On 19 November 2024, the EU Council adopted a regulation banning products from forced labour on the EU market[1] . Although we live in the 21st century, a century of enormous advances in technology, artificial intelligence, and a meteoric rise in living standards worldwide, our Western society is also facing a phenomenon that many would consider to be merely historical. But forced labour is a harsh reality, and the International Labour Organisation (ILO) estimates that it affects approximately 27.6 million people, including 3.3 million children (primarily in sectors such as textiles, mining, agriculture, and services).
General about the Regulation
The regulation on the prohibition of products made with forced labour (“the Regulation“) prohibits the placing and supplying of any product derived from forced labour on the EU market and its export from the EU market. It aims to create a structured framework to prohibit the use of forced labour in the production of EU goods and supply chains. It will allow the EU to ban and remove a product from the single market if it is proven that forced labour is used in its production, regardless of whether it is produced in the EU or imported into the EU.
Forced labour is defined in the ILO as “any work or service which is exacted from any person under the menace of any penalty and which such person has not offered to perform voluntarily”. It refers to situations where persons are forced to work either through violence, intimidation, or even indirect means such as withholding identity documents or threatening to report to immigration authorities.
A product derived from forced labour is defined as a product where forced labour has been used in whole or in part at any stage of its extraction, harvesting, production, or manufacture, including labour or processing related to the product, so the prohibition on the use of forced labour applies to all stages of the supply chain, including those taking place in third countries.
Obligations for suppliers/customers and others
In particular, the entities concerned will have to carry out in-depth inspections of forced labour and keep records of the steps taken to identify, prevent, mitigate, or end the risks of forced labour and of the measures taken to remedy cases of forced labour, to investigate the product in case of suspected forced labour. A further obligation will be due diligence on forced labour, which the Regulation defines as efforts by an economic operator to implement mandatory requirements, voluntary guidelines, recommendations or procedures to identify, prevent, mitigate, or end the use of forced labour in products to be supplied to the Union market or exported.
Supervision of the prohibition of forced labour
A database of areas or products at risk of forced labour will be created to support the work of the competent authorities in assessing possible infringements of this Regulation (at the Member State level). Based on the assessment of potential risks, the Commission (in the case of forced labour outside the EU) or Member States’ authorities (in the case of forced labour on their territory) may launch investigations. The final decision on the prohibition, withdrawal, and removal of the forced labour product will then be taken by the authority that conducted the investigation.
These decisions will be mutually recognised among all other Member States. The information sharing mechanism between Member States is an interesting element of the Regulation which will ensure effective monitoring and prevention of breaches of the Regulation throughout the European Union.
The criteria for assessing the risk of breach of the Regulation include:
- the extent and severity of possible forced labour;
- the quantity or volume of products from forced labour placed or supplied on the EU market;
- the proportion of components in the final product that is likely to come from forced labour;
- the proximity of operators to the risks associated with suspected forced labour in their supply chain, as well as their ability to address these risks.
Businesses that fail to comply with due diligence requirements will face serious legal and financial consequences. Regarding the rules for imposing sanctions, the Regulation specifies that sanctions are to be set by the Member States in such a way that they are effective, proportionate, and dissuasive. This will include the ban on the placing of products on the EU market, but also the possibility of other measures within Member States, such as fines or a ban on the import/export of these products.
Regulation and CS3D
Both the Regulation and the CS3D[2] aim to protect human rights in global supply chains and impose an obligation for affected companies to conduct human rights due diligence.[3]
However, there are differences between them that complement each other. The scope of the CS3D is based on the size and turnover of the company; the ban on forced labour products targets all products, regardless of the size of the company’s marketing them. The CS3D defines due diligence requirements for the companies concerned and allows the authorities to take sanctions against companies that fail to meet their due diligence obligations. The Regulation, on the other hand, empowers authorities to investigate specific products and can ban their import/export altogether if necessary.
Impacts
The new rules set out in the Regulation also aim to strengthen consumer confidence by ensuring that products on the EU market meet human rights standards.
The Regulation can help businesses improve their efforts to meet ESG objectives – specifically Pillar S, the social pillar. Indeed, if they can demonstrate that they avoid the use of forced labour in their supply chains, they can gain a competitive advantage as consumers become more and more concerned about the origin of products and demand that products are ethically produced. This can also lead to greater customer loyalty and a willingness to pay a higher price for products that meet these sustainability values.
Future and implementation of the Regulation
The legislative act was adopted following its approval by the Council. After signature by the President of the European Parliament and the President of the Council, the Regulation will be published in the Official Journal of the European Union and will enter into force on the day following that publication. EU Member States will then have three years to apply the new rules. This timeframe gives businesses some time to adapt their business practices to the new requirements and to implement effective supervisory mechanisms to ensure compliance with the Regulation.
Conclusion
The Regulation is a major step towards protecting human rights and reinforcing the importance of ethical trading. It bans products linked to forced labour not only on the European market but also when they are imported or exported. This comprehensive approach covers the entire supply chain – from the extraction of raw materials to the final product – and applies to production both inside and outside the EU.
The entities concerned must now carefully monitor their supply chains, prevent risks and prove that their products have avoided any form of forced labour. Progress cannot be measured by technology or economic numbers alone. It is also about ethics and respect for basic human rights. As consumers, we have been able to put pressure on suppliers and producers by choosing products that are not only of good quality but also ethically produced. The European Union is now sending out a clear signal: no profit is worth human dignity.
We will continue to monitor further developments on the Regulation and ESG issues for you. If you have any questions, please do not hesitate to contact us.
[1] Regulation (EU) 2024/1781 of the European Parliament and of the Council on prohibiting products made with forced labour on the Union market and amending Directive (EU) 2019/1937, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52022PC0453
[2] Directive of the European Parliament and of the Council on corporate sustainability due diligence and amending Directive (EU) 2019/1937, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:L_202401760
[3] Corporate Sustainability Due Diligence Directive (CS3D) – Article, available at: https://www.peytonlegal.cz/en/directive-on-corporate-sustainability-due-diligence-cs3d/
Mgr. Jakub Málek, managing partner – malek@plegal.cz
Rachel Kouklíková, legal assistant – kouklikova@plegal.cz
Tereza Hrudková, legal assistant – hrudkova@plegal.cz
29. 11. 2024