The United States, the European Union, and the United Kingdom are increasingly using trade policy tools as a means to promote certain sustainability goals related to human rights and the environment. For instance, Steptoe covered in a previous post the trade restrictions proposed at the end of 2021 aimed at illegally deforested products. More recently, amidst increasing concerns regarding forced labor in certain regions, the EU has proposed legislation which would ban making available within the EU, and exporting from the EU, products made with forced labor – resembling, to some extent, the forced labor ban that is in place in the US. Meanwhile, the UK has adopted a more piecemeal and geographically targeted approach through the adaptation of existing legislation focused on export controls and the prevention of modern slavery.
Similar to the system that has existed in the US for years, the EU’s proposed instrument would introduce a general ban prohibiting goods determined to have been made with the use of forced labor. However, despite some common elements and the clearly similar regulatory objectives of the two regimes, there are also important differences between them. For example, the US measure only targets imports, whereas the EU’s proposed ban would also be aimed at domestic products. In addition, while the US now applies a presumption that all goods produced (in whole or in part) in the Xinjiang region are made with forced labor, the EU’s proposed measure does not explicitly single out certain kinds of products or specific regions. In practice, however, as will be explained below, it is likely that the EU’s enforcement efforts will also focus on certain priority areas or products, to be defined by the European Commission (“Commission”).
This article will describe the key similarities and differences between the US and the EU measures, building on Steptoe’s previous posts on the Uyghur Forced Labor Prevention Act (“UFLPA”) in the United States (part I here and part II here) and the European Union’s proposal for a regulation on prohibiting products made with forced labor on the Union market (post available here). We will also briefly describe the state of play in the UK.
Scope and nature of the prohibition
Section 307 of the Tariff Act of 1930 (19 USC §1307) (“Section 307”) prohibits importing any product that was mined, produced, or manufactured wholly or in part by forced labor, including forced or indentured child labor. US Customs and Border Protection (CBP) enforces the prohibition. Under this section, “forced labor” includes “all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily” and includes forced or indentured child labor.
Section 307 does not list priority areas for enforcement. Other US agencies publish reports and guidance that indicate high-risk goods and areas. For example, the Department of Labor (“DOL”) publishes a list of goods produced by Child Labor or Forced Labor.
The UFLPA supports CBP’s enforcement of Section 307. The UFLPA establishes a rebuttable presumption that the importation of goods mined, produced, or manufactured wholly or in part in the PRC’s Xinjiang region, as well as goods produced by certain entities identified in the UFLPA Strategy as on the UFLPA Entity List, are prohibited under 19 USC § 1307, and may not enter the United States. Entities may be added and removed from the Entity List.
The scope of the UFLPA extends to imported goods produced in other parts of China or in other countries that incorporate goods that were produced in Xinjiang or by entities on the UFLPA Entity List. There is no de minimis exception.
The UFLPA identifies high-priority sectors for enforcement, including cotton, tomatoes, and polysilicon.
The UFLPA rebuttable presumption went into effect on June 21, 2022.
The proposed Regulation lays down rules prohibiting economic operators from making available on the EU market, or exporting from the EU market, products made with forced labor. This prohibition is thus broader than the ban in place under Section 307 in that the EU would not only forbid the import of foreign products made with forced labor but also target domestic products sold in the EU market and the export of any product outside the EU.
Like the US regime, the EU’s proposed instrument does not have a specific product scope, meaning that all products, of any type, regardless of the sector, are covered by the prohibition. The Regulation also specifies that the prohibition would extend to components. The proposed Regulation in its current form does not provide for any de minimis exception that would exempt any incorporation of, or reliance on, minimal items that have been made with forced labor. The language used would appear to be very broad, as it covers “any product for which forced labor 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”. There is no explicit guidance on whether this would also cover the reliance on consumables, like fuel or energy, or manufacturing equipment that have themselves been made with forced labor.
As regards geographic scope, the proposed Regulation would prohibit the making available in the EU or export from the EU of products from any region, including domestic products. Thus, as regards imports, the EU ban is identical in its scope to the prohibition laid down in Section 307 of the US Tariff Act, which also applies to products of any origin.
While in principle the two regimes target all kinds of products from all origins, both jurisdictions recognize that there are higher-risk products and areas which should be prioritized for enforcement purposes. As regards high-risk products, the EU would follow a similar approach to the US, whereby it would identify in relevant guidance and a dedicated database certain sectors or industries in which the risk of forced labor is particularly high. The Commission, for instance, has already indicated that textiles, mining, and agriculture are among the sectors where forced labor has frequently been reported.
The EU’s approach to high-risk regions would differ significantly from the one adopted in the US. As was explained in the previous section, by enacting the UFLPA, the US requires the CBP to apply a rebuttable presumption with respect to products manufactured wholly or in part in the Xinjiang region (or incorporating any part or input manufactured in Xinjiang). Thus, pursuant to the UFLPA, such products are automatically deemed to be in violation of the forced labor prohibition, and it is up to the importer to prove that the relevant goods were not produced with forced labor. The same presumption applies to products imported from entities listed in the UFLPA Entity List (which consists of entities operating in or linked to the Xinjiang region). The EU proposal, by contrast, does not contain any similar presumption about products from a specific origin. Rather, for all goods, the burden would be on the competent authority of each Member State to establish that forced labor has been used in the production of a certain product. The proposed Regulation, however, does require the Commission to set up a public database identifying “forced labor risk areas” and issue guidelines on forced-labor risk indicators which competent authorities are likely to focus their enforcement efforts on.
In addition, The EU’s proposed ban is not targeted at specific entities and would apply to all economic operators, defined as “any natural or legal person or association of persons who is placing or making available products on the Union market or exporting products”. Thus, all companies, including small and medium-sized enterprises (SMEs), would have to comply with the prohibition laid down in the Regulation, regardless of their size or the quantity of the product that they make available or export. In practice, however, it is likely that Member States will focus their investigations on larger companies, given that the proposed Regulation explicitly requires them to consider the size and economic resources of economic operators in deciding whether to initiate an investigation. Therefore, SMEs are probably less likely to be targeted by enforcement action.
|United States||European Union|
|Prohibition||Imports only||Imports, domestic products, exports|
|Product Scope||Section 307: no specific product scope, covers all “goods, wares, articles, and merchandise”.
UFLPA: no specific product scope. But the UFLPA requires the identification of a list of high-priority sectors for enforcement. The Act itself identifies cotton, tomatoes, and polysilicon as high-priority sectors.
|No product scope: covers all products, of any type, including their components, regardless of the sector. But the Commission will identify products for which the risk is higher. The Commission has already indicated that high-risk products would include textiles, mining, and agricultural products.|
|Geographic Scope||Section 307: no specific geographic scope, covers imports from any origin.
UFLPA: rebuttable presumption applicable to goods manufactured wholly or in part in Xinjiang.
|No specific geographic scope, covers products from any origin.
Enforcement priorities to be identified by the Commission.
|Subject Persons/Entities||Section 307: no specific entity scope
UFLPA Entity List subject to rebuttable presumption
|No specific entity scope
Enforcement priority – larger companies
Definition of “Forced Labor”
The definition of “forced labor” in the two jurisdictions is essentially identical and based on the definition in the International Labor Organization’s (ILO) Forced Labor Convention.
|United States||European Union|
|Definition of Forced Labor||“All work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily.” – 19 USC §1307; language modeled on the ILO Forced Labor Convention, 1930.||“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.” – Article 2(a) of the proposed Regulation, referring to Article 2 of the ILO Forced Labor Convention, 1930 (No. 29).|
i) Competent Authority
CBP enforces Section 307 and the UFLPA. In addition, the Forced Labor Enforcement Task Force (FLETF), chaired by the Department of Homeland Security (DHS), is an interagency group that monitors the enforcement of the prohibition on importing goods made wholly or in part with forced labor into the United States, including by reviewing CBP withhold release orders (WROs), petitions received by CBP concerning forced labor, and related issues, and issuing biannual reports to Congress. The FLETF was authorized by the USMCA Implementation Act and formally established by Executive Order 13923 on May 15, 2020. FLETF is comprised of seven member agencies: the Office of the United States Trade Representative and the U.S. Departments of Labor, State, Treasury, Justice, Homeland Security, and Commerce. The Chair has also invited six observing agencies: the US Agency for International Development, US Immigration and Customs Enforcement, CBP, the National Security Council, and the Departments of Agriculture and Energy.
In contrast to the US regime, which is enforced by a single federal authority (CBP), the EU Regulation in its currently proposed form provides that each Member State would be responsible for the implementation and enforcement of the ban, and would have to designate a competent authority for this purpose.
At the same time, the Commission would be given a coordination role, whereby it would, for instance, issue guidelines to facilitate the implementation of the ban and create a publicly available database of forced labor risks, areas, and products.
This aspect of the proposed measure has already been subject to some criticism, especially by certain members of the EU Parliament (“Parliament”), who are likely to push for a stronger enforcement role to be accorded to the Commission in the forthcoming negotiations. In particular, the current setup raises concerns as to whether it would be capable of ensuring a uniform application of the Regulation across the different EU Member States.
ii) Burden of Proof
A significant difference between the US system after the enactment of the UFLPA and the EU’s proposed instrument is the burden of proof that applies for a violation to be established. In the US, under Section 307 of the Tariff Act, the burden is normally on CBP to establish that there is a violation, if the Commissioner of CBP finds that the information reported to him or her “reasonably but not conclusively indicates” that imports may be the product of forced labor. The burden then shifts to the importer to prove that the detained merchandise is not made with forced labor. However, since June 2022, that burden is reversed for importers whose products fall within the scope of the UFLPA. This means that it is up to these importers to demonstrate either that:
- the imported products are outside the scope of the UFLPA, or
- the goods have not been produced with forced labor in order to obtain an exception from the presumption.
Notably, in the latter scenario, the standard to be met by the importer in order to be granted an exception is quite high, as it requires “clear and convincing” evidence that no forced labor has been used in the production of the relevant goods.
By contrast, under the EU’s proposed measure, the burden would in all cases be on the competent authority to establish a violation of the forced labor prohibition. To do so, EU competent authorities shall initiate an investigation (as described in the following section) to gather information, and take into account information submitted to them, as relevant to their determination.
Nevertheless, although the proposed Regulation does not provide for a reversal of that burden of proof, there are some procedural aspects that will, in practical terms, alleviate the burden on the authorities. First, it is important to keep in mind that the information to be taken into account by competent authorities in their investigation will include guidelines by the Commission and a database identifying specific areas and products considered to be of a high risk. Therefore, depending on how competent authorities decide to make use of that information, it may in practice be crucial for economic operators whose products are directly or indirectly from areas identified therein to submit evidence to the competent authority demonstrating that they have not violated the Regulation. The Regulation gives targeted economic operators the right to submit relevant information in their defense, which shall be taken into account in the authority’s eventual determination.
Second, the Regulation would also empower EU competent authorities to request economic operators to submit certain information relevant to the investigation and carry out checks and inspections, provided that the economic operator has given its consent. According to the proposed Regulation, a failure by the economic operator to cooperate in this respect would entitle the competent authority to establish a violation on the basis of “any other facts available”. This possibility implies that the economic operator’s cooperation and submission of relevant evidence is likely to play a crucial role in the final outcome of the investigation, even if technically speaking the burden of proof remains on the EU authorities.
iii) Investigation Process
Any individual who has “reason to believe that any class of merchandise that is being, or is likely to be, imported into the United States” is being produced by forced labor may communicate that belief to CBP. Allegations must include: “(1) a full statement of the reasons for the belief; (2) a detailed description or sample of the merchandise; and (3) all pertinent facts obtainable as to the production of the merchandise abroad.” Both anonymous and non-anonymous allegations are accepted.
Port directors and other principal customs officers must report such instances to the CBP Commissioner. Upon receiving such information, the Commissioner of CBP will initiate an investigation if warranted by the circumstances. (CBP also has the authority to self-initiate an investigation). If the Commissioner finds that the information available “reasonably but not conclusively” indicates that that merchandise produced by forced labor “is being, or is likely to be, imported” into the United States, the Commissioner will order port directors to “withhold release” of the merchandise (i.e., issue a WRO), pending further instructions.
The UFLPA does not require CBP to issue WROs or Findings.
In regard to the investigation process, CBP’s guidance explains that it will review each shipment for UFLPA applicability and appropriate action to be taken on a case-by-case basis. The guidance further explains that CBP “will identify shipments through a variety of sources including from the UFLPA Entity List required by Section 2(d)(2)(B) of the UFLPA and published in the Federal Register.” Such sources may include reports from NGOs investigating human rights issues in Xinjiang. Members of Congress have also written letters to CBP regarding entities that they argue should be subject to the rebuttable presumption and/or requesting further information regarding CBP’s processes for identifying entities on the Entity List.
The level of evidence required to overcome the rebuttable presumption under the UFLPA – “clear and convincing” – is higher than that required for a WRO. Specifically, to rebut the presumption, CBP must determine that:
- The importer has fully complied with the guidance described in section 2(d)(6) of the UFLPA and any regulations issued to implement that guidance;
- The importer completely and substantively responded to all inquiries for information submitted by the Commissioner to ascertain whether the goods were mined, produced, or manufactured wholly or in part by forced labor; and
- By clear and convincing evidence, that the good, ware, article or merchandise was not mined, manufactured or produced, wholly or in part, by forced labor.
Within 30 days of any determination to grant an exception, the Commissioner of CBP must submit to Congress and make available to the public a report outlining the evidence supporting the exception.
The level of evidence required to show that imported goods are outside the scope of the UFLPA, i.e., that the imported goods and their inputs are sourced from outside Xinjiang and have no connection to entities on the UFLPA Entity List, “is akin to the process and standard applied under a WRO.” In the event CBP determines that the merchandise is outside the scope of the UFLPA because it lacks a connection to Xinjiang or to an entity on the UFLPA Entity List, the importer will not need to obtain an exception to the UFLPA presumption and CBP will release such shipments, provided they are otherwise in compliance with US law.
Under the EU’s proposed Regulation, the investigation process is somewhat similar to the investigation to be carried out by CBP under Section 307 of the US Tariff Act – although the proposed Regulation in its current form appears to set out stricter standards for the competent authorities to find a violation.
Specifically, under the proposed Regulation, in order to find that a company is responsible for violating the forced labor prohibition, the relevant competent authority shall initiate an investigation during which it shall gather evidence to make its determination. The Regulation provides that these investigations should be carried out in two phases.
In the preliminary phase, the authority would assess whether it considers that there is a “substantiated concern”, namely “a well-founded reason, based on objective and verifiable information”, to suspect that products were likely made with forced labor. The standard for initiating an investigation is, thus, clearly defined and more precise than the applicable standard for US Section 307 investigations, which may be initiated by the CBP Commissioner “as appears warranted” by the amount and reliability of the information submitted.
If the EU competent authority determines that such a substantiated concern exists, it should proceed to the investigation phase to establish whether a violation has indeed occurred on the basis of various sources of information, including:
- information submitted by the economic operator under investigation, by its own motion or in response to a request by the competent authority;
- submissions made by natural or legal persons or any association without a legal personality;
- the risk indicators that would be included in future Commission guidance;
- information contained in a public database of forced labor risks to be established by the Commission;
- information about any past cases of compliance or non-compliance of an economic operator with the prohibition of the proposed Regulation;
- any information on whether the economic operator is subject to and/or carries out due diligence in relation to forced labor.
The EU’s proposed Regulation does not expressly stipulate the applicable standard for competent authorities to determine, in the investigation phase, whether a violation has taken place – unlike in the US, where, as discussed above, the CBP may find a violation if the information submitted “reasonably but not conclusively indicates” that forced labor was used. Of note, the standard is higher for importers of products falling within the UFLPA to demonstrate that forced labor has not taken place, as the latter would need to provide “clear and convincing” for that purpose.
In carrying out their investigation, EU competent authorities would be required, under the proposed Regulation, to follow a “risk-based” approach, meaning that they would have to focus their enforcement efforts where they would likely be most effective. This would likely entail focusing on the high-risk sectors and areas identified by the Commission, as well as prioritizing in their assessment certain elements expressly stipulated in the Regulation:
- involvement of the economic operator in the value chain as close as possible to where the risk of forced labor is likely to occur;
- the size and economic resources of the economic operator;
- the quantity of products concerned; and
- the scale of suspected forced labor.
In the US, CBP is also expected to follow a risk-based approach in enforcing the UFLPA, specifically by focusing on the highest-risk goods based on current data and intelligence. The UFLPA Strategy indicates that the highest-risk goods include those imported directly from Xinjiang into the United States and from entities on the UFLPA Entity List. Goods in priority enforcement areas regardless of country of origin are also more likely to be subject to detention.
iv) Consequences of Violation
After the issuance of a WRO, the covered merchandise will be detained by CBP for an admissibility determination and excluded unless the importer demonstrates that the merchandise was not made using forced labor in violation of Section 1307. Subject to certain conditions, the importer may also re-export the merchandise prior to seizure. An importer has three months to contest a WRO and must demonstrate “every reasonable effort” has been made to determine both the source and type of labor used to produce the merchandise and its components. If the importer does not successfully contest the WRO and does not remove the merchandise at issue from the United States, CBP is authorized to seize and destroy the merchandise.
The Commissioner of CBP may also issue a “Finding” when the Commissioner determines that the merchandise is subject to the provisions of Section 1307, i.e., that that information conclusively demonstrates that merchandise is produced by forced labor. If the Commissioner finds that merchandise within the scope of Section 1307 is being, or is likely to be, imported into the United States, the Commissioner will, with the approval of the Secretary of the Department of Homeland Security (DHS), publish a Finding to that effect in the Federal Register and in the Customs Bulletin and Decisions. CBP may seize and forfeit imported merchandise covered by a Finding unless the importer establishes by satisfactory evidence that the merchandise is admissible, i.e., that it was not produced in any part with the use of prohibited labor specified in the relevant Finding.
When CBP detains goods or merchandise under the UFLPA, CBP will issue a detention notice providing the reason for detention and the anticipated length of the detention. CBP has five days (excluding weekends and holidays) following the date on which merchandise is presented for examination to CBP to decide whether to release or detain the merchandise. Merchandise that is not released within such five-day period will be considered to be detained merchandise. Importers who receive a detention notice have 30 days to submit information demonstrating that the shipment is out of scope or to request an exception to the UFLPA rebuttable presumption. Extensions may be granted in certain cases, and CBP may continue to request information regarding the admissibility of the merchandise after the 30-day period has ended. Following the expiration of the 30-day period, the merchandise is deemed excluded. However, an importer can request permission from the port director to export or destroy goods detained under the UFLPA at any point during the detention process as long as the goods are not subject to seizure.
If a request for exception is denied during the detention process and the merchandise is excluded, the importer can file a protest in accordance with 19 USC § 1514, 19 CFR Part 174.
Under the proposed Regulation, should a competent authority establish that an economic operator violated the Regulation, the authority would have to adopt a decision prohibiting the product from being made available on the EU market or exported from the EU. Of note, unlike in the US, where enforcement of the prohibition takes place at the border, investigations in the EU could be carried out – and decisions taken – even after the relevant products have been made available on the market. In that situation, the proposed Regulation provides that the competent authority should include in its decision an order for the economic operator to withdraw those products from the market within a set time limit. This withdrawal, however, would not apply to products once they have reached end-users (a notion that is currently not defined in the proposed Regulation). In addition, economic operators would also be required to dispose, at their own expense, of any products remaining with them, in accordance with the relevant national legislation
After such a decision would be issued, the economic operator would have the right to request a review thereof within 15 working days from the date of receipt of the decision, or, in the case of perishable goods, animals, and plants, within five working days.
If an economic operator fails to comply with a decision of a competent authority, it would also face penalties under national law.
|United States||European Union|
|Competent Authority||CBP||Each Member State shall designate competent authority|
|Burden of Proof||Section 307: burden on the CBP to determine whether the information “reasonably but not conclusively indicates” that product is made with forced labor
UFLPA: burden on the importer for products within its scope
|Burden on the competent authority of each Member State to establish violation|
|Investigation Process||Section 307:
i. Report to the CBP by CBP officials, port directors, public
ii. CBP initiates investigation “as appears warranted”
iii. CBP finds violation if the information “reasonably but not conclusively indicates” forced labor was used
i. Preliminary phase: “substantiated concern” to initiate investigation
ii. Investigation phase: information gathering to establish potential violation
|Both require the competent authority to employ a risk-based approach in enforcing the respective prohibitions.||Both require the competent authority to employ a risk-based approach in enforcing the respective prohibitions.|
|Consequences||Section 307: CBP issues WRO
→ 3 months to contest
UFLPA: CBP detains and then excludes, or seizes and forfeits, shipments that are not proven to be outside the scope of the UFLPA or are within the scope of the UFLPA and do not qualify for an exception.
|Competent authority issues decision:
— prohibiting the making available and export of the goods
— ordering withdrawal (if products have been made available)
— ordering the products’ disposal
→ 15 days to request a review of the decision (five for perishable goods, animals, and plants)
Mandatory Due Diligence
The UFLPA requires that importers demonstrate due diligence, effective supply chain tracing, and supply chain management measures to ensure that they do not import any goods made, in whole or in part, by forced labor, especially from Xinjiang. This requirement extends throughout the entire supply chain, to include goods that may be shipped from elsewhere in the PRC and to third countries for further processing. Guidance issued by CBP and included in the UFLPA Strategy elaborates on the types of due diligence processes and information that may be required by CBP to demonstrate imports are not within the scope of the UFLPA or to request an exception.
Like under the UFLPA, conducting due diligence with respect to forced labor will play a crucial role for economic operators to avoid a finding of violation against them by the EU.
As explained above, under the UFLPA, performing due diligence in accordance with the relevant guidance is a necessary condition for importers to be eligible for an exception from the UFLPA presumption. The EU’s proposed Regulation does not similarly require economic operators to perform due diligence as a prerequisite to a finding of non-violation by the competent authority. However, whether an economic operator has carried out due diligence, in line with the requirements of applicable legislation (where relevant), is one of the factors that the competent authority should consider when assessing whether there is a well-founded suspicion that its products are made with forced labor.
In this regard, the proposed Regulation explicitly requires that competent authorities request information from economic operators about any due diligence actions they undertake in their operations and value chains. This would not only concern companies that would fall under the scope of the EU’s forthcoming due diligence legislation – the Corporate Sustainability Due Diligence Directive – but also other companies, which would have to disclose to the authorities any due diligence actions they undertake in relation to forced labor.
|United States||European Union|
|Due Diligence||Requirement for importer to be eligible for exception to the UFLPA’s rebuttable presumption and relevant to demonstrating that a product is outside the scope of the UFLPA.||Information taken into account to assess likelihood of violation|
The UFLPA went into effect on June 21, 2022. Shipments subject to existing WROs or Findings that were imported prior to June 21, 2022, are being adjudicated through the WRO/Findings process. Shipments imported on or after June 21, 2022, that are subject to the UFLPA, which previously would have been subject to a Xinjiang-related WRO, will be processed under UFLPA procedures, and detained, excluded, or seized.
The proposed Regulation was published by the Commission on September 14, 2022. It will now go through the ordinary legislative process, whereby the Council, the Parliament, and the Commission will negotiate on the text of the final Regulation to be adopted. Once the EU institutions agree on the text, the Regulation will enter into force one day following its publication in the Official Journal of the European Union.
As currently phrased, the proposed Regulation would apply 24 months after its entry into force. This means that based on the current proposal, and assuming the ban would be adopted in 2023, the EU instrument would be applicable at the earliest in 2025.
United Kingdom Approach
Targeted Export Controls
To date, although (like the EU and US) the UK now has in place ‘Magnitsky’ sanctions regimes that enable the specific targeting of persons suspected of involvement in human rights breaches, including persons suspected of involvement in the use of forced labor, the UK has adopted a more piecemeal and region-specific approach to tackling forced labor than the US and EU approaches discussed in this article. For example, in early 2021, the UK worked in coordination with Canada to introduce a package of measures designed to ensure that no company profiting from forced labor in the Xinjiang region of China can do business in the UK and no UK business is involved in their supply chains. In pertinent part, the measures included a review of UK export controls as they apply specifically, geographically, to the situation in the Xinjiang region to identify products that should be subject to export controls to prevent exports that could directly or indirectly contribute to human rights violations in the Xinjiang region. The review was concluded in December 2021 and resulted in China’s addition to the list of destinations subject to UK military end-use controls.
The military end-use controls are a form of catch-all control that enable export controls to be imposed, on a case-by-case basis, to goods, software, and technology (“items”) that are not specified in the UK Strategic Export Control Lists. In practice, this means that even if items for export from the UK do not usually require an export license, one may still be required if the exporter is informed by the Department for International Trade’s Export Control Joint Unit (“ECJU”) that otherwise non-controlled items are or may be intended for:
- incorporation into or use in production of test or analytical equipment and components for the development, production, or maintenance of, or use in any unfinished products in a plant for the production of, military items listed in Schedule 2 to the Export Control Order 2008 (“ECO”), or is aware of such (potential) use;
- use as parts or components of military items listed in Schedule 2 to the ECO, or is aware of such (potential) use; or
- use by military, para-military or police forces, security services, government intelligence organizations or an entity involved in the procurement, research, development, production or use of items on behalf of the any of the foregoing categories of entity.
If an exporter is informed that an item is subject to a license requirement, it is a criminal offense to export that item without a license. If an exporter is aware that its items are or may be intended for one of the specified end-uses, the exporter must contact the ECJU, which will decide whether an export license is required.
Export licenses are assessed against the UK’s strategic export licensing criteria, which were updated in December 2021 to expand the circumstances in which a license will not be granted to instances where a clear risk exists that items may be used to facilitate internal repression or a serious violation of international humanitarian law. The definition of “internal repression” also was broadened to include serious violations of human rights and fundamental freedoms – the definition previously only applied to “major” violations.
Annual Reporting on Efforts to Combat Forced Labor
Since 2015, Section 54 of the Modern Slavery Act 2015 (“MSA”) has required commercial organizations carrying on all or part of a business in the UK with a total annual turnover of £36,000,000 or more to report annually on the steps that they have taken during the financial year to ensure that slavery and human trafficking are not taking place in their business or supply chains.
The MSA does not prescribe the level of detail required in these statements, although it sets out a number of areas that companies “may include information about” in their statements, including the due diligence processes they implement in relation to slavery and human trafficking in their business and supply chains. While companies subject to the annual reporting requirement are not currently subject to a legal requirement to conduct due diligence to assess the modern slavery or human rights risks associated with their operations or supply chains, the UK government proposed a series of amendments to Section 54 of the MSA in October 2020, which, if implemented, would require companies to include content on certain key topics, including due diligence, in their annual statements.
More recently, on May 10, 2022, amidst increasing concerns regarding forced labor in certain regions, a new Modern Slavery bill was announced to “ensure that large businesses and public bodies tackle modern slavery risks in supply chains.” It has not yet been published, but is expected to strengthen the requirements on large businesses to publish an annual modern slavery statement and to introduce civil penalties for organizations that do not comply with the reporting requirements.
For these various amendments to come into effect, the legislative language of Section 54 of the MSA will need to be amended. The UK government has not yet set a timetable for these legislative changes, committing only to making the changes “when parliamentary time allows.”
Possible Reform of Corporate Criminal Liability
On June 10, 2022, the Law Commission published its long-awaited paper, Corporate Criminal Liability: an options paper, which outlines various proposals for reforming corporate criminal liability in England and Wales. Among the options outlined in the Law Commission paper was a proposal that the UK government consider introducing a failure to prevent offense to cover human rights abuses on the basis that UK-based organizations have a positive duty to implement reasonable preventive procedures against human rights abuses in their supply chains. If adopted, this option would seek to hold UK-based organizations to account for complicity in human rights abuses conducted overseas.
The Law Commission paper noted that the UK government should consider the breadth of any such statutory duty and, in particular, whether the duty should apply to “organizations which operate internationally” or to a narrower list of “relevant commercial organizations.” The Law Commission also suggested that any organizations subject to the duty should only be held liable for a failure to prevent a human rights abuse if there was intent to confer a business advantage on the organization or a benefit on a person by a third party acting on behalf of the organization.
The Law Commission supported the incorporation of a defense to the proposed offense of having reasonable prevention procedures in place. To limit the burden that the extraterritorial nature of the proposed provisions would have on companies, an additional defense that it was reasonable not to expect a company to have such procedures in place was also suggested. The Law Commission did not express a view as to what “reasonable” prevention procedures should look like in practice and whether these would track the “adequate procedures” or “reasonable procedures” standards adopted in other legislation such as the UK Bribery Act 2010 and the facilitation of tax evasion provisions of the Criminal Finances Act 2017.
If the UK government decides to enact a failure to prevent human rights abuses offense it would bring the UK approach more closely into line with the mandatory due diligence standards for companies being introduced in other countries, by creating a statutory obligation on UK-based companies to prevent human rights abuses within their supply chains and subsidiaries overseas through an appropriate due diligence framework.