On 14 September 2022, the EU Commission published its legislative proposal to ban all products made with forced labour from the EU market, irrespective of their type and provenance (the Forced Labour Regulation).
In this article, we outline the key processes underpinning the Forced Labour Regulation and consider the actions that businesses may take to prepare for its implementation. Due diligence will be one of the most important of those actions and, as such, the Forced Labour Regulation comprises part of the same human rights package as the proposal for a new directive on "Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937" published on 23 February 2022 (the DD Directive).
The Forced Labour Regulation was first addressed in President von der Leyen's State of the Union speech on 15 September 2021 and subsequently in the Commission Communication on Decent Work Worldwide presented on 23 February 2022.
We have previously explained the obligations that are going to be imposed on companies of a certain size through the DD Directive, both in an earlier insight article on business and human rights and in our webinar on supply chains in March 2022.
The proposed DD Directive will require companies falling within its scope to identify and, where necessary, prevent, end or mitigate adverse impacts of their activities on human rights (including forced labour). Such considerations will be key to a business' ability to demonstrate compliance with the Forced Labour Regulation.
The DD Directive currently remains with the European Parliament and the Council for review. Once in force, Member States will have two years to transpose the Directive into national law. The obligations it imposes are unlikely to come into force earlier than 2025.
It is expected that the Forced Labour Regulation will come into force on the same timeline and will be directly effective across EU Member States, without the need for implementing national legislation.
The new instrument is designed to prevent barriers to the movement of goods arising from divergent national approaches; to promote a uniform enforcement regime; and to ensure a level playing field for businesses operating within the EU.
What will the ban look like in practice?
The central provision of the Forced Labour Regulation is a broad prohibition laid down in Article 3. This states that: "Economic operators shall not place or make available on the Union market products that are made with forced labour, nor shall they export such products".
That prohibition applies to all products, including their components, which have used forced labour at any stage of their extraction, harvest, production or manufacture. Unlike the DD Directive, the Forced Labour Regulation will apply to the products of all companies, irrespective of size, sold in and from the EU. Although it is narrower in focus, it is therefore of much wider application.
The ban will be enforced by "competent authorities" (CAs) designated by each Member State, which will follow a two-fold investigative process.
1. Preliminary phase (Article 4)
CAs will first consider whether there is a "substantiated concern" that Article 3 has been violated. All businesses should be mindful of this phase because no economic operator is exempt from review.
CAs will focus on the steps of the value chain as close as possible to where the forced labour risks are most prevalent (i.e. manufacturers and producers) and their impact most significant (based on size and economic resource, quantity of products and scale of suspected forced labour). In practice, this means that emphasis is likely to be placed on larger businesses.
That said, the EU Commission makes it clear that small and medium sized enterprises will not be immune from investigation. Rather, tailored time limits and guidelines will be issued, so as to ensure preliminary reviews are proportionate whilst protecting the effectiveness of the Forced Labour Regulation.
Crucially, CAs will request from economic operators any information on actions that have been taken to identify, prevent, mitigate or bring to an end the risks of forced labour within their operations, closely mirroring the obligations under the DD Directive. Information will need to be provided within 15 working days of request.
This reinforces that compliance begins with internal corporate values, standards and priorities and the relatively tight timelines mean that businesses should act now to ensure the relevant structures are in place to effectively comply with the Forced Labour Regulation and to minimise the risk of being subject to investigation (see below: How can businesses prepare?).
2. Investigation phase (Articles 5-8):
Where the Preliminary Phase does give rise to a substantiated concern that Article 3 has been violated, the CA will initiate an investigation into the relevant product, informing the economic operator(s) of its intention and reasons for doing so.
All information, evidence and/or other available facts will be assessed within a reasonable time.
Where a violation is identified, the economic operator will be prohibited from placing or making available the product on the EU market, or exporting it. The operator will be given a specified timeframe, to:
- withdraw those already placed or made available on the market; and
- dispose of the product(s) in accordance with national law, consistent with Union law.
If it fails to comply, the CA will take it upon itself to remove and destroy the products accordingly.
Economic operators will be afforded an opportunity to request a review of the decision based on new information that has not yet been brought to the CA's attention.
Where compliance is evidenced through eliminating the existence of forced labour, or where new information overrides the initial finding of a violation, the CA may withdraw its decision and the product can be allowed to be sold or exported again.
The Forced Labour Regulation will be presented to the European Parliament and Council of the European Union for discussion and review before it enters into force in an agreed form. Guidelines will be issued within 18 months of entry into force, aided by the Union Network Against Forced Labour Products (comprising of CA representatives from each Member State). It will be binding upon states 24 months after entry into force.
Businesses therefore have an opportunity to take steps to ensure that they will be compliant.
How can businesses prepare?
Undertaking due diligence to identify and tackle the risks of forced labour in operations and value chains will be the main way in which businesses can decrease the risk of forced labour existing in relation to their products.
Steps that a business might take now include:
- developing or reviewing internal policies and public statements to reflect the company's commitment to preventing forced labour in its operations;
- embedding a culture of due diligence through developing or updating training materials for employees, suppliers and other relevant personnel which communicate company expectations;
- identifying where in their supply chains forced labour is most likely to be a risk;
- reviewing contractual agreements with suppliers to ensure that operations are sufficiently protected from forced labour and that appropriate documentary evidence is obtained;
- prioritising the identification and monitoring of actual or potential forced labour in business operations through regular evaluation of evidence and reporting materials, and ensuring that such processes are sufficiently transparent;
- potentially implementing complaints mechanisms to help bring issues to light; and
- making necessary arrangements for any identified forced labour to be brought to an end as a matter of urgency.
Sufficient due diligence will mean that any forced labour issues that do exist will have been both identified and addressed. Only then may a business be confident that a substantiated concern warranting investigation under the Forced Labour Regulation is unlikely to arise.
For those companies that will also be subject to the DD Directive the above steps will form part of their wider preparation.
To discuss any of the points raised here, or if you have any other queries in relation to human rights law, please contact Kieran Laird.