The EU Forced Labour Regulation

The EU Forced Labour Regulation will affect businesses of all sizes, legally established anywhere in the world and operating in any sector of activity, as long as their products are traded on the EU market (or exported from the EU), both through onsite and online commerce. Its approval was published in the EU Official Journal on 13/12/2024 and it will enter into force 3 years after its publication.

This regulation establishes a ban on placing or making available in the EU market, or exporting from the EU, products made with forced labour. It establishes new roles and responsibilities for the EU institutions and its Member States (European Commission, customs institutions, and other administrations) to investigate whether forced labour has been used in the supply chain of such products, and if so, to decide on their withdrawal (with the consequent loss to the company).

Understanding how these intervention mechanisms will work will be key for companies to be able to assess the risks to which they may be exposed in their supply chains, and to adopt preventive, collaborative, and corrective measures appropriate to their circumstances (in terms of supplier selection, contractual clauses… as well as managing their public image and relationships with stakeholders).

The Forced Labour Regulation includes several specific features that are relevant for companies.

First, unlike other regulations, it creates almost no new explicit obligations for companies in terms of means to be adopted (there is no obligation to create an ad hoc due diligence system, or to produce public reports on the issue, or to ensure traceability along the production process, etc.). This regulation is based on the premise that other regulations already create other mandatory compliance frameworks that allow companies to integrate relevant measures into their supply chain management in response to this risk (e.g. the Deforestation Regulation and the CSRD and CSDDD Directives). Three possible scenarios can be envisaged:

• A company may fall within the scope of several regulations. In this case, they should be assessed together in order to find synergies in the design and implementation of compliance methodologies; this will be particularly important as compliance requires interdepartmental efforts within the company and vertical efforts along the value chain, with upstream and downstream links.
• That a company is only directly subject to the forced labour regulation (e.g. due to size, sector of activity). This may imply a significant effort by the company to assimilate and adapt its operations in order to avoid being exposed to situations of vulnerability.
• A company is only directly subject to this regulation but has clients subject to other regulations that require its cooperation to ensure compliance. In this case, it is advisable to evaluate and exploit synergies that will optimise coordination with key customers and foster trust.

Secondly, the regulation obliges the Commission to regularly monitor the risk of the use of forced labour outside its borders and to publish lists of areas and products at risk. This means that there will not be a fixed body of information to serve as a stable reference point for companies: it must be assumed that risk levels by area and sector will evolve, so that companies will have to pay attention to revisions of this list/database, as well as to other complementary sources of international relevance, in order to assess whether their business activities may be linked to risky practices.

As in the case of the Deforestation Regulation, this Regulation also allows for the submission of complaints or ‘substantiated concerns’ by natural or legal persons to highlight evidence of forced labour in relation to specific commodities and companies. In this case, however, the submission channel is centralised and managed directly by the European Commission, rather than by the authorities in each EU Member State.

It should be noted that in the event of a ban on the distribution/import/export of a product, it will be disposed of for recycling (or, if this is not possible, rendered unusable) or for donation (if it is a perishable product); if a company does not comply with this decision, it will be subject to fines and other possible sanctions. In no case will the product remain available to the company for use in another form or market. The only exception is for products of critical importance to the EU, in which case the authorities may decide to withhold them for the time necessary for the company concerned to take corrective action to eliminate the use of forced labour from its supply chain.

There will be a number of regulatory developments in the coming months that will have further implications for companies:

• On the one hand, the Commission will have to issue more detailed regulations on the additional information that companies will have to provide to customs administrations in when importing and exporting. We expect that this information will include data on both the product and its initial company and place of production, so companies should start to obtain transparent information on their supply chain.
• The specific sanctions regime for non-compliance with decisions, which each EU Member State must publish no later than 2 years after the publication of the Regulation. The Regulation announces that the Commission will publish guidance for Member States in order to ensure a common approach, e.g. on the calculation of fines.

At Equinoccio, we have extensive experience in supporting trade between companies operating inside and outside the EU, raising awareness of technical requirements for access to the European market, and managing communications and public and corporate diplomacy efforts. This enables us to provide pragmatic advice, thanks to teams that combine multicultural skills with commercial pragmatism and technical rigour.