On September 14, 2022, the European Commission proposed legislation regulating the trade of goods suspected of being made with forced labor. This proposal is meant to complement the broader EU-wide Corporate Sustainability Due Diligence Directive (CSDD), proposed legislation which obliges corporations to respect human rights and operate in a sustainable manner. While the CSDD requires companies to manage social and environmental impacts in general business operations, the ban on forced labor is expected to have stricter enforcement criteria and wider-reaching impacts on trade.
The proposed ban on forced labor will adopt a ‘non-discriminatory’ approach, meaning it applies to all products and components made and sold within the EU, in addition to those imported in and exported from the region. It gives the investigative ‘burden of proof’ to enforcement agencies, rather than to companies. If passed, the act could have wide-reaching impacts on the continuity of supply chains, as it bans the use of forced labor in all stages of production, including harvest and extraction of raw materials.
Proposed act puts textiles and garments industry at risk of disruption
Though the proposed EU ban does not target specific companies or industries, EU member state enforcement agencies will rely on referencing a central database of forced labor risk areas and products during initial investigations. Though the database has not yet been finalized, textiles and garments are expected to make up a significant portion of the list.
Following the ban’s announcement, the Clean Clothes Campaign volunteered to respond to the EU’s Call for Evidence, an initiative to gather feedback on the proposal from business leaders and industry associations. The organization posits that forced labor is particularly widespread in the downstream sections of the textile and garment value chain, namely in raw materials harvesting, spinning, and weaving. The involvement of this international organization in the creation of the forced labor database is likely to increase the volume of textiles and garments suppliers and products that are flagged for enhanced review.
Increased scrutiny of forced labor jeopardizes EU-China trade relations
Though the EU’s proposed ban is promoted as non-discriminatory, there is a consensus that many of the targeted textile and garment shipments will originate from China. Human rights discussions between the two bodies have been suspended since the EU took a public stance against the treatment of Uyghurs in Xinjiang in 2021.
Chinese officials reacted negatively to the proposed ban with claims of racial discrimination, and advised Chinese businesses to prepare for disruption as they believe Xinjiang products will be targeted. This is of particular concern for Chinese textile and garment manufacturers, as China remains the largest apparel supplier to the EU As shown in Figure 1, China accounts for €23 billion ($24.98 billion) in EU textile and garment imports, or 29.39% of the EU’s total.
While Western rhetoric has focused on reducing the EU’s strategic dependencies on China for critical raw materials, France and Germany have often stood out in their public commitment to maintaining strong economic ties with the country for these reasons. Just this month, Emmanuel Macron and Ursula von der Leyen conducted a joint trip to Beijing to meet with Xi Jinping to strengthen engagement on critical issues including Russia’s ongoing invasion of Ukraine.
Everstream clients are receiving more detailed insights and recommendations about this risk.
Contact us to learn how we can give you a complete view of the risks affecting your end-to-end supply chain and what you can do to mitigate them.