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EU’s Proposed Forced Labour Regulation

by MH Law | April 1, 2024 | Legal Insights



In early March 2024, representatives from the European Parliament and the European Council successfully hammered out a preliminary deal concerning a fresh regulation poised to bar goods produced under forced labour conditions from accessing the EU market.

Although the ultimate wording of the agreement inked between the European Parliament and the European Council remains undisclosed at this juncture, pertinent details can be gleaned from the official announcements on the respective websites regarding the finalised agreement.


Key Points

Investigations - EU countries will inspect company supply chains for forced labour. If found, actions include product removal and possible destruction. The European Commission will handle cases outside the EU, with a system for sharing information among authorities.

Database - A database will track locations and products associated with forced labour to support authorities in enforcing regulations and ensuring companies' compliance.

Approach Based on Risk- The severity of forced labour cases will be determined by clear rules, taking into account factors such as prevalence, product impact, and proximity to the issue.

Fines- Businesses that fail to comply with regulations may face fines. While the specific fines have not been determined, they are expected to be a percentage of the company's annual revenue.

Guidelines and Support- The EU is set to provide guidance to businesses and authorities on adhering to regulations and resolving issues, with a focus on supporting small businesses.


Malaysia's Issue with Forced Labour

Forced labor in Malaysia is fueled by reliance on migrant workers facing deceitful recruitment, long hours, abuse, and poor living conditions. Challenges include language barriers, high fees, debt, and lack of legal protections. Government efforts are hampered by corruption, weak enforcement, and limited resources, especially impacting small businesses.

Many Malaysian companies are frequently included in the U.S. Customs and Border Protection (CBP) Withhold Release Order (WRO) due to worries about forced labor practices within their supply chains.

According to the “Skilled to Care, Forced to Work?” report released in June 2023 by the International Labour Organisation (ILO), 29%, or approximately one-third, of migrant domestic workers in Malaysia faced forced labour situations, which is comparatively higher than domestic forced labour rates in Singapore and Thailand, which are at 7% and 4%, respectively.


What Impact will the Regulation have on Malaysia?

If EU enforcement against forced labour in goods is implemented, Malaysian companies could risk losing entry to a significant market. They may encounter reputation harm, legal penalties, revenue declines, and operational interruptions. Adapting to comply with the regulation might result in increased expenses and administrative challenges, which could put them at a disadvantage compared to competitors. This enforcement could prompt Malaysian businesses and the government to address forced labour problems more efficiently, potentially triggering regulatory changes and enhanced enforcement measures within the country.


How can Businesses and Individuals take Action?

Due Diligence - Conduct thorough supply chain evaluations to identify forced labour risks by assessing suppliers, subcontractors, and recruitment agencies for labour standard compliance. Perform regular audits to ensure ongoing adherence.

Compliance Programme - Establish clear policies to combat forced labour for suppliers and internal operations. Train employees and suppliers on these policies and set up reporting systems to address issues effectively.

Remediation - Promptly address forced labour in supply chains by collaborating with suppliers, assisting affected workers, and terminating relationships with non-compliant entities when necessary.

Risk Management - Malaysian companies must manage the risk of forced labour by prioritising effective risk management through compliance initiatives, legal protections, and dispute resolution tactics.


Key Takeaways

Forced labour is a significant issue in Malaysia, particularly affecting migrant workers. Despite efforts by the government and stakeholders, gaps remain in regulating labour practices. Collaboration, supply chain transparency, and stakeholder engagement are crucial for combating forced labour. Individuals can advocate for workers, while employers must prioritise ethical practices and eliminate forced labour from supply chains through due diligence and support. Collective efforts are needed to promote fair labour conditions in Malaysia.

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