Explanatory Memorandum to COM(2022)453 - Prohibiting products made with forced labour on the Union market - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2022)453 - Prohibiting products made with forced labour on the Union market. |
|---|---|
| source | COM(2022)453  |
| date | 14-09-2022 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
The international community has committed to eradicating forced labour by 2030 (United Nations Sustainable Development Goal 8.7). 1 However, its use remains widespread. The International Labour Organisation (ILO) has estimated the global number of people in forced labour at 27.6 million 2 .
In line with the EU Treaties, the EU promotes the respect for human rights worldwide, including related labour rights for example as part of its commitment to promoting decent work. In this context, combating forced labour and promoting corporate sustainability due diligence standards are priorities of the EU’s agenda on human rights.
The objective of this proposal is to effectively prohibit the placing and making available on the EU market and the export from the EU of products made with forced labour, including forced child labour. The prohibition covers domestically produced and imported products. Building on international standards and complementing existing horizontal and sectoral EU initiatives, in particular the corporate sustainability due diligence and reporting obligations, the proposal lays down a prohibition supported by a robust, risk-based enforcement framework.
The initiative was first announced by President von der Leyen in her State of the Union speech on 15 September 2021 3 . The general elements of this proposal were laid down on 23 February 2022 in the Commission Communication on decent work worldwide 4 and in the Commission proposal for a directive on corporate sustainability due diligence 5 .
• Consistency with existing policy provisions in the policy area
Both the Communication on decent work worldwide and the Commission proposal for a directive on corporate sustainability due diligence announced that the Commission was preparing a new legislative initiative, which would effectively prohibit the placing and making available on the EU market of products made with forced labour.
Forced labour impacts are covered by the proposed directive on corporate sustainability due diligence. In particular, the Annex to the proposed directive lists forced labour among the violations of rights and prohibitions, as included in relevant international agreements, such as the ILO Convention No.29 on forced labour, Protocol of 2014 to the Forced Labour Convention 2014 Protocol, and the ILO Convention No.105 on the abolition of forced labour.
The Commission’s proposal for a directive on corporate sustainability due diligence addresses corporate behaviour and due diligence processes for the companies falling in its scope and 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 proposal focuses on establishing a system within company law and corporate governance to address human rights and environmental abuses in companies’ own operations, their subsidiaries’ operations and their value chains. Companies are required to engage with business partners in their value chains to remedy the violations. Disengagement remains the last resort where adverse impacts cannot be mitigated. While it includes sanctions in case of non-compliance with the due diligence obligations, it does not require Member States or companies to prohibit the placing and making available of any product on the market.
The EU Charter of Fundamental Rights 6 in its Article 5(2) explicitly prohibits forced labour. This prohibition is well enshrined in current EU legislation and forthcoming legislative initiatives, as well as addressed by international and European initiatives.
In July 2021, the Commission and the European External Action Service published guidance 7 to assist EU businesses in taking appropriate measures to address the risk of forced labour in their operations and supply chains, based on international standards. That document served as a bridge towards legislation targeting forced labour. This proposal is in line with the approach of that guidance, which will be taken into account when addressing the actions of economic operators.
Forced labour is a form of labour exploitation, which is punishable under Directive 2011/36/EU on preventing and combating trafficking in human beings and protecting its victims 8 . Moreover, the Directive establishes the liability of legal persons, accompanied by administrative and criminal sanctions, for the exploitations referred to in that Directive, where they were committed for their benefit by any person who has a leading position within the legal person or where the offence was possible due to lack of supervision or control. This proposal will complement that Directive and will not impede the competent authorities, including law enforcement, from taking actions within their competence, with regard to the alleged or confirmed human trafficking offence related to forced labour and labour exploitation.
The Employers’ Sanctions Directive 9 prohibits the employment of irregularly staying non-EU nationals, including victims of trafficking in human beings. This proposal will also complement that Directive.
The continued existence of forced labour illustrates the need for additional measures, also aimed at products, to prevent the placing and making available of products made with use of forced labour.
• Consistency with other EU policies
The EU’s 2020-2024 action plan on human rights and democracy 10 includes as a priority on the part of the EU and Member States to promote the eradication of forced labour and the implementation of international standards on responsible business conduct, such as the UN Guiding Principles on Business and Human Rights and the Organisation for Economic Co-operation and Development (OECD) Guidelines on Multinational Enterprises and Due Diligence 11 . This proposal is in line with the priorities of that action plan. It also complements the EU strategy on the rights of the child 12 , which in line with Article 32 of the EU Charter of Fundamental Rights, commits the EU to a zero-tolerance approach against child labour and to ensuring that supply chains of EU companies are free of it.
This proposal has no bearing on the application of other human rights requirements. It will also complement the EU’s regulatory environment, which currently does not include a prohibition of placing and making available products made with forced labour on the EU market. International cooperation with authorities of non-EU countries will take place in a structured way as part of the existing dialogue structures, for example Human Rights Dialogues with third countries, or, if necessary, specific ones that will be created on an ad hoc basis. The High Representative in his/her functions as Vice-President of the Commission will ensure consistency with the different areas of the external action within the Commission.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
This proposal is based on Articles 114 and 207 of the Treaty on the Functioning of the European Union (TFEU).
Article 114 TFEU establishes that the Parliament and the Council are to adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market.
The aim of the Regulation is to avoid the obstacles to the free movement of goods and to remove the distortions of competition in the internal market that would result from divergences in national laws, regulations or administrative provisions regarding the placing and making available on the Union market of products made with forced labour.
There is an increasing attention for the persistence of the problem of forced labour and for the need to avoid that products made with forced labour are made available. Several parliaments and governments of Member States have announced the need to adopt legislation to ensure that products made with forced labour do not end up in their markets. Against that background, there is a concrete risk that Member States will adopt national laws that are prohibiting the placing and making available of goods made with forced labour on their territory. Those laws are likely to diverge. Such divergence is likely to lead to circumvention efforts that would affect the movement of goods within the internal market. It follows that a divergence in the laws of the Member States regarding the placing and making available of products made with forced labour on their national market risks creating distortions in the internal market and creating unjustified barriers for the freedom of movement for goods.
Under Article 207 TFEU the common commercial policy must be based on uniform principles, e.g., with regard to export policy. Since this proposal will have direct and immediate effects on trade, in the form of an export prohibition on products made with forced labour, and a prohibition on products proven to have been made with forced labour from entering the EU market, Article 207 should be a legal basis.
• Subsidiarity (for non-exclusive competence)
The implementation of this proposal, particularly the investigations and decisions to prohibit the products made with forced labour, will fall within the competence of Member States’ national authorities. Customs authorities will act, primarily based on the decisions issued by Member States’ competent authorities, at the EU external borders to identify and stop products made with forced labour entering or leaving the EU market. However, Member State legislation alone in that area is not likely to be sufficient and efficient, and the objectives of the proposal cannot be adequately achieved by legislation at Member State level only. EU legislation and enforcement co-ordination are necessary for the following reasons:
–The functioning of EU market requires common provisions in this area. Divergence in the laws of the Member States risks creating distortions in the internal market and unjustified barriers for the freedom of movement for goods.
–The enforcement effort must be uniform across the EU. If enforcement is less stringent in some parts of the EU, weak areas are created, which may threaten the public interest and create unfair trading conditions.
–Risks related to forced labour in companies’ value chains often have cross-border effects, reaching into several EU Member States and/or non-EU countries. This highlights the need for an EU-wide approach, with legal certainty and a level playing field for companies operating across the internal market and beyond.
The proposal is therefore necessary to ensure strong and uniform enforcement in this area, to prevent distortions in the functioning of the internal market, preserve the public interests defended in this context, and to ensure a level playing field for businesses established within and outside the EU.
• Proportionality
Since this proposal targets products made with forced labour of any type and provenance, all economic operators placing and making available those products on the EU market would be within scope. Nevertheless, efficient enforcement will require competent authorities to focus their efforts where the risks of forced labour are most prevalent, and where the impact is likely to be largest. This means that emphasis will likely be placed on larger economic operators at early stages of the EU value chain (e.g., importers, manufacturers, producers or product suppliers).
The proposal lays down a common set of powers for all competent authorities in Member States, which should help strengthen enforcement. Enforcement powers will lie with the Member States. Some Member States may need to adapt their national procedural laws to ensure that their enforcement authorities can effectively use their powers in a cross-border context, to cooperate and to address non-compliant products within the EU. The level of harmonisation chosen is necessary to ensure smooth cooperation and exchange of evidence among competent authorities.
The proposal will improve enforcement cooperation and coherence by establishing a network of relevant authorities, without imposing a disproportionate or excessive burden on Member State authorities. Therefore, the proposal does not exceed what is necessary to attain its objectives.
• Choice of the instrument
A regulation is necessary to achieve the objectives of effective enforcement and compliance. A directive would not achieve the objectives since jurisdictional discrepancies may persist after its transposition, putting harmonised enforcement at risk.
The Commission will issue guidelines to provide support to Member State enforcement authorities and to companies, providing general and background information with advice on how to apply and comply with the proposal.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Stakeholder consultations
The consultation included the publication of the call for evidence, the targeted consultation and other outreach activities and ad hoc feedback. The aim of the consultation strategy was to receive input from relevant stakeholders from both EU and non-EU countries. The main stakeholders consulted included:
·companies (including micro, small and medium-sized enterprises 41 (SMEs) and their representative organisations and other operators in supply chains that may be affected by forced labour;
·trade union organisations;
·EU Member States and non-EU countries;
·international organisations (notably the ILO and the OECD);
·civil society organisations/ non-governmental organisations (NGOs).
The targeted consultation took place from 19 May 2022 until 23 June 2022. The consultation drew on input from relevant Member State authorities and stakeholders through meetings of existing platforms and networks. The envisaged initiative was presented at 14 such meetings, including the European Product Compliance Network, DG TRADE’s Civil Society Dialogue, the Commission Expert Group on Trade and Sustainable Development, and the exchange of views with the European social partner organisations. Representatives of Member States and more than 450 other stakeholders participated in the targeted consultation.
In general, all stakeholders agreed that forced labour is a complex issue and that it needs to be tackled and brought to an end. However, some of them indicated that in the EU this should be done through Member States’ national criminal laws. Both representatives of Member States and other stakeholders underlined that the envisaged EU instrument has to be WTO-compatible and based on international standards, such as the ILO’s definition of forced labour. All stakeholders questioned the absence of a dedicated impact assessment.
A majority of stakeholders also stressed that the new instrument should be compatible and interlinked with the proposal for a directive on corporate sustainability due diligence, but should not duplicate it, especially with regards to implementation and enforcement of both instruments.
Many stakeholders argued that greater emphasis be placed on proportionality, indicating that putting an additional burden on companies, particularly SMEs, has to be avoided. Stakeholders also asked for guidance, particularly to help them in the risk identification. Some stakeholders raised the issue of how to avoid differences in implementation of the new instrument in different Member States.
The call for evidence for the proposal was published 13 on the Better Regulation portal (also known as Have Your Say) to give stakeholders an opportunity to comment on the need for action and the envisaged initiative, as well as to provide input on any further issue to consider when developing this policy field. The target audience consisted of experts and representatives of interested parties, such as business associations, importers and manufacturers, consumers, NGOs, trade unions, retail businesses and national representatives, including national authorities in charge of enforcing relevant rules.
The call for evidence was open for public comments and feedback from 23 May 2022 until 20 June 2022. In total 107 responses were received, 76 of which had additional information or a position paper attached to them.
The respondents were mainly business associations (33%), representatives of NGOs (31%) and companies/business organisations (15%), followed by trade unions, citizens, public authorities, and academic/research institutions.
Stakeholders from 22 countries on five continents provided their feedback. Most of responses came from stakeholders based in Belgium (33 – this also includes those who provided their feedback through their representation in Belgium), Germany (19) and the USA (12).
Regarding the scope of the instrument, the main point of contention was whether it should be limited to each specific consignment being looked at individually, or whether it should also allow for increased scrutiny for specific products, industries, production sites, regions and countries.
Stakeholders largely agreed on using the ILO’s definition of forced labour as established in Forced Labour Convention, 1930 (No. 29) and the ILO’s 11 indicators of forced labour 14 . Stakeholders also often referred to the OECD Guidelines for Multinational Enterprises, and the OECD Due Diligence Guidance on Responsible Business Conduct, as well as to the UN Guiding Principles on Business and Human Rights. They often noted that they already adhered to those guidelines and asked for the proposal to be in line with them.
There were disagreements between what evidence is needed by authorities to withhold a consignment at the point of entry. Stakeholders from civil society expressed the desire for rebuttable presumption for specific products, industries, production sites, regions and countries that have a significant incidence of forced labour. National authorities should also be allowed to initiate investigations if they have reasonable suspicion that the products contain elements of forced labour in the value chain. In addition, a complaint mechanism should be installed to allow civil society and trade unions to submit complaints for investigation. The private sector would prefer a country- and product-agnostic view, where investigations are initiated based on reasonable suspicion. Submissions also diverged in terms of the burden of proof, namely whether it should be up to the importer to prove that their goods do not contain traces of forced labour, or whether it is the responsibility of the customs authority to prove that forced labour was used in the production process of the investigated shipment. In any case, most stakeholders agree that concrete processes and investigative standards should be in place, to ensure predictability and uniformity.
On enforcement, most stakeholders agreed that the same standards should be in place for all Member States, and that the risk of fragmentation should be avoided. It is therefore necessary to provide national enforcement authorities with clear guidelines and the resources needed to effectively monitor and enforce the proposed regulation (including for training and to ensure national authorities have enough staff on hand), and for the EU to play a coordination role.
Consistency with existing EU and national regulations was often mentioned by respondents from the private sector, with a view to avoiding the duplication of efforts by companies and increased red tape. Other submissions rather see this initiative as complementing gaps in other regulations, as for example the exemption of SMEs from the proposed directive on corporate sustainability due diligence.
On the issue of SMEs, views are also divergent. Representatives of civil society underlined that SMEs should not benefit from exclusions or special provisions, as they did for the proposed directive on corporate sustainability due diligence. As SMEs make up the majority of companies in the EU, their full inclusion is crucial for the new instrument to have a meaningful impact. On the other hand, a significant number of representatives of business associations or companies/business organisations advocated for SMEs to receive special treatment, by either providing them with detailed guidelines, specific provisions or even exclusions from the instrument. The main argument in this respect was that smaller companies have less resources to conduct in depth due diligence and that they have less market power to put pressure on suppliers to make additional efforts or provide access to their production sites and employees.
The new proposal would need to make sure that products found to be produced with forced labour should not only be banned from the EU single market, but also that they cannot be rerouted to countries that do not have a ban in place, or do not have the capacity to investigate and/or enforce. Hence, increasing cooperation with authorities in non-EU countries to ensure that products prohibited from entering their market, do not end up in the EU single market and vice versa is paramount.
The added value of a database was also stressed in the feedback received. Stakeholders suggested that public authorities could provide a registry of penalised and banned entities and products. This would help companies, especially SMEs, as they could avoid problematic suppliers. A number of stakeholders also requested that customs authorities disclose their data for transparency reasons. Representatives of civil society organisations demanded that importers should be required to map and provide details on all of their suppliers.
Many stakeholders presented the company- or sector-specific initiatives they have put in place to address forced labour in their value chains, and the results they have achieved.
• Impact assessment
The issue to be addressed – forced labour – is in direct opposition to the respect for human dignity and the universality and indivisibility of human rights as laid down in Article 21 of the Treaty on European Union, as well as in Article 5(2) of the EU Charter of Fundamental Rights and in Article 4 of the European Convention on Human Rights.
Against this background, forced labour requires urgent action, which does not allow for an impact assessment. However, the evidence collected in the impact assessments of other initiatives such as the proposal for a directive on corporate sustainability due diligence and the Sustainable Product Initiative have fed into the drafting of this proposal. For that reason and given the importance and urgency of the initiative, a derogation was granted under the Commission’s Better Regulation Guidelines. The analysis and supporting evidence will still be presented in a staff working document within three months of the publication of this proposal.
In terms of costs, the proposal will mainly entail enforcement costs for public authorities and compliance costs for economic operators. The Commission will also incur limited costs.
The compliance costs are costs that companies will face to ensure they do not place and make available on the EU market products made with forced labour. Their costs will depend on whether or not they are already covered by due diligence provisions (for example, the proposed directive on corporate sustainability due diligence) or whether they have already carried out due diligence on a voluntary basis.
Concerning the costs for Member States that will implement the proposal, this will depend on the existing administrative structure at national level (i.e., are authorities already in place performing similar tasks or not), national legislation already in place for connected issues and the potential update of the customs systems.
• Regulatory fitness and simplification
All economic operators making products available on the EU market or exporting from it should be covered. This is necessary to effectively prohibit products made with forced labour from being made available on the EU market.
SMEs could have limited resources and expertise to implement effective due diligence systems. Withdrawing goods from the market could also mean higher burdens for SMEs compared to a large company.
For SMEs, several adjustments will therefore be needed. One way of accommodating the particular needs and constraints of SMEs could theoretically be to exempt such companies from the scope of this proposal. This is not a viable option, however, since the proposal will have to focus on products suspected of having been made with forced labour, irrespective of the size of the economic operators involved. It cannot be excluded beforehand that the entities which authorities may approach when they launch forced labour investigations are in some cases SMEs. Exempting SMEs would therefore affect the effectiveness of the proposal and create uncertainty. Furthermore, it is important to consider that since SMEs are usually part of value chains, policies addressing large enterprises within these supply chains also impact SMEs, who need to have due diligence procedures to gain access to financing, and to meet demands from larger buyers/suppliers that exercise due diligence. As pointed out in the Commission’s recommendations in the Annual Report on European SMEs 2021/202242, it may well be more appropriate for legislation to consider simplified voluntary tools and mitigating measures that allow SMEs to demonstrate their sustainability commitments.
The Commission evaluated the merits of introducing a threshold for the volume and/or value of products, below which authorities would not launch forced labour investigations under this proposal. As it may be more likely that SMEs make smaller quantities available on the market, such a de minimis clause could in principle serve as a way of taking their situation into consideration and largely exempting them from investigations. However, establishing de minimis thresholds would distort the level playing field in the internal market, creating loopholes. It would also not be a guarantee that SMEs always fall outside the scope of this proposal, since smaller economic operators could certainly make considerable volumes of products available on the market, depending on the sector.
Therefore, rather than a clear-cut exemption for SMEs, or a de minimis threshold, their situation should be addressed through the design of the measure, including the risk-based enforcement and the support tools. This will include, for example:
Design of the measure: When deciding on the time limits for submission of information the competent authorities will consider the size and resources of the economic operators concerned, knowing that smaller companies would not have as many resources for value chain overview and mapping as larger companies.
Risk-based enforcement: Competent authorities should focus their enforcement efforts where they are likely to have the best effect, namely, on the economic operators involved in the steps of the value chain as close as possible to where the risk of forced labour is likely to occur. They should also take into account the size and economic resources of the economic operators, the quantity of products concerned, as well as the scale of suspected forced labour.
Support tools: As experience has shown that SMEs benefit from support tools such as guidelines or templates that require lower costs, the Commission will issue guidance, which shall take into account the size and economic resources of economic operators.
4. BUDGETARY IMPLICATIONS
The legislative financial statement attached to this proposal sets out the implications for budgetary, human and administrative resources.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The Commission will actively monitor the implementation of the proposed regulation and will ensure that the proposed regulation achieves its objectives. Monitoring will focus in particular on effectively preventing products made with forced labour from being made available on the EU market or exported from the EU, and on ensuring effective cooperation between competent authorities. It will also take into account the impact on business and in particular on SMEs.
• Detailed explanation of the specific provisions of the proposal
Chapter I contains the general provisions: the subject matter (Article 1), the definitions (Articles 2) and the prohibition of products made with forced labour, namely making them available on the EU market and exporting them (Article 3).
Chapter II details investigations and decisions by competent authorities. Member States will be required to designate one or more competent authorities responsible for carrying out the obligations arising from this proposal (Article 12). At the preliminary phase of investigations, the competent authorities will be required to follow a risk-based approach, and, in particular, assess the risk of a violation of the above-mentioned prohibition (Article 4). If the competent authority determines that there is a substantiated concern of such a violation, it will be required to investigate the products and economic operators concerned (Article 5). The chapter also specifies the decisions of competent authorities (Article 6), their content (Article 7), review (Article 8) and recognition (Article 14). The competent authorities will have obligations to inform the Commission and the competent authorities of other Member States (Article 9) and obligations regarding administrative cooperation and reciprocal communication (Article 13). The chapter also contains provisions on the submission of information on alleged violations (Article 10) and the database of forced labour risks areas or products (Article 11).
Chapter III concerns provisions for products entering or leaving the EU market. Specific provisions for customs controls are necessary, as Regulation (EU) 2019/1020 is not fit for purpose in this case, and customs authorities cannot act as a first line of defence as they usually do under Regulation (EU) 2019/1020. Therefore, they will rely on the decisions of the competent authorities. Furthermore, customs authorities must have available specific information on the natural and legal persons involved in the manufacturing process, as well as on the product itself, in order for them to be able to stop in an effective manner products made with forced labour entering or leaving the EU market, as per the decisions of the competent authorities.
Therefore, Chapter III includes provisions for customs controls (Article 15), information to be made available to customs authorities by the economic operator (Article 16), suspension of the release for free circulation or the export of products that may be in violation of the prohibition (Article 17), their release for free circulation or export in case of no violation (Article 18), refusal of their release for free circulation or export (Article 19) and disposal of the products refused for release for free circulation or export (Article 20), as well as provisions on the exchange of information and cooperation between competent authorities and customs authorities (Article 21).
Chapter IV contains provisions on information systems (Article 22), on the guidelines that the Commission will have to issue in order to help competent authorities implement this proposed regulation and economic operators comply with it, as well as provisions ensuring clarity of tasks and consistency of action among competent authorities (Article 23) and on the establishment, composition and tasks of the EU Forced Labour Product Network that will serve as a platform for structured coordination and cooperation between competent authorities and the Commission (Article 24).
Chapter V sets out the final provisions: on confidentiality (Article 25), international cooperation (Article 26), delegated acts (Article 27), urgency procedure (Article 28), committee procedure (Article 29), penalties (Article 30) and the entry into force and date of application of this proposed regulation (Article 31).