European Commission Unveils Forced Labor Ban Proposal; U.S. Department of Homeland Security Publishes More Details on UFLPA Entity List

September 19, 2022 - On September 14, 2022, the European Commission (“Commission”) released its long-awaited proposal for a regulation prohibiting products made with forced labor on the Union market (“Proposal”).  The Proposal (text available here) would prohibit making available on the EU market and exporting from the European Union products, either imported or produced in the European Union, made wholly or in part with forced labor.

Unlike the U.S. Uyghur Forced Labor Prevention Act (“UFLPA”), which came into effect in June 2022 (see update below), the Proposal does not seek to introduce a presumptive import ban on products originating in China’s Xinjiang Uyghur Autonomous Region.  Rather, the Proposal would require competent member state authorities to demonstrate that forced labor was involved at some stage of the supply chain before taking measures to prevent a product from being placed on, made available on or exported from the EU market.

Scope of the Proposal: a Horizontal Prohibition Targeting Products Made with Forced Labor

The Proposal seeks to prohibit placing and making available on the EU market or exporting from the EU market products made in whole or in part with forced labor:

• The forced labor ban would apply to “economic operators,” defined as any natural or legal person or association of persons who is placing or making available products on the EU market or exporting products;
• Products would be considered to have been made with forced labor, if “forced labor” – as defined by the International Labor Organization and including child labor – has been used in whole or in part at any stage of their extraction, harvest, production or manufacture, including working or processing related to a product at any stage of their supply chain;
• Products would be considered “made available” on the EU market if they are supplied for distribution, consumption or use on the EU market in the course of a commercial activity, whether against payment or free of charge and including through means of distance sales such as online sales;
• Products would be considered “placed” on the EU market, when they are first made available on the EU market;
• Products would be considered “exported” from the EU if they are placed under the export procedure for customs purposes, thereby excluding, for instance, goods placed under the outward processing procedure or goods in transit.

The ban would apply irrespective of economic sector, provenance, size or value.  EU or non-EU economic operators, as well as products imported or manufactured in the EU, would be covered if forced labor was involved at any stage of their supply chain, including in relation to their components.

Investigating and Sanctioning Breaches of the Forced Labor Ban

The Proposal contemplates a four-step approach to enforcement of the forced labor ban.  The Proposal sets forth formal conditions for triggering and carrying out investigations, notifications, and decisions, along with strict timelines for the entire process.  Implementation of the forced labor ban would primarily rest with the designated competent member state authorities.  

1.     Preliminary Phase: Determining Whether There is a Substantiated Concern 

A preliminary phase of investigation would seek to determine whether there is a “substantiated concern” of violation of the forced labor ban.  The standard for deciding whether to initiate an investigation would be whether there is “a well-founded reason, based on objective and verifiable information, to suspect that products were likely made with forced labor.”

To make such a determination, competent member state authorities would be required to carry out a risk-based assessment of the likelihood that an economic operator violated the forced labor ban. The authority would consider all relevant information, including the following sources: (i) information available through whistleblowers; (ii) the Commission; (iii) external experts; (iv) other member states; (v) information requested from the economic operator under assessment regarding their due diligence in relation to forced labor with respect to the products under assessment, whether based on mandatory requirements or voluntary guidelines; and (vi) recommendations or practices.

2.     Launching an Investigation

If the competent member state authorities have substantiated concerns, they would be required to open an investigation.  Economic operators subject to an investigation would be informed of such initiation and requested to submit any information that is relevant and necessary for the investigation, subject to verifications carried out by the competent member state authorities, including – subject to certain conditions – in third countries.

3.     Decisions Following the Investigation

Competent member state authorities would have the power to issue a decision relating to a breach of the forced labor ban based either on the results of the preliminary phase and the investigation or based on any other facts available if it was not possible to gather information and evidence during the investigation.

This decision would (i) prohibit placing or making available on the EU market and exporting from the EU the products concerned, (ii) order the economic operator to withdraw the products that have already been placed or made available on the EU market and (iii) order the economic operator to dispose of the products in accordance with national and EU laws.  Nevertheless, products would not have to be withdrawn once they have reached the end-users in the EU market.

If an economic operator fails to voluntarily comply with that decision, the competent member states authorities would be required to ensure that the decision is enforced, including by disposing of the relevant products at the expense of the economic operator.

In addition, the Proposal would empower competent member states authorities to impose “effective, proportionate and dissuasive” penalties in case an economic operator fails to comply with a decision.

4.     Review & Effect of Decisions

Decisions would be subject to review in any of three ways:

•  An economic operator could comply with the decision but request its subsequent withdrawal, if the economic operator establishes that forced labor has been eliminated from its operations or supply chain regarding the products concerned;
• An economic operator could challenge – with suspensive effects – the decision before the competent member state authority, by providing new information demonstrating that the forced labor ban has been complied with; or
• An economic operator could challenge the decision before the courts.

Under the Proposal, decisions taken by a competent member state authority would have to be enforced in other member states insofar as they relate to products with the same identification and from the same supply chain for which forced labor has been found.

To avoid overlapping investigations, a lead authority – i.e., the competent member state authority that first notified the Commission and other Member States of the initiation of an investigation – would carry out the investigation and adopt a decision, while other competent member state authorities would be required to share the evidence and information they may have with the lead authority.

Customs Authorities as Gatekeepers of the Forced Labor Ban

Based on decisions communicated by the competent member state authorities, customs authorities would be expected to:

• control and identify products in breach of the forced labor ban that enter or leave the EU market;
• require further information in relation to certain products or product groups to be specified by the Commission through implementing acts;
• suspend the release for free circulation or export of products that may, in accordance with decisions received from the competent member state authorities, be in violation of the forced labor ban, pending a decision from the competent member state authorities;
• refuse the release for free circulation or export of products identified by the competent member states authorities as breaching the forced labor ban, and take the necessary measures to ensure those products are disposed of in accordance with national and EU laws.

New Compliance Standards?

Whereas the Proposal makes clear that one of the key factors in deciding whether to initiate an investigation is the due diligence implemented by economic operators in relation to forced labor, the Proposal mostly refers to separate, albeit related, instruments to identify what is concretely expected from economic operators in that regard.

The Proposal defines “due diligence in relation to forced labor” as “the efforts by economic operator to implement mandatory requirements, voluntary guidelines, recommendations or practices to identify, prevent, mitigate or bring to an end the use of forced labor with respect to products that are to be made available on the Union market or to be exported.  Under the Proposal, the Commission would be expected to expand on these general recommendations through the publication of dedicated guidelines on due diligence, which will consider not only the aforementioned EU legislation and international guidelines and recommendations, but also the “size and economic resources of economic operators”.  

The Proposal foresees the adoption by the Commission within 18 months from the entry into force of the regulation of extensive guidelines, on (i) due diligence in relation to forced labor, (ii) risk indicators of forced labor, (iii) a list of publicly available information sources on forced labor, (iv) further information to facilitate implementation by the competent member state authorities of the regulation, and (v) guidance for the practical implementation of customs controls. The Proposal also indicates that the July 2021 Guidance on due diligence for EU businesses to address the risk of forced labor in their operations and supply chain “will be taken into account when addressing the actions of economic operators.”

Next Steps

The Proposal provides for an adaptation period of 24 months following the entry into force of the regulation. Nevertheless, before the Proposal enters into force, it must first go through the ordinary legislative procedure and be adopted formally by both the European Parliament and the Council. 

Bearing in mind not only the potential legal risks but also the reputational damage that may arise from forced labor practices, economic operators would therefore be well-advised to implement due diligence in relation to forced labor, either as part of their existing or upcoming obligations (notably under the corporate sustainability due diligence Directive), or on a voluntary basis in line with international guidelines.

U.S. Department of Homeland Security Publishes Federal Register Notice on the UFLPA Entity List

On August 4, 2022, the U.S. Department of Homeland Security (“DHS”) released a Federal Register Notice (the “Notice”), which announced the publication of the Uyghur Forced Labor Prevention Act (“UFLPA”) Entity List and provided specific details on the procedure for adding and removing entities to the UFLPA Entity List.

1.     Background

The UFLPA, which went into effect on June 21, 2022, requires the U.S. Customs and Border Protection (“CBP”) to apply a rebuttable presumption that goods mined, produced, or manufactured by entities identified on the UFLPA Entity List, are made with forced labor, and therefore, prohibited from importation into the United States under Section 307 of the Tariff Act of 1930.

Pursuant to Section 2(d)(2)(B) of the UFLPA, the DHS, on behalf of the interagency Forced Labor Enforcement Task Force (“FLETF”), released the Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China (“PRC”) (the “UFLPA Strategy”) on June 17, 2022, which included an initial UFLPA Entity List. (We summarize the UFLPA Strategy along with the CBP’s Operational Guidance for Importers in a previous alert.)

While the Notice released by the DHS does not announce the addition of any entities other than those already included in UFLPA Strategy, it does provide insight into FLETF’s process for adding or removing entities from the UFLPA Entity List.

2.     Criteria Determining Additions to and Removals from the UFLPA Entity List

The Notice explains that the UFLPA Entity List is a consolidated register of the four following lists, which the FLETF is required to identify and publish under clauses (i), (ii), (iv), or (v) of Section 2(d)(2)(B) of the UFLPA:

(1)   a list of entities in Xinjiang that mine, produce, or manufacture wholly or in part any goods, wares, articles, and merchandise with forced labor;

(2)   a list of entities working with the government of Xinjiang to recruit, transport, transfer, harbor, or receive forced labor or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out of Xinjiang;

(3)   a list of entities that exported products made by entities in lists 1 and 2 from the PRC into the United States; and

(4)   a list of facilities and entities, including the Xinjiang Production and Construction Corps, that source material from Xinjiang or from persons working with the government of Xinjiang or the Xinjiang Production and Construction Corps for purposes of the “poverty alleviation” program or the “pairing-assistance” program or any other government-labor scheme that uses forced labor.

According to the Notice, the FLETF will consider future additions to, and removals from, the UFLPA Entity List based on the criteria described in these four clauses.

3.     Additions to the UFLPA Entity List

Any agency within the FLETF (which includes the Office of the U.S. Trade Representative, and the Departments of Homeland Security, Labor, State, Justice, the Treasury, and Commerce) may submit a recommendation for the addition of an entity to the UFLPA Entity List. Following a review, a majority vote by the member agencies determines whether a recommended entity is added to the UFLPA Entity List.

4.     Requests for Removal from the UFLPA Entity List

Listed entities may submit a request to be removed from the UFLPA Entity by sending a removal request along with supporting information to the FLETF Chair. In the request, the entity should provide evidence that it no longer meets any of the four criteria listed in clauses (i), (ii), (iv), or (v) of Section 2(d)(2)(B) of the UFLPA. Following a review of the removal request by the FLETF member agencies, the decision to remove an entity from the UFLPA Entity List will be made by majority vote of the FLETF member agencies.

The Note also indicates that Listed entities may request a meeting with the FLETF after submitting a removal request in writing to the FLETF Chair.

Finally, the Note states that while the FLETF's decision regarding a removal request is not appealable, the FLETF will consider new removal requests if accompanied by new information.