The European Parliament has approved a new regulation which will enable the European Union (EU) to prohibit the sale, import and export of goods made using forced labor, banning them from the EU single market. The proposed regulation will give member state authorities and the European Commission the ability to investigate suspicious goods, supply chains and manufacturers. If a product is deemed to have been made using forced labor, it can no longer be sold on the EU market & shipments will be intercepted at the EU’s borders. Goods may be allowed back on the EU market once the company eliminates forced labor from its supply chains. The regulation still requires final approval from the EU Council. If approved, EU member states would have to start applying it in 3 years.

This article was written by Annabelle van der Maarel and Iman Zalinyan. Annabelle ([email protected]) and Iman ([email protected]) are part of RSM Netherlands Business Consulting Services, with a strong focus on ESG and Strategy matters.

Over the past decade, various countries have enacted laws and regulations aimed at combating forced labor and child labor within supply chains. The United States initiated this movement with the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2012, addressing conflict minerals, followed by the California Transparency in Supply Chains Act. The United Kingdom's Modern Slavery Act of 2015 further mandated companies to disclose efforts to prevent modern slavery in their operations. In 2017, France introduced the Law on Duty of Vigilance, requiring large companies to implement measures against human rights violations, including forced labor. Australia followed with the Modern Slavery Act in 2018. The Netherlands enacted the Dutch Child Labour Due Diligence Law in 2019, and Norway's Transparency Act came into force in 2021, emphasizing due diligence in supply chains. Switzerland and Belgium have also implemented similar regulations.

Although various national forced labor bans exist, this regulation would constitute the first instrument at a regional level. In December 2021, the US enacted the Uyghur Forced Labor Prevention Act, which establishes a “rebuttable presumption” that goods produced in the Xinjiang region are made with forced labor and are therefore subject to an import prohibition. The EU forced labor regulation fosters international cooperation, shifts power from exploiters to consumers and employees and offers possibilities for remedy for victims. It is expected to greatly contribute to and strengthen global efforts to eradicate forced labor.

This regulation impacts business operations by necessitating a thorough review and overhaul of supply chain management practices. Companies must now ensure transparency and traceability of their raw materials and finished goods, requiring detailed documentation and verification processes. High-risk areas, such as manufacturing hubs in Asia, demand heightened scrutiny and proactive measures to mitigate forced labor risks. Businesses must invest in advanced technologies for supply chain mapping and monitoring, which can increase operational costs but are essential for compliance. Additionally, the regulation drives a holistic approach to human rights due diligence, compelling companies to integrate ethical practices into their core operations and corporate governance. Failure to comply can result in legal repercussions, reputational damage, and loss of consumer trust, making adherence to these regulations a critical aspect of modern business strategy.

If approved, guidelines will be issued to help economic operators and competent authorities comply with the requirements of this regulation, by providing best practices for ending and remediating forced labor. To further facilitate the implementation of this regulation, a database will be established containing verifiable and regularly updated information about forced labor risks. Sectors and countries with a higher risk of forced labor will likely be the target of enhanced enforcement action, at least initially.

Forward thinking

At RSM, we assist businesses in navigating these regulatory impacts through our comprehensive due diligence program, which is closely integrated with other relevant regulations such as EU Deforestation Regulation (EUDR) and the Corporate Sustainability Due Diligence Directive (CSDDD). By aligning our due diligence practices with these interconnected regulations, we ensure a holistic approach to managing environmental and human rights risks. This enables companies to maintain compliance, enhance their ethical standards, and protect their reputation in the global market.  

RSM is a thought leader in the field of Sustainability consulting. We offer frequent insights through training and sharing of thought leadership based on a detailed knowledge of industry developments and practical applications in working with our customers. If you want to know more, please contact one of our consultants.