The EU Adopts the Forced Labour Regulation: A Step Toward Ethical Supply Chains

On 19 November 2024, the Council of the European Union adopted the EU Forced Labour Regulation. This is the final step in the decision-making process and marks a significant milestone in the effort to ensure that products linked to forced labour are banned from the European Union. The regulation, which enters into force in December 2024 and applies from late 2027, marks a major shift in the way businesses and governments will approach human rights and labour standards.

What is the EU Forced Labour Regulation?

The EU Forced Labour Regulation (the “Regulation”) prohibits the sale, import and export of products made, in whole or in part, with forced labour. This includes both products manufactured within the EU and those imported from third countries. Essentially, it creates a legal framework which ensures that companies cannot profit from goods made by individuals who are exploited through coercion, abuse, or violence.

Targeting all types of companies and industries and all types of forced labour, including child labour, the Regulation places the responsibility on businesses to ensure that their supply chains are free from such labour. This extends to requiring companies to conduct due diligence, making them accountable for the ethical sourcing of their products.

Key Features of the Regulation

1. Prohibition of Forced Labour-Linked Goods
   The Regulation bans the importation and sale, but also the exportation of products connected to forced labour. This applies to all goods in the EU market, whether they are produced within the Union or abroad. It ensures that companies cannot profit from unethical labour practices, regardless of where the exploitation takes place.
2. Due Diligence Requirements
   One of the Regulation’s core features is the due diligence obligation for businesses. Companies must actively assess and monitor their supply chains to ensure that no forced labour is involved in the production of their goods. This requires transparency, regular audits, and, in some cases, collaboration with third-party organisations to verify ethical practices.
3. Enforcement and Penalties
   Enforcement will be decentralised as national authorities will be empowered to enforce the new rules. Businesses violating the rules may face fines or other sanctions. A key aspect of the new regime is that any withdrawn parts will not be permitted to be re-exported to third countries. Instead, such products must either be donated, recycled or destroyed – all at the expense of the relevant business. Moreover, whistle-blowers will be encouraged to report suspected cases of forced labour, further strengthening the Regulation’s reach.
4. Focus on Global Supply Chains
   The Regulation has an international dimension, as it requires businesses in the EU to ensure that their suppliers, even those located outside the Union, are not involved in forced labour. This will likely lead to greater scrutiny of global supply chains, particularly in sectors where forced labour is known to be more prevalent, such as agriculture, textiles, and electronics.

Impact on Businesses

The Regulation will have far-reaching implications for businesses across the EU and beyond. Unlike many other ESG initiatives these rules will apply to all market operators, irrespective of size or sector, and are therefore likely to have a huge impact on how products are manufactured in Europe and elsewhere. To ensure compliance, companies will need to thoroughly vet their supply chains. This will involve carrying out risk assessments, conducting audits, and potentially restructuring supply chains to remove any links to forced labour. Businesses with complex supply chains, especially those sourcing from high-risk countries, may need to invest in more robust due diligence processes.

Complying with the Regulation will no doubt come with costs, especially for small and medium-sized businesses. The need for increased transparency, monitoring, and reporting could require businesses to allocate additional resources. However, there are also likely long-term benefits—such as improved brand reputation and consumer loyalty.

The Global Impact

While the Regulation directly affects businesses in the EU, its implications are global. By making forced labour a key consideration in market access, the EU is setting an example that could influence businesses and governments worldwide. Companies outside the EU may need to improve their labour practices to meet EU standards and retain access to European markets.

Conclusion

The Regulation is a significant step in the fight against modern slavery. It holds businesses accountable for the ethical practices in their supply chains and encourages greater transparency and responsibility. While the Regulation presents challenges, it also offers opportunities for companies to demonstrate their commitment to human rights, build consumer trust, and ensure long-term success.