On 14 September 2022, the European Commission (the “Commission”) published its long-awaited proposal for a regulation prohibiting products made with forced labour on the Union market (the “Proposal”). However, it does not aim to impose additional reporting or due diligence requirements in addition to the ban, and only marks the beginning of what will likely be a controversial legislative process.
The Proposal comes after the International Labour Organisation (“ILO”) released its report on the state of modern slavery on 12 September, estimating that around 27.6 million people were victims of forced labour in 2021 (an increase of about 2.6 million since 2016).
Back in September 2021, Commission President von der Leyen announced in her ‘State of the Union’ address that the Commission planned to adopt a ban on products made with forced labour, stressing that “human rights are not for sale – at any price” in the EU.
The Proposal has thus been long awaited, and some expected it to be published in early 2022 in the context of the Commission’s proposal for a Directive on Corporate Sustainability Due Diligence of 23 February 2022 (the “CSDDD Proposal”) (see our previous alert). A forced labour ban provision was eventually left out of the CSDDD Proposal, likely due to political sensitivities and to avoid jeopardising a political compromise on the overarching Directive. However, the CSDDD Proposal was accompanied by a Communication on Decent Work Worldwide announcing a forthcoming EU forced labour ban.
Far-reaching ban on products made with forced labour
Which products would be affected?
As per Article 3 of the Proposal, the forced labour ban proposed by the Commission is particularly far reaching, as it would apply to:
- all products;
- made in whole or in part with forced labour;
- across all sectors, and irrespective of the provenance of the goods (including those made within the EU).
“Forced labour” means forced or compulsory labour as defined in Article 2 of the ILO’s Convention Concerning Forced or Compulsory Labour – i.e. “all work or service which is extracted from any person under the menace of any penalty and for which the said person has not offered him or herself voluntarily” and includes forced child labour.
The Proposal is thus much broader than the legislation enacted in June 2022 by the United States, which bans all goods from China’s western Xinjiang region only. Although some advocated for a US-style ban targeting China, the Commission avoided such limited scope, amongst others, for fear of breaching World Trade Organization rules on non-discrimination.
Who would be caught?
The Proposal applies to all “economic operators” - i.e. any person or organisation placing products on the EU market or exporting products from the EU, regardless of their size or where they were incorporated.
Unlike the CSDD Proposal, this Proposal does not distinguish between EU and non-EU incorporated companies or between high risk and non-high risk sectors, nor does it exclude SMEs from its scope. In the Explanatory Memorandum of the Proposal, the Commission rejects the idea of an exemption or even of a threshold of a certain volume or value of products. Instead, the Proposal provides that the size and resources of the economic operators have to be taken into account at the enforcement stage (see below, on the risk-based approach).
Any person or organisation would be entitled to submit information to the national competent authorities on alleged violations of the forced labour ban and to receive feedback on the outcome of their submission. The Proposal makes it clear that the whistleblowers will benefit from the protection granted by Directive (EU) 2019/1937 on the protection of persons who report beaches of Union law.
Preliminary phase of the investigation – “risk-based” approach
Each Member State would have to designate at least one national competent authority in charge of monitoring violations of the ban by economic operators.
When identifying potential violations, competent authorities would have to follow a “risk-based approach” by assessing all information available to them, including specific sources of information listed in Article 4 - i.e.:
- whistleblowing submissions;
- forced labour risk indicators based on international standards and guidance on forced labour due diligence as set out in guidelines to be issued by the Commission;
- available information on investigations or decisions on past cases of forced labour by an economic operator;
- an indicative database (to be set up) of forced labour risks in specific geographic areas or products; and
- information received from other authorities on whether economic operators under assessment are subject to and carry out due diligence in relation to forced labour in accordance with applicable Union legislation (such as the CSDDD Proposal) or Member States legislation setting out forced labour due diligence requirements.
Before initiating an investigation, the competent authority would have to request from the economic operators information on, amongst other things, forced labour due diligence carried out in their operations and value chains with respect to the products under assessment. The Proposal explicitly provides that an authority could abandon initiating an investigation if it estimates that due diligence on forced labour has been carried out in a way that mitigates, prevents and brings to an end the risk of forced labour – thereby stressing the link of this Proposal with the CSDDD Proposal and other (voluntarily) applied (international) human rights due diligence standards.
The competent national authorities would have to focus on larger economic operators at early stages of the EU value chain (as close as possible to where the likely risk of forced labour occurs, e.g. importer, manufacturer, producer or product suppliers) and also take into account the quantity of products concerned, as well as the scale of the suspected forced labour (Article 5). The competent authorities may also grant an additional time period to SMEs to submit requested information.
The Commission would issue guidelines (within18 months of the entry into force of the Proposal), which should take into account, amongst other things, the size and economic resources of economic operators.
Investigation and enforcement decision
If the national competent authority were to decide, based on this prior assessment, that there is a “substantiated concern” of violation of the ban, it would have to initiate an investigation within 30 working days following the receipt of the requested information.
If the investigation concludes that forced labour has been used, the authority would have to:
- prohibit, without delay, the placing and making available of such products on the Union market and their export from the Union;
- request the economic operators to withdraw the relevant products already made available from the Union market; and
- specify whether the relevant products have to be destroyed, rendered inoperable, or otherwise disposed of.
However, the Proposal does not provide for the recall of products that have reached end users in the Union market.
Economic operators would be given a reasonable time limit to comply with the national authority’s decision, of at least 30 working days (potentially longer depending on their size and economic resources).
Economic operators would be entitled to request a review of the decision within 30 working days from the receipt of the decision. Domestic judicial remedies should also be available.
The Proposal also contains a number of provisions allowing the information of customs authorities to assist with the identification of products entering or leaving the Union market that may be in violation of the ban. Custom authorities would be required to suspend the release or export of that product until the national competent authority’s decision following an investigation.
Publication of the Commission’s Proposal only marks the beginning of the legislative process. The Proposal will now follow the ordinary legislative procedure, under which the European Parliament and Council will scrutinise, and likely amend, the Proposal.
The average timeline from Commission proposal to formal adoption under the ordinary legislative procedure is 18 months. This means that the earliest the new Regulation is likely to be adopted is 2024. We envisage that delays are likely given the contentious nature and geopolitical dimension of the Proposal, for which difficult negotiations among the European Parliament and the Council are to be expected.
The Proposal is another important signal for companies of the importance of human rights due diligence and reporting.