EU Bans Forced Labor Products

On December 12, 2024, the EU published the long-anticipated Forced Labor Regulation (FLR). FLR bans products made with forced labor (FLR Products) from the EU market and imposes an obligation on operators to maintain effective controls across their supply chains.

FLR is expected to raise significant compliance challenges for EU and non-EU operators in the supply chain for goods that are placed on the EU market or that are exported from the EU. FLR prohibits all operators from importing into the EU, placing or otherwise making available on the EU market (including through online sales or other forms of distance selling to EU customers), or exporting from the EU FLR Products. To give operators sufficient time to prepare, the FLR obligations will apply after 36 months, that is as from December 14, 2027. This note provides recommendations for compliance and briefly recalls the key elements of FLR.

Get ready — what to bear in mind

1. Consider your exposure — FLR is not just for EU operators. FLR will affect all operators in the supply chain for goods that are placed on the EU market or exported from the EU. Competent authorities will have broad powers to investigate all EU and non-EU parties involved in the manufacturing, supply, importation, and exportation of products subject to the FLR, including conducting inspections within the EU and abroad. Assessing exposure to FSR will require mapping supply chains.
2. Ensure that internal policies and compliance architecture adequately address forced labor risks, and conduct supply chain due diligence. Operators should develop appropriate compliance programs commensurate with their forced labor risks, and conduct appropriate due diligence, with a particular focus on geographical areas, sectors, and products that present a higher forced labor risk. Compliance programs should consider human rights (and other) due diligence requirements imposed by other EU legislation, including the Corporate Sustainability Due Diligence Directive (CS3D).
3. Anticipate possible risks. The European Commission (Commission) will establish a Forced Labor Single Portal within 18 months of the FLR’s entering into force, including a public database identifying products and geographical areas deemed to present a higher forced labor risk. Operators should proactively consider what products and geographical areas are at risk of inclusion and should consider engaging with the Commission on the content of this database.
4. Revise your contracts. Operators should consider contractual representations on the absence of forced labor, which they may wish to request from their business partners, and representations that they themselves would be willing to make.
5. Plan communication strategy. Operators should expect to receive inquiries from customers and business partners (and possibly press, NGOs, and other stakeholders) on forced labor exposure. Operators should be prepared to address such inquiries. Press releases, FAQs, and notices could be prepared.

A far-reaching ban

At its core, FLR introduces a ban on products made with forced labor anywhere in the supply chain. The key aspects of FLR can be summarized as follows:

1. Scope. FLR prohibits all operators from importing into the EU, placing or otherwise making available on the EU market (including through online sales or other forms of distance selling to EU customers), or exporting from the EU, FLR Products. FLR Products cover any product, including its components, made with forced labor, regardless of type, sector, or origin. Forced labor may affect any stage of the production, manufacture, harvest, or extraction of a product, including working or processing related to the products. Forced labor covers all work or service that is exacted from any person under the menace of any penalty and for which the said person has not offered themselves voluntarily.
2. Public database with no (formal) presumption. The Commission considers forced labor risks to be present globally. To bring clarity for operators, a public database with non-exhaustive, evidence-based information about forced labor risks in specific regions or products will be maintained and made available in the Forced Labor Single Portal. The database will include (a) a list of economic sectors in specific geographies where state-imposed forced labor is deemed to exist and (b) a list of products for which importers and exporters will need to submit detailed information (e.g., about manufacturers and suppliers) to EU customs. While FLR does not as such introduce a presumption of forced labor for products from certain regions (differently from similar legislation already in place in the United States; see our Sidley April 2023 Update here and August 2023 Update here), the application of the Forced Labor Single Portal will likely significantly increase the demands on, and enforcement risks for, operators dealing in listed products and geographies.
3. (No specific) due diligence requirements. FLR does not impose specific due diligence requirements, but operators are expected to maintain adequate due diligence processes to ensure compliance. Competent authorities will consider compliance efforts when initiating investigations and, in case of violations, when setting potential penalties. FLR should be read in the context of the broader EU legislative efforts to improve the sustainability of supply chains, in particular CS3D and the Batteries Regulation. This legislation complements FLR by setting out detailed requirements for companies to identify and manage actual and potential adverse human rights (and environmental) effects in a company’s chain of activities. As such, CS3D and the Batteries Regulation can inform the types of efforts an operator is expected to make when assessing supply chain forced labor risks.

Broad investigation powers

EU competent authorities have broad investigation powers to investigate suspected FLR violations and impose penalties:

1. Competent authorities. The Commission will lead investigations where (a) suspected forced labor takes place outside the EU, and (b) designated EU Member State authorities will lead investigations where suspected forced labor takes place within the EU. The Commission and competent national authorities will cooperate closely and provide mutual assistance.
2. Conduct of investigations. Competent authorities will need to follow a risk-based approach when deciding whether to initiate an investigation. Factors to consider include (a) the scale and severity of suspected forced labor, (b) the quantity and volume of products placed or made available in the EU, (c) the share of the part suspected to have been made with forced labor in the final product, and (d) the size of the company to be investigated and the complexity of its supply chain. The focus of the investigation will, to the extent possible, include economic operators and product suppliers involved in the steps of the supply chain as close as possible to where the forced labor is likely occurring. Investigations may last up to nine months, and competent authorities will have broad powers to collect evidence, including by requesting information and conducting on-site inspections in the EU and abroad. Forced labor can be assumed when investigated parties fail to cooperate or refuse to provide requested information. Investigated parties should hence maximize their cooperation in the investigation and plan an effective defensive strategy.
3. Investigation outcome. If competent authorities determine that a product is made with forced labor, they may (1) prohibit the importing, placing on the market, and/or exporting of the FLR Product; (2) order the withdrawal of the FLR Product from the EU market, except if the FLR Product has already reached end users; (3) order the removal and replacement of the FLR Product’s parts and components found to be made with forced labor (together, Restrictive Decisions). If the FLR Product is deemed of strategic or critical importance to the EU, authorities may order that the FLR Product be withheld for a defined period during which the operator concerned must eliminate forced labor from its supply chain. If the operator succeeds, the FLR Product will be allowed back on the EU market. Otherwise, the competent authorities may issue a Restrictive Decision. Operators will be given a reasonable period of time (of no less than 30 days) to comply with the Restrictive Decisions. Failure to comply will result in penalties. Legal recourse before EU or national courts, as applicable, is possible.
4. Monitoring by customs authorities. EU Member State customs will monitor import/export activities and ensure compliance with Restrictive Decisions. They may suspend an FLR Product subject to a Restrictive Decision from importation into or export from the EU until the competent authorities request seizure or release of the product on the market.
5. Withdrawal of restrictive measures. Operators will be able to request the review of a Restrictive Decision at any time. If the elimination of forced labor is successfully demonstrated, the competent authority will withdraw its decision.

Next steps

FLR obligations for operators will start applying on December 14, 2027. Prior to full application, the Commission is expected to adopt implementing regulations and guidelines to provide further details on certain aspects of the FLR, including compliance best practices for businesses and procedural guidance on the conduct of investigations. However, given the wide-ranging impact of the upcoming ban, businesses should already start assessing the implications of this legislation to their operations and taking relevant compliance and mitigation steps.

With our market-recognized leading expertise, Sidley’s EU trade and broader environmental, social, and governance practice has extensive experience in advising clients on the complex and rapidly evolving regulatory landscape of trade and sustainability, including its implications for global supply chains. Our team stands ready to assist operators to assess their exposure to FLR, develop and implement compliance strategies, and engage with relevant stakeholders and authorities.