EU Forced Labour Regulation: a step closer to entry into force

On 26 January 2024, the Council of the EU adopted its negotiating mandate on the proposed regulation prohibiting products made with forced labour from being placed on or leaving the EU market (the ‘Proposed Regulation’). The Proposed Regulation is broad in scope, carries powerful enforcement mechanisms, and will require businesses to put in place robust supply chain due diligence practices. Forced labour itself is already banned in the EU[1], but the Proposed Regulation would be the first to empower Member States to ban products made with forced labour from the market altogether. 

Scope

The Proposed Regulation’s broad scope covers any ‘product made with forced labour’ whether that forced labour occurs during extraction, harvest, production, manufacture or any other stage in the supply chain. It would apply regardless of whether all or part of the supply chain (or the forced labour in question) sits within or outside of an EU Member State. 

It would also apply to any ‘economic operator’, meaning that non-EU headquartered businesses can be in scope as well as those which are EU-headquartered. The operator would be subject to the prohibition even if the products are offered online or by distance sale. 

Finally, the definition of forced labour itself is broad. Based on the International Labour Organisation’s Labour Convention 1930 (No. 29), it covers ‘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’. 

Investigation

Under the Proposed Regulation, national competent authorities would be required to investigate products where forced labour is suspected to have occurred at any point in the supply chain. This is the case even where the forced labour in question was several stages removed from the finished product, for instance, in the sourcing of the product’s components. The Proposed Regulation requires a two-stage process.

First, the authority’s preliminary investigation will consider, among other factors: (i) representations by the company under investigation regarding its forced labour due diligence processes; and (ii) submissions by any third parties, which could include victims and NGOs.

Second, the authority will conduct a formal investigation if there is a substantiated concern of a breach based on the first stage. The company may find itself subject to information requests, for example, regarding the product, the company’s suppliers, or the manufacturers. The authority could also inspect the location where the forced labour is suspected.

Enforcement and appeals

If the authority finds that there has been a violation of the prohibition, its decision will ban the sale of the product in the EU, and its export outside the EU. It will also mandate the withdrawal of the product from the EU market. All EU Member States would be required to enforce the decision domestically (and impose fines if necessary for non-compliance) and customs authorities would have to implement checks for the products at EU borders.

Unless a company is able to successfully appeal the ruling, it would have to withdraw its product and also dispose of it appropriately within a reasonable amount of time. The Proposed Regulation would require the company to be given a minimum of 30 working days, and a maximum time period that is no longer than necessary, to withdraw the product.

These decisions will be publicly available through a Forced Labour Single Portal, alongside associated guidelines and a means for parties to submit relevant information (such as whistleblower complaints). 

How to prepare: due diligence in relation to forced labour

Before opening a formal investigation, competent authorities must consider whether the economic operator has implemented adequate measures to ‘identify, prevent, mitigate or bring to an end the use of forced labour with respect to products’ that are to be placed on the EU market or exported.

It will therefore be even more important for companies to have a thorough, transparent and well-documented due diligence process in relation to forced labour within their supply chains in case they are subject to investigation. Whilst the Regulation does not specify what those processes should look like, they will include those undertaken with reference to applicable guidelines from the International Labour Organisation, the Organisation for Economic Cooperation and Development and the United Nations. In practice, this means companies will need robust governance, data collection and assessment processes, internal verification and third-party assurance where applicable. 

In determining whether measures are adequate, the competent authority will require a proportionate degree of due diligence in light of the business’ resources, the scale of the risk in that sector or location and the closeness of the business to the stage of the supply chain where the risk of forced labour having occurred is highest. In practice, this is likely to mean that companies that are large and well-resourced, which operate in high-risk environments, and sit close to the forced labour in the value chain, will be expected to do the most. Other material considerations include the share of the component in the final product and the quantity of products that are to be made available on the EU market.

Businesses which are not under a direct obligation to act under the Proposed Regulation (or other legislation) may nevertheless be required to take action by businesses within their supply chain, to help them to fulfil their due diligence obligations.

Next steps for the legislation

The Commission, European Parliament and the Council have each adopted their own versions of the Proposed Regulation. The most recent draft published on 26 January, the Council’s negotiating mandate, has proposed reinforced mechanisms for EU-wide co-operation between national authorities, as well as bolstering the Commission’s investigative role in the most severe cases. It would also be responsible for cases where the forced labour is suspected to have occurred outside EU Member States, and where the products in question have a significant impact on the EU internal market.

Once a final text has been agreed through trilogue negotiations, which typically last three to six months, it will be at least two years before it becomes enforceable, meaning companies will likely have until 2026 to implement or improve their supply chain due diligence programmes. 

However, in light of the recent delays to the approval of the Corporate Sustainability Due Diligence Directive, companies are advised to keep a watch on the Proposed Regulation, since a smooth passage through these processes is not guaranteed. 

[1]  All EU Member States have ratified the ILO Convention which requires Member States “to suppress the use of forced or compulsory labour in all its forms.” (ILO Convention, Article 1)