Labour compliance key to export competitiveness

Labour compliance is becoming increasingly important for Bangladeshi exporters as major Western markets tighten requirements and the country prepares to graduate from the least developed country (LDC) category.

A new policy paper by economist Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem), said labour standards are no longer only an ethical or domestic issue. They are increasingly linked to market access, buyer decisions, shipment clearance and export competitiveness.

Tap here to add The Daily Star as a trusted source

The paper, titled From Compliance to Competitiveness: The Growing Importance of Labour Issues for Bangladeshi Exporters in the European Union and the United States, was published this month.

Bangladesh’s ready-made garment (RMG) sector, the country’s main source of export earnings, has long relied on low labour costs, a large workforce and preferential access to major markets.

The EU and the US are the sector’s two biggest markets. The EU takes about half of Bangladesh’s apparel exports and provides duty-free, quota-free access under the Everything But Arms (EBA) scheme. The US is Bangladesh’s largest single-country market, although it does not offer similar tariff benefits.

The paper said this export model is now under pressure as Western markets introduce stricter labour and supply-chain requirements while Bangladesh’s LDC graduation is expected to reduce some tariff preferences.

The EU has introduced rules on corporate due diligence, sustainability reporting and forced labour. Its Forced Labour Regulation, which will apply from December 2027, could block products made with forced labour at any stage of production from entering the EU market.

Bangladesh is expected to retain EBA-equivalent benefits for three years after LDC graduation but could lose them around the end of 2029. Under the revised EU Generalised Scheme of Preferences, the country may need to qualify for GSP+ to retain wider duty-free access after the transition period.

The US follows a different approach, relying mainly on customs enforcement and requirements imposed by private buyers. US law prohibits imports made wholly or partly with forced labour.

As many Bangladeshi garment factories use cotton, yarn or fabric sourced from China, exporters may have to provide documents showing that restricted inputs did not enter their supply chains.

Large US buyers also require suppliers to follow codes covering issues such as child labour, forced labour, worker rights and factory safety. A lack of traceability could delay shipments or lead buyers to cancel orders, the paper said.

As requirements increase, exporters may need to keep detailed records on workers, subcontractors and the origin of materials. Buyers may seek information not only about the factory producing a garment but also about the sources of its fabric, yarn and other raw materials.

The burden is likely to be greater for small and medium-sized factories and subcontractors. Large exporters can more easily invest in digital records, traceability systems and worker grievance mechanisms, while smaller firms often still rely on paper-based records.

The paper warned that this could widen the gap within the industry, allowing larger exporters to strengthen their market position while smaller factories and subcontractors risk losing orders and jobs.

However, better compliance could also bring commercial benefits. Factories with stronger labour and safety systems may have more stable relationships with buyers, fewer disruptions and better access to demanding sourcing programmes.

Raihan recommended stronger labour inspections, faster dispute resolution, shared digital compliance systems and greater support for smaller exporters. He also urged industry associations to develop shared traceability platforms, pooled training and systems to reduce repeated audits.

The paper said businesses should treat labour compliance as part of their production strategy rather than something to address only before an audit. Exporters should map their suppliers and subcontractors, improve record-keeping and traceability, and strengthen worker grievance and participation systems.

“Compliance is therefore both an adjustment cost and a potential source of competitiveness,” the paper concluded.