The proposed regulation would ban forced labour-made products from the EU market, affecting companies’ supply chains and requiring compliance checks.

 By Paul A. Davies, Michael D. Green, and James Bee

On 5 March 2024, the European Parliament and European Council announced that they had reached a provisional political agreement on the regulation (Regulation) that aims to prohibit any product manufactured using forced labour from being placed on or exported from the EU market.

The European Commission proposed the Regulation on 14 September 2022, building on the UN Sustainable Development Goal commitment to eradicate forced labour by 2030 and the Commission’s political priority to fight against forced labour, as announced by Commission President Ursula von der Leyen in her State of the Union speech in 2021.

The provisionally agreed version of the Regulation introduces modifications to the Commission’s proposal, particularly regarding the responsibilities of the Commission and competent authorities[1] during the investigation and decision-making process.

Comparison to CSDDD

The Regulation is intended to build on international standards and complement other EU initiatives, particularly the proposed Corporate Sustainability Due Diligence Directive (CSDDD).

The CSDDD addresses expectations in relation to due diligence requirements (and follow-up actions and potential liability) for in-scope companies. The proposed CSDDD covers forced labour impacts and lists forced labour among the violations of rights and prohibitions. However, the CSDDD does not include specific measures to prevent the placing and making available of products on the EU market.

Content of the Provisional Agreement

As provisionally agreed, key elements of the Regulation are as follows:

• The Regulation covers products made in the EU for domestic consumption and for export. The Regulation also covers goods imported into the EU.
• The Commission will investigate cases and reach decisions if there is a concern that there is a risk of forced labour involving third countries, while competent authorities of EU Member States will investigate and make decisions if there is a concern that there is a risk of forced labour inside the EU.
• If investigations conclude that there is forced labour in the supply chain, the Commission or competent authorities can demand the goods be withdrawn from the EU market. One particular provision relates to “goods of strategic or critical importance” to the EU. Such goods may instead be withheld for a defined period (rather than withdrawn) until the company eliminates forced labour from its supply chain.
• The Commission will prepare tools to support the economic operators and NCAs in applying and implementing the regulation, including a database with regularly updated information about forced labour risks.

Next Steps

The provisional agreement now needs to be endorsed and formally adopted by the Council and Parliament.

If adopted, the new rules will go into effect three years after publication in the Official Journal of the EU.

Latham & Watkins will continue to monitor developments in relation to global supply chain regulation and will review the full text of the provisional agreement when available.

Endnote

[1] Member States should designate one or more competent authorities responsible for carrying out the obligations of the Regulation.