EU Ban on Products from Forced Labour – Integrating Supplier Audits into the Due Diligence Process

According to the 2021 Global Estimates on Modern Slavery, there are 28 million people trapped in force labour around the globe. The study, conducted by the International Labour Organization (ILO), Walk Free and the International Organization for Migration, also states that 86 % of forced labour occurs in the private sector. And although sexual exploitation makes up a significant portion (23 %), the majority of cases occur in global industry supply chains.

A wide variety of industry sectors face the challenge of forced labour in their supply chains. As a result, despite a multitude of legislative initiatives, products made with forced labour continue to circulate on the European market. This is not only problematic from a human rights perspective, but also creates unfair competition towards companies that strive to uphold and protect human rights throughout their supply chain.

The basic concept of the proposed “EU Regulation on prohibiting products made with forced labour on the Union market”, or in short, EU Ban on forced labour products, is simple: to prohibit any product that involves forced labour from being placed onto the EU market. The ban intends to prevent products made using forced labour from entering the market, and to enable authorities to remove products from the market when forced labour is involved.

In order for EU member states to be able to enforce the prohibition, they will be required to designate competent authorities. Taking a risk-based approach, these authorities will assess if there are well-founded reasons to suspect that products involve the use of forced labour. If they determine that there is a substantiated concern, they will need to investigate further to make a final assessment of whether a products needs to be taken off the market.

Who is affected?

The proposed regulation covers all products made available within the EU market, meaning both products made in the EU for domestic consumption and for export, as well as imported goods. As such, it is relevant to any company that places goods onto the EU market.

Given that the proposed regulation imposes supply chain due diligence requirements on companies that take products to the market, there will also be indirect but significant effects for companies throughout the supply chain, especially for those in sectors and geographies deemed to be at higher risk of forced labour.

A product will be considered a “product made with forced labour” if forced labour has been used “in whole or in part at any stage of its extraction, harvest, production, or manufacture, including working or processing related to a product at any stage of its supply chain” (Article 2, (e)).

Timeline of the EU Prohibition on products made with forced labour

The ban on products made using forced labor was proposed by the European Commission on September 14, 2022. The European Parliament adopted its position for the trilogue negotations in October 2023. In March 2024, negotatiors from the EU Parliament and the EU Council reached a provisional agreement. After final approval from the Parliament and the Council, the regulation will then be published, after which EU countries will have 3 years to start applying the new rules.

Relationship between the Ban and the Corporate Sustainability Due Diligence Directive

The agreement for a Ban on products with forced labour comes at a time when the future of the Corporate Sustainability Due Diligence Directive (CS3D) is uncertain. Both initiatives share the goal of protecting human rights throughout global supply chains, and require affected companies to implement human rights due diligence.

However, there are a number of differences, which make the two initiatives complementary:

• Whereas the CS3D defines its scope based on company size and turnover, the Ban on products from forced labour targets the product level, regardless of the size of the companies that place them on the market.
• Whereas the CS3D defined due diligence requirements for affected companies and enabled authorities to take sanctions against companies who failed to comply with their duties of care, it did not empower authorities to investigate specific products and impose bans on them – this is exactly what the Ban would do.

If companies have implemented supply chain due diligence, voluntarily or as required by a future CS3D, the relevant authorities can take this into account when investigating claims about forced labour against specific products.

Requirements for affected companies: Forced Labour Due Diligence

Before initiating an investigation into a product, the competent authorities will seek input from the company that brought the product onto the market, and potentially its relevant suppliers. In particular, they will require information on the forced labour due diligence concept and will require evidence of the steps taken to identify, prevent, mitigate or bring to an end risks of forced labour, and actions taken to remediate forced labour cases if applicable.

Companies will need to respond to inquiries from the authorities within 30 working days (§ 4, 4). Given this tight deadline, it is essential for companies to be proactive and set up a human rights due diligence framework, aligned with the requirements of the Corporate Sustainability Due Diligence Directive (CS3D) and international frameworks and guidelines.

As far as the relationship between forced labour due diligence, human rights due diligence and sustainability due diligence is concerned, these terms basically refer to the same concept, with decreasing levels of thematic specificity. The proposed EU Regulation on prohibiting products from forced labour defines forced labour due diligence 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 labour with respect to products that are to be made available on the Union market or to be exported“ (§ 2, e).

For obvious reasons, it makes sense to consider forced labour due diligence as an integral aspect of human rights and sustainability due diligence, rather than a separate structure.

Embedding Audits and Certifications into Forced Labour Due Diligence

The proposed EU Regulation on prohibiting products made with forced labour does not prescribe the measures companies must take to prevent forced labour. Rather, it refers to international standards and guidelines, such as the UN Guiding Principles on Business and Human Rights as well as the OECD Due Diligence Guidelines for Responsible Business Conduct. 

In general, due diligence frameworks consist of five basic components:

1. Policy statement
2. Identification of risks
3. Mitigation of risks & preventive actions
4. Reporting
5. Facilitating complaints and remediating

Audits and certifications play a crucial role in human rights due diligence by providing a systematic and objective assessment of a company's commitment to and compliance with human rights standards. Supplier audits and certification audits contribute to both the identification of risks (2) as well as their mitigation (3).

Audits and Certificates supporting the Supplier Risk Assessment

Auditing every supplier to check for forced labor is neither feasible nor desirable. Rather, companies typically take a risk-based approach, taking into account country risk indicators and sector-specific risk indicators. Based on this, suppliers may be invited to provide self-assessment questionnaires and documentation, which is used to calculate a supplier risk scoring. Those questionnaires will typically ask which certificates the supplier holds, with suppliers having credible and relevant certificates receiving a lower risk rating.

It should be noted, however, that most regulations on human rights due diligence do not have a safe harbor principle for certificates: the mere fact that a company and/or its suppliers have a third-party certificate does not liberate them from their duty to care.

A second caveat is that in some cases, it may not be possible or desirable to determine the risk of forced labor through self-assessment questionnaires. This is for example the case in supply chains where forced labour is endemic, where the integrity of the supplier is questionable, or where due to cultural barriers suppliers may have a different understanding of what constitutes forced labour. In those cases, an on-site audit may be necessary to complement the supplier risk assessment.

Audits and Certificates as Preventive Actions & Control Measures

However, the more crucial contribution of audits within the framework of supply chain due diligence is in monitoring whether suppliers uphold codes of conducts and human rights standards, and in correcting non-compliances. Audits can also function as preventive actions, driving continuous improvement and supplier development with periodic visits. Lastly, they can be used to measure the effectiveness of other preventive actions and of the forced labour due diligence as such.

Standards & Sector Initiatives covering Forced Labour

Companies who use audits and certificates to meet their due diligence obligations and to monitor their suppliers will need to ensure that the audit standards adequately address forced labour. This is the case for all common social compliance standards and sector-initiatives, such as Sedex SMETA, RBA VAP, RSCI, Together for Sustainability, SA 8000, FSSC 24000, and many more. The proposed EU Regulation on prohibiting products made with forced labour is aligned with the definition of forced labour as proposed in Article 2 of of the Convention on Forced Labour, 1930 (No. 29) of the International Labour Organization (ILO), as are the standards and initiatives mentioned above.

Audit approach on Forced Labour

In order to for auditors to be able to spot signs of forced labour, the audit method, duration, competence level and measurement criteria need to be appropriate. Because keeping workers in forced labour is a criminal offense, factories will actively try to hide it from auditors. Social compliance auditors are therefore trained to pick up on alarm signals and risk indicators, such as debt bondage, locking away identity documents, excessive overtime, intimidation and threats, withholding of wages, etc. An overview of forced labour indicators has been prepared by the ILO and is available for download here.

One important consideration is whether an audit needs to take place announced, unannounced, or at an unannounced point within an announced timeframe (semi-announced). If the risk assessment points out a significant risk of forced labor, unannounced supplier audits need to be considered.

Audit limitations: State-imposed Forced Labour

The proposed EU ban on products made with forced labor also covers forced labor organized by states. The proposed Regulation defines “forced labour imposed by state authorities” as “the use of forced labour:

 (i) as a means of political coercion or education or as a punishment for holding or expressing political views or opinions ideologically opposed to the established political, social or economic system;

(ii) as a method of mobilising and using labour for purposes of economic development;

(iii) as a means of labour discipline;

(iv) as a punishment for having participated in strikes;

v) as a means of racial, social, national or religious discrimination;

as described in in accordance with Article 1 of the Convention on the Abolition of Forced Labour, 1957 (No. 105) of the International Labour Organization; “ (§ 2, b)

When a suspicion of state-imposed forced labour exists, companies need to carefully consider whether a robust and independent audit process is possible. At DQS, we do not believe that audits are an adequate instrument to diagnose, prevent and/or remediate state-imposed forced labor.