarik said.

Tim Richter of the Helpdesk on Business & Human Rights, Agency for Business & Economic Development (federal government support service) which advises German businesses, said more than 2,000 businesses had consulted them on the upcoming law.

In Sri Lanka, apparel companies and some food exporters, who already comply with brand partners’ standards, have already made progress, but companies that fail to comply risk ending their relationships trade with German buyers. (Colombo/Oct 30, 2022)


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