EU Body Addresses Forced Labour in Guidance Intended for EU Businesses and Their Global Supply Chains

The European External Action Service has published guidance on due diligence for EU businesses to address the risk of forced labour in their operations and supply chains. The guidance outlines the practical aspects of due diligence. It provides an overview of international standards on responsible business conduct and due diligence which are relevant for combatting forced labour.

The European External Action Service is referred to as the EU's diplomatic service. It aims to make EU foreign policy more coherent and effective, with a view to increasing Europe's global influence. According to the guidance, it is reported that an estimated 25 million people are in forced labour globally. That number is comprised of 16 million people who are exploited in the private sector, 4.8 million people who are in forced sexual exploitation and 4 million in forced labour imposed by state authorities. It is understood that women and girls are disproportionately affected by forced labour.

The International Labour Convention No. 29 defines forced labour as “all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily”. Such forced labour may include reliance on “labour discipline” for production, i.e., an obligation to work as a sanction for violating company rules or failing to complete production quotas and restrictions of the movement of workers coupled with other coercive measures (e.g., threat or use of force).

Under the guidance, EU businesses are encouraged to assess the potential exposure of their supply chain to activities causing or contributing to human rights abuses or violations and to implement appropriate due diligence policies to ensure compliance with international due diligence and labour standards on forced labour. This is relevant for non-EU traders working with EU entities, because the responsibility of EU businesses needing to ensure responsible business conduct extends across all sectors of production and all levels of the supply chain. Businesses will also need to provide protection for victims of business-related human rights violations and abuses, and EU businesses are called upon to respect human rights, including labour rights, regardless of location, size of business, sector, operational context, ownership and structure.

As part of the guidance, EU businesses are encouraged to undertake due diligence processes in their supply chains. Due diligence is the process that businesses should carry out to identify, prevent, mitigate and account for how they address actual and potential forced labour risks in their own operations, supply chains and business relationships. Due diligence also purports to help companies proactively engage with and address risks in their supply chain including in high-risk contexts. The due diligence process can help companies make decisions on when and how to responsibly disengage from suppliers and business relationships. Businesses are encouraged to assess the potential and actual exposure of their supply chain to activities causing or contributing to human rights abuses or violations, and to implement appropriate due diligence policies to ensure compliance with international due diligence and labour standards on forced labour.

Consequently, the due diligence process would be one that is ongoing, proactive and reactive. Businesses must aim to achieve continuous improvements in their supply chains. Due diligence should be commensurate with risks and appropriate to the individual company’s circumstances and context, including the specificities of the upstream tiers of the supply chain and the company’s size.

According to the Organisation for Economic Co-operation and Development (OECD), effective due diligence processes consist of the following six elements:

1. Embed responsible business conduct in the company’s policies and management systems;
2. Identify and assess actual or potential adverse impacts in the company’s operations, supply chains and business relationships;
3. Cease, prevent and mitigate adverse impacts;
4. Track implementation and results;
5. Communicate how impacts are addressed; and
6. Provide for or cooperate in remediation when appropriate.

To facilitate the implementation of an effective due diligence process, the guidance outlines that policies and management systems ought to be tailored to the risk of forced labour. They should include a “zero-tolerance policy” for forced labour, accompanied with other policies which are relevant to ways forced labour may arise in the supply chain of the company. For example, this may be in the recruitment and retention practices of a company, subcontracting, use of recruitment agencies or state-sponsored forced labour.

Equally, the guidance suggests that key company staff (e.g., buyers or procurement officers) and suppliers should be educated on what constitutes forced labour. Internal company awareness of how its own activities may increase the risk of unauthorised subcontracting and other forced labour risk factors will be particularly important in preventing forced labour.

Hong Kong sellers should also bear in mind that the European Commission is currently preparing a legislative proposal on Sustainable Corporate Governance (see Proposal for EU Law on Due Diligence Requirements in the Supply Chain Delayed Until Autumn 2021 for more details). The future legislation will aim to foster long-term sustainable and responsible corporate behaviour. It will introduce mandatory human rights and environmental due diligence throughout the supply chain, including on risks linked to forced labour.