Draft EU Regulation to introduce product bans for CSDDD violations in form of forced labour

The adoption of the EU Corporate Sustainability Due Diligence Directive (‘CSDDD’) (draft: COM(2022) 71 final) is coming closer. On 1 June 2023, the European Parliament has voted on its position on the CSDDD, opening the way for final text negotiations with the Member States.

What is often overlooked in the public discussion is that the EU Commission intends the consequences for CSDDD violations in the form of forced labour to go far beyond the letter of the CSDDD. In addition to the CSDDD’s own enforcement mechanisms, all products made with forced labour are intended to be banned from the EU market and from EU export.

Such product bans—a novel regulatory instrument in this area—as a consequence for respective CSDDD violations are provided for in a separate draft legislation: the proposal for a Regulation on prohibiting products made with forced labour on the Union market (COM(2022) 453 final). Adoption by the European Parliament is expected in early 2024.

CSDDD’s own enforcement: sanctions and civil liability

The CSDDD recognizes the key role that companies play in the EU reaching its European Grean Deal targets and UN Sustainable Development Goals, which include human rights objectives. Under the CSDDD, it will be mandatory for certain large companies to implement a six-stage due diligence framework, based on the OECD Due Diligence Guidance for Responsible Business Conduct (Art 4 et seq. CSDDD). The framework includes, inter alia, taking appropriate measures to identify, prevent, mitigate, or end adverse human rights impacts in the company’s value chains. Adverse human rights impacts include especially forced labour.

The CSDDD’s own enforcement mechanisms are (1) ‘effective, proportionate and dissuasive’ sanctions to be enacted by the Member States (Art 20 CSDDD). Depending on the respective Member State’s sanctions system, this will typically include criminal charges, administrative fines, and compliance orders. Pecuniary sanctions shall be based on the company’s turnover. The CSDDD also introduces (2) the civil liability of companies for damages incurred by victims of forced labour (Art 22 CSDDD).

In the explanatory memorandum to the CSDDD, the EU Commission announced that it was preparing a complementary legislation to ban products made with forced labour from the EU market.

Additional enforcement by the draft Regulation: product bans

The announced complementary legislation has taken the form of the draft Regulation COM(2022) 453 final (‘draft Regulation’).

Background

According to estimates of the International Labour Organisation (‘ILO’), ca. 27.6 million people globally are in forced labour. On its own and as part of international alliances to promote decent work (such as the ILO, WTO, and G7), the EU has been driving initiatives addressing this problem for decades.

Products placed on the EU market are oftentimes made from internationally sourced raw materials and/or have been produced or assembled in part or even in whole in a third country. Global and highly complex value chains make it difficult for companies to understand and mitigate forced labour risks regarding their products. This is especially the case as forced labour often occurs in early (eg raw material extraction) or medium stages (eg manufacturing and assembly) of the value chain.

Core provisions

The draft Regulation prohibits the placing and making available on the EU market of products made with forced labour, as well as the export of such products (Art 3 draft Regulation). All products are covered, irrespective of if they were manufactured in the EU for the EU market or for export, or whether they were imported into the EU. Further, all sectors of the economy are covered. ‘Forced or compulsory labour’ as defined by the ILO Forced Labour Convention, 1930 (No 29) means ‘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.’

Competent national authorities, including customs authorities, will investigate alleged forced labour violations. If they establish a violation, authorities can, inter alia, issue product and export prohibitions, order the withdrawal of products from the EU market and/or product disposals. Failure to comply with respective orders can eg lead to criminal or administrative sanctions under national law.

Complementing CSDDD enforcement

In its February 2023 briefing on the draft Regulation (PE 739.356), the European Parliamentary Research Service (EPRS) explains the interplay between the CSDDD and the draft Regulation (see p 3).

The draft Regulation itself does not set any human rights or forced labour due diligence obligations for companies. These obligations are only determined by the CSDDD. The draft Regulation rather provides for additional consequences in case of respective CSDDD violations.

The CSDDD obliges companies to address due diligence violations, but it neither requires Member States nor companies to ban any products from the EU market. The draft Regulation complements the CSDDD with a general prohibition (which will be directly applicable law in the Member States) of products made with forced labour for the EU market and EU export.

Conclusion and outlook

The draft Regulation introduces the EU’s first-ever product ban based on a company’s violation of its human rights due diligence obligations. With these obligations being determined by the CSDDD in the future, the draft Regulation provides for additional—but oftentimes overlooked—CSDDD enforcement mechanisms.

While acknowledging overall trends, the product ban might nonetheless seem like the beginning of a new era of ESG enforcement. And the sentiment is international: in 2021, the US first introduced a ban of products made with forced labor in the Chinese XUAR region (Uyghur Forced Labour Prevention Act, H.R. 6256). As the EPRS briefing states: the draft Regulation will ‘have a direct impact on trade and export policy.’

Thea C Bauer is a Senior Associate at Dentons Europe (Germany).