The Forced Labour Regulation is now finalised – how can companies start to prepare?

The Forced Labour Regulation (the “Regulation”)[1] has been published in the EU's Official Journal and will start to apply three years from now. This means EU and non-EU companies producing products that could be affected by forced labour have between now and 14 December 2027 to prepare, or face potentially very significant operational impacts. 

As trailed in our previous blog, the Regulation aims to remove all products tainted by forced labour at any stage of the product lifecycle from the EU market. This includes prohibiting products made with forced labour from being placed on the EU market or exported from it (whether produced within the EU or imported). Importantly, the Regulation’s impact can be broad ranging as it applies to products rather than to companies, and there is no minimum amount of ‘acceptable’ forced labour before the Regulation starts to apply. Enforcement is however expected to take a proportionate approach (see the section on Proportionality below). 

The potentially profound effect on companies of having their product keep off the market creates a strong incentive to put in place systems and policies to address forced labour concerns proactively to avoid issues arising, and then to move quickly to address issues when they do arise. 

How to prepare

Before 14 December 2027, potentially affected companies may look to prepare, for example, by:

1. Assessing exposure. Any company placing products on the EU market or exporting from the EU market will be in-scope. This is not limited to companies incorporated in, with operations in, or meeting certain thresholds of turnover in, the EU. The scope of the Regulation is tied to the products, not the economic operator.
    
2. Re-examining due diligence processes. The Regulation opens companies up to investigations by Member State and EU authorities into products’ supply chains, including requests for information on actions they have taken to identify, prevent, mitigate, bring to an end or remediate risks of forced labour in their operations and supply chains. The burden of proof will be on the authorities to prove the use of forced labour in the value chain, but companies will still have to be prepared to show that they have conducted due diligence to prevent and mitigate forced labour involvement in their products’ value chains. In-scope companies should ensure that their due diligence practices on forced labour align with relevant EU Commission guidance once available (see below), and other existing EU and international standards in the interim.
    
3. Move quickly to address forced labour once discovered. Those affected may request a review of an enforcement decision if they can provide new information that was not brought to the attention of the competent authority during the investigation. It is also worth noting that the Regulation includes some flexibility on penalties. The competent authority may order a product to be withheld for a period of time, rather than disposed of, where it would prevent disruptions to “a supply chain of strategic or critical importance for the Union.” Finally, if only part of a product is found to be in violation of the Regulation, and that part is replaceable, then the order to dispose of it applies only to the part concerned. For example, a part of car that is made with forced labour, rather than the whole car. 
    
4. Monitoring developments. Once in force, companies should track any new guidance provided through the Forced Labour Single Portal which the Regulation will create, as well as monitor any differences in approach that Member State authorities may take to domestic enforcement and penalties.

Key elements of the current form of the Regulation

The final text of the Regulation includes several developments since the Council’s Negotiating Mandate[2] was agreed in January this year, largely thanks to the European Parliament’s position adopted in April[3], which impact how it will work in practice. 

1. Proportionality. The Regulation envisages a risk-based approach to enforcement based on proportionality. The forced labour risks database to be created under the Regulation provides for the prioritisation of “the identification of widespread and severe forced labour risks” and will identify specific economic sectors and geographic areas with evidence of state authority involvement in forced labour for competent authorities to prioritise. In addition to state authority involvement, other factors include the scale and severity of the suspected forced labour, the volume of products made available on the EU market and the complexity of the supply chain. The text also requires competent authorities to focus principally on those companies with “the highest leverage to prevent, mitigate and bring to an end” the forced labour. All measures taken by the authorities are expected to be “necessary to achieve the desired purpose” and not impose an “excessive burden on economic operators”.
    
2. Clarity around enforcement responsibilities. The final text simplifies the position in relation to who is responsible for enforcing the Regulation. If the forced labour is suspected to have taken place within a Member State, the Member State’s competent authorities must investigate. If it is suspected to have taken place outside the EU, then the EU Commission investigates. The Regulation also places greater emphasis on co-operation between Member States’ competent authorities and their customs authorities, as well as between the Commission and international authorities in third countries and other stakeholders.
    
3. Measures to support SMEs. Part of this proportionality-based approach is the requirement for the Commission to provide support to SMEs and their business partners. This includes designating contacts to explain and support SMEs on how the Regulation applies, who may also arrange training sessions between SMEs and the competent authorities. SMEs are also more likely to be granted an extension to a deadline for a request for further information.
    
4. Guidance on due diligence and interaction with the CS3D. Guidelines issued under the Regulation will provide new guidance on due diligence in relation to forced labour for various different suppliers and sectors. This may help inform how companies approach compliance with other EU due diligence requirements, such as under the Corporate Sustainability Due Diligence Directive (CS3D) and vice versa. The guidance is expected to address best practices to bring the forced labour to an end, remediate it and responsibly disengage.

This blog was updated on 16 December 2024 to reflect publication of the FLR in the EU's Official Journal. 
 

[1]Products made with forced labour: Council adopts ban – press release.

[2]Council of the EU, Negotiating Mandate, 26 January 2024.

[3]Parliament’s Position, 23 April 2024.