EU bans products made with forced labour requiring stricter due diligence

With the Forced Labour Regulation, the EU will ban all products made with forced labour by 2027. For companies, this means they must provide accurate information about their supply chain, due diligence activities, and specific manufacturing information on product or component level.

The regulation has been adopted by the EU and Member States now have three years to implement the regulation. An implementation guide and information database of forced labour risks will be made available by the European Commission before then.

What is forced labour?

Forced labour is a severe violation of human rights and refers to situations where individuals are coerced to work using violence, intimidation, or more subtle means such as accumulated debt, retention of identity papers, or threats of denunciation to immigration authorities. It is rooted in poverty, discrimination, and lack of social protection, and it disrupts fair competition between businesses.

Forced labour is on the rise. Today around 28 million people are in forced labour, generating more than USD 236 billion in illegal profit. Those who are already vulnerable and marginalised are especially at risk (e.g. women, children, immigrants, disabled etc.). It occurs in all countries and all economic sectors. Hereof, 63% of forced labour occurs in the private sector (ILO).

All companies, all products, and the entire supply chain

The Forced Labour Regulation is part of a larger push from the EU to drive a green and just transition globally. It is directly linked to the CSRD and the CSDDD. However, unlike CSDDD, this regulation applies to all companies regardless of size.

The regulation affects all types of products, perishable or non-perishable, produced, distributed, or exported from the EU by businesses of all sizes, including small and medium-sized enterprises.

It prohibits any product and component produced using forced labour at any stage in the supply chain, encompassing activities such as harvesting, extraction, production, processing, or manufacturing of any component, whether fully or partially (§3).

Excluded from the scope are only the logistical services (transportation & distribution) (section 18).

Authorities must apply a risk-based approach through pre-assessments and investigations

If the relevant authorities deem that there are likely risks of forced labour used in manufacturing a product, authorities are required to start a pre-assessment. Then the company in question must provide the authorities with documentation of their due diligence processes within 30 working days. The authorities then have 30 days to conduct the pre-assessment (§17).

“lead competent authorities shall request from the economic operators under assessment and, where relevant, other product suppliers, information on their relevant actions taken to identify, prevent, mitigate, bring to an end or remediate risks of forced labour in their operations and supply chains with respect to the products under assessment” (§17).

If the authority concludes that there is substantiated concern of forced labour, they must initiate an investigation. The company must then within ~1-2 months provide further relevant information, such as identification of relevant products and/or components, the manufacturer, producer or product supplier (§18). The authorities have in total 9 months to reach a decision (§20).

Enforcement: Prohibition of sale, export and disposal of product

If forced labour is confirmed or the company is unable to provide sufficient information, the product must be removed from the market, and its sale and export will be banned. If only a portion of the product is affected, that part can be removed and replaced (but hard for mixed or compounded products). Companies are required to dispose of the affected goods, while customs authorities will enforce the import and export ban at EU borders (unless forced labour issues are solved).

The Commission is also likely to adopt delegated acts for specific products or product groups that specify further product information that must be made available to customs authorities (§27).

Non-compliance with a decision and ban the company will be fined according to the specific EU Member States’ set of penalty rules (will be disclosed within <24 months) (§36).

Criteria for investigation of violations

The regulation contains clear criteria under which the European Commission and national authorities should investigate possible violations. These criteria are:

Implementation guide and database on risks

Within 18 months, the EU Commission will publish a set of implementation guidelines to authorities and companies. The Commission will also create and regularly update a database of forced labour risks in specific geographic areas or concerning specific products or product groups.

SME’s also have to comply but get additional support

SME’s are also covered by this regulation. But before a formal investigation is commenced, the size and economic resources of a company are considered. This means that the proposal includes support tools to help SME’s apply the regulation.

No mandatory compensation of affected workers – not in line with international standards

The regulation does require the relevant operators to compensate the affected workers. Notably, that does not follow the spirit of a ‘just transition’ and does not follow international standards for due diligence (UN, OCED, ILO), which Nordic Sustainability always would recommend companies to follow – both from an ethical as well as a commercial risk standpoint.

Next steps and how we can help

Conducting reliable supply chain due diligence in a global and complex market is no easy task. Hence, getting started is key. Here are some of the steps we typically recommend and provide support on:

Finally, early and proactive adoption of the Forced Labour Regulation requirements has several benefits:

• A commitment to ethical sourcing and transparency builds consumer trust and employee satisfaction
• Gaining full supply chain transparency is a complex task, hence starting early might reduce overall costs and organisational pressure
• Simply get ahead in the competition for reliable suppliers

 

If you have any questions on how to get started, do not hesitate to reach out for a chat: Anna Katharina Bierre akb@nordicsustainability.com

 

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Read more 

Legislation:

• CSDDD FAQ and directive (EC)
• CSRD FAQ (EC)
• Regulation on Deforestation-free Products (read our explainer here)
• Critical Raw Materials Regulation (EC)

International guidelines:

• UN Guiding Principles on Business and Human Rights
• OECD Guidelines for Multinational Enterprises on Responsible Business Conduct
• OECD Due Diligence Guidance for Responsible Business Conduct

Reports:

• Are companies ready for the EU supply chain law? (World Benchmarking Alliance)