Background
Combatting forced labour is one essential component of ESG compliance and supply chain due diligence legislation around the globe.
Shortly after the entry into force of the US Uyghur Forced Labour Prevention Act ("UFLPA"), the EU Commission has proposed a similar piece of legislation in September 2022 – the Regulation on prohibiting products made with forced labour on the European market ("Draft Forced Labour Import Ban") (see our alert dated 20 September 2022 and our alert dated 22 September 2022 (in German language)).
Unlike the French Duty of Vigilance Law, the German Supply Chain Due Diligence Act and the draft EU Corporate Sustainability Due Diligence Directive with their focus on supply chain due diligence and related sanctions/civil liability for parent companies, this Draft Forced Labour Import Ban solely addresses forced labour issues only and follows a "trade policy" approach regulation focussing on access of goods to the EU market. However, in contrast to the UFLPA, the Draft Forced Labour Import Ban so far did not provide for a rebuttable presumption that certain goods were made with forced labour and therefore banned from the EU market.
The legislative process is now picking up speed. On 16 October 2023, the Internal Market and International Trade committees adopted their position on the contents of the Draft Forced Labour Import Ban. We summarise the main amendments below.
The Draft Forced Labour Import Ban – A short Introduction
The Draft Forced Labour Import Ban proposes a broad import and export ban for any product or parts thereof made with forced labour regardless of their origin and processing stage (i.e. extraction, harvest, production, manufacture, or processing). There is no de minimis exemption.
The Draft Forced Labour Import Ban provides for public enforcement including investigatory powers for authorities, fines and seizure as well as detention of goods. Moreover, the Draft Forced Labour Import Ban comprises other legal consequences in case of non-compliance, such as donation, recycling and destruction of such goods.
Position of the Internal Market and International Trade Committees
In its position, the Internal Market and International Trade committees ("Committees") suggested significant amendments that would – if finally adopted – introduce an US UFLPA-style legislation in the EU with far-reaching consequences for companies.
A key point conveyed is the intention to incorporate a list of high-risk geographical areas and economic sectors. For areas and sectors included in that list, a rebuttable presumption would apply. This means that goods coming from these regions or sectors would automatically and legally be presumed to have been made by use of forced labour, leaving the option for companies to rebut that presumption. This reversal of the burden of proof would ease public enforcement significantly and poses major documentation and traceability efforts on companies to be in a position to rebut this presumption by proving that no forced labour was used.
In this context, it has to be welcomed that the Committees amendments expressly provide for a statutory provision allowing the replacement of goods after the suspicion of forced labour has been refuted or actual relevant cases have been remedied.
Lastly, the Committees want the definitions used in the legislation to be updated and widened. This would cause the definition of forced labour to be in alignment with that of the International Labour Organization ("ILO") standards. The Draft Forced Labour Import Ban would subsequently include "all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself or herself voluntarily".
Next steps
The next steps will be the Plenary's confirmation of the draft report as the European Parliament’s negotiating mandate. Once the Council has adopted its position, the Trilogue shaping the final regulation will start.
Conclusion and Outlook
The Committees position – together with other legislative developments and actual enforcement activities in the EU and the US – illustrate once again the growing importance of ESG-compliance for companies. Notably, the "trade policy" approach does not only entail compliance risks, but also business and global supply chain risks with regard to the potential detention and seizure of goods.
Thus, international businesses should start preparing and revisit existing human rights due diligence policies and procedures, including labour rights, processes to reduce both commercial risks due to import bans as well as compliance risks with associated penalties and potential reputational damage. Although the Draft Forced Labour Import Ban does not prescribe specific due diligence measures to be taken, a solid overall approach in this regard is essential in order to be able to rebut the presumption if necessary. The risk management processes implemented by global companies for compliance with the UFLPA and the German Supply Chain Due Diligence Act provide for best practice guidance in this regard. Key components of such a risk management system should include, inter alia, full transparency and traceability of products and components through global supply chains as well as an appropriate supplier onboarding and risk analysis process to ensure proper documentation.
