Rules about ESG/supply-chain due diligence, modern slavery, and forced labour are ever-increasing and consequently introducing more compliance requirements for organisations. The EU recently issued draft legislation entitled “Proposal for a regulation on prohibiting products made with forced labour on the Union market” (the EU proposal). This article looks at the highlights of this.
Why is the EU doing this?
Forced labour is defined by the International Labour Organization (ILO) as “all work or service which is exacted from any person under the threat of a penalty and for which the person has not offered himself or herself voluntarily.” It refers to situations in which persons are coerced to work through the use of violence or intimidation, or by more indirect means such as manipulated debt, retention of identity papers or threats of denunciation to immigration authorities.
Forced labour, including forced child labour, continues to be a major global issue, including in the UK, with the ILO estimating the global number of people in a situation of forced labour at around 27.6 million. Combating forced labour and promoting responsible business practices are priorities of the EU’s agenda on business and human rights. A prime example of this are the proposed EU rules about Human Rights & Environmental Adverse Impacts Supply-Chain Due Diligence (which we’ve written about here https://www.corderycompliance.com/eu-hr-eai-and-supply-chain-dd/) which addresses corporate behaviour and due diligence processes for companies (in scope), but which does not provide for measures specifically intended to prevent the placing and making available on the EU market of products made with forced labour. The EU is therefore proposing legislation that fills this gap.
What are the proposed new EU rules all about?
The key elements of the EU proposal are as follows:
- What’s at the core? = Organisations will be prohibited from placing and making available on the EU market or exporting from the EU market products made with forced labour (as defined by the ILO). The aim of the EU proposal is not to target specific countries, companies or industries, but instead to ban the selling of forced labour goods in the EU, irrespective of the source. Therefore, the EU proposal covers all products made available within the EU market, meaning both products made in the EU for domestic consumption and for export, as well as imported goods. A “product” means any product that can be valued in money and is capable of forming the subject of commercial transactions, whether it is extracted, harvested, produced or manufactured, including working or processing related to a product at any stage of its supply chain;
- Which sectors are covered? = All industry sectors are covered under the EU proposal. Forced labour is found in a large number of sectors. Some service sectors, textiles, mining and agriculture are among the sectors where forced labour has frequently been reported;
- What about enforcement? = EU countries will have to designate national authorities to implement and enforce the proposed EU rules, through investigations, with the necessary powers and resources. EU countries’ customs authorities will be in charge of enforcement at the EU border level and will rely on the decisions by EU countries’ authorities to identify the products concerned and carry out controls for imports and exports. The European Commission will support EU countries including ensuring the availability of a public database, coordination among EU countries’ authorities and by issuing guidance;
- What will investigations entail? = Governmental authorities in the EU countries will be empowered to undertake investigations (a key piece of the EU proposals) to determine whether organisations have flouted the forced labour product ban. The investigative process will be carried out in two phases, namely, a preliminary phase, where the authorities will assess if there are well-founded reasons to suspect that products have likely been made with forced labour, and, if they determine that there is a substantiated concern of forced labour, they will proceed to the full investigation phase. In undertaking their investigations the authorities will have to follow a risk-based approach focussing their attention on where they are likely to be most effective, namely those organisations involved in the steps of the value chain as close as possible to where the risk of forced labour is likely to occur taking into account the size and economic resources of organisations, the quantity of products concerned, and the scale of suspected forced labour. Authorities will be empowered to request information specific to forced labour issues from organisations and also address decisions to them. Following an investigation, where forced labour has been proved, governmental authorities will be able to: (a) prohibit, without delay, the placing and making available of such products on the EU market and their export from the EU; (b) require organisations to withdraw the relevant products already made available from the EU market; and, (c) have relevant products destroyed, rendered inoperable, or otherwise disposed of in line with national EU country law. An organisation can also be penalised for not following decisions of an EU country authority;
- Is there an exclusion for Small and Medium-Sized Enterprises (SMEs)? = The proposed EU rules focus on products, irrespective of the size of the organisations involved. The particular situation of SMEs has however been taken into account both in the design and enforcement of the proposed rules, e.g. governmental authorities will take into account the size and resources of organisations when carrying out their assessments and investigations, and there will be guidance on how to carry out due diligence in relation to forced labour;
- What sort of guidance will there be? = Under the proposed EU rules the European Commission will issue various guidance, including on due diligence in relation to forced labour, and information about risk indicators of forced labour; and,
- What are the costs for organisations? = Costs will vary depending on the size of an organisation, the sector and on the supply chain for a given company. Costs will most likely relate to procedures needed to monitor the supply chain, and, where applicable, administrative costs for engaging with governmental authorities and customs authorities.
The EU proposal will now make its way through the EU legislative pipeline. It is always difficult to make any predictions as to how long this may take but this could be around two years.
What’s the position in the UK?
Because post-Brexit the UK is no longer in the EU it is not of course expected to adopt these proposed new EU rules. The UK has its own set of modern slavery rules, which it is planning to update (see our article about this here: https://www.corderycompliance.com/uk-modern-slavery-update-3-reforms/) – these are not expected to specifically address the issue of forced labour in particular but until the full details are revealed this is still unknown, and, during the passage of the draft legislation there is always the possibility that amendments could be specifically made about forced labour.
By way of reminder, under the UK Modern Slavery Act 2015 (the 2015 Act), compliance disclosure and transparency requirements mean that an organization with an annual turnover of £36 million (approximately USD $40 million and €40 million at today’s rate) or more that sells goods or services in the UK is required to annually publish a slavery statement demonstrating what they are doing to ensure that there is no slavery or human trafficking in the business or the supply chain. This also applies to organisations based outside the UK selling goods or services into the UK.
As the UK’s official accompanying guidance on the disclosure/transparency requirements states, organisations must “paint a detailed picture” of all the steps that they have taken. This compliance obligation has now been in force since 29 October 2015 and many organisations who fall under it have already previously published their statements in the last few years.
What are the takeaways?
Businesses should consider doing the following:
- Follow the development of the EU proposal;
- Plan to put in place appropriate forced labour due diligence and risk management processes, procedures and policies;
- Train staff to deal with these issues; and,
- Get the Board on board.
It is incumbent in any event on businesses to have a clear compliance plan to ensure that no forms of modern slavery are taking place in the business or its supply chains. Compliance teams also need to be on the lookout for and train staff to recognise the signs of modern slavery (or forced labour), including:
- The vulnerability of some workers;
- Threats, coercion, deception and physical punishment carried out against workers;
- Working and living conditions;
- High recruitment fees;
- Withholding of wages;
- Salary deductions;
- Confiscation of documents;
- Absence of work permits;
- Absence of regular employment contracts; and,
- Limitations to freedom of movement.
See our film about spotting the signs of modern slavery here https://www.corderycompliance.com/spotting-the-signs-of-modern-slavery/.
Cordery’s Modern Slavery Action helps organizations meet their modern slavery reporting requirements for a fixed fee. There are more details here https://www.corderycompliance.com/solutions/modern-slavery-action/.
We write about modern slavery/ESG/supply chain due diligence and compliance issues here https://www.corderycompliance.com/category/modern-slavery-supply-chain-management/.
Recent modern slavery articles that we have written include about the following topics:
- The Financial Reporting Council/UK Anti-Slavery Commissioner/Lancaster University report to prompt boardrooms to do more to eradicate modern slavery here https://www.corderycompliance.com/uk-modern-slavery-update/;
- Greenwashing here https://www.corderycompliance.com/greenwashing-power-modernslavery-esg/;
- The EU’s Forced Labour Guidance here https://www.corderycompliance.com/eu-modern-slavery-guidance/; and,
- Previous UK plans to overhaul the UK modern slavery compliance regime here https://www.corderycompliance.com/uk-modern-slavery-compliance-rules-draft-amends/.
The EU proposal can be found here: https://single-market-economy.ec.europa.eu/document/785da6ff-abe3-43f7-a693-1185c96e930e_en
For more information please contact André Bywater or Jonathan Armstrong who are lawyers with Cordery in London where their focus is on compliance issues.
|Jonathan Armstrong, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH||André Bywater, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH|
|Office: +44 (0)207 075 1784||Office: +44 (0)207 075 1785|