European Commission proposal to ban products made by using forced labour

What are forced labour products?

According to the United Nations agency International Labour Organisation (ILO) “forced labour includes all work which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily. This includes child labour.” The proposal targets products and parts of products that are made under such circumstances.

The ban will be effected on all so-called “economic operators”. Economic operators are all persons or entities who will place or make available products on the EU market. The ban does not only focus on the internal market, but also includes products imported from outside the EU, and products produced within the EU that will be exported.

How to determine that one of your products (or parts / raw materials) is made under forced labour?

Respecting human rights is the basis for a social and equal world. Therefore it is important to prevent products being made by using forced labour. Not just in your own operations, but also in your supply chain. To help companies to determine whether their products are made under forced labour in their operations and supply chains, the EC has published guidance on due diligence for EU businesses. This guidance promotes proper internal control mechanisms that will allow you to identify and lower the risk of forced labour in your supply chain.

It is important to start early with the assessment of where impact on human rights, and forced labour in specific, can cross paths with your company, also via your value chain. The next step is to develop a risk assessment and implement internal control mechanisms to prevent the use of forced labour in your own production and in your value chain. These steps are not only important for the upcoming ban on forced labour, but also to get ready for the EU Corporate Sustainability Reporting Directive (CSRD) and the coming EU Directive on Corporate Sustainability Due Diligence (CSDDD). On national level due diligence gets more focus as well. New legislation is proposed in the Netherlands to regulate a companies’ reporting obligation to identify potential risks in their supply chain. The legislation is scheduled to be in effect as of July 1^st 2024, anticipating the EU CSDDD. Non-compliance might lead to joint and several liability.

Due diligence, however, is not just to comply with the law and to reduce litigation costs. Besides the fact that human rights should always be respected and the use of forced labour should be prevented in the production of your products, it can also prevent commercial reputation risk. And on the upside: being a frontrunner in complying with these regulations could give you a competitive advantage.

Proposed enforcement in the EU

In all EU member states national competent authorities will be appointed. These new authorities will implement and enforce the regulation. It is proposed that the authorities in all member states will develop a generalised “risk assessment based” approach. In this assessment, the competent authorities will determine on one hand high-risk products, and on the other hand high-risk countries. For those products and countries, determined high-risk, it is suggested that authorities will actively obtain (and assess) information on how companies safeguard human rights in their operations and the supply chain. This only focuses on direct enforcement. However, this does not mean that only organisations with high-risk products or working in high-risk countries need to set up internal control mechanisms. Due diligence is important for every company that can face the risk of forced labour used for their products.

Consequences of non-compliance

If after an assessment by the competent authority, the investigation shows that the economic operator is in violation with the regulation, and the economic operator cannot prove that there is no forced labour anywhere in the operations or supply chains, it is expected that the products involved will be prohibited on or withdrawn from the EU market. Moreover, it is expected that high penalties will be levied.

Next steps

This new legislation is one of many to come to create boundaries and support the movement towards a sustainable European economy in 2050. All the legislation is overwhelming. Our motto is ‘Think big, but start small’, otherwise, good plans will come to hold. How can you start:

• The first start is to assess if you are involved in the value chain of a production process. This includes parties such as importers and exporters. This means you are ‘in scope’ of this legislation.
• The second step is to identify the risks on forced labour within your company and in your value chain. This will be followed by setting up internal control mechanisms. These help you to screen processes and supply chains and prevent risks to unintendedly be involved in forced labour.

Richard Karmel – Human Rights global lead partner within Mazars, was co-lead for the UNGP UN Guiding Principles Reporting Framework. The Reporting Framework is supported by two kinds of guidance: implementation guidance for companies that are reporting and assurance guidance for internal auditors and external assurance providers. With Richard as global lead, Mazars has a long history of performing supply chain due diligence with a specific focus on human rights, including preventing the risk forced labour. We can support you on several levels such as challenging your risk assessment by our Human rights specialists, support in defining the internal control mechanisms, or performing supply chain due diligence.

[1] Proposal for a regulation of the European Parliament and of the Council on prohibiting products made with forced labour on the Union Market (EU) 2022/0269, COM(2022) 453 final, 14.9.2022.

More information?

Would you like to know more or can we support you on this topic? Please contact Eline Polak by email or by telephone +31 (0)88 277 23 25 or Danny Janssen by email or by telephone +31 (0)88 277 13 20. They will be happy to help you.