From Due Diligence to Global Justice

The German Act on Corporate Due Diligence Obligations in Supply Chains, or Lieferkettensorgfaltspflichtengesetz (LkSG), which obligates German enterprises to uphold international labour and human rights and environmental standards in their supply chains, came into effect last year. The legislation is significant in that it seeks to address challenges embedded in global supply chains, whereby major corporations outsource production as well as risk to foreign suppliers, obfuscating their employment relationship with the workers there.

By creating a mandatory framework to prevent brands from evading their responsibilities vis-à-vis production workers, the LkSG affirms that such a relationship exists in the first place. But will affirming its existence alone suffice to have an impact? The evolution of the garment industry into one of the world’s most sophisticated global supply chains provides a useful model for discussing the LkSG’s capacity to mitigate the problems it aims to address.

The global labour movement has fought for global supply chain regulations to safeguard production workers against hyper-exploitation for years. The urgency of such measures was starkly underscored during the COVID-19 pandemic, when fashion brands precipitated a highly visible and avoidable human rights catastrophe by cancelling or refusing to pay for orders, in turn leading to mass layoffs, factory closures, and terminations that impacted millions of garment workers and their families in the Global South.

In that sense, the LkSG is a positive development in that it expands the available mechanisms for holding multinational corporations to account. In this article, we examine the obstacles and opportunities presented by the LkSG from the perspective of the labour movement in Asia, and explore how it can be used to build working-class power in production countries, particularly within the Association of Southeast Asian Nations (ASEAN), and foster convergence among progressive movements around the world.

The Evolution of the Global Supply Chain

The LkSG represents a legislative response to the contemporary phase of globalized capitalist development that constructs global supply chains to concentrate labour-intensive, low-value-added activities in developing countries for maximum surplus value extraction and minimum risk. High-value-added activities — and, for that matter, the lion’s share of profit accumulation — continue to occur in the advanced economies, where the major firms are headquartered.

In the post-colonial era that began in the second half of the twentieth century, Global South countries pursued development via export-led industrialization, while developed nations in the Global North aimed to preserve advantages obtained during the post-war era. This model was championed by global finance institutions like the World Bank and International Monetary Fund (IMF), which, led by Global North governments and capital, inundated the developing world with neoliberal ideologies of market fundamentalism and deregulation beginning in the 1980s, coercing developing countries into structural adjustment programmes.

The LkSG represents a belated but crucial effort to safeguard production workers against extreme exploitation linked to their position in the global supply chain.

This shift radically altered the terms of development and growth, as corporations in the Global North began outsourcing production to cheaper labour markets in the Global South. Asia emerged as a global manufacturing hub during this period, with the garment industry playing a key role. The new model seemed to promise a path to industrialization for East Asian and subsequently Southeast and South Asian countries.

However, whereas living wages and workers’ welfare were (at least theoretically) treated as national priorities during the previous era, the new profit-driven development model imposed on the Global South treats wages and welfare as costs to business to be suppressed. Economic growth is celebrated, but disconnected from the widespread impoverishment in these countries. This model is essentially debt-led growth, with wages and wage share at an all-time low and inequality at an all-time high. While the millions of workers entering the new industrialized workforce were promised a decent, dignified life, the overwhelming majority found little more than impoverishment and indebtedness.

Northern brands were able to reap massive profits and enjoy practically unlimited flexibility in dictating the terms of outsourced garment manufacturing to factories in Global South countries, thereby securing low prices and faster consumption in their home countries. Meanwhile, production workers (and their unions) in the Global South found themselves far removed from the CEOs and shareholders who shape working conditions in the factories. Any liability for risks related to labour and human rights violations could be easily evaded, because the relationship between brands, suppliers, and workers was obscured by the brands’ formal status as mere “buyers” of commodities.

The absence of accountability embedded in this framework has been abetted by political repression and the erosion of trade unions and civil society organizations, which in turn are the substance of democracy and an important counterbalance to the profit-driven forces led by small groups of powerful elites. The LkSG represents a belated but crucial effort to safeguard production workers against extreme exploitation linked to their position in the global supply chain.

A Long and Rocky Road

Trade unionists (especially from producer countries) along with consumer activists have long argued that global supply chains require new regulatory mechanisms, as the outdated nation-state regulatory framework embodied by the International Labour Organization (ILO) and voluntary mechanisms have proven inadequate. The LkSG arrived after decades of struggle from workers in the Global South and Northern allies — notwithstanding the entrenched power imbalances embedded in these efforts — while constantly confronting diluted private sector “solutions” backed by international bodies.

As production inevitably relocated to Global South countries and a new, unorganized working class took shape, trade unions in the developed world tended to prioritize defending Northern workers’ share of the pie over uniting workers across borders. Stepping in where the international trade union movement had failed, consumer campaigns emerged in Europe and the US in the 1990s to build solidarity with garment workers in developing countries. Consumers in the Global North, driven by notions of ethical consumerism, mobilized to demand decent working conditions for the products they purchased. While global campaigning did secure notable victories, it fell short in building lasting power within production workers’ labour unions.[1] Nevertheless, such leverage continues to be important.

Faced with the reputational risk posed by these campaigns, in the early 2000s fashion brands adopted voluntary measures such as the Code of Conduct (CoC) and “social auditing”, twin pillars in the world of Corporate Social Responsibility (CSR). CoCs and social auditing further displaced trade unions from meaningful worker representation. Social auditing, a multi-billion-dollar industry, has been widely discredited as multinational corporations continue to drive down the price of labour to the detriment of workers.

Asia’s rapid economic growth and export-oriented manufacturing generated new groups of powerful elites, including supplier factory owners in East Asian countries like Japan, South Korea, and Taiwan, as well as China.

The United Nations aligned itself with market-based voluntary solutions, establishing the Global Compact. In 2011, the UN Human Rights Council (UNHRC) adopted the Guiding Principles on Business and Human Rights (UNGPs), as did the UN Global Compact and the OECD Guidelines for Multinational Enterprises. While noting corporations’ responsibility to conduct human rights due diligence (HRDD), these measures are voluntary, non-binding recommendations with limited independent monitoring and complaints mechanisms. Trade unions in Asia have noted the substantial efforts, difficulty fulfilling requirements, and lengthy processes inherent in these mechanisms, all of which have yielded unsatisfactory results.

The so-called solutions put forth by brands and endorsed by international bodies have failed not only as a result of their voluntary nature, but because they overlook the global supply chain framework that enables brands to hide behind the false positioning as “buyers”, implying the absence of an employment relationship with production workers. It should also be noted that the models described above maintain the influence and power of Northern actors. What we need is a model that empowers workers and trade unions in production countries to drive improvements in wages and working conditions from the ground up. Hence, the effectiveness of the LkSG will depend on whether it can be used to build collective bargaining power among workers in producer countries and facilitate convergences between progressive movements in the Global North and South.

Structural Constraints and Potential Pitfalls

Fashion brands are the drivers of garment global supply chains. Their purchasing practices dictate prices, lead times, and quality pressures on suppliers, which in turn are passed onto workers in the form of suppressed wages, poor working conditions, and violations of local labour laws and internationally recognized standards.

Nevertheless, although brands wield considerable influence over manufacturers in their supply chains, their power is not absolute. To anticipate the challenges workers and unions may face accessing the LkSG, a holistic power analysis is required that accounts for growing intra-continental capital mobility and the complex regional production networks built by East Asia’s transnational corporations.

Asia’s rapid economic growth and export-oriented manufacturing generated new groups of powerful elites, including supplier factory owners in East Asian countries like Japan, South Korea, and Taiwan, as well as China. ASEAN emerged as an economic bloc of developing nations to enhance liberalization and ease capital flows in the region, with the aim of becoming an integrated production hub for transnational capital. As the East Asian economies advanced in the 1980s, a growing number of garment workers in ASEAN countries found themselves employed in factories owned by East Asian capital.

Strategies centring Northern actors operate on the assumption that brands control the labour practices of manufacturers. However, the transnational nature of capital within Asia extends compliance beyond national borders, with powerholders located in East Asia (i.e., the exploitation of workers in a factory situated in an ASEAN country is influenced by the interests of East Asian factory owners). Both brands and suppliers are driven by profit maximization — thus, East Asian factory owners can find themselves in opposition to the established powerholders, namely brands in Europe and the US.

Given the rise of East Asian manufacturing capital and its mobility in ASEAN, not to mention Asia’s emergence as a significant consumer market, it is important to consider the relative power, competing interests, and structural limitations linked to the LkSG. Possible constraints to LkSG include:

1. Regulatory gaps between the LkSG and ASEAN. Until now, HRDD frameworks have had little impact on labour and human rights standards in ASEAN. States are complicit in non-enforcement of labour standards as part of their export-oriented industrialization policies promoting the ease of doing business. This underscores the gap between the regulatory standards set forth by the LkSG and regulation and oversight in production regions. At the ASEAN level, the notion of human rights is contested. For example, the Guidelines for the Promotion of Inclusive Business forgo any mention of HRDD in favour of “inclusive business”, and the ASEAN Intergovernmental Human Rights Commission (AIHRC) is widely regarded as superficial. Institutional change in Southeast Asia faces strong opposition from local elites and socio-political forces who stand to benefit from disregarding internationally recognized labour standards and rights.
2. Superficial compliance if price mechanisms are not adjusted to cover costs. Extensive market reforms could lead to superficial compliance, as powerful elites in Asia use their connections to evade tougher regulation. This will be particularly true if brands’ pricing does not change to reflect the cost of compliance. Suppliers are bound by competitive pricing models that include costs set at the minimum level required by national laws. Manufacturers’ ability to hire and fire flexibly, to force excessive overtime and targets, and to pay low wages are intrinsic to the low profit margins and highly competitive environment in brand-driven supply chains. Research has shown that brands’ pricing models barely meet compliance with even national standards. Without meaningful revision of pricing, mock compliance is a likely scenario.
3. Relocations due to the cost of compliance. Relocation could become a preferred option for suppliers seeking to offset compliance costs by maximizing surplus value extraction. This is already a common phenomenon in the region, but could be exacerbated under the heightened requirements of the LkSG and the increasing regional integration and capital mobility in ASEAN. Furthermore, if suppliers are not able or refuse to meet heightened compliance demands due to the current pricing models, brands may be obliged to responsibly exit. In either scenario, the result would mean job losses for thousands of workers in a given supplier factory.
4. Costly compliance could nudge suppliers towards Asian brands. While Germany is currently a major ASEAN trading partner, there is a notable acceleration in the transnational mobilization of capital among developing countries in Southeast Asia, albeit unevenly between states. The growing regionalization of production and finance has spurred the emergence of initiatives such as ASEAN Plus Three, connecting ASEAN with China, Japan, and South Korea, as well as the Regional Comprehensive Economic Partnership (RCEP) and China’s Belt and Road Initiative. This could indicate the growing weight of commercial capital from Asian countries. For example, when several European brands ceased operations in Myanmar due to the military coup, a number of Asian brands demonstrated blatant disregard of labour standards and entered the market. Doing business with Asian brands that do not require adherence to costly compliance measures could become more attractive to suppliers.
5. Limited monitoring capacity on the part of local stakeholders. Brands have historically favoured outsourcing compliance to social auditors and third-party NGOs in a bid to side-line trade unions. On top of the myriad instances of corruption and collusion between hired social monitors and management, even well-intentioned third-party monitors face a significant deficit in resources. Without meaningful involvement of trade unions and adequate resourcing for genuine worker-led initiatives (discussed more in detail in the concluding section), the LkSG again faces the risk of superficial compliance.
6. Repression of trade unions, freedom of association, and democracy. Trade unions and civil society are fundamental to democracy, countering the profit-driven forces led by small groups of powerful elites. These same forces have failed to engage in genuine social dialogue with stakeholders that would question existing power dynamics. Some have noted the gradual interface with selected civil society groups in “high-level” ASEAN platforms and the ASEAN Trade Union Council as a departure from the traditional ASEAN regionalism that prioritizes authoritarian values referred to as the “ASEAN way”. Still others note that the gradual attempts of countries like Cambodia, Laos, and Thailand to normalize the military junta in Myanmar signal business as usual. The region has a long way to go in terms of democratic institution building and meaningful engagement with the independent and democratic labour movement.

Making the Supply Chain Law Work for Labour in ASEAN

Ultimately, the efficacy of the LkSG will be determined by its capacity to marry expanded Human Rights Due Diligence with expanded collective bargaining of workers in the Global South.

Firstly, a strong, united labour movement across producer countries in Asia is crucial to challenge the power dynamics outlined in this article. Brands strive to maintain optimal regional average costs by pitting one country against another to drive down the cost of production in a never-ending race to the bottom.

The Asia Floor Wage Alliance (AFWA) formed in 2007 to counterbalance brands’ regional sourcing strategy with regional collective bargaining power of workers. This alliance unites established, new, and independent trade unions across Asia with the support of labour and human rights organizations. AFWA’s strategies are conceptually rooted in the global supply chain framework that obscures brands’ employment relationship to production workers, and seek to build transnational labour solidarity in Asia.

Progressive actors in Germany and other Global North countries can further support the implementation of the LkSG by holding institutions accountable and creating linkages and access to resources to strengthen trade union and civil society in the Global South.

In a globalized world, national workers’ movements must project globally. At the same time, regional unity between national voices is needed to make the strategic leap from national to global. Given the contradicting transnational forces and motivations at play in ASEAN, a collective bargaining strategy is required that contends with the power of East Asian manufacturing capital and projects cross-border solidarity from workers in Asian production countries. The LkSG can be leveraged for this effort, as brands in Germany have an interest in promoting compliance that can be achieved through worker-led initiatives and monitoring. For this, the role and participation of trade unions — supported by civil society organizations — must be central.

Secondly, to foster global convergence among progressive movements, actors in the Global South cannot be relegated to secondary roles within North–South processes. In other words, the LkSG must mark a departure from the service delivery model from Northern actors to Southern workers and become a tool to build power among the working class.

In line with this framework, in 2021, in response to brands’ negligence during COVID-19 and suppliers’ inability to pay wages to workers due to their dependence on brands, AFWA mobilized unions and legal networks across six countriesto co-develop a new legal strategy on Joint Employer Liability that redefines the role of brands as joint employers instead of mere “buyers” of garments. Complaints and petitions filed in India, Indonesia, Pakistan, and Sri Lanka exercising various state legal mechanisms contributed to an important discussion on strengthening national jurisdictions and institutions.

With this strategy, AFWA aims to establish an employment relationship between brands and production workers. This presents a potential avenue for LkSG to complement these efforts by establishing a relationship of risk based on HRDD to hold brands accountable. In this way, LkSG has the potential to create convergence and redistribute power among Global South and Global North-led progressive movements.

It is important to note, however, that establishing the employment relationship between brands and workers requires adequate public disclosure of brands’ supplier factories. Typically, information about which brands are sourcing from which suppliers is uncovered in a number of ways, including verification by workers and unions, along with secondary research. However, transparency and visibility of supply chain information is lacking in general, especially in lower-tier units or subcontracting facilities. This poses a significant hurdle, and adequate public disclosure is required.

Thirdly, labour rights violations complaints cannot be addressed adequately without institutional capacity building and Global North–South convergence. While Germany is an important market, it is difficult for one country alone to make a significant impact. The Corporate Sustainability Due Diligence Directive (CSDDD) that applies to the European Union and non-EU companies operating in the EU marks a positive step towards broader adoption of HRDD laws.

Trade unions and worker organizations are a critical component of democratic governance, as they have the power to organize, articulate, and project the voices of working people and families who constitute the majority of humanity.

The precedent the LkSG sets regarding efficiency and effectiveness before CSDDD comes into effect will be crucial for the latter’s success. However, it must contend with the lack of trust in institutional processes and enforcement of its predecessors. Trade unions in Asia have highlighted the complex processes, lack of transparency, difficult evidentiary requirements, and unsatisfactory outcomes when exercising pre-existing mandatory mechanisms. Anecdotal evidence suggests that the LkSG has not yet diverged from this pattern.

Institutions that implement HRDD have to build trust, and institutional capacities must be built up at both ends of the supply chain to meet the elaborate process requirements. Progressive actors in Germany and other Global North countries can further support the implementation of the LkSG by holding institutions accountable and creating linkages and access to resources to strengthen trade union and civil society in the Global South, including active collaboration and information sharing so that Global South organizations can access and effectively navigate the LkSG framework.

Finally, implementation and oversight of the LkSG in ASEAN factories must promote workers’ empowerment by affirming their rights to unionize and collectively bargain. On the one hand, the power of factory owners and management to shape working conditions is never absolute and must be challenged by workers’ power in the workplace. Workplace solutions like the Safe Circle Approach combine collective bargaining and progressive elimination of gender-based violence and harassment (GBVH) through worker-led and monitored grievance mechanisms, building power and democratic participation of women workers.

From Workers’ Rights to Workers’ Power

One direct example of how the LkSG can be strengthened to promote workers’ empowerment is through the risk analysis that brands are obligated to carry out. Brands should work with trade unions at the factory, local, national, regional, and global levels to identify risk factors associated with brands’ purchasing practices. Social dialogue and meaningful engagement with trade unions and worker collectives is essential to ensure risk analysis is informed by worker experiences, that risk mitigation measures are accountable to workers, and that pathways to grievance redressal are available in cases of retaliation.

Risk analysis that excludes a role for trade unions and worker collectives is inadequate for any meaningful risk management system. Implicit in this argument is that brands must also protect and promote workers’ associational agency, including their ability to exercise freedom of association and negotiate to address workplace issues through collective bargaining and enforceable supply chain agreements such as the Dindigul Agreement.

The Dindigul Agreement exemplifies how the assurance of freedom of association, backed by a legally binding mechanism, ensures effective worker-led prevention and elimination of GBVH and underscores how meaningful social dialogue requires participation of trade unions. Importantly, as two interlocking and mutually reinforcing agreements — one between brands and labour stakeholders, and one collective bargaining agreement between supplier and union — this model also demonstrates convergence of top-down and bottom-up processes. The Dindigul Agreement must be taken as a best practice, promoted under the LkSG, and transnationalized by the global labour movement. It is critical that mandatory mechanisms such as the LkSG do not follow in the footsteps of voluntary market solutions by displacing trade unions from meaningful worker representation.

Trade unions and worker organizations are a critical component of democratic governance, as they have the power to organize, articulate, and project the voices of working people and families who constitute the majority of humanity. If institutional change occurs in ASEAN but underlying power relations between capital and labour remain the same, the effectiveness of such reforms is likely to be undermined by the prevailing social forces.

The labour movement has historically been a force of democracy and social progress and has a critical role to play. It is imperative that any enabling mechanism such as the Supply Chain Act is leveraged to expand and empower the labour movement across borders to challenge existing power relations and build global momentum towards an alternative development paradigm.