EU Forced Labour Regulation Enters Into Force

On December 13, 2024, the EU Regulation on Prohibiting Products Made with Forced Labour on the Union Market (the “Regulation” or “FLR”) entered into force. The FLR will apply to a wide range of global companies selling products in, and exporting products from, the EU. The ban will begin to apply on December 14, 2027. In contrast to other recent human rights and ESG-related legislation, such as the EU’s Corporate Sustainability Due Diligence Directive (“CSDDD”) and Corporate Sustainability Reporting Directive (“CSRD”), the FLR will apply directly to companies without the need for additional implementing legislation at the national level.

In this alert, we provide an overview of the FLR, consider the interaction of the FLR with other significant regimes, such as the CSDDD and the U.S. forced labor import ban, and outline key takeaways for companies as they prepare for FLR compliance. 

Scope and Basic FLR Prohibition

The FLR applies to all companies operating in the EU (including via import and export), regardless of revenue or where they are incorporated. This includes companies selling products on the internet or through other means of distance selling (if they target end-users in the EU).

The FLR creates a forced labor product ban, which will prohibit companies from placing or making available on the EU market, or exporting from the EU, any product that was made, in whole or in part, with forced labor. The FLR defines forced labor by reference to the concepts of forced and compulsory labor under the International Labour Organization’s (“ILO’s”) Convention on Forced Labour 1930 (No. 29), which in turn defines forced labor as “all work or service which is extracted from any person under the menace of any penalty and for which the said person has not offered [themselves] voluntarily.” The definition of forced labor in the FLR also includes forced child labor. The product ban applies to forced labor occurring in EU or non-EU countries at any stage of the supply chain (including extraction, harvest, production, and manufacture).

Operationalization and Enforcement

The FLR creates detailed investigation and enforcement procedures. Key components of these procedures are summarized below.

• Enforcement Authority: Authority to enforce the FLR will depend on where the suspected forced labor has occurred. In cases where the suspected forced labor occurs outside of the EU, the European Commission (“Commission”) will act as lead competent authority. If suspected forced labor occurs within a Member State, the competent authority of that particular Member State will lead enforcement.
• Risk-based Approach: Enforcement authorities must follow a risk-based approach when assessing the likelihood of an FLR violation and when initiating and conducting the preliminary phase of an investigation. To prioritize among products suspected of being made with forced labor, competent authorities must consider the scale and severity of the suspected forced labor (including whether state-imposed forced labor is a concern), the quantity or volume of products placed or made available on the EU market, and the share of the part of the product suspected to have been made with forced labor in the final product.
• Investigation Process: The FLR sets forth a detailed investigation process. Authorities may initiate investigations either where: (i) a complaint is received through an online information submission point (to be established); or (ii) at an authority’s own initiative, based on other information available at the time (e.g., through the database of geographic and product risk factors to be set up by the Commission). To launch a full investigation, the lead competent authority must establish through a preliminary investigation that there is a “substantiated concern” that the forced labor product ban has been violated, which is defined in the FLR as a reasonable indication based on objective, factual, and verifiable information that the product was likely made with forced labor. Companies will have the opportunity to provide evidence that the products in question were not made with forced labor at various stages of the enforcement process, within prescribed time-limits. For example, during the preliminary stage of the investigation, the lead competent authority will request information from the company under investigation on the relevant actions it has taken in order to identify, prevent, mitigate, bring to an end, or remediate risks of forced labor in its operations and supply chains. The company will then have 30 working days to respond to this request.
• Outcome: If the competent authority finds, after conducting a full investigation, that a product has been produced with forced labor, it must adopt a decision that: (i) prohibits the product from being placed or made available on, or exported from, the EU market (by any company); (ii) requires companies subject to the investigation to withdraw the product in question from the market (though excluding products that have reached end users); and (iii) requires companies to dispose of the product (or parts of products). Depending on the nature of the product, it must either be recycled, rendered inoperable, or destroyed. If a company fails to comply with an authority’s decision, it may be subject to penalties. The FLR provides for the possibility to request a review of a decision where a company can present new substantial information demonstrating compliance with the prohibition on forced labor. If the company establishes that forced labor is not present in its product, the competent authority may reconsider and potentially withdraw the initial decision.

Interaction with Other Key Regimes 

CSDDD

The FLR is the latest addition to a rapidly evolving regulatory environment, including the recent introduction of the EU’s landmark Corporate Sustainability Due Diligence Directive in July 2024, the obligations of which will be phased in via Member State law between July 2027 and July 2029. For more information on the CSDDD, please see our deep dive series. 

The FLR expressly states that it does not impose human rights due diligence obligations on companies beyond those already required by existing EU or national laws. However, the FLR is likely to drive additional focus on companies’ due diligence processes in order to identify and address forced labor risks in their value chains and mitigate risks under the Regulation. For companies in scope of the CSDDD, implementing CSDDD-mandated human rights due diligence is likely to contribute to a company’s efforts to mitigate FLR risk. For example, taking steps to map, identify, and mitigate impacts with business partners could aid companies in being prepared to respond promptly to FLR investigations. 

U.S. Import Ban Regimes

The U.S. forced labor import regime has significantly increased efforts to identify and mitigate forced labor risks in operations and supply chains. Conceptually, the FLR draws heavily from the existing U.S. system. U.S. forced labor enforcement is driven by Section 307 of the U.S. Tariff Act 1930, which prohibits the importation of merchandise mined, produced, or manufactured, wholly or in part, by forced labor. As we have reported previously, Section 307 is implemented through two key vehicles:

1. Withhold Release Orders and Findings: Section 307 authorizes the Commissioner of U.S. Customs and Border Protection (“CBP”) within the Department of Homeland Security (“DHS”) to issue a withhold release order (“WRO”) and block the release of goods into the U.S. where information reasonably but not conclusively indicates that goods were made with forced labor. If a company has an individual shipment detained under a WRO, it can challenge the detention or re-export the shipment. CBP may also issue a “finding” when it has conclusive evidence that goods have been made with forced labor. Goods subject to a finding are subject to seizure and summary forfeiture proceedings. WROs and findings can target any product from any foreign country.
2. Uyghur Forced Labor Prevention Act: The Uyghur Forced Labor Prevention Act (“UFLPA”) creates a rebuttable presumption that goods made wholly or in part in China’s Xinjiang Uyghur Autonomous Region (“XUAR”), or by an entity on the UFLPA Entity List are made using forced labor and thus prohibited from importation into the U.S. under Section 307. CBP enforces the UFLPA by detaining shipments it suspects are subject to the law. A company can challenge a UFLPA detention either by demonstrating through clear and convincing evidence that the product was not produced using forced labor, or by demonstrating that the goods are in fact not connected to the XUAR. If a company has been placed on the UFLPA Entity List, it can petition DHS to be removed by demonstrating that it no longer meets the criteria to be listed.

Over the past few years, increasing U.S. enforcement has created significant supply chain disruptions across certain targeted industries. In response, many affected companies have developed bespoke risk mitigation strategies, including, where necessary, increased traceability measures, adjustments to supply chains, remediation of forced labor issues, and steps to navigate a complex network of foreign countersanctions regimes. 

We anticipate that there will be coordination between the EU and U.S. as the EU begins to enforce the FLR, not least because the FLR makes express reference to information sharing on forced labor between EU authorities and “third countries.” This EU coordination aligns with the U.S.’s stated strategy to coordinate with U.S. allies to combat forced labor globally. Indeed, U.S. forced labor enforcement has already influenced legal developments in other countries, such as in Mexico and Canada, where enforcement authorities are looking to CBP for solutions on how to effectively apply forced labor import bans. 

While these legal regimes are conceptually similar, there are some key differences between the U.S. and EU laws. In particular:

• The FLR regime contemplates more wide-ranging consequences for products found to have been made with forced labor, including both an import and export ban, withdrawal from the market, and disposal.
• The UFLPA’s rebuttable presumption means that the evidentiary burden of proving that a product is not made with forced labor lies with the importer. Despite a push by some stakeholders to have this evidentiary burden reflected in the FLR, the burden rests with the lead competent authority to establish that there is a substantiated concern in order to launch a full investigation, and then to ultimately establish whether or not the relevant product was made with forced labor.
• In comparison to the U.S. regime, the FLR contains considerably more pre-enforcement process and formal opportunities for company engagement with enforcement authorities. 

What Companies Can Do to Prepare for the FLR

Companies should consider taking the following actions as they prepare for FLR compliance:

1. Identify products likely in scope of the FLR: Assess products and supply chains to determine whether the company is likely to be directly (e.g., because it imports or exports) or indirectly (e.g., it relies on a product that is imported or exported) impacted by the FLR, and map potential exposure. In assessing where in their supply chains the risks are likely to be most acute, companies could draw from U.S. enforcement precedents and existing forced labor risk assessment tools, including databases and third-party resources.
2. Take stock of existing forced labor-related due diligence efforts and address compliance gaps: Map existing due diligence measures to identify gaps and areas of potential legal exposure. Implement and/or adjust policies and procedures as required to prepare for potential regulatory scrutiny and enforcement action under the FLR.
3. Consider integrating FLR compliance with other business and human rights compliance efforts: The FLR should not be addressed in isolation. To leverage efficiencies and implement an effective global program, companies should explore strategies for integrating compliance efforts between the FLR, U.S. import ban laws, and other key human rights due diligence regimes, such as the CSDDD. For example, companies that have already implemented various program enhancements for the purposes of the U.S. import ban regime may be able to leverage and augment these existing initiatives for the purposes of the FLR. 

If you have any questions concerning the material discussed in this client alert, please contact the members of our Business and Human Rights (BHR) and Environmental, Social, and Governance (ESG) practices.