Forced Labour Regulation: EU institutions reach political agreement

On 5 March 2024, the European Parliament and the Council reached a political agreement on a new Regulation prohibiting products made with forced labour on the Union market (the “Regulation”).

Whilst the political agreement still needs to be formally approved (see ‘Next steps’ below) and the revised text of the Regulation is not yet publicly available, the press releases from the Parliament and Council (see here and here) explain the key changes made to the Commission’s original proposal (see our previous blog post). This follows on from previous discussions between the Parliament and Council on the proposal (see our previous blog post).

Political agreement in a nutshell

• In essence, the new Regulation will prohibit all “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 blog post). By contrast to other EU regimes such as the Conflict Minerals Regulation or the Deforestation Regulation, this new Regulation does not aim to impose additional reporting or due diligence requirements in addition to the ban.
• The ban on products made with forced labour will have a far-reaching scope of application, as it will apply to (i) all products, (ii) made in whole or in part with forced labour and (iii) across all sectors (irrespective of the provenance of the goods, including those made within the EU).
• The final definition of “economic operators” is not yet public. The Commission’s original proposal broadly defined “economic operators”, 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, however, wished to define it 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”. 
• Nothing suggests that there will be a differentiated regime for SMEs (although the size and resources of the economic operators have to be taken into account at the enforcement stage).
• In terms of enforcement, each Member State will have to designate at least one national competent authority in charge of monitoring violations of the ban by economic operators where the risks are within the territory of that Member State. However, the Commission will be leading investigations when the risks are located outside the EU. 

When assessing the likelihood of violations of the new Regulation, competent authorities will have to follow a “risk-based approach” by considering a list of criteria, including: 

• the scale and severity of the suspected forced labour;
• the quantity or volume of products placed or made available on the Union market;
• the share of the parts of the product likely to be made with forced labour in the final product; and
• the proximity of economic operators to the suspect forced labour risks in their supply chain as well as their leverage to address them.

The authority leading the investigation will be competent to issue a final decision, which may include a ban, the withdrawal of the products in question from the EU market and online marketplaces, and/or the disposal of said products. If only a component of the product is found to be in violation of the new Regulation and that component is replaceable (e.g. spare parts for cars), the disposal order will only apply to the component in question. Furthermore, if economic operators can demonstrate that they have eliminated forced labour from their supply chains, the competent authority may decide not to impose the disposal of the products. In these circumstances, previously banned products may be allowed back onto the EU market and online marketplaces. 

This final decision will be applicable in all other Member States based on the principle of mutual trust. Economic operators that fail to comply with the final decision may be subject to fines. 

• The Commission will be required to issue guidelines and will also need to compile a list of specific economic sectors in particular geographic areas where state-imposed forced labour is prevalent. 
• Finally, a new Forced Labour Single Portal and a Union Network Against Forced Labour Products will be established to enhance cooperation between authorities. The new Regulation will also provide rules for cooperation with third countries.

What does this mean for businesses?

While this new Regulation does not aim to impose additional reporting or due diligence requirements in addition to the ban, economic operators will still need to conduct a thorough assessment of their supply chains to identify potential violations of the Regulation. 

Moreover, this legislation is part of a broader EU legislative agenda that addresses supply chain issues, which businesses should also consider. See for example the:

• proposal for a mandatory corporate sustainability due diligence (CSDDD) regime, which seemed to have reached a political agreement in December of the previous year, but is currently under further discussions (see our previous blog post);
• EU Deforestation-Free Products Regulation (see our previous blog post); 
• EU Conflict Minerals Regulation (see our previous briefing); and
• EU Sustainable Batteries Regulation (see our previous blog post).

A number of EU Member States have also introduced domestic supply chain regimes (e.g. France and Germany), or are considering such introduction (e.g., Belgium).

Next steps

The political agreement still needs to be formally adopted by the Parliament and the Council before it can be published in the Official Journal of the EU and become law. Although we do not expect major changes in substance during the formal adoption process, it is possible that there may yet be some tweaks to the final wording of the Regulation.

Once adopted, the new Regulation would enter into force 20 days after its publication in the Official Journal of the EU, but its main obligations will only apply 36 months after that date. 

With the European elections in June, we expect that it will still take some time before the text is published in the Official Journal of the EU, likely after the summer recess. 

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.