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On 23 April 2024, the European Parliament formally adopted a regulation prohibiting products made with forced labour. The new regulation will impose stringent obligations on companies, and comprehensive supply chain mapping will be necessary to mitigate the risk of forced labour. In this newsletter, we look at the key components of the regulation and how they will affect companies across sectors.
In September 2022, the European Commission (the “Commission”) proposed a regulation prohibiting products made with forced labour on the market of the European Union[1] (the “Regulation”).[2] Following the plenary vote in the European Parliament on 23 April 2024, the final adoption of the Regulation now only awaits formal approval by the European Council, which is expected to take place in May 2024. Once adopted, the Regulation will enter into force after 3 years.
The objective of the new legislation is to effectively prohibit any products made using forced labour from the EU market through a structured framework empowering the EU and the Member States to ban and remove such products from the single market.
All products made with the use of forced labour are covered by the new legislation, including products produced in the EU (for domestic consumption or for export) as well as imported goods. No industry sectors or businesses making products available on the EU market or exporting products from the EU are exempted from the Regulation.
The term “forced labour” is defined in accordance with the ILO Convention[3] as “all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily”. The definition includes forced and compulsory labour as well as forced child labour.
While the Regulation clarifies that the ban covers forced labour at any stage of the extraction, harvesting, production or manufacture of a product and its components, including working or processing, it does not seem to extend to logistical services, such as distribution and transport of products.
As called for by both the Parliament and the Council, the Commission is tasked with issuing guidelines for both economic operators and competent authorities in order to help them comply with the requirements of the new legislation. SMEs will also benefit from accompanying measures available through the Forced Labour Single Portal.
Furthermore, a database established by the Commission will help facilitate the implementation of the Regulation. The database will provide verifiable, indicative, non-exhaustive, and regularly updated information on forced labour risks.
Originally, the Parliament suggested tightening up the investigative system by requiring companies operating in designated high-risk areas to submit additional information to customs authorities to prove that no forced labour was used in the making of the product. However, the adopted Regulation does not include any such reverse burden of proof.
The prohibition on products made using forced labour is supported by a risk-based enforcement framework, where, following an investigation, the lead competent authority will be empowered to withdraw from the EU market products made with forced labour.
To streamline case allocation, the Regulation lays down criteria to determine whether the Commission or a competent national authority should lead the investigation. The Commission will lead investigations outside of EU territory, whereas the competent national authorities will lead investigations where the risks are located on the territory of a Member State. Should the competent authority of the Member State, while carrying out the investigation, find new information about suspected forced labour taking place in another Member State, it must inform the competent authority of that Member State. Similarly, the Commission must be informed if the suspected forced labour occurs outside of EU territory.
The investigative process of investigations led by both the Commission and by the competent national authorities will be subject to a risk-based approach.
A potential breach of the Regulation will be assessed on the basis of the following criteria:
Additionally, the rules on investigations ensure that economic operators have the opportunity to provide information, as appropriate, throughout all stages of the investigation.
The authority leading the investigation will take the final decision to ban products from being placed, sold to, or exported from the EU market. If the decision is taken by a national authority, the decision will apply in all other Member States pursuant to a principle of mutual recognition.
In addition, the lead competent authority may decide to order the economic operator to withdraw and subsequently donate, recycle, or dispose of products already made available on the EU market.
Re-entry of products may be allowed if the economic operator can prove the elimination of use of forced labour from their operations and supply chains. In continuation of this, the Regulation contains a carve-out for specific critical products where the competent authority may decide to order the economic operator to withhold the product until it is proved that forced labour is no longer used in the making of the product.
If only a part of the product is found to be in violation of the ban, and the part is replaceable, only the relevant part should be disposed of.
The new Regulation will necessitate comprehensive mapping of companies’ supply chains to ensure that forced labour does not occur. Companies will need to obtain detailed information on and from manufacturers and suppliers of products and components to ensure visibility of their operations and supply chain and to mitigate the risk of forced labour. The due diligence obligations in relation to the Regulation will exist alongside other due diligence obligations, such as those contained in the proposed CSDDD.[4]
Companies failing to comply with the decision of a Member State will face penalties under national law, which should be “effective, proportionate and dissuasive”.
It is expected that the new legislation has the potential to streamline social sustainability efforts and foster consumer confidence and public trust in products on the EU market. The Forced Labour Regulation fits into the same agenda and goals pursued by other new and upcoming EU legislation, including in particular the enhanced reporting obligations of the CSRD and the due diligence obligations of the CSDDD for larger companies. Read our latest update on the CSDDD here.
Gorrissen Federspiel closely follows the development and implementation of new ESG and sustainability legislation, and we assist companies in their efforts to ensure compliance, to assess risk, and in using the new requirements as a competitive advantage, including by development of policies, corporate governance, mapping of supply chains as well as required due diligence processes and contractual and operational implementation. If you have any questions, please reach out to a member of our Compliance & Sustainability team.
[1] https://single-market-economy.ec.europa.eu/document/785da6ff-abe3-43f7-a693-1185c96e930e_en
[2] Please also see our previous updates on the draft regulation here and here
[3] Article 2 of the Convention on Forced Labour, 1930 (No. 29) of the International Labour Organization
[4] Corporate Sustainability Due Diligence Directive