The European Union this week announced an agreement to ban products made with forced labor, a decision that will oblige organizations to track and declare more information about their supply chains for goods entering EU markets.
A framework to enforce the ban will give the European Commission new investigatory powers based on technological solutions and cooperation with other authorities and countries. Products that are found to have been made using forced labor will not be allowed to be sold within the European Union, either directly or online. They might be confiscated at the borders, and companies that do not comply will be fined.
“Goods of strategic or critical importance for the Union may be withheld until the company eliminates forced labor from its supply chains,” European Parliament said in a press release Tuesday.
The commission is currently creating a list of high-risk sectors, products, and geographical locations. Organizations will have to disclose further information about suppliers and manufacturers when importing or exporting specific goods that appear on this list.
A single portal will be set up to help facilitate the new requirements and provide information, guidelines, and a database of high-risk areas and sectors. There will also be a provision for whistleblowers.
“This law is ground-breaking in the field of human rights. It will prevent forced labor products from entering our market. And it has several references to remediation,” said Co-Rapporteur Samira Rafaela (Netherlands) in the release. “It is a step forward in achieving fair trade and cleaning up supply chains while prioritizing human rights. To combat forced and state-imposed labor, we must work with like-minded partners and become a strong ally in the global fight against forced labor.”
Her fellow co-rapporteur, Maria-Manuel Leitão-Marques (Portugal), added forced labor has been a reality for too long—and remains a reality for too many.
“There were an estimated 27.6 million people affected by it in 2021, mostly in the private sector but also victims of so-called state-sponsored forced labor,” she said. “The deal we reached … will assure the EU has an instrument to ban products made with forced labor from the Union market as well as to tackle various forms of forced labor, including when it is imposed by a state.”
The Chartered Institute of Internal Auditors (Chartered IIA) recently published two reports offering organizations guidance on managing supply chain and resilience risks.
“The EU ban on products made by forced labor highlights how boards need to ensure they stay on top of their ESG (environmental, social, and governance)-related supply chain risks and how these risks interlink and exacerbate legal and compliance risks,” said Gavin Hayes, head of policy and public affairs at the Chartered IIA. “Organizations will need to keep a watchful eye to ensure their suppliers comply with these new regulations.
“The need for enhanced due diligence measures is therefore vital. Compliance officers should also be collaborating with their internal audit functions to ensure there is enhanced independent assurance and oversight in this area. Fundamentally, however, boards should be doing this because it is an ethical, not just a legal and compliance, imperative. This should be about businesses doing the right thing.”
Once the new directive gets final approval from the European Parliament and Council, member countries will have three years to begin applying the rules.
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