EU proposed forced labor regulation
Date of publication: February 14th, 2024
On January 26, 2024, the EU Council adopted its position on the regulation prohibiting products made with forced labor on the EU market. This mandate formalizes the Council's negotiating position. It provides the Council presidency with a mandate for negotiations with the European Parliament, which adopted its position on November 8, 2023. The Commission initially proposed the regulation on September 14, 2022. This regulation is yet another indication of the focus on forced labor risk in supply chains that global traders must consider as part of their trade compliance programs.
The Commision's proposal
The proposed regulation would prohibit products made with forced labor, as defined under the International Labor Organization (ILO), from being placed or made available on the EU market or being exported from the EU to third countries. Authorities could base their assessment of forced labor risk on various sources of information, such as input from civil society, databases of forced labor risk areas or products, in addition to whether the companies in question conduct sufficient due diligence processes in relation to forced labor risks.
As stated, the prohibition “should apply to products for which forced labor has been used at any stage of their production, manufacture, harvest, and extraction, including working or processing related to the products. The prohibition should apply to all products, of any type, including their components, and should apply to products regardless of the sector, the origin, whether they are domestic or imported, or placed or made available on the Union market or exported.”
Unlike the US Uyghur Forced Labor Prevention Act (UFLPA), the EU ban does not target a specific region or set of regions, and the burden of proof is on the authorities to investigate claims of forced labor. However, an amendment was proposed for high-risk regions, and economic sectors at risk of using forced labor, that the burden of proof will fall on companies.
SMEs are not exempt from the regulation, however, authorities will take into consideration the size and economic resources of companies, as well as the scale of forced labor, before initiating formal investigations. The regulation also provides for support tools to assist SMEs with compliance.
How does it work?
If it is determined that there are reasonable indications of forced labor, an investigation by authorities would be initiated. This could include requests for information, conducting checks or inspections both in the EU as well as third countries. Field inspections are viewed as a last resort and must be conducted with full respect for national sovereignty. For inspections outside the EU, the third county government would be requested to conduct the inspection. If the request is rejected it would be viewed as a case of “non-cooperation” and decisions would be based on available evidence. If authorities find that forced labor was used, the following will occur:
- The authorities will order the withdrawal of the product in question from the market.
- Authorities will place a ban on the product for placement on the EU market as well as for export.
- Companies will be required to destroy, render inoperable or otherwise dispose of the goods in question.
- Customs authorities will oversee the enforcement of the prohibition on exports or imports of banned products at the EU borders.
Before initiating an investigation, competent authorities should request from the economic operators under assessment information on actions taken to mitigate, prevent or end risk of forced labor in their operations and supply chains with respect to the products under assessment. Appropriate due diligence means that forced labor issues in the supply chain have been identified and addressed in accordance with relevant Union legislation or in line with international standards. Appropriate due diligence & remediation being taken could result in no investigation being undertaken.
It is important to note the timelines in the regulation. If an economic operator is presented with a request for information, it will have thirty working days following the information request to respond. This could be followed by an additional consultation period with the economic operator in question, which would be conducted within 60 days of the initial request. The economic operator should be prepared to demonstrate what steps they have taken so as to identify, prevent, mitigate, or bring an end to the risks of forced labor in their operations and supply chains. In order to meet these timelines, it is imperative that companies have a documented due diligence process in place prior to receiving a request for information, as well as steps to remediate any issues identified.
Additional penalties
If the economic operator has failed to comply with the decision stated above, the competent authority can impose either directly, in cooperation with other authorities or by application to the competent judicial authorities, penalties on the economic operator. These penalties shall be put forward by the Member States.
The monetary penalties shall amount to not more than 5% of the economic operator’s total annual Union-wide turnover in the financial year preceding the fining decision. Mitigating and aggravating factors can be taken into consideration.
Recent updates to the proposed regulation
The Council’s proposed measures included some updates to the regulation to be noted as follows:
- Inclusion of products covered by “Distance Selling.” In the case of a product offered for sale online or through other means of distance sales, the product would be considered to have been made available on the market if the offer for sale is targeted at end-users in the EU. This substantially expands the scope of the regulation and draws the distinction between the EU legislation and the US forced labor ban due to the US de minimis loophole that exists specifically in direct-to-consumer shipments.
- A Union Network Against Forced Labour Products (‘the Network’) 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. This will facilitate streamlined investigations and decisions regarding which products to exclude from the market.
- A database of forced labor risk areas or products will be constructed. This database shall provide an indicative, non-exhaustive, verifiable, and regularly updated information of forced labor risks in specific geographic areas or with respect to specific products including with regard to forced labor imposed by state authorities.
What's next?
Trilogue discussions began January 30, 2024. It is expected that they will conclude by the end of February. The EU is on a tight timeline to adopt this legislation before the coming elections; however, legislators and member states have emphasized the importance of adopting this regulation during the current legislative mandate (likely prior to June 2024).
The Commission, in conjunction with stakeholders will issue regularly updated guidelines (within 18 months of the regulation coming into force) to include content on due diligence requirements with respect to forced labor, guidelines and recommendations from international organizations, best practices on how to end and remediate forced labor, and information on risk indicators. The timeline for publication is yet to be determined.
The EU’s forced labor ban establishes yet another legislative requirement for supply chain due diligence to fight forced labor in supply chains, joining the ranks of the US UFLPA, Canada’s S-211, Mexico’s forced labor law, the German Supply Chain Due Diligence Act, the UK Modern Slavery Act, and others.
For more information on how ONESOURCE Global Trade solutions can assist you in conducting due diligence with respect to forced labor in your supply chain, please contact your Account Manager or Client Services Manager.