EU Commission presents draft regulation banning forced labour
in 2023, the “Law on corporate due diligence in supply chains” (LkSG) will come into force in Germany. Parallel work is underway at the EU level. In addition to a draft directive on corporate due diligence in the supply chain, the EU Commission has now also published a Draft regulation. This stipulates a comprehensive ban on the marketing, import and export of products manufactured under forced labour (Article 3) and provides for national authorities to be given far-reaching inspection and sanctioning powers.
Scope of the draft regulation
The definition of forced labour in the draft regulation (Article 2 a) and b)) corresponds to that already used in the LkSG and the draft EU directive. All legal acts refer to the International Labour Organization (ILO) Convention Nos 29 and 105.
In contrast to the LkSG and the EU draft directive, however, no distinction is made according to the number of employees, turnover or sectors. The draft includes all products and companies without exception. It can be inferred from Commission press release that gradation should result solely from the authorities’ risk-based approach during review. Small and medium-sized enterprises are to be protected by having competent authorities consider “the size and resources of the economic operator concerned and the extent of the risk of forced labour” before initiating a formal investigation. SMEs will also “benefit from support tools.”
Regulatory content
As part of a preparatory phase (Article 4), national authorities are to identify products for which there are reasonable grounds for suspecting that they are produced using forced labour. Both external sources of information and data already collected by other agencies are to be used. The latter include, in particular, findings from the assessment of economic operators and, in particular, their actions to identify, prevent, minimise or eliminate the risk of forced labour with respect to their activities and value chains. It follows in particular that the findings from the implementation of the due diligence requirements under the LkSG are likely to play a significant role.
If there are reasonable grounds for suspicion, authorities should take direct action against companies.
If authorities find a violation of the ban on forced labour, they are to be given comprehensive powers to issue orders. These include prohibiting the import and export of affected products and ordering the recall of such products that have already been placed on the market in the EU. The recalls, on the other hand, only cover the B2B sector; recalls of products that have already reached the end consumer are expressly excluded (Article 1(2)).
In addition to specifying accompanying obligations of authorities to set up corresponding databases and monitoring mechanisms, the draft regulation also regulates the link to customs law.
Conclusion
For German companies already subject to the scope of the LkSG, the draft regulation is likely to
have only a minor impact, as the LkSG already stipulates comprehensive due diligence
requirements, also taking forced labour into account. However, the draft regulation is a further
indication that it is not only large companies that need to pay close attention to human rights and
environmental protection and set up appropriate due diligence systems. It is already foreseeable
that corresponding obligations from the LkSG or the draft EU directive will be imposed on them
within the framework of contractual regulations. The draft regulation goes a step further, as it
covers all companies without exception and, if adopted, would apply directly in all member states.