EU ban on products linked to forced labour

On 19 November 2024, the Council finally gave the official green light to the EU Forced Labour Products Ban Regulation, which will be published in the EU Official Journal in the coming weeks. The law will take effect in 2027.

The new rules prohibit the placing and making available on, or the export from the EU market, of products that are produced using forced labour. This aims to create a level playing field within the EU by removing potential internal market distortions caused by differences in national legislation. The regulation complements the European framework on supply chain monitoring and will have an impact on business operators engaged in trading of products to or from the EU.

Key takeaways

• The ban will apply to all products, including components, regardless of the sector and the origin, which have been produced using forced labour at any stage of the production process (including extraction, harvest, production or manufacture, and working or processing related to a product).
• Products made with forced labour may be withdrawn from the Union market, seized, withheld, recycled or donated.
• The regulation complements the existing supply chain due diligence frameworks such as the Corporate Sustainability Due Diligence Directive (CS3D). Business operators will need to implement effective supply chain monitoring systems to ensure compliance.
• The European Commission will issue a list of economic sectors in specific geographical areas where there is reliable evidence of the existence of forced labour, and will also identify certain products for which companies must provide additional information to customs authorities.
• Until the regulation enters into force in 2027, companies are advised to prepare for the implementation of effective traceability systems and risk management strategies to address forced labour risks in their supply chains.

Navigating the Forced Labour Products Ban Regulation

On 14 September 2022, the European Commission presented its proposal for a regulation on prohibiting products made with forced labour on the Union market, as part of its commitment to resilient and sustainable supply chains.

In February 2021, the European Commission's Communication "Trade Policy Review – An Open, Sustainable and Assertive Trade Policy" stressed the institution's commitment to promote sustainable and responsible value chains and to ensure that forced labour "does not find a place in the value chains of EU companies". Subsequently, in July 2021, the European Commission, together with the European External Action Service (EEAS), issued guidance on due diligence for European companies to address the risk of forced labour in their operations and supply chains, The now adopted regulation aims to effectively ban forced labour products from the EU market. 

What is forced labour?

The regulation defines "forced labour" by referring to the International Labour Organization Conventions (No. 29 on Forced Labour and No. 105 on the Abolition of Forced Labour). According to the Conventions, forced or compulsory labour means all work or service which is extracted from a person under the menace of a penalty, including forced child labour and forced labour imposed by state authorities. 

The European Commission will release information on risk indicators of forced labour, including on how to identify them within 18 months of the regulation entering into force.

What businesses are affected?

The regulation is not sector-specific: it covers any product that has been made with forced labour (in whole or in part) at any stage of its supply chain (including, extraction, harvest, production or manufacture).

The ban applies to all products placed or made available on, or exported from, the EU market by any economic operator (regardless of its size) in the course of any business activity (including online sales and other means of distance selling).

How does it work?

The primary method to enforce the prohibition of forced labour products within the EU market will be through investigations conducted by the relevant authorities. 

In order to provide a basis for the assessment of possible violations of the regulation, the European Commission will establish a public database of high-risk areas or products for forced labour. This catalogue will provide an indicative and non-exhaustive indication of specific economic sectors in specific geographic areas for which there is reliable evidence about the existence of forced labour, with a special focus on cases of widespread and severe forced labour risks.

Suspected breaches will be subject to formal investigations. Investigative priorities will be determined on a risk-based approach, taking into account the scale and severity of the suspected forced labour, the quantity / volume of products involved, ration of products or parts of product likely to entail forced labour. The assessment will be based on all relevant information available to the relevant authorities. In addition to the European Commission's public database, these information sources include individual submissions or information requested from other authorities.

If a breach is suspected within the territory of a Member State, the country's national authorities are in charge of investigating. Where the alleged breach took place outside the EU, the European Commission will lead the investigation.

EU Member States are required to designate one or more competent authorities within 12 months from the entry into force of the regulation. The list of the designated authorities will be publicly available on the Forced Labour Single Portal. The Portal will be the main source of information, including the database, all available information and relevant information, any decision to ban a product, and the results of reviews. 

The European Commission and the national competent authorities are expected to work together closely to ensure effective implementation of the new rules. A dedicated platform, the Union Network Against Forced Labour Products (composed of representatives of each Member State and the European Commission), will be established in order to coordinate the work, exchange information and best practices, and follow up on the enforcement of the decisions taken at the end of the investigation. 

The investigation process

Investigations will consist of two main phases: the preliminary and the formal investigation. 

Before initiating a formal investigation, the lead competent authority must contact the affected economic operators, and if necessary other product suppliers and relevant stakeholders, to obtain information on the company's due diligence. Specifically, the authority will look to gather information on the actions taken to identify, prevent, mitigate, bring to an end or remediate risks of forced labour in their operations and supply chains. Interested parties will have 30 working days to respond. 

The lead competent authority has 30 working days to decide whether to initiate a formal investigation if there is a substantiated concern of violation of the force labour ban: i.e. a reasonable indication that products were likely to have been made using forced or child labour, based on objective, factual and verifiable information. 

The economic operators under assessment must be informed that a formal investigation has been initiated within three working days and have the right to submit further information. During the formal investigation, competent authorities may carry out all necessary steps, including field inspections (even in third countries, if the economic operators concerned give their consent and the government of the third country in which the inspections are to take place has been officially notified and raises no objection). 

The European Commission plans to release a series of guidelines on the practical implementation of the regulation, including on the preliminary phase of the investigation and the investigation itself, with a particular focus on benchmarks for the risk-based assessments and the applicable standard of evidence.

Possible outcomes

The lead competent authority must complete the investigation and adopt its decision within nine months. 

If the authority has enough evidence to establish a violation, they can decide to:

• prohibit the sale or export of the product(s);
• order the withdrawal of the product(s) from the EU market (including online marketplaces); or
• dispose the affected product(s).

Economic operators will be required to bear the costs of disposing of the affected product(s). The options for disposing of the affected product(s) will vary depending on the nature of the products but may include recycling, destroying or donating to charity. An exception can be for products considered to be of strategic or critical importance for the Union, taking into account the sectors and products listed in the Critical Raw Materials Act and the Net Zero Industry Act (see our July 2024 update). In such cases, the authority can order the products to be withheld for the period of time necessary to eliminate or bring to end forced labour, in order to not alter the proper functioning of the internal market or prevent disruptions of supply chains. Furthermore, once companies eliminate forced labour from their value chain, affected products may be allowed to be placed on the EU market again. 

If the lead competent authority is unable to ascertain whether a violation has occurred then the investigation will be closed. However, the authority may launch another investigation into the same product and same economic operators if new evidence becomes available.

The lead competent authority shall notify all economic operators concerned of any decisions taken in relation to a breach of the regulation. Furthermore, the competent authorities of other Member States shall also enforce these decisions. Where the European Commission leads the investigation, it will adopt its decisions by means of implementing acts. 

Compliance and enforcement

In the event of non-compliance by economic operators, penalties will be imposed in accordance with the regulations set forth by EU Member States within two years of the regulation's implementation. These penalties will be based on a number of factors, including the severity and duration of the infringement, the degree of cooperation by the economic operators, and any previous instances of non-compliance. EU countries can rely on the upcoming European Commission guidelines which will provide further guidance on the method for calculating financial penalties and the applicable thresholds. Final decisions may be subject to administrative and judicial reviews.

Internal and international cooperation – customs control 

To ensure effective implementation of the new rules, the regulation envisages close cooperation and exchange of information between the European Commission, national competent authorities, third countries authorities and customs authorities. The competent custom agencies will assist the enforcement of the rules by identifying forced labour products that are imported into or exported from the EU. If a product is identified, custom authorities must suspend the release or export until the competent authority has finalised the investigation. 

The European executive is also considering targeted initiatives to support economic operators and third countries to comply with the new rules and address forced labour in global supply chains.

What are the implications for businesses?

Companies placing or making available products in the EU or exporting from the Union will have to demonstrate their due diligence efforts to ensure that there are no forced labour risks in their supply chains. Conducting supply chain checks, establishing a traceability system and implementing risk management strategies will therefore be fundamental to comply with the new rules. Although the European Commission decided not to impose specific additional obligations on how to conduct these due diligence steps, the regulation forms part of a broader EU regulatory framework on sustainable supply chains, which already include due diligence obligations, such as the CS3D. Moreover, the European Commission will issue guidelines on best practices to assist businesses in meeting compliance requirements.

Certain products (identified by the European Commission in secondary legislation) will be subject to heightened scrutiny by the authorities. Companies will be required to provide additional information to customs authorities, especially with regard to the manufacturer or the producer and the product suppliers, unless already required under the Union Customs Code.

To ensure compliance, the European Commission, in consultation with relevant stakeholders, will issue guidelines for economic operators within 1.5 years of the regulation coming into force. These will cover due diligence in relation to forced labour, engagement with competent authorities in case of an investigation, and best practices for ending and remediating forced labour.

The regulation will be subject to review by the European Commission after five years from its entry into force. In particular, its effectiveness in contributing to the elimination of forced labour and the impact and costs on businesses will be assessed. An extension of the scope is also possible, to cover services ancillary to the extraction, harvesting, production or manufacturing of products. 

We will continue closely monitoring developments and the upcoming secondary legislation linked to the forced labour regulation, as well as other legislation relevant to supply chain due diligence, including the implementation of the CS3D and the EU Regulation on Deforestation-Free Products (see our November 2024 update). Do not hesitate to reach out to our experts directly if you have any questions.