The EU’s proposed Regulation on prohibiting products made with forced labour on its market is expected to come into force for companies in 2025. This Regulation will necessitate companies to have fully traceable supply chains and to respond to any investigation within 15 working days. Companies operating in known higher-risk sectors for forced will be subject to investigation first. However, all companies are potentially at risk given the wide range of forced labour issues found in global supply chains.
The draft Regulation
The EU Commission’s draft proposal for a Regulation on prohibiting products made with forced labour on the EU market was published on 14 September 2022. The scope of the Regulation is broad, covering all companies placing goods on the EU market, but there will be an emphasis on larger companies at early stages of the EU value chain. Its key points are:
- Products made with forced labour are prohibited from entering and being distributed on the EU market, and from being exported from the EU market.
- All products and their components are covered by the Regulation, regardless of the sector, origin, or stage of the supply chain where forced labour took place.
- If a product is found to be in breach of the Regulation, the competent authority will (i) prohibit the product being made available on, or exported from, the EU market and (ii) order the company to withdraw all products already available on the EU market and dispose of them.
- The Regulation uses the International Labour Organization’s (ILO) definition of forced labour, including the ILO’s 11 indicators for forced labour. The challenge is that the indicators are subjective and broad (they include a range of decent work risks which when compounded together can result in forced labour) and will be open to interpretation by each competent authority.
- The EU Commission will introduce additional acts (Delegated Acts) which will require companies to submit traceability information to customs authorities on high-risk products or geographies. The EU Commission has indicated that traceability information will extend past Tier 2 level (i.e., to raw material production).
- The EU Commission will identify high-risk products and regions through a database and risk indicators (yet to be developed, expected to be available 24 months after the Regulation enters into force). These are intended to help competent authorities set a strategy on what to investigate and to review cases.
- It is not necessary for a product to be listed in the database or be subject to a delegated act to be investigated.
- Competent authorities will determine what products and companies are investigated, and investigations should be risk-based. Competent authorities are required to focus their investigations where the risks are highest, most severe and have the most impact.
- When a case is triggered, companies will have only 15 working days to prepare a submission to the competent authority. The submission requirements are substantial – companies must provide evidence of full due diligence and demonstrate how their actions are based on and aligned with the EU Forced Labour Guidance and multiple relevant international standards.
The EU Commission has emphasised the importance of dialogue between the competent authorities and the company at the preliminary investigation stage. The intention is that companies can explain their approach, and how they are managing risks. However, this intent for dialogue is not clear under the Regulation and may not be interpreted in this way by competent authorities.
How companies should prepare
Companies should not view this Regulation as an extension of the EU Corporate Sustainability Due Diligence Directive (EU CSDD). Whereas the EU CSDD recognises that impacts may still occur in company supply chains, the Regulation is looking to ensure that products are fully clean when it comes to forced labour.
- Companies will be required to submit full traceability information within 15 days of a request. Traceability requests could go as far as raw materials. Companies therefore need to start developing their traceability of higher risk products now to ensure they are prepared by 2025.
- Companies need to develop robust due diligence strategies which adequately mitigate the risk of forced labour if they are working in sectors with known forced labour risks, or in geographies that have higher risk of forced labour. These will be the sectors and areas first targeted for investigations.
Individuals and organisations will be able to submit cases, and we expect to see strong and coordinated submissions by civil society. We anticipate that any decision against a company by the competent authority could trigger litigation against a company brought by civil society and/or victims under the Corporate Sustainability Due Diligence Directive.
The proposed Regulation will be discussed and agreed by the European Parliament and the Council of the European Union before it can be passed. This process generally takes 12-18 months and the Regulation will apply 24 months after it is passed. It is therefore likely to be in force for companies from 2025.
As a Regulation, the ban is legally binding and immediately applicable to all Member States in the same way and at the same time.