EU Bans Products Made Using Forced Labour – What Should Companies Expect?

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 labour ("the EU Forced Labour Regulation" or "the EUFLR") on the European Union ("EU") market (see Insight of 6 March 2024 hhttps://www.mayerbrown.com/en/insights/publications/2024/03/eu-political-agreement-on-forced-labor-product-ban).¹ The EUFLR prohibits companies from "placing and making available" on the EU market, or exporting from the EU, products made with forced labour.²

I. Who will be subject to the EUFLR?

The key prohibition on the placing and making available on the EU market, or exporting from the EU, products made with forced labour is directed at "economic operators", i.e. any legal person or association of persons who engages in the placing³ or making available⁴ of products on the market of the EU or exporting products from the EU.⁵

Online platforms are also explicitly targeted by the EUFLR, in particular as products offered for sale online "shall be deemed to be made available on the market" of the EU if the offer on the platform is targeted at end-users in the EU.⁶ The Regulation provides in this regard that this will be the case where the activities of the company operating the platform are directed "to one or more Member States".

II. What stages of the supply chain are covered?

The term supply chain is defined as "the system of activities, processes and actors involved at all stages upstream of the product being made available on the market, namely the extraction, harvesting, production and manufacturing of a product in whole or in part, including working or processing related to the product at any of those stages." Given the broad definition of "products made using forced labour", all stages of a product's supply chain are covered by the EUFLR.

III. Who will enforce the EUFLR?

A. Authorities involved

The European Commission ("Commission") and the EU Member States are jointly responsible for the enforcement of the EUFLR. Member States must designate so-called "competent authorities" responsible for carrying out the obligations imposed on Member States through the EUFLR. These national competent authorities ("NCAs") must work together with other authorities, such as labour inspections, judicial and law enforcement authorities, as well as the authorities designated under the EU Whistleblower Directive.⁷ The Commission and respective NCAs are obliged to cooperate closely and provide each other with mutual assistance.

Coordination between the Commission and the Member State NCAs will take place via the "Union Network Against Forced Labour Products", which aims at increasing the effectiveness and coherence of enforcement activities.

Finally, the Commission is tasked with providing regularly updated Guidance on several issues pertaining to the implementation of the EUFLR, such as notably:

• Guidance for economic operators on due diligence in relation to forced labour, including in relation to forced labour imposed by state authorities;
• Guidance for economic operators on best practices for bringing to an end and remediating different types of forced labour;
• Guidance for NCAs and customs authorities on the implementation and enforcement of the EUFLR; and
• Information on risk indicators of forced labour, including on how to identify them.

B. Reporting of violations by the public

The broader public will have a significant role in bringing information pertaining to forced labour to the attention of the competent authorities and the Commission. The EUFLR foresees in the establishment of a "Single Information Submission Point" where "any natural or legal person or any association not having legal personality" can submit information on alleged violations of the violation to place and make available, or export from the EU, products made with forced labour. As a safeguard, the Commission is required to discard submissions "that are manifestly incomplete or unfounded or made in bad faith". Subsequently, the Commission will distribute the submissions among the relevant competent authorities, and the respective "lead" NCA will then have to make an assessment of the information that has been submitted.

C. Digital infrastructure

In order to facilitate compliance with the EUFLR, a database with "indicative, non-exhaustive, evidence-based, verifiable and regularly updated information of forced labour risks in specific geographic areas or with respect to specific products or product groups" will be established by the Commission. The database will be populated with independent and verifiable information from a number of sources, including the International Labour Organization ("ILO"), the UN, as well as other institutional, research or academic organizations.

There will also be a digital platform accessible to the public in the form of a "Forced Labour Single Portal" that should assist in establishing potential violations of the Regulation. It will contain "verifiable and regularly updated information about forced labour risks", including reports from international organizations such as the ILO, but also "guidelines, information on bans, database of risk areas and sectors, as well as publicly available evidence and a whistleblower portal."

IV. How will the EUFLR be enforced?

A. Investigations based on a risk-based approach

Enforcement of the EUFLR will be conducted based on a two-tiered and risk-based approach, whereby the Commission and the NCAs will use a list of criteria to determine the likelihood of violations of the forced labour product ban and, thus, the merits of initiating investigations:

• scale and severity of the suspected forced labour (including whether state-imposed forced labour may be a concern);
• quantity or volume of products placed or made available on the Union market; and
• share of the parts of the product likely to be made with forced labour in the final product.

The determination will be made based on "relevant, factual, and verifiable information". In terms of the geographical scope, the Commission will be in the lead of the enforcement efforts ("the lead competent authority") if the suspected forced labour is taking place outside of EU territory, whereas the respective NCA will be the lead competent authority when suspected forced labour is taking place in their respective Member State.

In a preliminary phase of investigations, prior to initiating a formal investigation, and unless this would jeopardize the outcome thereof, the lead competent authority is obliged to request companies subject to the assessment, "information on their relevant actions taken to identify, prevent, mitigate, bring to an end or remediate risks of forced labour in their operations and supply chains with respect to the products under assessment".

• Companies will have 30 working days to respond to such a request;
• Following the receipt of the information from companies, the NCA has 30 working days to complete the preliminary phase and to assess whether or not there is a "substantiated concern" of violation of the prohibition to place and make available, or export from the EU, products made with forced labour.

In case the lead competent authority determines that there is a substantiated concern of a violation, in the actual investigation, it will have to inform companies within 3 working days from the initiation of such a investigation about the fact that an investigation was initiated, the products subject to the investigation, the reasons for the investigation, as well as the possibility for companies to submit information within a deadline to be given by the lead competent authority. This deadline with have to be a minimum of 30, and a maximum of 60 working days, although extensions of that deadline may be requested and granted, in particular whether the company subject to the investigation is a "Small or Medium-sized Enterprise" ("SME"). NCAs are empowered to conduct so-called field inspections in "exceptional situations".

Lead competent authorities are not under a statutory deadline to complete their investigation, although they must "endeavour to adopt their decisions within 9 months" from the initiation of the investigation.

Lead competent authorities may establish their conclusions based on so-called "facts available", where – in response to requests for information – companies or public authorities refuse or fail to provide such information, or where they provide incomplete, incorrect or misleading information, or where they "otherwise impede" the investigation.

B. Consequences

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 must adopt a decision containing:

• the prohibition to place or make these products available on the EU market and to export them; the withdrawal of these products from the EU market and online marketplaces;
• an order for the companies that have been subject to the investigation to withdraw the product concerned from the market, or to remove content from an online platform referring to such products; and
• an order for 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 labour, only that part would have to be disposed of, to the extent it can be replaced. On the other hand, in order to prevent "disruptions of a supply chain of strategic or critical importance for the EU ", lead competent authority may refrain from ordering the disposal of products 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. Notably, Recital (48) of the EUFLR clarifies that account is to be taken of the Net Zero Industry Act and the Critical Raw Materials Act ("CRMA") when assessing the strategic or critical importance of a particular product.

Non-compliance with forced labour 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 labour from its supply chains.

Finally, customs authorities play a central role in the enforcement of the EUFLR. However, they have to rely on the decisions taken by the lead competent authority. Where customs authorities identify a product that may, based in a decision by a lead competent authority, be in violation of the EUFLR, they must suspend the release for free circulation or the export of such a product.

C. Due process

Throughout the investigation, economic operators should benefit from the right to be heard to ensure their right to due process. In particular, the decision issued by the lead competent authority must specify the possibilities for a judicial review against a decision.