ARTICLE
5 September 2024

Navigating The EU's New Forced Labour Regulation: What You Need To Know

On 23 April 2024, the European Parliament agreed to adopt a regulation to ban products made with forced labour from the EU market (the Forced Labour Regulation, or the Regulation).
European Union Corporate/Commercial Law

On 23 April 2024, the European Parliament agreed to adopt a regulation to ban products made with forced labour from the EU market (the Forced Labour Regulation, or the Regulation). The proposed Forced Labour Regulation will impact all economic operators that place or make available products that are made with forced labour on the EU market or export such products from the EU.

Background

The objective of this Regulation is to effectively prohibit the placing and making available on the EU market and the export from the EU market of products made by forced labour, including forced child labour. Forced labour is defined in line with the definition in the International Labour Organization's Convention No. 29 which is: "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 Forced Labour Regulation establishes a procedure that enables both the competent national authorities and the EU Commission to investigate products suspected of being made with forced labour during their production. If a product is found to have been manufactured using forced labour within its supply chain[1], it cannot be made available or placed on the EU market, or exported from the EU. Additionally, if such a product is already on the EU market, the economic operator responsible must promptly remove it. Non-compliance with these provisions may result in penalties.

Does the Forced Labour Regulation apply to you and your products?

The prohibition under this Regulation on placing or making available products related to forced labour on the EU market, or exporting such products from the EU market, applies to all economic operators, regardless of their location or size. This includes micro, small, and medium-sized economic operators.
An economic operator is defined as any natural or legal person, or association of persons, who places or makes available products on the EU market or exports products from the EU market.

The prohibition under the EUFLR extends to all types of products that can be valued in money and is limited to tangible products, excluding (financial) services. It will impact any tangible product, whether perishable or non-perishable, that is placed or made available on the EU market, or exported from the EU market by economic operators across all sectors.

Similar to the Corporate Sustainability Reporting Directive (CSRD) and the forthcoming Corporate Sustainability Due Diligence Directive (CSDDD), this Regulation will have extra-territorial effects, impacting a broad range of global businesses operating within EU markets.

What measures should you take to ensure compliance with the Forced Labour Regulation?

All economic operators who place or make available products on the EU market or export such products from the EU market must demonstrate their due diligence efforts concerning forced labour. This includes the adoption of internal policies, voluntary guidelines, or industry best practices. The objective of such due diligence is to identify, mitigate, alleviate, or eliminate the involvement of forced labour in the production of products destined for the EU market or export from the EU. This Regulation has a strong connection with the CSDDD which, among other things, outlines due diligence responsibilities and is anticipated to take effect in 2027 (you can find our blog post on the CSDDD and our CSDDD cheat sheet).

In order to avoid duplication with the CSDDD, the EU Commission has decided not to impose specific additional mandatory due diligence requirements in relation to forced labour. Instead, the EU Commission will formulate guidelines on effective due diligence practices to facilitate compliance with this Regulation. These guidelines will encompass supplementary measures for micro, small, and medium-sized economic operators. The Forced Labour Single Portal, which is maintained and updated regularly by the EU Commission, will provide access to these resources. This publicly accessible portal will act as a central hub, offering information, resources, and promoting cooperation among various stakeholders, including governments, organisations, businesses, and individuals. The Forced Labour Single Portal will include, among other things:

  • best practices: specific guidelines for economic operators on how to collect the required information, identify instances of forced labour within your supply chain and on due diligence in relation to forced labour, taking into account various supplier types and industry sectors;
  • risk indicators: guidelines for economic operators on best practices for bringing to an end and remediating different types of forced labour, including child labour; and
  • a database that includes high-risk products and areas: the EU Commission will establish a database. This database will catalogue specific economic sectors within certain geographic areas where there is reliable and verifiable evidence of forced labour enforced by the state, according to the EU Commission. The database will contain a list of products or product groups that are considered high-risk. Economic operators dealing with these products will be required to provide additional details to customs authorities. This additional data should encompass information about the manufacturers and suppliers of these high-risk products.

While awaiting the EU Commission's guidelines and tools, economic operators are strongly encouraged to start mapping out their supply chains to identify 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 their 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.

How should the Forced Labour Regulation be perceived in light of the new CSDDD?

The CSDDD has already set forth detailed obligations for due diligence to identify, prevent, mitigate, and account for actual and potential adverse impacts on human rights, including forced labour. The Annex to the CSDDD explicitly lists forced labour as a violations of (human) rights, aligning with relevant international agreements. However, the CSDDD primarily focuses on corporate conduct and due diligence procedures for companies within its scope and does not particularly address measures to prevent the placement and availability of products made with forced labour on the EU market or the export of such products from the EU.

To address this gap, the EU Commission has introduced the Forced Labour Regulation to create a legal framework that extends beyond the CSDDD. This Regulation has a broader reach in terms of company size and includes the entire supply chain, not just the economic operator's own activities. Unlike the CSDDD, the Forced Labour Regulation does not impose civil liability on companies that fail to comply with their due diligence obligations regarding forced labour.

However, the CSDDD provides strong possibilities for civil enforcement through litigation, holding in-scope companies liable for damages caused by breaches of their obligations, including those related to forced labour within their chain of activities.

Therefore, companies that fall under both the Forced Labour Regulation and the CSDDD can be held liable under the CSDDD through civil litigation, in addition to facing administrative sanctions, if they are linked to forced labour.

Can I be subjected to an investigation procedure by the competent Member States authority?

When the competent Member States' authority suspects that a product has been made using forced labour, an investigation is initiated. The competent authority follows a risk-based approach, which means that economic operators are only examined if there is substantial concern about forced labour. This concern must be based on reasonable, objective, factual, and verifiable evidence suggesting that the products were likely produced using forced labour.

When an investigation into forced labour is launched, it progresses through two phases: the preliminary investigation and the formal investigation. If the preliminary investigation does not reveal any substantiated concerns, the process is discontinued at this stage and no formal investigation will be initiated.

In the preliminary phase, the Member States' competent authority assesses the likelihood of violations of this Regulation by the economic operator concerned. These criteria include, among others:

  • reports from individuals, companies, or organisations (g., whistle-blowers);
  • evaluating the suspected forced labour, including whether state-imposed forced labour is a concern;
  • considering the quantity or volume of products placed or made available on the EU market;
  • examining the proportion of product parts likely to be made with forced labour in the final product; and
  • assessing economic operators' proximity to suspected forced labour risks in their supply chain and their ability to address them.

When a substantial concern arises during the preliminary investigation, a formal investigation begins regarding the implicated products and the economic operator involved. The economic operator under investigation will receive notification. Competent authorities may enforce penalties and other administrative or criminal measures, with the severity determined by factors such as the gravity and duration of the violation and any relevant prior infringements. Penalties may include:

  • prohibiting the placing and making available of the products on the EU market, as well as their export from the EU market;
  • mandating the withdrawal of the products that have already been placed or made available on the EU market; and/or
  • requiring the disposal of the products that have already been placed or made available on the EU market.

Additionally, customs authorities have the authority to suspend or refuse the release for free circulation of such products by economic operators. This Regulation does not require economic operators to withdraw products made with forced labour that have already reached end-users on the EU market.

What are the next steps?

The EU Parliament has given its final approval to this Regulation on 23 April 2024. The text now has to get a final formal approval from the EU Council. Once this approval is secured, this Regulation will be published in the Official Journal and will become enforceable the day after its publication. The obligations under this Regulation are expected to enter into effect with an adaptation period of 36 months, estimated to be around 2027 – 2028.

How we can help you prepare

Loyens & Loeff boasts a team of international and multidisciplinary professionals in the Netherlands, Belgium and Luxembourg. These experts specialise in customs law, international trade, corporate law and governance and understand the intricacies surrounding the Forced Labour Regulation. If you are navigating this regulatory landscape, we are well prepared to guide you through the process of understanding these new regulatory measures. To help you understand the Forced Labour Regulation, we can assist in the following areas:

  • understanding the impact of the Forced Labour Regulation on your business. We keep you informed and up to date on all Forced Labour Regulation developments with tailored updates;
  • evaluating the impact of the Forced Labour Regulation on your business. More specifically, this may involve creating a tailor-made memo in which we analyse your business and provide you with advice on establishing the necessary processes to ensure compliance with this Regulation and the CSDDD (if applicable);
  • coordinating with the competent authorities and customs authorities on the specific obligations of your business resulting in more certainty in maintaining compliance;
  • assisting in achieving customs compliance, this includes determining whether the Forced Labour Regulation applies in the customs procedures used by your business;
  • supporting you in negotiations with the Public Prosecution Service and/or other investigative bodies to secure favourable out-of-court settlements, as our team includes skilled litigators equipped to provide a robust defence in administrative and criminal enforcement proceedings, when a case is referred to criminal courts or supervisory bodies. Our team can also support you in the event of any civil litigation or liability risks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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