A number of jurisdictions globally are enhancing their supply chain-related regulations. The European Union’s latest regulation in this respect, the EU Forced Labour Regulation (FLR), was adopted on 19 November 2024. The FLR creates a framework for member states to investigate and ban products made with involuntary labour sold in, or exported from, the EU market.
The regulation will come into force three years after its publication in the Official Journal, so likely in late 2027 or early 2028. This provides member states and companies time to prepare and implement the related enforcement and control mechanisms.
The FLR does not focus on specific jurisdictions, products or sectors. It provides a general framework to tackle forced labour within any economic activity arising from any country. This is unlike other initiatives, such as the US Uyghur Forced Labor Prevention Act of 2021, that primarily target goods that have a nexus to a specific geography (i.e., the Xinjiang region in China). Overall, the effect of the FLR is thought to bring the EU’s legal framework significantly closer to that of the US.
In a separate, but related development, it looks increasingly likely that the United Kingdom will also tighten its legislative framework in relation to forced labour in supply chains. In January 2024, the House of Lords appointed the Modern Slavery Act 2015 (the Act) Select Committee (the Committee) to provide recommendations on how to enhance the Act.
The Committee published its report (the Report) on 16 October 2024, in which it made a wide range of recommendations that we discuss in further detail below. The UK government’s response is due by 16 December 2024.
In this alert, we provide an overview of the EU’s FLR and potential reforms in the UK. There are growing calls for supply chain oversight, and further developments across the globe may be seen in the near future.
The EU Forced Labour Regulation
Scope of the FLR
The FLR creates a broad prohibition on companies placing and making available any products made with forced labour in or exported from the EU market. These provisions are applicable to any company operating in the EU market (e.g., sales, imports and exports) without threshold limitations. In other words, there are no exceptions for small and medium-sized businesses, nor carve-outs for or focus on specific sectors. Any company that is active in the EU market is subject to the FLR.
The FLR defines “forced labour” by reference to Article 2 of the 1930 International Labour Organization (ILO) Convention No. 29 on Forced Labour as “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 voluntarily,” with exceptions listed in the same article (e.g., mandatory conscription).
The regulation also notes the impact of forced labour on vulnerable and marginalised groups and includes child labour under the definition.
Regarding the products themselves, the FLR provides that “products made with forced labour” include those where forced labour was present in whole or in part “at any stage of its extraction, harvest, production or manufacture, including in the working or processing related to a product at any stage of its supply chain.”
In practice, this means that any component produced under forced labour will in principle suffice to qualify the product as prohibited under the FLR. This scope largely aligns with US law, which prohibits the importation of any goods “mined, produced, or manufactured wholly or in part in any foreign country by convict labor … forced labor … [and/or] indentured labor” (19 U.S.C. § 1307).
Due Diligence Obligations
The FLR provides in Article 1 that it does not create additional due diligence obligations other than those already set forth. However, the reality is that conducting due diligence tailored to address forced labour will give companies a greater understanding of their supply chain and put them in a better position to both comply with the FLR and to respond to enforcement action by relevant authorities.
On the latter point, for example, the FLR provides that specific information will be requested regarding measures to identify, prevent, mitigate and remediate forced labour risks, as well as information related to the product or part of the product under investigation (e.g., supplier, importer, identity of product).
The takeaway is that specific due diligence is what will allow companies to quickly respond to inquiries from authorities if goods are stopped for FLR concerns and/or in subsequent investigations.
Entities subject to the EU Corporate Sustainability Due Diligence Directive (CS3D) may be discharged from due diligence and monitoring related to the FLR through their compliance with the CS3D. (See our 4 November 2024 client alert “Preparing for the EU Corporate Sustainability Due Diligence Directive.”) However, the scope of the FLR will likely require a compliance framework designed to address the specific and complex issue of forced labour.
The de facto diligence and compliance requirements under the FLR mirror the situation in the United States. Although US law does not formally impose diligence obligations on importers, US importers will need to adduce detailed documentation at multiple tiers of their supply chain if shipments are detained by US customs authorities.
Guidance and Processes
Within the next three years, the European Commission (EC) will prepare a nonexhaustive database of forced labour risks from specific geographic areas, products or groups, with a focus on identifying widespread and severe risks. The EC’s list will be based on independent and verifiable information from international organisations like the ILO and the United Nations, and will be regularly updated. The purpose of this database is to provide guidance on enforcement of the FLR by the relevant authorities and promote compliance.
Under the FLR, each member state will designate an authority responsible for discharging the relevant obligations, including investigating suspected forced labour within the EU territory. The authorities from different member states are expected to coordinate and exchange information under the Union Network Against Forced Labour Products.
Compliance with the FLR and enforcement of decisions will be controlled primarily through customs rules and screenings, aiming to identify entry of impacted products. If the suspected forced labour is taking place outside of the EU territory, the EC will be the competent authority to take the lead on investigations.
The FLR states that if a competent authority has a “substantiated concern” — based on objective, factual and verifiable information — that a product was made with forced labour, it is required to open an investigation. The relevant company will then be notified of the investigation and likely be required to provide supply chain data.
Breach of the FLR and Consequences of Noncompliance
If a breach of the FLR is established, the relevant authority will issue a decision:
- Banning the sale or export of the impacted product.
- Ordering the company to withdraw the impacted product from the EU market.
- Ordering the company to donate, recycle or dispose of the impacted product.
In the event of noncompliance with a FLR decision, the authorities have the power to ban impacted products or parts that have not yet reached the market. Any withdrawn products or parts cannot be exported to third countries and must be either donated, recycled or destroyed at the company’s expense. The authorities may also impose penalties on offending companies that fail to comply with an enforcement decision.
Potential Reforms to the UK’s Modern Slavery Act 2015
As indicated above, the UK may also be on the cusp of strengthening its forced labour-related legislative framework. Following 10 months of preparation and numerous earlier similar reports (see our 19 September 2024 client alert “UK Modern Slavery Act: The Future of Transparency in Supply Chains”), the Committee published the Report with a section highlighting the ways in which the Act may be more effective in mitigating modern slavery within supply chains and referencing Section 54 of the Act related to transparency in supply chains.
The Committee made a wide range of recommendations that include:
- Widening the publication of statements.
- Enforcing compliance requirements.
- Mirroring international developments concerning due diligence requirements and import bans on companies that utilise forced labour.
Recommendations on the Publication of Statements
After determining that companies’ modern slavery statements lacked a standard form that would enable the government, public and third parties to review, compare and analyse their practices, the Committee proposes that the government make the following changes:
- Make publication of statements on the modern slavery registry mandatory.
- Set the required topics for each statement to cover.
- Publish standardised and accessible guidance to raise awareness of and compliance with Section 54 of the Act.
- Create and publish a summary dashboard with information on the number of submitted statements by sector and examples of strong and weak company reports.
Recommendations on Enforcement
The Committee learned in its review that the UK government does not prioritise enforcement action against companies that failed to comply with supply chain requirements. Although the Committee has not settled on a definitive enforcement approach, it recommends that the UK government introduce proportionate sanctions against organisations that violate their Section 54 obligations.
The Committee also cites a lack of structure and clarity of enforcement duties between different departments within the UK government. It recommends that the government clarify which departments will be responsible for enforcing different provisions within the Act. In addition, the Committee suggests increasing resources for departments to properly and efficiently discharge their duties.
Specific Provisions and Due Diligence Recommendations
During the Committee’s review, it heard from witnesses and reviewed materials regarding adding special provisions and due diligence obligations to bolster the Act’s effectiveness. The Committee encouraged the UK government to draft new legislation requiring companies and organisations to take reasonable steps to identify risks and mitigate modern slavery in their supply chains.
The Committee also recommends that the UK government consult with businesses and public organisations to discuss and consider how more stringent regulations may affect large, medium and small companies and their ability to meet any new requirements.
Additionally, the Report proposes that the UK government incorporate international due diligence standards to make the UK’s laws compatible with other global requirements. This way, multinational companies that do business in the UK will be able to follow parallel regimes to ensure streamlined compliance with all laws in which they are subjugated.
Such a move would likely be welcomed by business and would be consistent with similar developments in the EU. (See our 15 November 2024 client alert “EU Seeks To Simplify ESG Reporting Obligations.”)
Recommendations on Import Bans
The Committee heard from witnesses regarding the need for more stringent bans on imports from places or companies that allow for forced labour within their supply chains. Other witnesses also stressed the foreign policy risks of creating blanket import bans against certain regions or countries.
To address these concerns, the Committee recommends that the UK government introduce import laws that are not against whole countries or regions, but rather against goods from certain companies known to use forced labour. Further, the Committee proposes that the UK government include the issue of modern slavery in its trade negotiations to help combat illicit practises.
The introduction of legislation in this regard appears to be attracting significant support amongst senior Labour Party politicians, with Secretary of State for Energy Security and Net Zero Ed Miliband recently committing to “work with colleagues across Government to tackle the issue of the Uyghur forced labour in supply chains.”
A legislative move in this regard would potentially bring welcome clarity to the incremental development of the law in this area following the Court of Appeal’s judgment in R. (on the application of World Uyghur Congress) v National Crime Agency earlier in 2024. (See our 8 July 2024 client alert “Significant UK Court of Appeal Decision Confirms the Applicability of the UK’s Proceeds of Crime Legislation to Illegality in Supply Chains.”)
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.
For further information, please contact:
Brooks E. Allen, Partner, Skadden
brooks.allen@skadden.com
