On March 5, 2024, the Council of the European Union (the “Council”) and the European Parliament (the “Parliament”) reached a provisional agreement on a regulation prohibiting products made with forced labour from being sold in the European Union (EU) market. The regulation would apply to the import and export of products made with forced labour.

The primary goal of the provisional deal is to prohibit producers, manufacturers and suppliers from placing products made with forced labour2 on the EU market or exporting such products to third countries. 

Significant changes have been made to the original proposal, by clarifying the roles of the European Commission (the “Commission”) and the national competent authorities regarding the investigation and decision-making process.

Dentons’ International Trade team has summarised the main takeaways below for the EU and global companies.

Scope

The provisional deal covers all products, including those manufactured within the EU for domestic use and exports, as well as imported goods, without singling out any particular companies or industries.

Database of areas and products at risk of forced labour

The Council and Parliament agreed that the Commission would create a database which would have reliable and routinely updated information regarding forced labour risks. The database will aim to provide the Commission and the national competent authorities with information to access potential breaches of the proposed regulation. The database will include reports from international organisations such as the International Labour Organization (“ILO”).

Guidelines for economic operators and competent authorities

The Commission will release guidelines to assist economic operators and national competent authorities in meeting the requirements of the proposed regulation. These guidelines include best practices for ceasing and addressing various forms of forced labour. Additionally, specific measures made for micro, small, and medium-sized enterprises will be incorporated, which will be accessible through the Forced Labour Single Portal. The portal will feature guidelines, information on prohibitions, a database of high-risk areas and sectors, as well as publicly available evidence alongside a whistleblower portal.

An approach based on assessing and managing risks

The following criteria, set out by the provisional deal, will be applied by the Commission and the national competent authorities when evaluating the likelihood of violations of this regulation:

• The extent and seriousness of suspected forced labour, including potential concerns of state-imposed forced labour.
• The amount or volume of products introduced or made available in the EU market.
• The ratio of product components that are expected to be produced using forced labour in the final product.
• The closeness of economic operators to potential risks of forced labour in their supply chain, coupled with their ability to mitigate these risks.

Regarding the first criterion, the Commission will make a list of specific economic sectors in specific geographical areas where state-imposed forced labour exists. Also, the Commission may designate products or product categories that require additional information for imports and exports to EU customs. Such details would include information on the manufacturer and suppliers of these products.

Process of investigation and investigators

Investigations will be used as the main tool to monitor the EU’s ban on products made with forced labour.

In the Commission’s proposal from 2022, it was established that national authorities will have to monitor and identify potential violations by conducting investigations, including in third countries. In the current version of the proposed regulation, it was decided that if suspected cases involve countries outside the EU’s borders (third countries), the Commission will identify and investigate the use of forced labour within EU companies' value chains.

Regarding risks which exist within the jurisdiction of a Member State, the competent authority of that Member State will lead the investigations. The regulation places the burden of monitoring and identifying the risk of products being made with forced labour on the competent national authorities. In case competent authorities discover new information during their evaluation of potential violations of this regulation, these institutions are obliged to notify the competent authority of other Member States, given that the suspected forced labour is occurring within the jurisdiction of that Member State.

As already outlined in the Commission’s proposal from 2022, economic operators have the right to be heard during the investigation process.

Final decision

The ultimate decision in an investigation will be made by the authority that led the investigation. In case a final decision is made by a competent national authority, its decision will be recognized and implemented by all other Member States on the principle of mutual recognition. These decisions can for example ban, withdraw, and dispose a product made with forced labour.

The provisional agreement reached between the Council and the Parliament specifies that if a component of a product found in breach of this regulation can be replaced, the directive to dispose of is only applicable to the concerned part. Thus, competent authorities will have to take into account the proportion of a product that is likely to be made with forced labour in the final product. The following two examples will explain this procedure in different contexts:

• If a car component is produced with forced labour, only that specific part must be disposed of, not the entire car. The car manufacturer must either seek a new supplier for that component or ensure it is not produced using forced labour. In this case, it is possible to dispose of the part instead of the whole product.
• If tomatoes utilised in sauce production are produced through forced labour, the entire batch of sauce must be discarded. In this case, it is impossible to dispose part of the product.

The Council and the Parliament also agreed that for some cases of supply risks of critical products, the competent authority may decide not to impose their disposal. The competent authority may direct the economic operator to retain the product in question until it can be proven that no forced labour was involved.

Ban on products made with forced labour

If a competent authority determines that specific products have been produced with forced labour, the authority may require the products to be removed from the EU internal market. The products must either be donated, recycled or disposed of.

Companies that fail to comply may face fines. Banned products made with forced labour may be permitted back onto the EU market, providing that the company eliminates forced labour from its supply chain.

Possible impacts

The regulation is anticipated to have a notable impact on Europe's solar industry, particularly European solar companies that import components from the Chinese region of Xinjiang, where, according to UN reports, certain products are allegedly produced using forced labour.

Next steps and the main takeaways

Both the Council and the Parliament still have to formally endorse and adopt the agreed regulation.

Once the regulation enters into force, delays in customs clearance of products are expected to occur, as customs authorities may request additional information on the products themselves, producers and suppliers. EU and international businesses are encouraged to conduct a due diligence assessment of their operations throughout the supply chain to ensure compliance with the upcoming EU regulation prohibiting products made with forced labour.

Dentons’ International Trade team will continue to monitor the EU legislative process and report as events unfold. Please feel free to reach out to your Dentons partner if you have any questions or require assistance in respect of the proposed legal instrument.

Semen Medvedkov (Professional Support Lawyer) and Olivier van der Waal (Trainee) contributed to this article.