Bangladesh must make its factories safer or risk the loss of privileged access to the country's biggest market after a building collapse killed hundreds of garment industry workers.
The warning from the European Union is the latest sign that governments and retailers are turning up the heat on Bangladesh over the high risk environment created by the country's ultra-low wages and lack of safety regulations.
Last week, more than 400 workers were killed when a garment factory building collapsed. The tragedy follows two factory fires in November that killed more than 100 workers.
"The sheer scale of this disaster and the alleged criminality around the building's construction is finally becoming clear to the world," EU foreign policy chief Catherine Ashton and trade commissioner Karel de Gucht said in a statement.
The EU is Bangladesh's top trading partner, accounting for 57% of exports. The country enjoys duty and quota-free access to EU markets through a program called the Generalized System of Preferences, which allows 48 of the poorest nations unlimited exports of anything but arms.
"The EU is presently considering appropriate action, including through the Generalized System of Preferences ... in order to incentivize responsible management of supply chains involving developing countries," Ashton and de Gucht said.
They did not specify the nature of the action but the statement reflects a hardening of the EU position towards Bangladesh after previous representations had little effect.
It's the first time the EU has threatened to take action against Bangladesh within the context of the GSP trade program. As a last resort, the EU could suspend Bangladesh's privileged access to its markets, a measure taken in the past against Myanmar over its human rights record.
Bangladesh is the third largest provider of clothing to the EU after China and Turkey, with imports worth nearly 8 billion euros in 2011, up nearly 30% on the previous year.
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The building collapse sparked street protests in the capital Dhaka this week and an outcry from workers' rights groups. As a rescue effort at the disaster site turned into a recovery mission, police arrested building owner Sohel Rana.
Bangladesh has about 4,500 garment factories that make clothes for global retailers, including Gap (GPS), H&M, Wal-mart (WMT), J.C. Penney (JCP) and Sears, as well as smaller retailers like Benetton, The Children's Place and Joe Fresh.
Companies are under pressure to push production prices lower in order to boost profits while meeting global demand for cheap clothes. But cutting costs often goes hand-in-hand with low wages and unsafe working conditions.
The average worker in the garment industry in Bangladesh makes between 10 and 30 cents an hour, and many of the factories do not have windows, fire escapes or emergency exists, according to labor rights activists.
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Retailers have reacted to the latest disaster in different ways.
On Monday, a trade association representing stores, the Retail Council of Canada, called an urgent meeting to discuss how to address the situation. Joe Fresh and Wal-Mart confirmed that they participated in the meeting.
Primark, a major retailer in the U.K. and Ireland, said it would compensate victims who worked for its supplier, by providing long-term aid for children who lost parents, financial aid for those injured and payments to families of the deceased.
A spokesman for the company said it has also partnered with a local NGO to hand out emergency food to families.
Another group of retailers that reportedly included Wal-Mart, Gap, Carrefour and H&M met near Frankfurt on Monday. A spokesman for Wal-Mart confirmed Wednesday that the mega retailer participated in the meeting.
Western companies wield enormous power in Bangladesh, but it remains to be seen whether outrage on the part of consumers and advocates will result in change for workers in the country.
-- Mark Thompson contributed to this article
