UK: EU Political Agreement On Forced Labor Product Ban

On March 5, 2024, the European Parliament and the Council of the European Union reached a "political agreement" on a Regulation prohibiting products made with forced labor on the European Union ("EU") market.¹While binding legislation was initially proposed by the European Commission ("Commission") in September 2022 (see Legal Update of 14 September 2022), the agreement reached on March 5, 2024 provides for important differences, notably as regards the roles and responsibilities of the Commission and the EU Member States' National Competent Authorities ("NCAs").

Contrary to the Corporate Sustainability Due Diligence Directive, whose future is currently uncertain,² the text agreed would not directly impose positive due diligence obligations on EU operators. It would however implicitly encourage such due diligence efforts, by empowering the Commission and NCAs to investigate potential instances of forced labor products and adopt decisions prohibiting their placing and making available on or export from the EU market.

An investigation-based tool to fight products made with forced labor

The European Parliament had initially proposed that, for high-risk areas or goods, EU operators would be required to demonstrate that products they intend to place and make available on or export from the EU were not made using forced labor. This proposal, however, was not retained in the agreed text. In practice therefore, the EU's forced labor product ban will remain an investigation-based tool.

Investigations into whether products have been made using forced labor will be conducted by the Commission if the risks arise outside of the territory of the EU. Where the risks of forced labor arise within the territory of an EU Member State, the relevant NCA, that is the NCA of the Member State where forced labor risks have been identified, will be conducting the investigation. Information-sharing requirements between the different Member States and the Commission would apply when, in the course of an investigation, an NCA finds new information about the suspected forced labor in another Member State or outside the EU.

Throughout the investigation, economic operators should benefit from the right to be heard to ensure their right to due process, as already foreseen in the initial Commission proposal.

Investigations will be initiated on a risk-based approach, considering both goods and geographic areas

One of the key changes compared to the initial Commission proposal is the introduction of a list of criteria that the Commission and the NCAs may apply when determining the likelihood of violations of the forced labor product ban and, thus, the merits of initiating investigations:

• scale and severity of the suspected forced labor (including whether state-imposed forced labor may be a concern);
• quantity or volume of products placed or made available on the Union market;
• share of the parts of the product likely to be made with forced labor in the final product;
• proximity of economic operators to the suspect forced labor risks in their supply chain as well as their leverage to address them.

For the purpose of the first criterion, the Commission will establish a list of specific economic sectors in specific geographical areas where state-imposed forced labor exists. In addition, the Commission can identify products for which additional details will have to be provided to the customs authorities in the EU, such as, f.e. information on the manufacturer and suppliers of these products.

Tackling forced labor through EU-wide market withdrawals and confiscations at the border

Once an investigation concludes, final decisions will be taken by the respective authority, i.e. the Commission in the event of investigations involving territories outside of the EU and the relevant NCA in case of investigations inside the EU. Importantly, the political agreement foresees that decisions by NCAs will be applicable in all other EU Member States, in line with the principle of mutual recognition.

As foreseen in the initial proposal, in the event of a finding that products were made using forced labour, the Commission or the relevant NCA can adopt decisions demanding:

• the withdrawal of these products from the EU market and online marketplaces;
• the ban or confiscation these products upon importation into or export from the EU; and
• the disposal of these products, i.e. arranging for such products to be donated, recycled or destroyed.

The requirement to dispose of non-compliant products would however be subject to two important limitations. On the one hand, if only part of the product has been made with forced labor, only that part would have to be disposed of, to the extent it can be replaced. On the other hand, in case of "supply risks of critical products", the political agreement reportedly includes provisions that would enable the Commission or an NCA to decide not to impose their disposal, and instead order the economic operator to withhold the product until it can demonstrate that there is no more forced labour in their operations or respective supply chains.

Non-compliance with forced labor products ban decisions would expose EU economic operators to fines. The lifting of these decisions would only be possible, once an EU economic operator demonstrates that it has eliminated forced labor from its supply chains.

Digital infrastructure and cooperation

The political agreement confirms the digital infrastructure and cooperation provisions already foreseen in the Commission proposal. There will be a digital platform in the form of a "Forced Labor Single Portal" that should assist in establishing potential violations of the Regulation. It will contain "verifiable and regularly updated information about forced labor risks", including reports from international organizations such as the International Labor Organization ("ILO"), but also "guidelines, information on bans, database of risk areas and sectors, as well as publicly available evidence and a whistleblower portal." Moreover, a "Union Network Against Forced Labor Products" will be introduced to enhance cooperation between NCAs and the Commission.

Next steps

The political agreement must now be formally endorsed and adopted by Council and the European Parliament, with votes scheduled respectively on 13 March and in April. Following approval, the Regulation will be published in the EU's Official Journal and enter into force the following day. The application of the Regulation's requirements by the EU Member States will have to start within 3 years.

(Read more of our perspectives on human rights issues facing business.)

With its worldwide presence, Mayer Brown stands ready to help non-EU companies understand EU obligations relating to forced labor requirements (including due diligence requirements), increasing their appeal to EU companies as business partners and avoiding any risk of disengagement from current EU business relationships.