Objective and scope of the EU Commission proposal
With the current proposal, the EU Commission aims to effectively prohibit the placing and making available on the Union market and the export from the Union of products made by forced labour, including forced child labour. Unlike the US import ban on forced labour that recently entered into force (see UFLPA: US Uyghur Forced Labour Prevention Act), the current EU proposal does not seek to introduce a presumptive import ban on products originating in a specific region. The current proposal requires the competent authorities to demonstrate that there is a ‘substantial concern’ that forced labour was involved at some stage of the supply chain before taking measures to prevent a product from being placed on, made available on or exported from the EU market.
The prohibition would apply to all economic operators. However, the national authorities should focus on the economic operators involved in the steps of the value chain as close as possible to where the risk of forced labour is likely to occur. They should also take into account the size and economic resources of the economic operators, the quantity of products concerned, as well as the scale of suspected forced labour.
As a result, all economic operators placing or making available goods on the Union market, or exporting such goods should take appropriate measures to identify and eliminate any forced labour risks in their supply chains. The scope of the measures and due diligence however depends on the proximity to possible forced labour in the supply chain, the specific type of products and the resources of each economic operator.
The current proposal does not include any formal or specific measures or due diligence obligations, but provides that the European Commission will issue guidelines within 1,5 years after the entry into force of the regulation including:
- guidance on due diligence in relation to forced labour taking into account Union legislation and recommendations from international organizations;
- information on risk indicators of forced labour;
- a list of publicly available information sources of relevance for the implementation of this regulation.
Investigations into potential violations of the prohibition to place or make available on the Union market (or export) products made with forced labour will start with a preliminary phase whereby the national authorities will assess the likelihood of a violation. The preliminary phase of the investigation can be kicked-off by the authorities on the basis of the following information:
- a notification by an induvial, company or organization (i.e. whistle-blowers);
- the identification of a risk indicator;
- relevant information in the new database on forced labour risks in specific geographic areas or with respect to specific products including with regard to forced labour imposed by state authorities (to be established and maintained by the European Commission on the basis of relevant external sources of information from, amongst others, international organisations and third country authorities);
- information and decisions encoded in the information and communication system on market surveillance and compliance of products pursuant to Article 34 of Regulation 2019/1020;
- information requested from other authorities.
Before initiating a formal investigation, the competent authorities must check with the economic operator(s) concerned what measures were already taken to identify, prevent, mitigate or bring to an end risks of forced labour in their operations and value chains. A robust and effective compliance and due diligence process on forced labour risks can exempt the economic operator from further investigation.
If there is is a substantiated concern of a violation of the prohibition on forced labour products, a formal investigation is initiated and the economic operator(s) are informed. Again, the focus will be on economic operators ‘close’ to the forced labour risks with sizeable resources.
If a violation is established, the authorities will adopt a decision prohibiting the placement or making available of the products concerned on the Union market (and the export from the Union), ordering to withdraw from the Union market the relevant products that have already been placed or made available on the market and to dispose of these products. Please note that the regulation would not require economic operators to recover products made with forced labour which have reached the end-users in the Union market.
The decisions will include specific time limits and are in principle valid in other Member States (if products from the same affected supply chain would be placed on the market there). Customs authorities can suspend or refuse the release for free circulation of such products.
Network and penalties
A Union Network Against Forced Labour Products will be established. The Network shall serve as a platform for structured coordination and cooperation between the competent authorities of the Member States and the Commission. The Network should streamline the practices of enforcement of the regulation within the Union in order to make enforcement effective and coherent.
The Network’s main role will be to facilitate the exchange of information, conduct joint investigations and develop guidance to ensure the effective and uniform application of this regulation.
The current proposal provides that Member States should only adopt effective and proportionate penalties in case an economic operator would not comply with the specific obligations included in the decision as set out above (prohibition to place concerned products on the market and the withdrawal and disposal of such products). Consequently, immediate compliance with the decision and its obligations by the economic operator(s) will prevent the authorities from being able to impose any criminal or civil penalties.
Irrespective of any enforcement or fines, an investigation into forced labour would result in significant reputational damages for the economic operator and the product concerned.
Timeline and actions
The entry into force of the regulation with an adaption period of 2 years is currently estimated for 2024 – 2025 as the proposal still needs to go through the ordinary EU legislative procedure which includes an adoption of the proposal by both the Council as the European Parliament. As part of this process some of the principles and mechanisms described above might still be subject to change.
Nevertheless since the existence of forced labour in the supply chain also includes significant reputational risks, we advise operators to start implementing or further improving their due diligence in relation to forced labour on a voluntary basis in line with international guidelines and other EU legislative initiatives such as the Corporate Sustainability Due Diligence Proposal (see Corporate sustainability due diligence | European Commission (europa.eu)).
Operators are well advised to start mapping out their supply chains and identifying any potential forced labour risks related to specific countries, suppliers or subcontractors. Where necessary, adequate measures or processes should be put in place to eliminate forced labour risks from the supply chains. These measures and processes could together constitute the base of general due diligence or compliance program on forced labour and related supply chain risks.
Untimely adoption of adequate measures could result in a preliminary or formal investigation requiring the economic operator to change its supply chain within short notice. This will have a significant financial and practical impact, in addition to the reputational damage created when being linked to forced labour.