On September 14, 2022, the European Commission (“Commission”) published its proposal for a Regulation introducing a ban on placing and making available products made with forced labor on the EU market.1 Under the Regulation, products found to be made by forced labor can neither be sold in the EU, nor exported from the EU.2 Where products are already on the EU market, they will have to be withdrawn. The proposal follows the announcement thereof last year (see Legal Update of 20 September 2021).

The Proposed Regulation does not target specific companies, industries or countries, but applies broadly and generally in respect of all products, whether made in the EU for domestic consumption or export, as well as imports.3 Enforcement of the Regulation at EU Member State level will be in the hands of (i) national competent authorities (“NCAs”) competent to withdraw products made with forced labor from the market, and (ii) customs authorities designated with the task to identify and block products made with forced labor at the border.

Two-tier investigative process approach

The Commission’s proposal foresees a two-tiered investigative process with a

(i) “preliminary phase of investigation” in which the NCAs assess whether there is a “substantiated concern” (or “well-founded suspicions”) of products having been made with forced labor4 and within which companies will have respond to information requests within 15 days, and, in case a substantiated concern is found to exist

(ii) an investigative phase during which all available information available to the NCAs will be examined. This information includes, but is not limited to:

 

  • ndependent and verifiable information on risks that forced labor has been used in the production process;
  • information on market surveillance and compliance of products shared by other Member States;
  • submissions made by third parties including civil society;
  • information on whether a company carries out due diligence in relation to forced labor in its operations and supply chains;5
  • information obtained during checks and inspections both inside and outside the EU.

To this end, the Proposed Regulation foresees in the creation of a database of forced labour risk areas or products,6 as well as an “Union Network Against Forced Labour Products” that should serve as a platform to “ensure structured coordination and cooperation” between NCAs and the Commission.7 In addition, the Commission will issue Guidelines for companies, including in respect of forced labor due diligence and information on forced labor risk indicators.8 These Guidelines will be additional to the 2021 Due Diligence Guidance on Forced Labor Risk in Supply Chains, issued by the European Commission ("Commission") and the European External Action Service ("EEAS") (see Legal Update of 16 July 2021).

Risk-based enforcement focus and penalties

NCAs will have to adopt a risk-based approach, meaning that they are required to focus enforcement efforts on areas where they are likely to be most effective.9 This is defined as “economic operators involved in the steps of the value chain as close as possible to where the risk of forced labour is likely to occur”, but NCAs should also take into account the size and economic resources of the economic operators, the quantity of products concerned, as well as the scale of suspected forced labor. Importantly, NCAs may reach a decision that the prohibition in Article 3 has been violated based on “facts available” in cases where they were unable to gather information and evidence based on the voluntary provision thereof by companies or through on-site verifications (“checks and inspections”).10

If an NCA established that a particular product was made by forced labor, it shall adopt a Decision providing that the product can no longer be sold on the EU market, nor exported from the EU.11 Products that are already on the EU market will have to be withdrawn by the company in question, which will also have to ensure that such products are disposed of at its own cost.12 Importantly, Decisions by an NCA shall be recognized and enforced by the NCAs of the other EU Member States “in so far as they relate to products with the same identification and from the same supply chain for which forced labour has been found”.13

Companies may provide evidence of compliance with a Decision of an NCA and that they have eliminated forced labor from their operations or supply chain with respect to the products concerned, after which the NCAs shall withdraw their Decision. It is foreseen that non-compliance with decisions by NCAs under the Proposed Regulation is subject to effective, proportionate and dissuasive penalties under the laws of the EU Member States.

Customs authorities play a central role in the enforcement of the Proposed Regulation to the extent it provides for controls and measures in respect of products entering or leaving the Union market. NCAs are obliged to communicate their Decisions to the customs authorities of Member States “without delay”. Customs authorities are empowered to suspend the release for free circulation or the export of products that, as a result of a Decision by the NCAs, “may be in violation of Article 3”. In case of a suspension of the release for free circulation or exports, the products shall be released (i) within four working days following the suspension, unless the NCA requests the extension thereof14 ; or (ii) if the NCAs inform the customs authorities that the products may be released for free circulation or export.15

Relationship with other EU due diligence legislation

The Proposed Regulation is closely linked to the proposal for a Corporate Sustainability Due Diligence Directive (“CSDDD”, see Legal Update of 25 February 2022) under which a system under company law and corporate governance is to be developed with the aim of addressing human rights and environmental abuses in companies' own operations, their subsidiaries' operations and their value chains. However, whereas the CSDDD does not require Member States or companies to prohibit the placing and making available of any product on the market, the Proposed Regulation does. The key linkage with the CSDDD is that if a company can establish that it has conducted effective due diligence, this will be taken into account in the assessment by NCAs as to whether there is a “substantiated concern” that a product is likely to have been made using forced labor.

Next steps

The Proposed Regulation will now be discussed by the European Parliament (“EP”) and the Council of the European Union (“Council”). Recently, the EP and Council have reached agreement on legislation on related-topics quite easily, which lends support for the expectation that they may also be able to reach agreement on the final text of the Regulation during late 2023 already. The Commission’s proposal foresees that the Regulation will only start to apply two years after its entry into force, i.e. as of late 2025 at the very earliest, with 2026 being more likely.