EU Looks to Follow Tough U.S. Action on Forced Labor

European Union officials have proposed a far-reaching ban on the sale of goods made with forced labor, a move that follows tough U.S. action that could spur companies of all sizes to increase scrutiny of their supply chains.

The proposal from the European Commission, the EU’s executive arm, would block goods made with forced labor from being imported into the EU, or stop them from being sold if they are found inside the bloc. The European Commission, which released its proposed regulation in September, is soliciting feedback on its proposal through November.

The plan is in early days and could take years to come into force, but could if adopted ultimately require companies to undertake tougher due-diligence efforts to continue selling into the world’s largest market.

Kit Conklin, vice president at risk data and software company Kharon. He said there will be significant new due-diligence requirements for industry.

Photo: Kharon

“If the law passes as written, there’s going to be significant new due-diligence requirements for industry,” said Kit Conklin, a vice president at risk data and software company Kharon. Forced-labor issues should be a “C-suite level” discussion for most businesses, he added.

Europe’s move comes amid an intense enforcement push from U.S. authorities to use recently introduced legislation to block the import stateside of goods made with forced labor in China’s Xinjiang region, the home of Uyghur people and other minority groups. The United Nations in August found that China may have committed crimes against humanity in its treatment of those groups.

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Beijing has called allegations about the use of forced labor “vicious lies” and said its policies in Xinjiang are intended to counter violent separatism and terrorism.

The U.S. law, which came into force earlier this year , made it much harder for businesses to import goods from Xinjiang, a major exporter of cotton and materials used in solar panels, by establishing a legal presumption, which can be rebutted, that goods from the region are tainted by forced labor. Imports found to run afoul of the law, known as the Uyghur Forced Labor Prevention Act, or UFLPA, can be excluded from the U.S. or in some cases seized.

As proposed, Europe’s rule could in some ways be easier to comply with than its American counterpart as it would put the burden on enforcement authorities to show that forced labor was involved in making a good or product. But unlike the U.S. law, the European proposal also requires due-diligence efforts to take a more global approach. Though Europe’s parliament has condemned the treatment of Uyghur people in particular, the proposed forced-labor rule would apply to goods made anywhere.

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African mining operations, for example, have been implicated in the use of forced labor. Businesses importing goods into Europe from those jurisdictions might face significant new due-diligence requirements, Mr. Conklin said.

In theory, U.S. law has for decades targeted goods from around the world, but that provision has been only sporadically enforced through the years. The newly in-force UFLPA focuses U.S. Customs and Border Protection forced-labor enforcement on Xinjiang imports.

Industry groups and human-rights organizations have largely applauded the proposal’s intent, but some have weighed in on how it ultimately might be implemented in practice.

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The American Chamber of Commerce to the EU, for example, said in feedback to the European Commission that presumptions of forced labor—a feature of the U.S. law on goods from Xinjiang—shouldn’t be used in enforcing Europe’s proposed rule.

The chamber, which broadly supports the proposal, also called for “strong guidance” for companies and enforcement authorities to ensure the rule is implemented in a harmonized way across the EU. Under the proposal, EU member states will designate authorities to enforce the regulation, and their customs authorities will enforce it at the EU’s borders.

Researchers focused on forced labor at Sheffield Hallam University in the U.K. told officials that the ban is “urgently needed,” saying that some supply chains have already begun to split in two in response to the U.S. law. Goods made without forced labor are going to the U.S., while goods made with forced labor are shipped to the EU, the researchers said.

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For many companies, the risks aren’t confined to facing an enforcement action, said Guillaume Croisant, a Brussels-based lawyer for the firm Linklaters. Companies implicated whose supply chains involve forced labor face risks to their reputation and their commercial relationships, as customers and business partners increasingly pay more attention to the issue, he said.

“It’s a shift of culture,” Mr. Croisant said. “There is a very broad understanding that [cutting out forced labor] is the right thing to do and it has to be done.”

Risk to reputation can come with enforcement risk. Japan’s Uniqlo Co., for example, came under a media magnifying glass after U.S. officials stopped its products from entering the country . Uniqlo has said it performs due diligence throughout its supply chain and prohibits the use of forced labor.

Mr. Croisant said businesses planning their anti-forced-labor strategy shouldn’t overpromise, noting that said businesses have received unwelcome attention for “greenwashing”—touting environmental sustainability but failing to deliver.

“What definitely should not be done is to pretend you’re doing the right thing because you want the favor of your investors or your clients,” he said.

Many companies are already adopting forced-labor-compliance strategies that look beyond the legal requirements of one jurisdiction or another, and instead favor a broader approach, Michael Littenberg, a partner at law firm Ropes & Gray LLP said.

“Most sophisticated companies are really trying to look at this holistically,” he said.

Indeed, Mr. Conklin pointed out that many larger companies that do business in the EU also sell in the U.S. and have been already putting forced-labor compliance programs into place.

But much remains unknown how enforcement of the rule might unfold in practice, Mr. Littenberg said: “It’s a question mark.”

Write to Richard Vanderford at [email protected]