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The EU’s proposed new regulation banning products made with forced labour from the EU single market (the Regulation) will be finalised in the coming months and likely apply across the EU from Q4 2027. This landmark law was proposed by the European Commission (the Commission) on 14 September 2022 and political agreement between the Council of the EU (the Council) and the European Parliament (the Parliament) was announced on 5 March 2024. The Parliament formally adopted the Regulation at its final plenary in April. In its haste to adopt proposals before the elections, a number of texts were adopted by the Parliament without undergoing legal-linguistic analysis. This means that, once the legal-linguistic experts have revised the text, it must undergo the ‘corrigendum procedure’ whereby the Parliament, sitting in plenary, approves the amendments. The Council will not adopt the Regulation until the corrigendum procedure is completed.
What is forced labour?
Forced labour is defined in the Regulation by reference to the International Labour Organization’s 1930 Convention on Forced Labour. Article 2 of the Convention defines it 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 in the Regulation now also expressly includes child labour, which was omitted from the Commission’s proposal (any subsequent reference to ‘forced labour’ in this article includes child labour).
What is in scope?
The Regulation lays down rules prohibiting “economic operators” from placing and making available on the EU market, or exporting from the EU, products made with forced labour. Any individual, company or business, whether EU or non-EU, may be an economic operator for the purposes of the Regulation where they are selling goods in, or exporting goods from, the EU. Unlike with other sustainability legislation, there is no exemption or de minimis threshold for small and medium-sized enterprises (SMEs). However, the nature and size of the enterprise involved will be factored into an assessment of the risk of forced labour on a case-by-case basis.
The prohibition will apply to products regardless of their sector or origin, whether they are made within or outside the EU. The concept of a ‘product’ is broadly defined: any product that can be valued in money is within scope, whether it is extracted, harvested, produced or manufactured. The extent of the Regulation’s application is also wide. It applies to “any supply of a product for distribution, consumption or use on the Union market in the course of a commercial activity, whether in return for payment or free of charge” and includes “working or processing related to a product at any stage of its supply chain”. There is some doubt, however, as to whether logistical processes, such as transport and distribution, are covered by the Regulation.
How will the Regulation operate?
The task of enforcing the Regulation will fall on the competent authorities designated by each EU Member State (Member State), each of which will be charged with investigating forced labour in their respective jurisdiction. Where the suspected forced labour is taking place within the jurisdiction of a Member State, the competent authority of that jurisdiction will lead the investigation (although the Regulation provides for cooperation and information-sharing between authorities). The Commission will take the lead only if the suspected forced labour is taking place outside the EU.
The main tool of enforcement will be one of investigation, which will have two main phases: the preliminary investigation and the formal investigation.
Preliminary investigation
At the preliminary stage, the competent authority must follow a risk-based approach to assess the likelihood that forced labour is involved. The economic operator will be afforded the opportunity to cooperate and provide the authority with information on its supply chain and due diligence policies and procedures.
Competent authorities are expected to focus on the economic operators involved “as close as possible to where the risk of forced labour is likely to occur” and to take into account the size and economic resources of the economic operators. The administrative burden on SMEs is specifically being considered here. The economic operator will also be given the opportunity to identify, mitigate, prevent and bring to an end the risk of forced labour (echoing the language of the Corporate Sustainability Due Diligence Directive (CSDDD)). At this stage of the process, the competent authority cannot compel a business to refrain from selling a potentially offending product.
Formal investigation
To move to the next stage and open a formal investigation, the competent authority must be satisfied that there is a “substantiated concern” of forced labour. This must be “a well-founded reason, based on objective and verifiable information”.
Competent authorities may carry out all necessary checks and inspections, including investigations in third countries, provided that the economic operators concerned give their consent and the government of the Member State or non-EU country has been officially notified and raises no objection.
The Regulation does not set out a timeframe within which an investigation must be carried out, but it provides that it should be completed “within a reasonable period of time” from the date of initiation.
Decision
Where a competent authority establishes that products made with forced labour have been placed on the EU market, or are being exported from the EU, it will adopt a decision containing:
The decision of a competent authority will be recognised and implemented by all other Member States according to the principle of mutual recognition.
Remedying a breach
Economic operators affected by a decision have the possibility of requesting a review of that decision at any time. The request for a review shall contain new information which demonstrates that the products are in compliance with the Regulation (i.e. that there is no longer any forced labour involved).
Where the competent authority is satisfied that the economic operators have provided evidence that they have eliminated forced labour from their operations or supply chain with respect to the products concerned, the competent authority shall withdraw its decision for the future, inform the economic operators of this and update public records.
Exceptions
Competent authorities must consider the proportion of a product that is likely to be made with forced labour in the final product. If a component is found to breach the Regulation and this component can be replaced, the direction to dispose of the offending product will be applicable only to the offending component. The Council’s press release gives the example of a car component versus a sauce. If a car component is produced with forced labour, only that specific part must be disposed of, not the entire car. By contrast, if the tomatoes in a food sauce are harvested using forced labour, the entire food product must be discarded because it is impossible to separate the tomatoes from the final product.
The Council and the Parliament also agreed that the competent authority may refrain from ordering disposal where this is necessary to prevent “disruptions of a supply chain of strategic or critical importance for the Union”.
How should businesses prepare?
The Regulation does not impose additional due diligence obligations on businesses and will instead complement and operate alongside existing and future due diligence obligations (such as those contained in CSDDD).
While those businesses in scope of CSDDD may have already turned their minds to such matters, any business that sells products within, or exports products from, the EU should conduct a thorough assessment of operations throughout their supply chain to ensure compliance with the Regulation. Once the Regulation applies, delays in clearance of products through customs are also expected and businesses should anticipate requests from customs authorities for additional information on certain products.
This is an abridged version of a more detailed article, which was published earlier this month in the sixth issue of our quarterly ESG & Sustainability Bulletin. Visit our ESG & Sustainability Hub for more content and to sign up to receive future issues of the ESG Bulletin.
