Supply-chain law and fabric origin: what German buyers should check in Nepal

Germany is Nepal’s second-largest clothing market. In FY 2082/83 (mid-July 2025 to mid-July 2026) Nepal exported Rs 2.79 billion of clothing (HS chapters 61 and 62) to Germany, just behind the United States at Rs 2.85 billion, and those exports grew 15% on the year before, the fastest of Nepal’s three largest clothing markets (Department of Customs, in rupee terms).

German buyers regularly ask us two questions. Who made this, and under what conditions? And where did the fabric come from? This guide explains why, what the law actually requires, and what evidence we give. It is an overview, not legal advice. For duty, VAT and labels, see our page for German buyers.

The Supply Chain Act (LkSG) today

The Lieferkettensorgfaltspflichtengesetz applies to companies with at least 1,000 employees in Germany. It requires human-rights and environmental due diligence in their supply chains: a risk management system, risk analysis, prevention and remedial measures, and a complaints procedure.

Two things have changed in practice:

• Reporting. BAFA, the authority that enforces the law, has stopped reviewing the companies’ annual reports.
• An amending bill. Government bill 21/2474 would drop the reporting duty and limit fines to serious breaches. It was debated in the Bundestag on 16 January 2026 and referred to committee, and the federal labour ministry’s portal still described it as in the parliamentary process in June 2026.

Neither change removes the due-diligence duties themselves. A German buyer in scope still has to know its suppliers.

How the LkSG reaches a factory in Nepal

We are not subject to the LkSG. BAFA says so plainly: companies outside the law’s scope are not addressees of its fines or legal obligations. The duties reach us through our German customers, and BAFA’s guidance shapes what they ask for:

• Direct suppliers, like us, are part of the buyer’s regular risk analysis.
• Indirect suppliers, such as the fabric mill, the yarn spinner and the cotton grower, must be analysed when the buyer has substantiated knowledge (substantiierte Kenntnis) of a possible violation: factual indications, for example from complaints or reports.
• A written assurance is not enough. Relying only on a supplier’s signed promise does not by itself fulfil the duty of care. The buyer still has to carry out the risk analysis and any prevention or remedial measures.

That last point is why a serious German buyer asks for evidence rather than a signature.

What to ask a Nepali supplier, and what we give

1. Factory facts. Where the factory is, how many people work there, which processes are in-house and which are subcontracted. We cut, sew, finish and pack in our own factory in Gaindakot, and we say which steps, such as printing or embroidery, are done by partner decorators.
2. Wages and hours. We pay at least Nepal’s statutory minimum wage, NPR 19,550 a month since July 2025, and share wage and working-hours records.
3. A supplier map per style. The fabric mill and its country, and the trim suppliers, before you order.
4. Audit access. Your auditor, or a third party you appoint, can visit. We also offer live video walks of the floor.
5. Straight answers. We will not tell you any supply chain is free of risk. We will tell you where ours is, and what we know about it.

Fabric origin: the question behind the question

Most knit fabric used in Nepal is imported. In FY 2082/83, 89.8% of Nepal’s knitted-fabric imports by value came from China and 10.0% from India (Department of Customs). So for most knitwear made in Nepal, the fabric, and the yarn and cotton behind it, come from outside Nepal.

For EU duty this does not matter. The EU applies a single-transformation rule to knitted garments from least-developed countries: a garment cut and sewn in Nepal is Nepali and enters at 0% under Everything But Arms, whatever the fabric’s origin.

For due diligence it matters, because the fabric mill, the yarn spinner and the cotton behind them are indirect suppliers under the LkSG, and from 14 December 2027 no product made with forced labour may be sold in or exported from the EU. A garment’s origin for duty tells you nothing about any of them.

What we do about it:

• We name the mill before you order, with its country, for every fabric.
• We keep the mill, yarn and fibre-origin records for each fabric lot, as far as the mill supplies them, and share them with you.
• You choose the fabric source: our regular mills, a mill you nominate, or fabric from outside China if your policy requires it. We quote the price and lead time for each option before you decide.

A product-safety label such as OEKO-TEX tells you about harmful substances, not about labour conditions or fibre origin. Which certificate proves what.

What comes next from the EU

• Forced Labour Regulation (EU) 2024/3015. From 14 December 2027 no product made with forced labour may be sold in or exported from the EU. Unlike the LkSG, it applies to companies of all sizes.
• Corporate Sustainability Due Diligence Directive. After the EU’s Omnibus I simplification it covers EU companies with at least 5,000 employees and EUR 1.5 billion net worldwide turnover. Member states must transpose it by 26 July 2028 and apply it from 26 July 2029.

For a German importer smaller than the LkSG threshold, the Forced Labour Regulation is the one to prepare for now. The evidence it will call for is the same: who made the product, and from what.

A checklist for your next supplier review

• Factory address, headcount and in-house processes, in writing.
• Minimum-wage compliance, with records, not only a statement.
• The fabric mill and its country for each style, before the order.
• Mill, yarn and fibre-origin documents for each fabric lot.
• Audit access, and how quickly a visit can be arranged.
• Who does any printing or embroidery, and where.

If you are reviewing Nepal as a source, send us your supplier questionnaire. We answer it with documents, not adjectives.