EU Forced Labour Ban Proposal – start of the trilogues

On 26 January 2024, the Council of the EU adopted its general approach (i.e. its negotiating position) (the “Council Approach”) regarding the Commission’s proposal (the “Proposal”) for a Regulation on prohibiting products made with forced labour on the Union market. The European Parliament adopted its negotiating position on 16 October 2023 (the “Parliament Position”).

The EU co-legislators will now try to reach an agreement in the context of the so-called ‘trilogues’, which are unlikely to lead to a political agreement before the upcoming European elections. As set out below, although the EU institutions are broadly aligned, the Parliament and the Council have suggested a number of changes to the Proposal.  

Background: Commission’s Proposal 

The Proposal lays down rules prohibiting economic operators from placing and making available on the EU market or exporting from the EU market products made with forced labour (see our previous briefing). 

The Proposal followed the Parliament’s Resolution of 9 June 2022 calling for a new trade instrument to ban products made by forced labour. This Proposal is part of a broader EU legislative agenda tackling global supply chains – which includes the proposal for a Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) (see our most recent blog post), the EU Conflict Minerals Regulation (see our briefing) and the Deforestation Regulation (see our blog post).

Scope of application

As per Article 3 of the Proposal, the forced labour ban 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).

A product is made in whole or in part with forced labour whenever “forced labour has been used in whole or in part at any stage of its extraction, harvest, production or manufacture, including working or processing related to a product at any stage of its supply chain”.

“Forced labour” is defined by reference to Article 2 of the ILO’s Convention Concerning Forced or Compulsory Labour: “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”. It also includes forced child labour.

As it was the case for the CS3D, the EU institutions disagree on the key definition of “supply chain”. While the Proposal did not contain a specific definition, the Council defines it as “the entire network of operators involved at all stages, upstream of the product being made available on the market, related to the extraction, harvesting, production, manufacturing and supply of a product or parts of the products to be incorporated in the final products to be made available”. The Parliament favoured “the activities of the company’s upstream business partners related to the extraction, harvest, production or manufacturing of the product, including working or processing related to the product at any stage of those activities”.

All three EU institutions agree to exclude the withdrawal of products which have reached the end-users in the Union market from the scope of application of the Proposal (see, however, Enforcement below).

Economic operators’ duty

Under the Commission’s Proposal, the ban would apply to all “economic operators”, broadly defined as “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.” 

The Council wishes to adapt this as encompassing “manufacturer, producer, product supplier, importer, exporter or any natural or legal person or association of persons who is placing or making available products on the Union market or exporting products”. 

There is no differentiated regime for SMEs, although the three EU institutions agree that a risk-based approach must be followed, and that the size and resources of the economic operators have to be taken into account at the enforcement stage.

The Council wants to clarify that this Regulation shall not create additional due diligence obligations for economic operators besides those already provided by mandatory national or EU requirements, in particular national measures transposing the forthcoming CS3D.

Whistleblowing submissions

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) 2019/1937on the protection of persons who report beaches of Union law. 

The Council and Parliament are not suggesting any changes to these provisions. 

Enforcement

Preliminary investigation: a “risk-based” approach

According to the Proposal, 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 (such as notably 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, etc.).

The Proposal also imposes a duty on the national competent authorities to cooperate among themselves (as the case may be, under the direction of one of them acting as the lead authority), with the setting-up of a Union Network Against Forced Labour Products. 

The Council favours the granting to the Commission of powers to investigate cases of “Union interest” or where national competent authorities request its assistance. “Union interest” shall be assumed if one or more of the following criteria are met: (i) the scale and severity of suspected forced labour is significant, (ii) the risks of suspected forced labour are located outside the territory of the Union and (iii) the products have a significant impact on the internal market.

Investigation and enforcement

If the national competent authority finds, based on this prior assessment, that there is a “substantiated concern” of violation of the ban, it has to initiate an investigation within 30 working days following the receipt of the requested information. 

If the investigation concludes that forced labour has indeed been used, the authority would have to:

• prohibit, without delay, the placing and making available of such products on the EU market and their export from the EU;
• request the economic operators to withdraw from the EU market the relevant products already made available; and
• specify whether the relevant products have to be destroyed, rendered inoperable, or otherwise disposed of.

The Council and the Parliament provide for the possibility to order the withdrawal of non-compliant products which were already placed or made available on the market but which have not reached the end-users in the EU market yet.

The Parliament’s Approach would require the Commission and national competent authorities to prioritise their action, in the context of different product suppliers down the supply chain, by focusing on the level of the economic operator(s) as close as possible to where the risk of forced labour is likely to occur and taking into account the size and economic resources of the economic operator(s), the share of forced labour component in the final product, the quantity of products concerned, as well as the scale of suspected forced labour and whether state-imposed forced labour could be a concern. In contrast to the Proposal, the Council foresees that the Commission – rather than the national competent authorities – should take the final decision about (non-)compliance. However, the national competent authority is still responsible for the enforcement of the decision. According to the Parliament’s Approach, both the Commission and the competent authorities could be competent to adopt decisions.

Economic operators would be given a reasonable time limit to comply with the national authority’s decision, of at least 30 working days, and the possibility to seek judicial review of the decision.

Customs controls

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 EU 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.

The Council’s General Approach and the Parliament’s Position are fairly aligned with the Proposal. 

Penalties

Finally, the Proposal requires Member States to put in place penalties that are “effective, proportionate and dissuasive”. The three EU institutions agree that the decision on the breach of the economic operator(s) must inter alia contain the findings of the investigation and the information underpinning the findings, as well reasonable time limits for the economic operators to comply with the order, which shall not be less than 30 working days from the date of notification of the decision (no less than 10 working days for perishable goods, animals and plants).

The Council proposes the introduction of more detailed criteria, including the gravity and duration of the infringement, previous infringements (if applicable), the degree of cooperation of the economic operator with the competent authorities and any other mitigating or aggravating factors. The Council has also added a limit to financial penalties, of no more than 5% of the economic operator’s total annual EU-wide turnover in the financial year preceding the fining decision.

The Parliament is in favour of the publication of the decisions on the breach by the economic operator(s) of the Regulation (and subsequent decisions that establish that the economic operator(s) have complied with that decision).

Next steps

As the Parliament and the Council have now defined their respective positions, the detailed negotiations on the final text (known as ‘trilogues’), with the Commission acting as broker, can now start. Trilogues are an informal procedure with no pre-set timeline. From experience, they tend to last on average 3 to 6 months. It appears challenging, although not impossible if there is sufficient political appetite, for the EU institutions to reach final agreement on this file before the informal cut-off date of February 2024 (ahead of the June 2024 European elections).

Any such political agreement would then need to be formally endorsed by the co-legislators, which would take a few months.

Once formally adopted, the main obligations imposed by the Regulation would then apply 24 months (or 36 months, as per the Council Approach) from its entry into force.

The Commission would be required to issue guidelines for the implementation of the Regulation, including information on forced labour risk indicators and on publicly available information in order to help SMEs, as well as other economic operators, to comply with the ban.

If you would like to discuss any aspect of the new regime, please reach out to the contacts on this post, or to your usual Linklaters contact(s).

For more information on business and human rights in general, see our Business & Human Rights page.