The European Parliament today voted overwhelmingly in favor of adopting a regulation banning all products made with forced labor from the European Union, with 555 votes in favor, 6 votes against, and 45 abstentions. The approval comes a little over a month after the Parliament and the European Council reached a deal on a draft text of the proposed regulation, which grants the European Commission the authority to investigate "suspicious goods, supply chains, and manufacturers" originating outside of the EU for the possible use of forced labor. All cases internal to the EU will be handled by the competent authority of the respective Member State or States. In all cases, products determined to have been made using forced labor will be banned from the Single Market, and all incoming shipments will be intercepted at the EU's borders. Additionally, the Commission is tasked with issuing guidance to Member States on the implementation of "effective, proportionate, and dissuasive" penalties in the form of fines and possible criminal charges for non-compliant firms. The proposed regulation also directs the Commission to establish a publicly-available database to catalogue forced labor risks by sector.
Following its approval by the Parliament, the regulation now moves to the Council for formal approval. Once the Council approves the text, the Regulation will enter into force, after which EU Member States will have three years to implement the law. You can find the Parliament's announcement here. As stated by the Executive Vice President Dombrovskis, "The main change brought by the agreed text compared with the initial Commission proposal concerns the governance mechanism, which will result in the Commission taking on the large majority of cases." Although many argue that the diluted legislation has lost significant enforcement effectiveness, the Forced labor ban should be considered in collaboration with the EU Corporate Sustainable Due Diligence Directive (CSDDD/CS3D) which includes reporting requirements specific to supply chain transparency. The European parliament's plenary vote on April 24th saw the CS3D successfully being approved into law.
While the push to regulate goods entering and exiting the EU market will give EU member states three years to implement the law, companies should start thinking about proactively adopting global due diligence measures. Setting up an EU program approach to combatting forced labor will most likely see US based companies build on top of existing programs. Additional internal controls should be incorporated to address both upstream and downstream due diligence, but most importantly, assessing risk should include comprehensive human rights risk beyond forced labor. Crowell will be issuing a follow up update on the CSDDD later this month and is currently working on proactive guidance for importers and exporters operating in the US, UK and EU markets.
Crowell continues to monitor developments in anti-forced labor space and their potential impact on businesses and consumers moving forward.
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