Background

The FLPR, first proposed in September 2022, underwent several rounds of committee review before gaining approval by an overwhelming majority of the European Commission on first reading earlier this year. Its adoption forms part of the growing EU ESG regulatory landscape aimed at increasing supply chain transparency and responsible business, sitting alongside other initiatives such as the Corporate Sustainability Due Diligence Directive the Corporate Sustainability Reporting Directive and the Deforestation Regulation.

Scope: Capturing the Supply Chain

Under the FLPR, "economic operators shall not place or make available on the Union market products that are made with forced labour, nor shall they export such products". This introduces a wide-spread prohibition which will capture:

• any business or person that makes products available in the EU (unlike other legislation, there is no size threshold or requirement that they be domiciled in the EU);
• any business or person that exports products from the EU; and
• the supply of any product in the course of a commercial activity (including distance selling), whether in return for payment or free of charge.

Forced labour has an expansive definition: "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", including forced child labour.

Similar to other legislation, a business's entire supply chain, which includes activities, processes and actors involved in all stages upstream of the product being made, will be in-scope of the FLPR. If any raw material or part of a product is affected by forced labour, then it will be subject to the FLPR.

Implementation: A Risk-Based Approach

The FLPR requires each Member State to designate at least one "competent authority" to work alongside the Commission to implement the FLPR and investigate suspected non-compliance with Article 3.

In determining whether to initiate an investigation, competent authorities will be required to adopt a risk-based approach having regard for the following criteria (Article 14):

• the scale and severity of the suspected forced labour;
• the quantity or volume of products placed on the market; and
• the share of the part suspected to have been made using forced labour in the final product.

A preliminary assessment will then be undertaken, and the relevant economic operator may be asked to provide information relating to the potential non-compliance and to its due diligence relating to forced labour. If the economic operator can show that its due diligence "mitigates, prevents and brings an end to the risk of forced labour" then no further investigation should take place.

If, following a preliminary assessment and engagement with the economic operator, the lead competent authority has a "substantiated concern of a violation" the investigation may be escalated to more formal inquiry and, in extreme circumstances, a field inspection.

To assist competent authorities with their decision making, the Commission will establish a database of forced labour risks (Article 8), issue guidelines to aid with consistent international implementation (Article 11) and maintain a new Forced Labour Portal (Article 12).

Alongside the role of competent authorities in investigating products made with forced labour, a single EU information submission point will also be set up which shall allow any person to submit information on alleged violations of Article 3. The relevant lead competent authority is required to "diligently and impartially assess the information" and inform the person of the outcome of the assessment as soon as possible. It will be interesting to see how much use this submission point receives and whether competent authorities are able to manage the level of submissions.

Enforcement: Consequences of Failure

Where a product is found to be in violation of the FLPR the lead competent authority must impose one of the following measures (Article 20):

• prohibit the placing or exportation of the product in/from the EU;
• order that the business responsible withdraw the product and remove any online content referring to it (where it has already been placed in the market); or
• order that the business responsible destroy the product (or part of the product),

unless the product is considered to be of "strategic or critical importance to the Union". In such circumstances, the product may be withheld until the forced labour involved in its production has been removed from the supply chain.
Businesses will be entitled to appeal any decision of the lead competent authority or, where they are able to evidence that the violation has been remedied, request that the decision be withdrawn.

Any failure to comply with the relevant measure will result in a financial penalty being imposed. While Member States will have discretion to determine the exact rules that apply, penalties must be "effective, proportionate and dissuasive" having regard for various factors, such as the gravity and duration of the infringement, previous non-compliance and the degree of cooperation demonstrated.

Timings and Takeaways

The final version of the FLPR is not expected until September 2024 (at the earliest). Once published, businesses will have three years before the requirements come into force and compliance by Member States becomes mandatory.

In readiness for implementation, businesses operating in EU markets should seek to undertake a detailed review of their supply chains to identify and address any potential non-compliance in advance of enforcement. The FLPR creates a significant risk for businesses as, unlike much other legislation, there is no safe harbour for having undertaken proper due diligence. Any product which is made using forced labour could be subject to an investigation and withdrawal from the EU market, which could lead to significant financial losses (and reputational risk).

We recommend that all businesses which are supplying products into, or exporting products from, the EU:

• undertake a detailed review of their due diligence procedures relating to forced labour;
• train procurement teams on how to spot the risk of forced labour in the supply chain;
• consider a schedule of regular training and auditing of suppliers; and
• review their contractual terms to ascertain whether any losses caused by a violation of FLPR can be recovered from their suppliers.