Companies are in future to be prevented from placing or making available on the Union market or exporting from it any products that are made with forced labour. This is the aim of a proposal for a resolution by the European Commission on 24 September 2022, the European Parliament’s response of 8 November 2023 and the European Council’s revised proposal (“Draft Regulation”) of 26 January 2024. Trilogue negotiations to reach agreement on the proposal were started in Brussels on 30 January 2024 and will be continued on 4 March 2024.
The purpose of the Draft is to extend the much-discussed Corporate Sustainability Due Diligence Directive (“CS3D”) to include the goal of abolishing forced labour by 2030. This is to be achieved by a specific prohibition on products made with forced labour, rather than via corporate due diligence as a “best efforts” obligation. The prohibition is to apply to all economic operators, regardless of size, legal form and production location. Given the postponed vote on the CS3D and the incipient European elections campaign, it remains to be seen whether the Draft Regulation will be agreed on before the European elections in June 2024.
If agreement is reached, the Draft should enter into force 24 months (or, based on the Council’s proposal, 36 months (see Article 36 Draft Regulation)) after publication in the Official Journal of the European Union. The Commission plans to provide implementation guidelines within 18 months of the Draft’s official publication.
I. Objective of the proposal
The international community aspires to abolish forced labour by 2030. The fact that forced labour remains an issue is highlighted by figures from the International Labour Organization (“ILO”) which show there to be 27.6 million people worldwide who perform forced labour, with marginalised groups, especially children, at particular risk of exploitation. The Draft Regulation aims to counter this via the indirect approach of a system to investigate, identify and end human rights violations in the value chain of products.
II. What is to be prohibited?
Article 3 Draft Regulation prohibits products made with forced labour from being placed or made available on the Union market and from being exported. “Forced labour”, including forced child labour, is all work or service exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily (Article 2(a) Draft Regulation in conjunction with Article 2 of the ILO’s Convention on Forced Labour, 1930 (No. 29)). The same definition of forced labour can be found in the German Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz).
The prohibition is aimed at all economic operators with no differentiation by company size, location or legal form (see Article 2(h) Draft Regulation).
III. What products are affected?
The Draft Regulation covers any product that can be valued in money and, as such, is capable of forming the subject of commercial transactions (Article 2(f) Draft Regulation). Whether a product is extracted, harvested, produced or manufactured is irrelevant, and any working or processing related to a product at any stage of the supply chain is included in the provision’s scope. The Draft therefore encompasses all products (including their components) in all sectors of industry and irrespective of their origin.
IV. How are possible violations identified?
Whether a product has been made with forced labour is determined by way of investigations by the competent authorities. A full investigation of the products and economic operators concerned will only be launched once a preliminary investigation has indicated a substantiated concern of a violation, meaning that it is the preliminary investigation that determines whether a main investigation will be initiated and a potential violation will be examined in detail.
In exceptional cases of “Union interest”, the preliminary investigation can be carried out by the Commission itself (see Article 14(2), (3) Draft Regulation). Union interest will be assumed where the scale and severity of the suspected forced labour is significant, the risks of the suspected forced labour are located outside the territory of the Union, or the products concerned have a significant impact on the internal market. A central Union Network consisting of representatives of the Commission and the Member States is to be set up to coordinate the fight against forced labour across the EU (Article 6 Draft Regulation).
1. Likelihood assessed on a risk-based approach
The authorities are to follow a risk-based approach in assessing the likelihood of a violation (Article 14(1) Draft Regulation), taking account of all the available information including
- information and decisions encoded in the information and communication system for market surveillance, including any past cases of (non-)compliance by an economic operator (lit. a);
- the database established by the Commission pursuant to Article 9 Draft Regulation listing forced labour risks with respect to certain products and geographic areas (lit. b);
- risk indicators and other information, including reports from international organisations, in particular the ILO, civil society, business organisations, trade unions and experience from implementing Union legislation, setting out due diligence requirements with respect to forced labour (lit. c);
- submissions of information on alleged violations (lit. d);
- information received by the competent authority from other authorities relevant for the implementation of this Regulation, such as national due diligence, labour, health or fiscal authorities, on the products and economic operators under assessment, unless the sharing of such information is not in accordance with Union law or national law in compliance with Union law substantially impairs the execution of the activities of such authorities (lit. e);
- consultations with civil society organisations and trade unions (lit. ea).
Competent authorities are to focus on the economic operators involved at those points in the supply chain where the forced labour is most likely to occur (Article 15(1) Draft Regulation). The size and economic resources of the economic operators concerned as well as the quantity of the products and the scale of the suspected forced labour are of relevance in this respect.
2. Information from economic operators
During the preliminary investigation, the competent authorities must ask the economic operator for information about the actions it is currently taking to identify, prevent, mitigate or bring to an end the risk of forced labour in its operations and supply chains (Article 15(2) Draft Regulation). The economic operator has 30 working days in which to respond (Article 15(3) Draft Regulation). The competent authorities must close the preliminary investigation within 60 working days of the request for information by deciding whether there is a substantiated concern of a violation or not (Article 15(5) Draft Regulation).
3. (Un-) Substantiated concern
Where the competent authorities consider there to be no substantiated concern, no main investigation is to be instigated and the economic operator(s) concerned are to be informed accordingly (Article 15(6) Draft Regulation). Where a substantiated concern is found, the competent authority that leads an investigation into the products and economic operators concerned starts this investigation by communicating their decision through the information and communication system (Article 16(2) Draft Regulation).
V. How does the main investigation work?
The lead competent authority initiating an investigation must communicate it through the information and communication system for market surveillance (Article 18(1) Draft Regulation). It must also notify the decision to investigate to the economic operator(s) concerned within five working days of the decision’s issue date. This notification must include information about the initiation of the investigation and its possible consequences, the products subject to the investigation, the reasons for the initiation of the investigation, and the possibility of submitting further documents and information to the competent authority (Article 18(1) Draft Regulation).
Should the competent authorities request information, the economic operator(s) concerned are to have at least 30 working days to submit any information relevant and necessary for the investigation (Article 18(2) Draft Regulation). This includes information identifying the products under investigation, the manufacturer or producer of such products and the product suppliers. Here, too, competent authorities are to prioritise those economic operators at the points in the supply chain closest to where forced labour is likely to occur (Article 18(3)(a) Draft Regulation). The prioritisation is based on the following criteria: the size and economic resources of the economic operators, the quantity of the products concerned and the scale of the suspected forced labour (Article 18(3)(b)). The competent authorities may also decide to conduct field inspections where needed (Articles 18(5) and 19 Draft Regulation). If there is a risk of forced labour in a third country, the Commission may request the government of the third country to conduct an inspection, provide relevant information or verify evidence provided by economic operators (Article 19(4a) Draft Regulation).
The European Parliament’s proposal to reverse the burden of proof for the non-existence of forced labour in high-risk products and to transfer it to the economic operators in order to relieve the authorities in their investigative work was not adopted by the Council and remains a matter for discussion at the trilogue negotiations. The proposal has been heavily criticised by practitioners.
VI. What decision must be taken?
The decision whether there has been a violation of the ban on products made with forced labour is to be taken by the Commission after reviewing the information and evidence obtained by the competent authority (Article 20(1) Draft Regulation). Should an operator or the authority of a non-EU country refuse to cooperate, the decision may be made on the basis of the available information (Article 20(2) Draft Regulation). A finding that there has been no violation will end the investigation, of which the economic operator must be informed (Article 20(3) Draft Regulation). Where a violation is found, the Commission must immediately adopt a decision in accordance with Article 20(4) Draft Regulation containing:
- a prohibition to place or make the products concerned available on the Union market and to export them (lit. a);
- an order for the economic operators concerned to withdraw from the Union market the products concerned that have already been placed or made available on the market (lit. b);
- an order for the economic operators concerned to dispose of the products concerned by donating them, recycling them or rendering them inoperable (lit. c).
Decisions are to be published as non-confidential summaries in a publicly accessible “forced labour single portal” (Article 12(d) and (e) Draft Regulation). Should an economic operator fail to comply with a decision, the competent authorities must ensure its content is implemented (Article 22(1) Draft Regulation), including with customs authorities assistance in identifying and stopping the relevant products at the EU’s external borders (Article 25 Draft Regulation).
In cases where there has been a substantial change in any of the facts on which a decision was based (Article 20(7)(a) Draft Regulation) or if a decision was based on incomplete, incorrect or misleading information (Article 20(7) Draft Regulation), the Commission has discretion – of its own initiative or at the request of an economic operator concerned – to reconsider, amend or repeal such decision at any moment (Article 20(7) Draft Regulation).
VII. What penalties are there and how will they be enforced?
The Member States are responsible for laying down the rules on penalties for non-compliance with a decision pursuant to Article 20(4) Draft Regulation and for taking all measures necessary to ensure that they are implemented in accordance with national law (Article 34(1) Draft Regulation). The penalties provided must be effective, proportionate and dissuasive (Article 34(2) Draft Regulation) having due regard to the gravity and duration of the infringement (lit. a), any relevant previous infringements by the economic operator (lit. b) , the degree of cooperation with the competent authorities (lit. c), and all other mitigating or aggravating circumstances of the individual case, such as the financial benefits gains or losses avoided as a direct or indirect result of the infringement (lit. d). Fines are not to exceed 5% of the economic operator’s total annual Union-wide turnover in the financial year preceding the decision on the fine (Article 34(2a) Draft Regulation).
The European Parliament had also proposed a provision requiring economic operators to provide financial and non-financial compensation to those affected (defined as “remediation”). It remains to be seen whether this provision, which was criticised by practitioners and not adopted by the Council, will find its way into the regulation during the trilogue negotiations.
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