New EU Proposed Regulation seeks to ban products made using forced labour

New EU Proposed Regulation seeks to ban products made using forced labour

Overview

The EU recently revealed its proposal for a new Regulation to combat the use of forced labour in the production of goods. A key aim of this new Regulation is that it will be used alongside other initiatives within both the EU and externally, in order to further eliminate modern day slavery from supply chains.

The new Regulation could potentially have far-reaching impacts on both EU entities and entities based outside of the EU providing goods into the EU, with requirements on EU Member States to focus their enforcement efforts in particular on those parts of the value chain where the likely risk of forced labour occurs and take into account the size of the economic operators, the quantity of products concerned and the scale of suspected forced labour. The proposed legislation forms part of a larger international trend requiring organisations to take positive measures to identify and minimise potential human rights violations in their supply chains, including legislation enacted in the United States in December last year which specifically prohibits goods imported from the Uyghur Autonomous Region of China.

Background

On September 14 2022, the EU revealed its proposal for a new Forced Labour Regulation1 (the "Forced Labour Regulation") which seeks to prohibit the import, export and sale of goods made wholly or in part with forced labour from gaining access to the EU and being sold on the EU market. The Forced Labour Regulation was first announced in September 2021 by President of the European Commission, Ursula von der Leyen, in her State of the Union Speech whereby she stated that "doing business around the world […] can never be done at the expense of people's dignity and freedom".

A key aim of the Forced Labour Regulation is to "eliminate all products made with forced labour from the EU market, irrespective of where they have been made"

A key aim of the Forced Labour Regulation is to "eliminate all products made with forced labour from the EU market, irrespective of where they have been made," with the ban applying to "domestic products, exports and imports alike".2 The Forced Labour Regulation is relatively simple in comparison to other EU legislation in this area and looks to complement the proposed Corporate Sustainability Due Diligence Directive ("CSDD"), which requires companies to put in place systems to identify, prevent and mitigate adverse impacts of their activities on human rights. (See our related article on Corporate Sustainability Due Diligence: A long-awaited proposal revealed for further detail on this Directive).

Scope

The core prohibition of the Forced Labour Regulation is to prevent companies from importing, exporting or selling goods within the Union which have been made with forced labour. The Forced Labour Regulation is intended to apply broadly to all companies, including small and medium sized enterprises and foreign entities, with the Forced Labour Regulation stating that all "economic operators" who place and make available those products on the EU market fall within scope.3 The Forced Labour Regulation envisages that each Member State will designate one or more 'competent authorities' who will have the responsibility of implementing the Forced Labour Regulation and carrying out any necessary investigations into suspected forced labour in the import/export of goods. Goods which have already reached end users are expressly excluded from the Forced Labour Regulation.

Enforcement

If a violation has been found following an investigation by a competent authority, a decision shall be adopted which contains: (i) a prohibition to make the products concerned available on the EU market and to export them, (ii) an order for the economic operators at the subject of the investigation to withdraw the relevant products from the market (if already made available) and/or (iii) an order for the respective products to be disposed of in accordance with national law.4

The responsibility of enforcing penalties on the economic operators will fall on Member States, with the only requirement being that they are 'effective, proportionate and dissuasive.'5 It is expected that the competent authorities will work alongside customs authorities to enforce the Forced Labour Regulation at the relevant borders.

Next steps

The Forced Labour Regulation has now been presented to the European Parliament and the Council for their feedback and the consultation process is to last eight weeks. If adopted, the current draft states that the Forced Labour Regulation would be effective 24 months from entry into force - given the current timeline, this is likely to be 2025 at the earliest.

Impact on UK businesses

If enacted, the Forced Labour Regulation could potentially have far-reaching consequences on UK businesses selling goods into the EU. Good exports to the EU reached £16.9 billion in May 20226, which demonstrates the continued quantity and importance of trade between the UK and the EU. Under the Forced Labour Regulation, many UK businesses selling goods into the EU will be classified as 'economic operators' and therefore, if forced labour was found in their supply chains, this could result in goods being prohibited from being exported into the EU market. UK and international organisations seeking to continue trading with the EU would be well placed to consider conducting assessments on their supply chains to minimise the risk of potential breaches as well as helping to enable them to provide any information required as a result of the Forced Labour Regulation (such as in relation to their operations and monitoring practices).

UK and international organisations seeking to continue trading with the EU would be well placed to consider conducting assessments on their supply chains to minimise the risk of potential breaches

These requirements can be seen as complementary to the existing requirements to report on an organisation's actions to prevent modern slavery under the UK's Modern Slavery Act,7 and carry out consistent and enhanced due diligence of their supply chain practices. We note, however, that the reporting requirement under the UK's Modern Slavery Act only applies only to larger entities (i.e. those with an annual turnover in excess of £36M), whilst the Forced Labour Regulation as drafted would apply more broadly to entities of all sizes. From a practical perspective, this means that smaller and medium sized UK businesses selling goods into the EU will need to be particularly vigilant in order to avoid being caught out by the new proposals.

...smaller and medium sized UK businesses selling goods into the EU will need to be particularly vigilant in order to avoid being caught out by the new proposals.

Impact on SMEs

As SMEs make up the majority of companies in the EU, the Forced Labour Regulation reiterates that their full inclusion is critical in order for the new instrument to have a meaningful impact. The Commission has stated that it will issue further guidance to support the proposals which "take into account the size and economic resources of economic operators", which we expect will be particularly useful for SMEs, who may be concerned about being disproportionately impacted by the new regime. Indeed, the Forced Labour Regulation builds on existing EU Guidance published in July 2021, which seeks to assist EU businesses in taking appropriate measures to address the risk of forced labour in their operations and supply chains, based on international standards.8

Questions remain over the burden of proof required under the Forced Labour Regulation, namely whether it should be up to the importer to prove that their goods do not contain traces of forced labour (which may present particular challenges for SMEs), or whether it is the responsibility of the customs authority to prove that forced labour was used in the production process of the investigated shipment.

International developments

The Forced Labour Regulation forms part of a growing trend in international legislation requiring organisations to take positive measures to identify and minimise potential human rights violations in their supply chains. For example, the United States Tariff Act and Canada's Custom Tariff Act both preclude importing goods if there is a reasonable belief that they have been created with forced labour. The United States has built upon this by implementing specific legislation which presumes the use of forced labour in the production of goods from certain regions. For example, the Uyghur Forced Labour Prevention Act (2021) creates a legal presumption, which can only be overcome with clear and convincing evidence, that goods created in the Xinjiang Uyghur Autonomous Region of China, or in connection with certain Chinese entities or government employment programs, are made with forced labour.

In its announcement of measures over Xinjiang human rights abuses, the UK stopped short of implementing a full ban on trade from this region9. However, the Foreign Affairs Committee in their report of July 2021 called on the government to explore a ban on the import of all cotton products known to be produced in the region and a Private Members' Bill10 is currently in its second reading in the House Commons which seeks to prohibit the import of products made by forced labour in this region by requiring proof that the manufacture of products has not involved forced labour.

Whilst the US regime currently goes significantly beyond that of the EU and UK, the Forced Labour Regulation, which seeks to capture forced labour globally, demonstrates the positive steps being taken within the EU to help eliminate forced labour and modern day slavery from supply chains. 

References

[1] 2022/0269 (COD) COM-2022-453_en.pdf (europa.eu) 'Proposal for a Forced Labour Regulation of the European Parliament and of the Council on prohibiting products made with forced labour on the Union market'

[2] Commission moves to ban products made by forced labour (europa.eu)

[3]  'Economic Operator' (as per Article 2(h) of the 'Proposal for a Forced Labour Regulation of the European Parliament and of the Council on prohibiting products made with forced labour on the Union market') means any natural or legal person or association of persons who is placing or making available products on the Union market or exporting products.

[4] Article 6(4) of the 'Proposal for a Forced Labour Regulation of the European Parliament and of the Council on prohibiting products made with forced labour on the Union market.'

[5] Article 30(2) of the 'Proposal for a Forced Labour Regulation of the European Parliament and of the Council on prohibiting products made with forced labour on the Union market.'

[6] UK trade - Office for National Statistics (ons.gov.uk)

[7] Modern slavery and supply chain management | Travers Smith

[8] https://trade.ec.europa.eu/doclib/docs/2021/july/tradoc_159709.pdf

[9] UK Government announces business measures over Xinjiang human rights abuses - GOV.UK (www.gov.uk)

[10] https://bills.parliament.uk/bills/3151

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