In early March the European Council and Parliament reached a provisional agreement on a new EU regulation concerning forced labour in supply chains. The European Parliament has approved the English-language text of a proposed regulation, and the new legislative circle will now need to consider the proposed regulation as translated into the EU’s 24 languages.
As currently conceived, the proposed regulation will:
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ban (i) products made with forced labour from the EU market, and (ii) the export from the EU market of any product made using forced labour;
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explicitly not place additional due diligence obligations on economic operators;
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have effect from 2027 at the very earliest (i.e. after a three-year grace period from adoption);
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direct the European Commission to create a public database with information on forced-labour risks in different regions and industries, which will support the work of the competent authorities in assessing potential violations of the proposed regulation; unlike the comparable U.S. Uyghur Forced Labor Import Ban, the burden of proof will be on the enforcement bodies;
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where an investigation finds forced labour in supply chains, customs authorities at EU borders will be involved in ensuring relevant products are not placed on the EU market;
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for certain products and product groups (to be identified in due course), additional information will need to be supplied to customs authorities on import into the EU. However, we do not see any new general requirements or burdens being imposed on every European importer.
In assessing the likelihood of violations of the prohibition, the European Commission or national competent authorities (as applicable) are to take a risk-based approach. The onus will be on the Commission and national enforcement bodies to determine that particular goods have been produced (or contain inputs that have been produced) using forced labour.
Additional guidance will be issued by the European Commission as regards due diligence and best practice. Prior to opening an investigation, we understand that consideration will be given to the due diligence a company has undertaken; therefore, in our view robust compliance processes and procedures will reduce the risk of full investigations (i.e. a competent authority finding a “substantiated concern of a violation”) being initiated.
The proposed regulation in more detail
In the proposed forced labour regulation, products are considered to be made forced labour if it has been used at any stage of the supply chain, including extraction, harvest, production, manufacture, or processing.
Notably, products offered for sale online or through distance selling are deemed to be made available on the market if they are targeted at end-users in the EU; consequently, such products fall within scope of the proposed regulation.
The European Commission will create a database which will provide an indicative, evidence based source of information of forced labour risks in specific areas or with respect to specific products or product groups.
National authorities and the Commission (where third countries are involved) will investigate suspected use of forced labour in supply chains. As part of a preliminary investigations, companies (and where relevant other product suppliers) will be requested to provide information on actions taken to identify, prevent, mitigate or bring to an end or remediate risks of forced labour in their operations and supply chains with respect to the products under assessment. This includes due diligence in relation to forced labour in their supply chains, for example on the basis of guidelines or recommendations of the Commission or UN, ILO, OECD or other relevant international organisations.
The proposed regulation sets clear criteria to be applied by the Commission and national competent authorities when prioritising products suspected to have been made with force labour:
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the scale and severity of the suspected forced labour, including whether state-imposed forced labour could be a concern;
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the quantity or volume of products placed or made available on the Union market; and
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the share of the parts of the product likely to be made with forced labour in the final product.
When initiating preliminary investigations, focus is to be to the extent possible on the product suppliers in the elements of the supply chain as close as possible to where the forced labour likely occurs. In addition, they are to take into account the size and economic resources of the economic operator, whether they are an SME, and the complexity of the supply chain.
Assessments of the likelihood of a violation of the prohibition are to be based on all relevant, factual and verifiable information available to competent authorities and the Commission, including past cases of compliance or non-compliance, information in the database, and submissions received under the proposed regulation.
Where an investigation concludes that forced labour has been used, the authorities can ultimately demand that relevant goods be withdrawn from the EU market and online marketplaces, and confiscated at EU borders. Generally, these goods would then be disposed of, recycled or destroyed.
Separate rules will apply for goods of strategic or critical importance. In these instances, the competent authority can decide to not impose its disposal, and instead order the economic operator to withhold the product until it can be demonstrated that there is no more forced labour in their operations or supply chains, at which point the products can be released.
Next steps
The European Parliament will consider the proposed regulation again when legal-linguistic revisions (including translation into all 24 official languages) have been made. After this, the Council will need to officially approve the text; given a Provisional Agreement was reached with the Parliament, the Council has stated it "should be able to approve the position of the EP on that basis".
Once published in the Official Journal it will enter into force, however EU member states will have 3 years to start applying the new rules.
Authored by Aline Doussin, Lourdes Catrain, Daniel Shapland, Pierre Estrabaud, and Helka Kittila.
