The European Union (EU) Council has approved a new regulation banning the selling and exports of products made with forced labor within the EU market. More than 27.6 million people work in forced labor conditions around the world in many industries, most of them taking place in private sectors. This regulation aims to enhance ESG practices within the region and make honest efforts to promote ethical business practices worldwide. 

Private investors, asset managers, and impact investors should closely consider the Forced Labor Regulation approved by the EU Council to identify existing risks in their investments. 

Let’s explore the Forced Labor Regulation approved by the EU in detail. 

Background on the EU’s Forced Labor Regulation

The European Commission first proposed this regulation to prohibit products made using forced labor in the country on September 14, 2022. Following this proposal, the Council adopted its negotiating position on January 26, 2024, and finally, the two co-legislators of the EU, the Council and Parliament, reached a settlement agreement on March 5, 2024. Finally, the Forced Labor Regulation was officially adopted by the Council on November 19, 2024. 

Key aspects of the Forced Labor Regulation

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  The regulations prevent all products made with forced labor, including child labor, from being sold or exported within the EU. This ban applies indiscriminately across all industries and goods, with no valuation limitations or exclusions based on the size of the company concerned.

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  It aligns with the International Labour Organization’s definition of forced labor, which suggests any work or service that is taken from a person under a threat of penalty and for which they have not volunteered. 

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  National competent authorities in EU member states are responsible for investigating suspected incidents of forced labor. They will have the authority to remove products from the market if they are proven to have been created using forced labor after an inquiry.

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  Companies found in breach of the regulation must remove their products from the market or face penalties accordingly. Banned products must be recycled, donated, or discarded. Products can only be reintroduced onto the market after establishing that forced labor has been eradicated from their supply networks.

Feedback on the regulation

The EU's approval of the Forced Labor Regulation is receiving mixed feedback. The negative feedback focuses on the regulation not being a holistic standard that considers every aspect of banning forced labor products, along with potential reprisals from employers and income concerns for employees who are a part of forced labor operations. 

According to Forbes' report, the Platform for International Cooperation on Undocumented Migrants (PICUM) said that while the law is admirable in its aims, it neglects the lived realities of people who are victims of forced labor. The charity is recommending various amendments to regulations to strengthen the protection of migrant workers.

Next steps

The Forced Labor Regulation will be published in the Official Journal of the European Union after it is signed by the President of the Council and President of the European Parliament, and it will come into force from its date of publication. The application of the Forced Labor Regulation will be 3 years after the date it comes into force.  

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