By Nicola Mongelli, LL.M (University of Antwerp)

Introduction

On the 23rd of April 2024, the European Parliament (EP), concluded the first reading of the text of the upcoming Regulation prohibiting products made with forced labour on the Union market. This contribution will comment on the Regulation on Products of Forced Labour (PFL Regulation), addressing some critical points.

I will start by tracing a portrait of the legal framework on corporate sustainability in the EU, currently under development. More specifically, I will briefly address the Directive on Corporate Sustainability Due Diligence, which sets a general due diligence scheme for companies operating within the EU market.

Then, I will move on to analyse the content of the proposed PFL Regulation text. In doing so, I will not only hermeneutically describe its content, but also associate it with data and information about EU trade, which will highlight some criticalities within the proposed framework. Conclusions will follow.

The Corporate Sustainability Framework

The agreed text of the PFL Regulation has been already associated with the Directive on Corporate Sustainability Due Diligence (CSDD Directive) that has been provisionally agreed between the EP and the Council but is still pending final confirmation from the Council in the legislative procedure

More specifically, the CSDD Directive contains rules according to which EU-based companies will be required to identify, prevent, or mitigate the negative impact of their activities on human rights and the environment, including issues such as child labour, slavery, pollution, and biodiversity loss. This applies to companies with more than 250 employees and a worldwide turnover of over 40 million euros, as well as to parent companies with over 500 employees and a worldwide turnover of more than 150 million euros. Non-EU companies with a turnover exceeding 150 million euros, and having generated at least 40 million euros within the EU, will also fall under its scope. The rules also include requirements for companies to implement transition plans to limit global warming to 1.5 °C, engage with stakeholders, introduce grievance mechanisms, and regularly monitor the effectiveness of their due diligence policy. Non-compliant companies will face sanctions such as fines, ‘naming and shaming’, or removal of goods from the market. Additionally, non-EU companies failing to comply will be banned from public procurement in the EU.

Both the CSDD Directive and the PFL Regulation aim to promote corporate responsibility within the EU, whereas the CSDD Directive focuses on broader human rights and environmental impacts within companies’ operations and supply chains. The PFL Regulation, on the other hand, specifically targets the elimination of products made with forced labour from the EU market. In any case, both legal instruments concur with the achievement of sustainability. The CSDD Directive marks a turning point in corporate responsibility, emphasizing the importance of ensuring that companies treat people and the environment responsibly (Lara Wolters, S&D), while the PFL Regulation is more specific in setting procedures and measures whose explicit aim is the advancement towards the achievement of the Target 8.7 of the Sustainable Development Goals (as for the proposed PFL Regulation text, whereas (3)), and reaffirms the need for remedies for businesses-related human rights violation or abuses — including forced labour.

It is clear that either through the lenses of general human rights and environmental impact, or through the ones of forced labour, the Union aims at creating a liability and due diligence scheme for (some) businesses. These businesses will have to be responsible not only for their immediate proximity, but also for the whole global value and supply chain of which they are part. This is the precise ethos of the PFL Regulation: to make businesses active part in the effort for sustainability, even when their operative area is physically and virtually distant from the zones where labour is performed. This appears as a necessary step: in a context of globalization, where the issues of one place have consequences on the other side of the planet, the Union seems to be on a quest to globalize responsibility.

However, the structure of the PFL Regulation, as I will highlight, may not be completely efficient in achieving its purposes. For the sake of completeness, I highlight that the PFL Regulation will not only be complementary with the CSDD Directive, but with other proposed or adopted legislation – the Corporate Sustainability Reporting Directive, the EU CBAM, and the Deforestation-Free Products Regulation. Nonetheless, being such legislative instruments more limited in their scope, their analysis has been excluded from this contribution.

In the following parts of this contribution, I will proceed to summarize the PFL Regulation, and I will move forward to set forth some critical observations.

The PFL Regulation

This part of this contribution will outline the content of the PFL Regulation. However, given the public availability of the full text, I will define the spirit of each chapter of the proposed text, rather than merely reporting a summary of the text of each single article.

In its Chapter I, the Regulation lays down rules to prohibit the placement and availability of products made with forced labour on the EU market or for exportation. It clarifies definitions related to forced labour, due diligence, economic operators, and various stages of the supply chain. The definition of forced labour is the one defined in the ILO Forced Labour Convention, whereas forced labour is defined as (Article 2, CO29

— Forced Labour Convention, 1930 (NO.29):

‘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’

Moreover, it exempts products already in the hands of end-users and does not impose additional due diligence obligations beyond existing laws – honouring the principles of non-retroactivity and the maxim lex posteriori non derogat priori specialis. Nonetheless, the Union considers that a product is made with forced labour if, at any point within the supply chain or production process chain, forced labour can be detected.

Chapter II focuses on governance; this chapter establishes the Union Network Against Forced Labour Products (“the Network”), aiming to streamline coordination and cooperation between member states and the Commission. The Network will act as a hub for competent authorities to enact measures including setting enforcement priorities, coordinating investigations, and exchanging information. It also sets up a database of forced labour risk areas or products and a single information submission point, where stakeholders can refer their issues or provide data.

Enforcement, to which Chapter III is dedicated, is delineated by measures that focus on reporting violations, assessing submissions, and conducting investigations. According to its content, Member States will designate competent authorities and set guidelines for their cooperation. The Regulation also introduces penalties for non-compliance and emphasizes international cooperation to address forced labour beyond EU borders. Chapter III sets for the creation of a Forced Labour Single Portal (Article 12), a centralized platform to provide the public with Regulation-related information. Articles 15 to 20 of the Regulation focus on establishing a Network of competent authorities, promoting cooperation, and facilitating the exchange of information to combat products made with forced labour effectively. The Network will be coordinated by the Commission, and will foster cooperation among the competent authorities of different Member States, allowing consistent enforcement of the Regulation through information sharing and action coordination. Cooperation will extend beyond national borders, as the Regulation encourages dialogue with third countries to address forced labour in global supply chains. Information exchange mechanisms, including an information and communication system, will be established to streamline the process. Among the articles of Chapter III, Article 20 requires special attention, as it outlines the procedure for lead competent authorities to evaluate gathered information and make decisions regarding violations of Article 3, with a requirement to adopt decisions within a reasonable period. If sufficient evidence cannot be gathered, violations may be established based on other available facts, leading to decisions prohibiting the placement or availability of products, ordering withdrawal from the market, and disposal in accordance with Article 25.

Chapter IV of the Regulation, titled ‘Decisions’, delineates the process by which competent authorities assess and take action against products made with forced labour. Article 21 provides economic operators with the opportunity to request a review of decisions under Article 20, with decisions being reversed if compliance with Article 3 is demonstrated – that is, that the product at hand is not a product of forced labour. Article 22 specifies the content of decisions, including investigation findings, time limits for compliance, product identification details, and information on judicial review options.

The responsibilities of competent authorities and customs authorities in enforcing decisions issued under Chapter IV are outlined in Chapter V,  ‘Enforcement’. Article 23 states that decisions pertaining to product ban, removal from the market, and disposal, along with the associated penalties for non-compliance, must be enforced by the national competent authorities. Article 24 addresses the removal of products that are already on the market and calls for cooperation for their disposal, as well as notification to authorities in charge of market surveillance. Additionally, Article 25 describes how to dispose of goods manufactured using forced labour. These techniques follow the waste hierarchy and include recycling, making products unusable, and sending perishable goods to charitable organizations.

Chapter VI,  ‘Final provisions’, concludes the proposed text. Article 32 on confidentiality mandates that information received under the Regulation is used solely for its intended purpose and treated as confidential. Articles 33-38 cover delegated acts, evaluation and review, penalties, and administrative matters related to the Regulation’s implementation, including deadlines for notification and reporting, mechanisms for amendment, and the evaluation of the Regulation’s effectiveness every five years.

Breaking Down the Forced Labour Investigation Procedure

Given the analysis of the Chapters of the proposed text above, it is possible to have an overview of the investigation procedure with which the competent authorities will be able to identify products of forced labour and take appropriate measures.

During the pre-investigation phase (Article 17), the competent authorities of the MSs – or, in the case of products imported from outside the Union, the Commission –  assess the likelihood of forced labour being present in the production chain of the product. The pre-investigation phase follows a risk-based approach, and shall be carried out with the support of a database, listing forced labour risks with relevant areas and products, and the EU Commission guidelines. The guidelines will be made available no later than 18 months after the entry into force of the Regulation (Article 11) and will contain, among other things, benchmarks and standards of evidence. At the same time, the Commission will provide the economic operators affected with specific due diligence obligations needed to be performed. During the pre-investigation phase, the authorities will question the economic operators – or third parties and stakeholders – in order to assess the presence of forced labour. Within 30 days the economic operator shall provide answers, and within a further 30 days the authorities shall conclude the preliminary phase.

If no substantiated concern of a violation of Article 3 is found, the pre-investigation phase is concluded.

If the authority involved in the pre-investigation reaches the substantiated concern standard, either by means of direct interaction with the economic operator, through an independent assessment based on the Network database or other relevant information, or finally on the basis of any other fact available, the proper investigation commences.

When an investigation (Article 18) is commenced, the authorities shall communicate to the economic operators subject to the investigation, within three working days from the date of the decision to initiate such investigation, some relevant information of procedural nature (see Article 18.1 (a) to (d)). Within 30 to 60 days from the requests of the authorities, the economic operators shall provide the authorities with any information that is relevant and necessary for the investigation. This includes information identifying the products under investigation, specifying the part of the product to which the investigation should be limited, and identifying the manufacturer, producer, or product supplier of those products or parts thereof. The competent authorities, when requesting information, will prioritize the economic operators involved in the step of the supply chain closest to where forced labour is likely to occur. They consider factors such as the size and economic resources of the economic operators, the quantity and complexity of the products concerned, and the scale of suspected forced labour.

During this phase, the Regulation invests the authorities with different investigatory powers, in order to carry out the procedures.

Following the investigations, the competent authorities shall assess whether products have been placed or made available on the market in violation of Article 3 (Article 20). The decision shall be adopted generally within 9 months from the initiation of the investigation.

If sufficient evidence cannot be gathered, the authorities may establish violations based on other available facts, such as economic operators refusing to provide information or impeding the investigation.

If violations are confirmed, the competent authorities must adopt decisions prohibiting the placement or availability of the products, ordering withdrawal from the market, and disposal in accordance with Article 25. The decision may include a prohibition to place or make the products available on the market, an order for withdrawal of products already on the market, and an order for disposal of the products or their parts found in violation.

In exceptional cases – those in which the ban on the product of forced labour may disrupt a supply chain of strategic or critical importance to the Union – competent authorities may refrain from immediate disposal, opting instead to withhold the products for a defined period to allow economic operators to eliminate forced labour from the supply chain. Final decisions are notified to all economic operators concerned and communicated to all competent authorities for recognition and enforcement across Member States.

Testing the limits of the PFL Regulation: Critical Observations

I have described how the PFL Regulation provides a comprehensive framework for identifying, assessing, and taking action against products made with forced labour. However, when it comes to the criticalities of the PFL Regulation, there are certain general concerns that can be identified, as well as some more specific ones.

Among the general concerns, to which I will not dedicate too much space, the first one pertains to the fact that the Regulation will not include additional due diligence obligations, apart from the ones already existing in the law. This will result in a due diligence landscape where the economic operators will have specific obligations in specific fields, and on-demand obligations in other fields. Such a situation may generate uncertainty and possibly result in an overall less efficient prevention of forced labour involvement in European value chains.

When it comes to specific challenges, I selected the case of solar panels or similar technological goods imported from China, as their commercialization and import into the Union bring within issues already discussed by the EP with a resolution. Solar panels manufactured in China constitute — problematically, from a competition perspective — a large part of the EU solar energy infrastructure, with sources citing 90% of solar panels used in the EU being imported from China. The choice of solar panels as a problematic imported good is even more relevant if it is considered that the EU policy has lately been directed towards the promotion of solar energy not only as a pillar of the EU sustainable energy struggle (EU Solar Standard), but also as a strategically convenient way to phase out Russian fossils fuels and accelerate the green transition in response to Russia’s invasion of Ukraine (RepowerEU).

A particular issue in this sense lies in the fact that EU stakeholders are concerned that in certain countries, such as China and Turkmenistan, forced labour may be state-enforced (as MEP and rapporteur Maria Emanuela Leitão Marques admitted, during a press conference). More specifically, Chinese solar panel manufacturers are alleged to rely heavily on forced labour from the Muslim-majority region of Xinjiang. Although the ban on such products may arguably hamper the exploitation of forced labour or, again arguably, reduce the economic profitability of exploiting workers, it will affect the availability of solar panels in the Union. On the one hand, the European manufacturers welcome the possibility of having a fairer market, and support the legislative initiative; on the other hand, it remains uncertain to what extent the exception clause (on the disposal of the products of forced labour due to the strategic and critical importance of the discussed products) could be wielded. Giving an economic operator the possibility to ‘clear out’ its supply chain in order to retake control over the good and be able to commercialize it again, may be seen as a loophole, especially in the cases of state-enforced forced labour regimes, and when third countries are reluctant to provide information of the subject.

Conclusions

There are few doubts that the ethos, the purposes, and the procedures behind the PFL Regulation are noble in nature. The Regulation will represent a further step in making businesses responsible for the sustainability of their actions.

Corporate sustainability, as shown by the brief analysis contained in this contribution, will be enforced by a patchwork of specific and general legal instruments, with the Union authorities being invested of enforcement and investigatory powers.

However, the victory seems to be achievable at a cost. In fact, in order for the PFL Regulation to be fully efficient in eliminating the products of forced labour from the Union’s market, there is a need to first address more intrinsically problematic issues such as the role that such products play within the Union market, and to what extent they can/cannot be replaced with more sustainable alternatives. Understanding the consequences of the PFL Regulation is a way to reflect on the fact that the European market is still dependent, in certain specific and critically important sectors, from supply chains that are far from the ideally sustainable future that the Union aims at achieving. The conflict between the elimination of products of forced labour, and the need for such products for the well-functioning of the market – and perhaps the achievement of the Sustainability targets – is as paradoxical as evident.

In any case, the PFL Regulation appears to be a good starting point for the elimination of forced work, and a spark for debate on the topics of sustainability and corporate responsibility in a globalized world.