Companies are in future to be prevented from placing or making available on the Union market or exporting from it any products that are made with forced labour. This is the aim of the proposed Forced Labour Regulation (the “Regulation”) adopted by the European Parliament on 23 April 2024 subsequent to trilogue negotiations in Brussels on the European Council’s proposal of 26 January 2024, itself a response to the European Commission’s initial proposal of 24 September 2022 and the European Parliament’s response of 8 November 2023. The Regulation has not yet been formally approved by the Council of the European Union.
The Regulation extends the EU’s much-discussed Corporate Sustainability Due Diligence Directive (“CS3D”) to include the goal of abolishing forced labour by 2030. This is to be achieved by a specific prohibition on products made with forced labour, rather than via corporate due diligence as a “best efforts” obligation. The prohibition is to apply to all economic operators, regardless of size, legal form and production location.
If the Council approves the Regulation, it will enter into force 36 months (Article 39 Regulation) after publication in the Official Journal of the European Union. Pursuant to Article 11, the Commission plans to provide implementation guidelines within 18 months of the Regulation’s official publication.
l. Objective of the proposal
The international community aspires to abolish forced labour by 2030. The fact that forced labour remains an issue is highlighted by figures from the International Labour Organization (“ILO”) which show there to be 27.6 million people worldwide who perform forced labour, with marginalised groups, especially children, at particular risk of exploitation. The proposal aims to counter this via the indirect approach of a system to investigate, identify and end human rights violations in the value chain of products.
ll. What is to be prohibited?
Article 3 Regulation prohibits products made with forced labour from being placed or made available on the Union market and from being exported. “Forced labour”, including forced child labour, is all work or service exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily (Article 2(a) Regulation in conjunction with Article 2 of the ILO’s Convention on Forced Labour, 1930 (No. 29)). The same definition of forced labour can be found in the German Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz).
The prohibition is aimed at all economic operators with no differentiation by company size, location or legal form (see Article 2(i) Regulation).
lll. What products are affected?
The Regulation covers any product that can be valued in money and, as such, is capable of forming the subject of commercial transactions (Article 2(f) Regulation). Whether a product is extracted, harvested, produced or manufactured is irrelevant, and any working or processing related to a product at any stage of the supply chain is included in the provision’s scope. The Regulation therefore encompasses all products (including their components) in all sectors of industry and irrespective of their origin.
lV. How are possible violations identified?
Whether a product has been made with forced labour is determined by way of investigations by the lead competent authorities, cf. Article 17 Regulation. Which authority acts as lead depends on whether the forced labour is suspected on the territory of an EU Member State or outside the EU (Article 15 Regulation). If forced labour is suspected outside of the EU, the Commission takes the role of lead, in all other cases an authority based in the respective Member State. In future, therefore, the Commission will play a key role in identifying violations of the Regulation.
A full investigation of the products and economic operators concerned will only be launched by the respective authority once a preliminary investigation has indicated a substantiated concern of a violation, meaning that it is the preliminary investigation that determines whether a main investigation will be initiated and a potential violation will be examined in detail.
A central Union Network consisting of representatives of the Commission and the Member States, including representatives of customs authorities where necessary, is to be set up to coordinate the fight against forced labour across the EU (Article 6 Regulation). The Commission will be in charge of coordinating this network. The network’s tasks will include gathering information, setting priorities in the fight against products made by forced labour, and coordinating investigations.
1. Likelihood assessed on a risk-based approach
The authorities are to follow a risk-based approach in assessing the likelihood of a violation (Article 14(1) Regulation), taking account of all the available information (Article 14(3) Regulation) including
- Information and decisions encoded in the information and communication system for market surveillance, including any past cases of (non-)compliance by an economic operator (letter a);
- The database established by the Commission pursuant to Article 8 Regulation listing forced labour risks with respect to certain products and geographic areas (letter b);
- Risk indicators and other information pursuant to Article 11(e) Regulation, including reports from international organisations, in particular the ILO, civil society, business organisations, trade unions and experience from implementing Union legislation, setting out due diligence requirements with respect to forced labour (letter c);
- Submissions of information on alleged violations, pursuant to Article 9 Regulation (letter d);
- Information received by the competent authority from other authorities relevant for the implementation of the Regulation, such as national due diligence, labour, health or fiscal authorities, on the products and economic operators under assessment (letter e);
- Consultations with relevant stakeholders such as civil society organisations and trade unions (letter f).
When initiating a preliminary investigation, competent authorities are to focus on those points in the supply chain where the forced labour is most likely to occur and with the greatest leverage in terms of reducing and stopping forced labour, cf. Article 14(4) Regulation. The authorities will be required to take into account the economic operators’ size and resources (in particular, whether the operator is an SME), the quantity of products concerned, the extent of suspected forced labour, and the share of that forced labour in the final product.
2. Information from economic operators
During the preliminary investigation, the competent authorities must ask the economic operator for information about the actions it is currently taking to identify, prevent, mitigate or bring to an end the risk of forced labour in its operations and supply chains (Article 17(1) Regulation). The economic operator has 30 working days in which to respond (Article 17(3) Regulation). Within 30 working days of receiving the economic operator’s response, the competent authorities must close the preliminary investigation by deciding whether there is a substantiated concern of a violation or not (Article 17(3) Regulation).
3. (Un-) Substantiated concern
Where the competent authorities consider there to be no substantiated concern, no main investigation is to be instigated and the economic operator(s) concerned are to be informed accordingly (Article 17(6) Regulation). Where a substantiated concern is found, the competent authority that leads an investigation into the products and economic operators concerned starts this investigation by communicating their decision through the information and communication system (Article 18(1), (2) Regulation).
V. How does the main investigation work?
The lead competent authority notifies the economic operator(s) concerned within three working days of the decision’s issue date about the initiation of the investigation and its possible consequences (letter a), the products subject to the investigation (letter b), the reasons for the initiation of the investigation, unless this puts the investigation’s outcome at risk (letter c), and the possibility of submitting further documents and information to the competent authority (letter d) (Article 18(1) Regulation).
Should the competent authorities so request, the economic operator(s) concerned are to submit any information relevant and necessary for the investigation (Article 18(3) Regulation), including information identifying the products under investigation, the manufacturer or producer of such products and the product suppliers. To this end, the competent authorities are to set a deadline of between 30 and 60 days (Article 18(4) Regulation). An extension of this deadline can be requested if justification can be provided.
In this respect, too, the competent authorities are to prioritise the economic operators involved at those points in the supply chain where the forced labour is most likely to occur (Article 18(3) Regulation). The prioritisation is based on the following criteria: the size and economic resources of the economic operators, the quantity of the products concerned and the scale of the suspected forced labour (Article 18(3)(b) Regulation). The competent authorities may also decide to conduct field inspections where needed (Articles 18(6) and 19 Regulation). If there is a risk of forced labour in a third country, the Commission may request the government of the third country to conduct an inspection, provide relevant information or verify evidence provided by economic operators (Article 19(3) Regulation). The economic operator’s permission is required for this.
In the end, the European Parliament’s proposal to reverse the burden of proof for the non-existence of forced labour in high-risk products and to transfer it to the economic operators in order to relieve the authorities in their investigative work was not included in the version of the Regulation adopted by the European Parliament.
Vl. What decision must be taken?
The decision whether there has been a violation of the ban on products made with forced labour is to be taken by the Commission after reviewing the information and evidence obtained by the competent authority (Article 20(1) Regulation). Should an operator or the authority of a non-EU country refuse to cooperate, the decision may be made on the basis of the available information (Article 20(2) Regulation). A finding that there has been no violation will end the investigation, of which the economic operator must be informed (Article 20(3) Regulation). Where a violation is found, however, the lead competent authority must immediately adopt a decision in accordance with Article 20(4) Regulation containing:
- A prohibition to place or make the products concerned available on the Union market and to export them (letter a);
- An order for the economic operators concerned to withdraw from the Union market the products or parts thereof concerned that have already been placed or made available on the market and to dispose of them (letters b, c); Article 25 Regulation states that disposal may be undertaken by recycling the products, making them inoperable, or – in the case of perishable products – donating them for charitable purposes.
Decisions are to be published as non-confidential summaries in a publicly accessible “forced labour single portal” (Article 12(f) and (g) Regulation). Should an economic operator fail to comply with a decision, the competent authorities must ensure its content is implemented (Article 23(1) Regulation), including with customs authority assistance in identifying and stopping the relevant products at the EU’s external borders (Articles 26 to 28 Regulation).
Pursuant to Article 21(1) Regulation, the economic operators concerned may have any decision taken under Article 20 Regulation reviewed at any time if the request includes significant new information that was not yet available to the lead competent authority at the time of the investigation.
Vll. What penalties are there and how will they be enforced?
The Member States are responsible for laying down the rules on penalties for non-compliance with a decision pursuant to Article 20 Regulation and for taking all measures necessary to ensure that they are implemented in accordance with national law (Article 37(1) Regulation). The penalties provided for must be effective, proportionate and dissuasive (Article 37(2) Regulation). Insofar, they must have due regard to the gravity and duration of the infringement (letter a), any relevant previous infringements by the economic operator (letter b), the degree of cooperation with the competent authorities (letter c), and all other mitigating or aggravating circumstances of the individual case, such as the financial benefits gains or losses avoided as a direct or indirect result of the infringement (letter d). Under Article 37(4) Regulation, financial penalties are to be determined according to the Commission’s corresponding guidance (still to be drawn up) pursuant to Article 11(i) Regulation.
The European Parliament had also proposed a provision requiring economic operators to provide financial and non-financial compensation to those affected (defined as “remediation”). This is reflected in recital 36, but a mandatory provision has not been agreed. Under Article 17(1) Regulation, however, the competent authorities may ask the economic operator during the preliminary investigation to provide information on any remedial measures it has taken. Recital 36 Regulation includes compensation among remedial measures. Apparently, therefore, it cannot be ruled out that economic actors will face the expectation that they offer compensation to those affected by forced labour, even if the Regulation does not make this a legally binding rule.
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