You are about to deliver the first shipment to a retailer in a lucrative new contract for the tech hardware you sell, when they ask: "Was forced labour used at any stage of the production or shipping of any of these products?" Eyebrows are raised. If you are not already prepared for this question, you will soon need to be. As well as environmental sustainability, social justice is an important part of the ESG picture. As a business exporting or importing products out of or into Europe, it is your responsibility to prepare now. 

Protecting human rights and ending forced labour have been on the UK and the EU agenda for some time. This has been driven in part by organisations such as the UN and the World Trade Organisation, along with legislative measures such as the UK's Modern Slavery Act 2015 and EU regulations on human trafficking that have been in place since 2011. 

However, the EU acknowledges that forced labour remains a global issue and more needs to be done. On 14 September 2022, the European Commission issued its Proposal for a Regulation of the European Parliament and of the Council on prohibiting products made with forced labour on the EU market (the Forced Labour Regulations). 

We explain how the Forced Labour Regulations may impact your company and what steps you can take. 

What is forced labour?

The International Labour Organisation (ILO) defines forced labour as "all work or service which is exacted from any person under the threat of a penalty and for which the person has not offered himself or herself voluntarily." 

The ILO estimates that there are 27.6 million people in forced labour, including children. This is not just a problem in developing countries. It happens in Europe and the US, and is sometimes referred to as "modern slavery". It is an issue across all industries, including food, textiles and mining. 

A couple of examples. First, a child, Mo, aged 10 working 14-hour shifts in a factory in India with no windows to make socks, receiving a mere £2 each day. Second, a lady, Kim, fleeing her home country in inhumane conditions arrives at a family home in Germany, where she must hand in her passport. She is taken to a sewing factory working similar long hours, seven days a week, for €1.50 an hour, but she must pay a large proportion of this to the family that is "maintaining" her. 

The objective of the Forced Labour Regulations  

The Forced Labour Regulations have not come out of the blue. The initiative to combat forced labour was announced by President von der Leyen in her State of the Union speech in September 2021. The European Commission issued the Forced Labour Regulations in September 2022.   

The objective is to prohibit the import and export of products on the EU market which are made with forced labour. It includes the socks that Mo made in the Indian factory which are imported into France. It includes the textiles which Kim sewed in Germany which are exported to the US. It includes diamonds which were mined in South Africa by forced labour and exported to Portugal, and many other products across a wide range of industries. 

The EU does not want products tainted by forced labour in its market. We can understand why. 

Guidance was issued as early as July 2021 by the Commission and the European External Action Service to "help companies to combat forced labour in supply chains". 

Who is responsible for combatting forced labour? 

Companies that import or export into or out of Europe. No matter the size of the business or number of products, the Forced Labour Regulations will apply to all. 

Companies must look at their full supply chain. By way of an example, a chocolate manufacturer will consider some of these questions: How are the cocoa beans produced in Ghana? What are the conditions on the milk farms in Poland?  How are all the raw materials transported? What are the working conditions within the factory in England? If one element of the production (no matter how trivial it may seem) is tainted by forced labour, the whole product is affected. 

Each member state will have a competent authority responsible for implementing and enforcing the Forced Labour Regulations. When the authority has reason for concern, it will investigate. This can include a number of things (for example, discussions with the company to understand their policies and market surveillance). 

If following an investigation, the authorities identify that a product has been produced with forced labour (in any part of the supply chain), their powers include prohibiting the product from being imported into or exported from the EU market and, if it is already on the market, requiring the product to be recalled. The company will be responsible for destruction of its products. There may also be penalties and fines imposed, especially for companies that ignore destruction orders. 

What are the costs and benefits to companies?

To ensure compliance with the incoming regulations, companies will need to invest in transparency in their supply chains, ensuring they have due diligence procedures in place and taking steps to check their supply chain (as we discuss below). As well as ensuring compliance, bringing in these changes will also benefit companies. Consumers are increasingly concerned with environmental and social justice. Being proactive and confidently stating that your company ensures that no forced labour is used in its supply chain may improve its reputation and brand.  

From a social justice point of view, your company is contributing to better the lives of workers with limited (or no) rights. Rights which many of the readers (and the writers) of this article may sometimes take for granted. Whilst there is a long way to go and it is unlikely that this legislative change will single-handedly combat forced labour, your company can be comfortable that it is taking action to help. 

Will these regulations apply to UK companies?

As these are EU regulations, they will not form part of UK law. However, large UK businesses are already required, under the Modern Slavery Act, to publish an annual Transparency in Supply Chain statement. The statement should outline the due diligence, risk assessments and other measures they undertake to ensure there is no forced labour in their supply chains. We are starting to see civil society using these statements to hold companies to account, with Dyson currently facing a claimby migrant workers in its supply chain. However, despite this being hailed as a world-leading initiative when the legislation came into force, the UK has recently come under heavy criticism at the 2022 UN Universal Periodic Review for not doing more to prevent forced labour and protect human rights. With social, as well as environmental, sustainability already top of politicians' agendas, this level of scrutiny may sway the government to take more action and implement a similar legislative change in the UK when the Forced Labour Regulations are in force (or even before). 

Look at your national law 

Although it will take some time before the Forced Labour Regulations come into force in EU member states, there is nothing stopping countries from taking action now. We have seen this with Germany's enactment of the Supply Chain Due Diligence Act (LkSG) which will come into effect on 1 January 2023 for certain large German companies. 

If in doubt, contact us so we can advise you of any legislation relating to forced labour that may affect your company now. 

How can my company prepare now? 

It is likely to take a couple of years before the Forced Labour Regulations are in force, with guidance expected 18 months from the legislation coming into force on due diligence and risk indicators of forced labour. Nevertheless, the change will happen. Why not get ready now? These are our top tips: 

• Appoint a human rights representative or team.
• Prepare risk indicators of forced labour, which you can add to over time.
• Invest in due diligence procedures.
• Train appropriate staff on the procedures and how to investigate.
• Map out your full supply chain.
• Apply your due diligence procedures to identify any risks.
• Where there are risks, investigate. This may involve frank conversations with the supplier, requesting copies of their policies on forced labour, or site visits.
• Where forced labour is identified, engage with a local NGO to identify whether you can use your purchasing power to end unacceptable practices, or else switch to another supplier.
• Maintain a database of all identified risks. Use your contacts to share information to reduce the amount of investigating into existing/new suppliers. 

Act now

There is no need to postpone the inevitable. The EU's vision is clear – to remove products tainted by forced labour in its supply chain from the EU market. Responsibility lies with companies to review their full supply chain and eliminate forced labour. Whilst there will be associated costs, companies are also likely to benefit. 

We have set out some helpful tips above, but please feel free to reach out if you want to discuss how we can assist your company in reviewing its supply chain.

You can read more of our insights on supply chain issues here.