EU ushers in forced labour regulation

The new regime will impact businesses selling products into or out of the EU

On 13 March 2024, the EU agreed to adopt a regulation to ban products made from forced labour from the EU market (the Forced Labour Regulation, or the Regulation). The new Forced Labour Regulation will impact businesses that sell their products into or from the EU.

Background

The European Commission first issued a proposal for a Forced Labour Regulation on 14 September 2022 (read our comprehensive assessment of the proposal here).

The proposal has been following the ordinary EU legislative procedure, in which the European Parliament and the European Council have been negotiating to agree the legislative text. On 5 March 2024, those parties reached a provisional agreement on the text of the Regulation. On 13 March 2024, the EU agreed to adopt it.

This agreement marks the latest step in the EU's attempts to ensure the sustainability of businesses domiciled and operating in the EU, and of products on the EU market; it follows the introduction of the Corporate Sustainability Reporting Directive (CSRD) in January 2023 (which we reported on here and here), and the (re)negotiation of the Corporate Sustainability Due Diligence Directive (CS3D) (which we have reported on here and here).

Scope

The main purpose of the Forced Labour Regulation is to prohibit products made using forced labour from being sold in, or exported from, the EU market.

Forced labour is defined by reference to Article 2 of the 1930 ILO Convention No. 29 on Forced Labour 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 now also expressly references child labour (which was not specifically addressed in the original proposal).

The ban will apply to any product where forced or child labour is used, whether in whole or in part, at any stage of the product's supply chain. This includes the extraction, harvest, production, manufacture, working or processing of any part of the product, but it does not appear to cover logistical services, such as transport and distribution.

It will impact any product (perishable or non-perishable) that is produced in, distributed in, or exported from, the EU by businesses (including small and medium-sized enterprises) in all sectors. And so, like CSRD and the prospective CS3D, the Regulation will have extra‑territorial effect, impacting a broad range of global businesses operating in the EU markets.¹

It is important to note that the Forced Labour Regulation does not expressly impose additional due diligence obligations on businesses in relation to forced and child labour. Instead, it is intended that the Regulation will operate alongside other existing or future due diligence obligations (such as those contained in CS3D, if that directive is approved by EU Member States²).

Nevertheless, to ensure compliance with the Regulation, businesses will need to have in place clear policies and processes to identify, monitor and (where necessary) address any instances of forced or child labour in their operations and value chains. Such policies and processes will help businesses to ensure – and demonstrate if necessary – that products are free from forced or child labour.

Implementation, investigation, and enforcement

The Regulation envisages that the EU Commission will be responsible for establishing a database of high-risk geographies, sectors, and product groups to aid the implementation of the ban. The database will be indicative, non-exhaustive, evidence-based, verifiable, and regularly updated, with a particular focus on widespread and severe forced and child labour risks.

Originally, it was proposed that businesses operating in such high-risk areas should be required to submit additional information to customs authorities to demonstrate that forced or child labour is not used in relation to its products. However, the agreed Regulation leaves investigation and enforcement in the hands of Member State regulatory and customs authorities, with compliance controlled through customs rules and screening.

To enable this, each Member State shall designate a competent regulatory authority responsible for implementing and, where necessary, investigating alleged non-compliance.

Where the competent authority has a substantiated concern that products have been produced using forced or child labour – ie, a reasonable indication that products were likely made using forced or child labour, based on objective, factual and verifiable information – it will be required to launch a formal investigation.

If it establishes a breach, the authority must then issue a decision that: (i) prohibits the sale or export of the products found to be made with forced or child labour; (ii) orders the operator to withdraw from the EU market products found to be made with forced or child labour; and (iii) orders the operator to donate, recycle or dispose of the remaining products (or, where applicable, parts of products) made with forced or child labour.

Any decision should include the findings of investigation, the evidence considered, details of the product (including, e.g., the manufacturer and production site), and information on whether and, if so, how the decision may be judicially reviewed.

Consequences of non-compliance

If found to be in breach of the ban, products that have not yet reached end-users must be prohibited to be placed on or exported from the market. Where only part of the product is affected, that part may be withdrawn. The removal of parts will be easier in some cases than others, and may be impossible in relation to mixed or compounded products (e.g., metal alloys or some consumable products).

A key aspect of the Regulation is that any withdrawn parts will not be permitted to be re-exported to third countries. Rather, such products must either be donated, recycled or (as a last resort) destroyed – all at the expense of the relevant business. (Although, it is understood that the Regulation contains a new carve-out for specific critical products, which may instead be held in storage until forced or child labour has been removed from the supply chain.)

Competent authorities may also impose penalties on offending businesses. Member States will enjoy discretion in setting and regulating these national penalties, subject to the need for them to be dissuasive, effective, and proportionate.

Whilst a coalition of organisations have called for the Regulation to contain provisions on remediation for victims of forced and child labour to enhance the legislation’s effectiveness in eradicating forced labour from supply chains,³ such provisions have not been adopted.

Collaboration and co-operation

Effective implementation, investigation and enforcement of the Forced Labour Regulation is likely to require significant levels of co-operation amongst the EU Commission, each of the relevant regulatory bodies, and each of the relevant EU customs authorities.

As such, the Regulation contains various mechanisms enabling and requiring collaboration between the relevant bodies. This includes the setting-up of a European Union Network Against Forced Labour Products.

The Regulation also encourages collaboration between the EU competent authorities and authorities in non-EU countries.

Next steps

The Regulation will be enforceable in a uniform way across the EU Member States; while it will not need to await the (two-year) transposition process specific to EU directives, we understand that it is intended to come into effect three years after the legislation is adopted – ie, in 2027.

Following its adoption, the EU Commission will establish a Forced Labour Single Portal to help enforce the new rules. The portal will include information on bans and publicly available evidence, as well as a whistle-blower mechanism. It will also include guidance on the Regulation that considers the impact of other relevant EU and national Member State legislation, sets out the scope of coexisting due diligence requirements relevant to forced and child labour, and suggests steps that may be taken to end and/or remediate different types of forced and child labour. It is anticipated that the EU Commission will also issue specific guidance related to small and medium‑sized enterprises and non-EU businesses.

[1]       Note that the prospective CSRD and CS3D do not directly apply to small and medium-sized enterprises, and so the scope of businesses directly caught by the proposed Forced Labour Regulation is broader.

[2]       The European Council and the European Parliament reached a provisional agreement on the text of CS3D on 14 December 2023. In an unexpected turn of events, the political agreement on CS3D failed to pass a vote by the EU Member States held in February 2024. The relevant EU parties are seeking to re‑negotiate aspects of the directive in an attempt to get it approved during a (delayed) second vote, scheduled to take place on 15 March 2024. It is unclear whether CS3D has (re)gained sufficient support, and so the prospects of success are uncertain.

[3]       https://www.antislavery.org/wp-content/uploads/2024/02/Joint-Business-CSO-Statement-on-Remediation-in-FLR-FINAL.pdf