On September 14, 2022, the European Commission issued a proposal to prohibit products made with forced labor from the EU market. This proposed ban seeks to eradicate products from the entire EU market, meaning it does not restrict the scope to a single region.
In a statement accompanying the proposal, Executive Vice-President and Commissioner for Trade, Valdis Dombrovskis said “our aim is to eliminate all products made with forced labor from the EU market, irrespective of where they have been made. Our ban will apply to domestic products, exports and imports alike. Competent authorities and customs will work hand-in-hand to make the system robust.”
This puts the onus on manufacturers, producers, and importers to have supply chain sustainability management processes in place to demonstrate that they have taken actions to mitigate, prevent, and bring to an end the risks of forced labor. It will be up to companies purchasing parts from the global supply chain to demonstrate due diligence and provide authorities with supply chain transparency data.
This article outlines what you need to know about the proposal and what your next actions should be.
Building a Robust System to Combat Forced Labor
The European Commission’s proposal outlines a risk-based approach for enforcement, including cross-referencing different sources for human rights data such as submissions from civil society, a forthcoming EU database of forced labor risks on specific products and regions, and corporate due diligence practices. Member state authorities will investigate products for which there is a substantial concern of labor violations, and they will be empowered to request data from companies and carry out inspections on products in both EU and non-EU countries. This means businesses looking to reduce their risk of enforcement action will need an engaged supply chain and deep visibility into how suppliers contribute to their products.
What if There Is Evidence of Forced Labor?
If the competent authorities conclude that a product is made with forced labor, authorities will order a recall of products already on the EU market and prohibit further products using those parts from being placed on the market. The competent authorities will also force the manufacturer to destroy or render inoperable impacted products so that they cannot be rerouted to countries that do not have a ban in place. This is a notable difference in the EU proposed ban on products made with forced labor from the U.S.’s Uyghur Forced Labor Prevention Act (UFLPA), which allows manufacturers to withdraw their products from the U.S. market and export them elsewhere.
The proposed measures make it clear there are no exceptions for any type of material or business, solidifying a zero-tolerance policy on forced labor for all goods entering or made in the EU. Small and medium enterprises (SMEs) will be expected to follow the same human rights due diligence; however the proposal does recognize that national authorities should consider the size, resources, and scale of forced labor risks before launching an investigation. The proposal also suggests additional support and tools may be needed for SMEs to achieve the same level of insight as their larger counterparts.
Supply Chain Sustainability an International Priority
“In today’s geopolitics, we need both secure and sustainable supply chains.” — Commissioner for Internal Market, Thierry Breton, regarding the proposed ban.
This proposed ban on products made with forced labor highlights the importance of the supply chain and seeing deeper into your supply chain. As part of the enforcement approach, the proposal tasks authorities to focus on the economic operators in the supply chain that are as close to the source of the forced labor violations as possible, meaning that emphasis will be placed on larger businesses at early stages of the EU value chain, such as importers, manufacturers, producers, or product suppliers, rather than retailers for example.
What to Expect & Next Steps
While this is still just a proposal, it’s a clear sign that forced labor due diligence will become a core part of product compliance for any company in, or serving, the EU. This proposal already acknowledges that customs authorities will need new data from businesses to enforce the new requirement, including the unique identifier of the digital product passport and the product suppliers. This proposal follows suit with several new regulations in the EU and in North America, such as the German Supply Chain Due Diligence Act (SCDDA) and UFLPA compliance, targeting forced labor risks. Notably, however, this proposal goes steps further by looking at global forced labor risks and creating new measures to prevent products made with forced labor from being placed on the EU market.
What Should You Expect Next?
We can expect there will be a lot of conversation around the creation of an EU-wide shared database of forced labor risks, including products and regions. This database will be impactful for two reasons:
- It will inform the competent authorities’ investigative focus.
- It will inform which products and product families will be subject to new customs-related data requirements, including details on product suppliers.
Because the EU will be taking a risk-based approach to eliminating forced labor, you should expect that companies will need to start being more risk aware and taking active measures to mitigate forced labor in their supply chains. Companies that are public about their human rights efforts and have actual data will be well positioned to avoid the crosshairs when investigations get prioritized.
Forced labor investigations and enforcement from this point forward will not go away — in fact, it will likely accelerate. The International Labor Organization recently published its report, Global Estimates of Modern Slavery Forced Labour and Forced Marriage, and currently there are an estimated 50 million people in modern slavery globally, making the pressure on nations to take action more urgent than ever.
How to Get Prepared
Compliance with the ruling that comes out of this proposal will come down to having access to data from and about suppliers regarding their labor practices, and the ability to identify data gaps. Having blind faith that your suppliers are following codes of conduct and human rights laws is no longer enough; instead you need to demonstrate you’ve done due diligence for all parts (and parts of parts) that go into your finished goods.
This level of supplier engagement doesn’t happen overnight, which means the time to start building stronger supplier relationships and setting expectations is now. You will need processes and education in place to collect forced labor data from suppliers, as well as a method for collecting data about suppliers in your data blindspots where data is not forthcoming.
In most cases, the Slavery and Trafficking Risk Template (STRT) will provide the industry-standard forced labor data you need for national authority investigations. However, it is also good practice to have a supplier screening process that monitors your suppliers for hidden forced labor risks, particularly where your supply chain is more opaque and less engaged. Companies also see higher engagement from suppliers on human rights issues when they are part of a larger supply chain ESG program — when suppliers are educated about the big picture and don’t feel targeted as a human rights risk, they’re more forthcoming with information.
Need to learn more about starting a supply chain ESG program? Download your free copy of Assent’s guide, What Is Supply Chain ESG?