Summary
The Federation of German Industries (BDI) shares the goal of preventing that goods made with forced labor are made available on and/or are re-exported from the Union market. In addition to our ethical objections, forced labor is a tripwire indicator for political instability, which in turn hurts access to procurement and target markets. What is more, such human exploitation distorts prices and creates competitive disadvantages.
BDI has serious concerns regarding the timeframe in which the forced labor ban is supposed to be implemented. We strongly suggest that legislators revise the present proposal in ways that ensures as smooth of an implementation as possible. For BDI this means:
The database should be developed and field-tested, guidelines and FAQs should be completed, and informational requirements be clearly streamlined, to prevent doubled compliance burdens for companies.
The competent authority should be available and its processes up and running when the regulation comes into effect.
Customs authorities should work in tandem with and not in addition to competent authorities. That will mean that accessibility and data processing should be functional by the time companies are expected to comply with the regulation. Moreover, by that time the single window environments by member states should also be functional.
The regulation should be aligned with the Commission’s proposals on Corporate Sustainability Due Diligence (CSDD) as well as Corporate Sustainability Reporting. Regardless of jurisdiction and competence, we insist that it is in the EU’s best economic interest to do more than just regulate business behavior, but to enable companies to abide by the highest standards at the lowest costs possible.
We fully agree with the Commission’s goal of creating near identical conditions for businesses within the single market and ask that Articles 13, 14, 24 remain essentially unchanged.
BDI stresses that the forced labor ban can only be risk-based, if the burden of proof remains unreversed. In addition to rule-of-law concerns, then-necessary transaction-basedcontrolswouldnotservethegoalofthe regulation but rather impede its efficacy.
Federation of German Industries Member Association of BUSINESSEUROPE
Address
Breite Straße 29 10178 Berlin Postal Address 11053 Berlin Germany
Contact Dr. Nikolas Keßels
T:+49 30 2028 1518 F:+49 30 2028 2518 Internet www.bdi.eu E-Mail N.Kessels@bdi.eu
Introduction
The Federation of German Industries (BDI) opposes forced labor for three distinct reasons. As a matter of course, we share and want to reiterate stark ethicalobjectionsagainstallforms ofworkor servicewhich areexactedfrom any person under the menace of any penalty and which the said person has not offered voluntarily.
As industry association, we want to emphasize two additional reasons for why forced labor should be fought against effectively as well as efficiently. First, forcedlaboris anindicatorfor politico-economicinstability.Autocratic regimes systematically subdue dissent and opposition. Behind this veil of stability lies – more often than not – a system incapable of channelling societal pressures and interest divergencies. A state that forces parts of its population into modern slavery has its very instability on display and shows publicly that it has no intention of adhering to a set of minimum standards of human rights. For German Industry this is of great concern. Governments flouting basicprinciples of international law are also likely tobreak moreand other rules that are intended to govern and structure international relations. In times when instability keeps rattling our procurement and target markets, we understand the issue of forced labor as a tripwire indicator of increasing instabilitytocome. Prevalentgeopoliticalstressmakes furtherdestabilization increasingly likely. Therefore, we find that effective incentives should be adopted to prevent further instability in the markets that we rely on economically.
Second and with regards to the single market, German industry understands the issue of forced labor also as one creatingcompetitive disadvantages at the expense of European and German companies globally and within Europe It is the position of German industry that any form of globalization can work only if economic operators compete on a level playing field. We expect from our trading partners to abstain from measures that distort market pricing. Trade relations should be open, but they should also be reciprocal and fair. Lowering average unit costs by abused, unpaid and forced labor is neither fair, nor should it be rewarded with market access.
As industry association representing exporting as well as importing industry sectors and their businesses, we, therefore, welcome the European Commission’s goal in proposing a regulation on prohibiting products made with forced labor. Since it is our position that such a ban should serve a level playing field, we ask in the following for several changes and improvements so that compliance with the regulation does not create additional competitive disadvantages in trying economic times.
1. Applicability – Guidelines, Database, Customs Information
Weeding out forced labor from supply chains effectively is in the interest of German industry. Doing so efficiently should be in the interest of the Commission, Parliament and Member States, because it increases the regulation’s chances of success and it decreases the likelihood of involuntary non-compliance. It should, therefore, be ensured that the regulation is designed according to clear objectives and requirements creating a predictable level of regulatory burden.
Article 23 (Guidelines)
Legal certainty requires clear prescriptions and proscriptions. That, in turn, means that risk indicators need to be viable and unambiguously implementable for economic operators and authorities across the single market with as little room for diverging national interpretation as possible. It is our position that the Commission’s work on guidelines should be completed in a way that integrates the requirements of Article 11 and Article 16. More concretely, BDI expects from those guidelines a structure and procedurethatcomprehensivelychartersawayfor companiestocomplywith the forced labor ban. We insist that guidelines should be clear on what economicoperators can reasonably be expected to findout about their supply chains (known unknowns). However, businesses cannot be expected to take action against forced labor where prescribed structures and processes for compliance fail to raise red flags (unknown unknowns).
Article 11 (Database)
Competitiveness ranks very high among the concerns BDI raises when new regulations are discussed and introduced. The digitalization of processes is the obvious solution to many problems in regulatory compliance. Digital systems require higher initial investments, but create maintenance costs considerably below the costs of additional personnel. Moreover, digitalized systems support the work of highly trained compliance personnel by assuming rules-based tasks and, therefore, create space for said personnel to address more demanding issues. Also, approaching automated compliance procedures eases the burden on small and medium sized companies disproportionately. Only if digital support is adequately provided, can economic operators meet the demands imposed by the forced labor ban effectively as well as efficiently.
Consequently, German industry insists that Article 31 should be made contingent upon the comprehensive completion of what we understand is the core precondition for a workable anti-forced-labor regulation in Article 11. It is the position of BDI that the database should be developed, field-tested and businessesgivenadequatetimeofsixmonthstomakethenecessary technical arrangements before the forced labor ban comes into effect. We strongly object to all plans that fail to provide for the time necessary to make adequate preparations for regulatory compliance. In short, it is unacceptable that the regulation would enter into force at the same time that the database would be made publicly available.
Article 11 and Integration into the wider compliance environment
Article 11(1) explicitly states that the database is to be non-exhaustive. For economic operators this means that violations of Article 3 – and the ethical, reputational, legal and economic associated with such a violation – become harder to gauge. In order to (a) increase the likelihood of keeping goods created with forced labor from the EU’s single market, (b) to decrease the compliance risk as well as compliance costs for economic operators, and (c) minimize the risk of regulatory arbitrage or fragmentation, BDI suggests that the entry into force of the forced labor ban is coordinated sensibly with the proposal for a European Corporate Sustainability Due Diligence (CSDD) process. Otherwise, the requirements under Articles 4 and 5 for provision of information within the envisaged time frames will not be factually possible. Therefore,theenactmentandtranspositionintonationallawofaEUdirective on Corporate Sustainability Due Diligence has to be concluded at least with the scope of forced labor prevention, before any import ban on such products can effectively executed. Ideally, any forced labor ban would also be coordinated with the Commission’s efforts regarding Corporate Sustainability Reporting. In terms ofcompliance,DGTRADE, DG GROW, DG FISMA andDG JUST regulate the identical business habitat. We encourage the Commission to set up a working timeframe for the above-mentioned regulations and delegated acts to come together in a way that companies can built their compliance architecture efficiently. Regardless of jurisdiction and competence, we insist that it is in the EU’s best economic interest to do more than just regulate business behavior, but to enable companies to abide by the highest standards at the lowest costs possible.
Article 16 (Information to be made available to customs authorities)
The goal of the forced labor ban cannot be effectively met by a rigid and inflexible set of rules. It follows, that new information must be implemented and new data be provided to economic operators. Hence, it is the position of BDI that the fulfillment of Article 16(2) should be made contingent upon the availability of respective digital communication solutions. Industry often experiences that the digital prerequisites for meeting certain legal requirements are not developed and provided in lockstep. Too often, there is a delta between prescribed compliance duties on the one hand and the technical implementation by member states on the other Such disregard for technical challenges ignores the very real impact subpar rule-implementation has on businesses.
2. Competent Authority
The competent authority and the framework within which it will expect economicoperatorstowork shouldbeoperationalfromthedaytheregulation enters into force.
Institutionally, the competent authority will need ample financial and material resources at their disposal to make the forced labor ban work and comply with the processing periods laid down in Articles 4(4), 4(5), 5(4), 8(1), 8(3) and 14(2). What is more, resources at the competent authority should be adequate and sufficient so that information requests by customs authorities pursuant to Article 17 are conventionally met by competent authorities ahead of the processing periods laid down in Article 18(1)(a). For Member States to provide the necessary resources, BDI requests that Article 12(5) is split up and that member states acknowledge and commit to the obligation of providing the necessary institutional framework in a new Article 12(6). What is currently 12(6) should consequently become 12(7).
3. Customs
Since customs authorities will be actively involved in safeguarding the integrity of the single market alongside competent authorities, we raise three issues in addition to our request regarding Article 16:
The Commission has taken it upon itself to create interconnections and make available the information and communication system (ICS) referred to in Article 34 of Regulation (EU) 2019/1020 for competent as well as customs authorities. We stress that the goal of automated communication is laudable
and much appreciated. We want to emphasize, however, that system implementation will take time and that it is our position that implementation should be concluded before the regulation comes into effect. This is particularly important since the ICS will also be connected to the national single windows that still need developing, testing and implementing Consequently, BDI asks that Article 31 also references the completion of the single windows and the interconnection to the ICS as a prerequisite for the implementation of the forced labor ban.
Secondly, we would like to raise the issue that information provided by economic operators to the competent authorities should be available to customs andvice versa. We ask that the regulation strictly states that national authorities should refrain from requesting information that has already been provided within anti-forced labor compliance. It is the business experience that controls are often announced as risk-based in theory, when actually authoritiesfollowahybrid ofrisk-based aswellastransaction-basedcontrols The latter often leads to increased bureaucracy and doubled burdes without tangible compliance results.
Where appropriate, IT-solutions should thirdly be created, maintained, and provided in collaboration with the private sector. Automatizing as much of the compliance process as possible would disproportionately reduce the regulatory burden on small and medium sized companies. But, that requires ameaningfullevelofcooperationwhengaugingtheeffectofcertainIT-based solutions and their capability of working with and in connection to compliance software and systems that are already in use.
4. Burden of Proof & Recognition of Decisions
Level-Playing-Field within the Union
We recognize the considerable effort and commitment that the European Commission has signaled in Articles 13, 14 and 24. For BDI this is an encouraging sign in favor of harmonized regulatory standards throughout the Union National authorities provide local expertise and are integrated into Member States’ administrative processes. They are, as a result, indispensable in making the forced labor ban work. But the abovementioned Articles clearly testify that oftentimes the single market can, nevertheless, be governed by a myriad of rule-interpretations ostensibly in service of one and the same European regulatory act. We, therefore, ask that the provisions in Articles 13, 14, and 24 as they relate to the obligation of active
communication between authorities, the recognition of decisions and the active collaboration within the Union Network Against Forced Labor Products remains essentially unaltered.
Burden of Proof
Companies should not be asked to bear the burdenof proof in their fulfilment of the provision set out in Article 3. German companies have a right to trade freely with foreign markets. Restricting this right needs to be done in a proportionate manner and it is our understanding that in this instance upending a core rule-of-law principle amounts to little more than simplistic yet costly symbolism. This would not serve the regulatory goal. Instead of effectively eradicating forced labor, a reversal would put disproportionate stress on economic operators while overwhelming the capacities of national authorities in processing the available data and making efficient decisions on the risk exposure businesses have when operating in certain product categories or geographical areas. We appreciate that such a reversal has not been proposed by the Commission. It is the position of BDI that the forced labor ban can only be risk-based, efficacious and easy to use if it is not based on a reversal of the burden of proof.
About BDI
The Federation of German Industries (BDI) communicates German industries’ interests to the political authorities concerned. She offers strong support for companies in global competition. The BDI has access to a widespread network both within Germany and Europe, to all the important markets and to international organizations. The BDI accompanies the capturing of international markets politically. Also, she offers information and politico-economic guidance on all issues relevant to industries. The BDI is the leading organization of German industries and related service providers. She represents 40 inter-trade organizations and more than 100.000 companies with their approximately 8 million employees. Membership is optional. 15 federal representations are advocating industries’ interests on a regional level.
Imprint
Federation of German Industries e.V. (BDI) Breite Straße 29, 10178 Berlin, Germany www.bdi.eu T: +49 30 2028-0
Lobbyregisternummer: R000534
Contact Matthias Krämer Head of Department External Economic Policy
T: +49 30 2028 1562
M: M Kraemer@bdi.eu
Dr. Nikolas Keßels
Deputy Head of Department
External Economic Policy
T: +49 30 2028 1518
M: N.Kessels@bdi.eu
BDI document number: D 1693
