Nov 22, 2024
The EU Forced Labor Regulation (FLR) was just adopted. Here’s how to prepare
On November 19th, the EU officially adopted the Forced Labor Regulation, banning all products made with forced labor from entering the EU market. The Regulation is set to enter into force in 3 years
What is the EU Forced Labor Regulation?
The EU Forced Labor Regulation (FLR), officially adopted by the EU on November 19, 2024, will create the legal framework for the EU to take actions targeting products made with forced labor in its markets. The FLR will forbid placing, making available, or exporting on or from the EU market any product made using forced labor.
The regulation defines forced labor using the ILO’s 11 indicators of forced labor and includes all forms of coerced labor, including abusive working conditions, excessive overtime, and debt bondage.
It is important to note that this regulation applies to all products and all companies placing products on the EU market, including online sales. It will apply to all products and their components regardless of their industry, country of origin, or stage of the supply chain.
Forced Labour Single Portal
As of adopting this regulation, the EU Commission is now mandated to create a Forced Labour Single Portal that will include a database of high-risk products and regions, as well as bans on certain products and suppliers. The database will be based on research from the ILO, UN, and academic institutions, along with investigations the EU has itself conducted into cases of forced labor.
This portal will allow companies to identify forced labor risks the EU has already investigated or identified, but alone will not be a sufficient resource to comply with and avoid penalties from the regulation.
Enforcement and Investigations
In practice, the regulation will be enforced through a series of investigations and audits by the competent authorities. Member States will conduct investigations into cases of suspected forced labor within their territories and the EU Commission will be responsible for conducting investigations where the risk of forced labor is located outside the EU. This will place a high burden on the Commission, as the majority of cases are expected to take place outside of the European Union. Notably, the Commission is also given the authority to conduct field inspections on production facilities in exceptional cases.
To determine if a product or its components warrant a forced labor investigation, EU authorities have the right to determine, based on their own analysis, which companies should be investigated. The competent authorities will consider the level of risk of forced labor in a supply chain based on high risk products and regions, evidence submitted by the public and whistleblowers, as well as the severity of the abuses. They will prioritize the most severe cases, including state-imposed forced labor, the volume of products, and the share of a product made with forced labor.
Importantly, authorities will also take into account how many resources a company has and their ability to address the forced labor. This likely means that authorities will be targeting larger companies.
If an investigation is triggered, companies only have 30 days to respond to a preliminary investigation, and between 30-60 days to provide additional information if a full investigation is triggered. Companies must provide evidence of full forced labor due diligence and demonstrate how their actions are aligned with the EU Forced Labour Guidance (To be released).
Authorities can also request information from other relevant stakeholders and other companies related to the product, which could include individual suppliers in a supply chain.
Penalties
If the competent authority establishes a breach of the regulation, it must then issue a decision that:
Bans the product from being sold in the EU
orders the operator to withdraw the products from the EU market
and orders the operator to donate, recycle or dispose of the remaining products (or, where applicable, parts of products) made with forced or child labour.
The findings of the investigation will then be made public on the Forced Labour Single Portal, including information identifying the product in question, the supplier, and where relevant, the production site and supporting evidence of forced labor. Products found to be made with forced labor:
Will be banned from import, export, or placed on the EU market. Where only part of the product is affected, that part may be withdrawn. The removal of parts will be easier in some cases than others, and may be impossible in relation to mixed or compounded products (e.g., metal alloys or some consumable products).
Must be recycled, donated, or as a last resort destroyed. Notably the regulation does not allow these products to be exported to third countries. Although certain critical materials will be kept in storage until forced labor is removed from the supply chain.
Member states will determine their own penalties for businesses that are in breach of the regulation including fines up to their discretion.
What makes the EU FLR so unique?
The key distinction between the FLR and other forced labor laws around the globe, including those from the U.S, Canada, and Mexico, is that the EU FLR will not permit products that are found to be in breach from being exported to third countries. This means if a shipment of products is detained, they MUST be recycled, donated, or destroyed.
Additionally, something particularly notable about the FLR is that it is totally country, region, and product agnostic. It is a total ban of products made in part or whole with forced labor regardless of extenuating factors.
However, unlike in the U.S, EU customs authorities do not have the right to detain products that are not linked to an existing forced labor investigation or decision.
Timeline and what’s next
The EU Forced Labour regulation will go into effect 3 years after it is entered into the EU official Journal meaning it will likely be enforced starting in December 2027.
In the following years before the FLR’s enforcement, the EU Commission will likely publish:
further delegated acts that will outline specific high risk sectors that will have additional reporting requirements
And official guidance for the regulation, that among other things, will outline expected due diligence procedures, the interplay between the Forced Labour Regulation and CSDDD and specifics around SMEs.
How to prepare
The Forced Labour Regulation is intended to operate alongside other existing or future due diligence obligations such as the CSDDD. Taking a holistic approach to supply chain due diligence, and identifying areas of the supply chain that are particularly high risk, will be the best method to comply with the EU FLR.
In the coming months, the Commission will publish additional guidelines for companies, including what information must be produced in the event of an investigation. However, companies need not wait for these guidelines to be published to begin preparing their supply chains, and assessing potential risks.
As soon as possible, companies should begin mapping their upstream supply chains to gain visibility into every tier. They should also begin collecting proof that all suppliers have valid business licenses. It is also a best practice to cross check names and addresses of known suppliers against lists of banned or named entities associated with forced labor via Sourcemap’s Supplier Watchlist Monitoring - a feature many of Sourcemap’s customers utilize as an effective tool for assessing risk.
There are other potential indicators that forced labor may be occurring at a factory or manufacturing site. These may include the inability to reconcile volumes of raw materials coming into the facility with finished goods coming out of said facility, or the inability to account for all employees on staff at a particular site. Companies may also want to take note of region-specific risks by assessing the Corruption Perception Index (CPI) score of each sourcing country in their supply chain.
Reach out to learn more
Now is the time to start preparing, and Sourcemap’s team of policy experts are here to help. For more information about how Sourcemap can help you comply with the EU Forced Labor Regulation, reach out to your Sourcemap point of contact or send us an email at info@sourcemap.com.
