Phones track location so yeah a government could always try to force companies to hand over location data, but that issue is orthogonal to this solution.
Their Bluetooth implementation makes it harder for governments to request more problematic location data, because a solution exists that doesn’t require this kind of data.
The existence of this solution reduces privacy abuse risk.
Sad reality: Countries can always push, say, for mandatory upload of all cryptographic keys to government servers. We have to trust in megacorp lawyers to protect us from that at least to the point of exposing that come election times.
Could it facilitate implementing one? E.g. could a country push for changes to how the solution works within a given location?