The Weekly Pulse: 11 - 15 Mar
Your Weekly Source for Global Regulatory Insights
This week's trending sources in C2P
What are our Content Team talking about?
Hot from the Press! EU Member States Finally Approve the Draft Corporate Sustainability Due Diligence Directive - by Celia Le Lievre
It came to our attention that today, the EU Member States finally reached a deal on the compromise text of the Corporate Sustainability Due Diligence Directive.?
The adoption process was a bumpy road. The vote on the proposal was postponed twice.? On 9 February 2024, the EU Council?postponed the vote on the draft Directive after several Member States, including Germany and Italy, decided to abstain or withdraw their support. The CSDDD was then re-introduced on the?COREPER agenda for discussion between Member States and?officially rejected?on Wednesday 28th February 2024
The Belgian Presidency made a final attempt to pass the Draft Directive by submitting a compromise text that better meets the concerns expressed by delegations. The compromise text largely waters down the ambition of the original Commission's proposal by reducing the scope of companies subject to human rights and environmental due diligence by about 60%.
The following changes have been introduced in the version presented by the Belgian Presidency on March 13, 2024:
Scope:
The general thresholds of the proposal have been increased, to reduce the number of EU and non-EU companies that would fall under the scope of the Directive (from 500 employees to 1000, from EUR 150 million turnover to EUR 450 million). In addition, the thresholds applicable to the franchisors have been adapted accordingly. Finally, the high-risk sectors approach has been deleted. The review clause now refers to the possibility of later addressing the high-risk sectors approach, if necessary. Furthermore, after further analysis, paragraph (2a) of Article 2 on non-operational holdings was reintroduced, with changes to take into account the concerns expressed by some delegations
Chain of activities:
The downstream part of the definition has been limited by deleting the references to the disposal of the product, and by limiting it to business partners who carry out activities for the company or on behalf of the company (deletion of ‘indirect’ relationships).
Climate change:
The obligation for companies above a certain threshold to promote the implementation of the plan including through financial incentives has been deleted. Civil liability: the obligation to provide reasonable conditions for legal standing has been adapted, and the term ‘in its own capacity’ has been deleted to give more flexibility to Member States in applying the rule.
Civil liability:
The obligation to provide reasonable conditions for legal standing has been adapted, and the term ‘in its own capacity’ has been deleted to give more flexibility to Member States in applying the rule.?
Application:
A staged approach has been introduced as follows:
Next step:
The EU Council-approved?version has been sent to the EU?Parliament for approval. Should the EU Parliament adopt its position on the first reading, the EU Council would approve the EU Parliament's position and the Act would be adopted into law.
What are our Knowledge Partners talking about??
EU Reaches Provisional Agreement on Banning Products Made With Forced Labour from Cooley LLP
On 5 March 2024,?European Union legislators reached a provisional agreement on new rules that, once formally adopted, will ban products made with forced labour from being placed or made available on the EU market or exported from the EU market. The EU’s ban on products made with forced labour regulation (FLR) will apply to products which in whole or in part benefited from forced labour. The FLR supplements the existing EU rules combatting human trafficking. The FLR will now be subject to formal approval and is likely to apply across all EU member states from mid-2027.
The potential impact of the FLR and the need for companies to achieve greater supply chain visibility is made clear by the recent impounding of thousands of vehicles at US customs over component parts linked to allegations of forced labour in violation of the US Forced Labor Prevention Act (House Resolution 6256). The EU’s ban would take effect in a similar way, but it would be broader than the US requirements, as it is not limited to forced labour in specific geographic areas.
FLR’s key elements
The full text of the provisional agreement has not been published and is expected to become publicly available in the next few weeks. In the meantime, based on what we know at this stage, we have listed below some highlights of the agreement.
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Products subject to the FLR and the meaning of ‘forced labour’
The ban is expected to apply to products used in whole or in part at any stage of the supply chain (i.e., whether extracted, harvested, produced or manufactured using forced labour). It would not matter whether the occurrence of forced labour arose within the EU or outside, nor whether it was the final product or one of the product components that benefited from forced labour. Prior versions of the FLR defined ‘forced labour’ by referencing the International Labour Organization Convention – ‘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 [themselves] voluntarily’.
In-scope companies
The FLR will apply to small and medium-sized enterprises (SMEs), as well as large companies, placing products on the EU market, distributing products within the EU, or exporting products outside the EU.
Investigations and enforcement will follow a risk-based approach
The provisional agreement sets out clear criteria to be applied by enforcement authorities when assessing risks and violations:
Enforcement is likely to focus on high-risk areas and products
According to the text, the European Commission (EC), at the European Parliament’s insistence, will develop a list of high-risk areas and products which enforcement authorities will need to?consider when assessing the likelihood of noncompliance with the FLR. The EC, however, has the power to identify products or product groups for which importers and exporters will have to submit extra details to EU customs, such as information on the manufacturers and suppliers of these products.
Enforcement authorities
Investigatory and decision-making powers will be divided between the EC and the competent authorities of the relevant member state, depending on whether the risks of forced labour were identified outside of the EU or within a particular member state. The final decision of the lead investigatory authority will, however, apply in all member states. Investigations will be supported by a new ‘Forced Labour Single Portal’, which will include information on bans, a database of risk areas and sectors, publicly available evidence and a whistleblower portal. Third-country cooperation, in particular with countries with similar legislation, also should be expected, with cooperation and information-sharing agreements envisaged by the agreed text.
Risks of product seizures, disposal and fines
If investigations conclude that forced labour has been used, the enforcement authorities can ban or require the withdrawal and disposal of the relevant goods from the EU market and online marketplaces. Noncompliant goods also may be confiscated at customs. The goods would then have to be donated, recycled or destroyed. The provisional agreement clarifies that the requirement to dispose of the product only relates to the non-compliant component and not necessarily the product as a whole if it is possible to replace the individual non-compliant component. However, if companies eliminate forced labour from their supply chains, banned products can be admitted back into the EU market. Companies that do not comply also can be fined.
Publication of guidelines
Guidelines are to be published for companies and enforcement authorities to support compliance efforts and set out best practices. These guidelines, which will include accompanying measures for micro-companies and SMEs, will be available through the ‘Forced Labour Single Portal’ to be launched by the European Commission.
The FLR will not place specific due diligence requirements on businesses. However, it is clear that businesses will need good supply chain visibility to mitigate the potentially costly consequences of noncompliance.
Next steps
Historically, a provisional agreement has provided near certainty that legislation will be adopted without significant further changes. Recently, however, we have seen examples of provisional agreements not being formally adopted by the European Parliament and member states in the Council of the European Union.
EU member states and the European Parliament now need to adopt the FLR for the ban to take effect. Following approval by the EU Council on 13 March 2024, the final step is for the European Parliament to approve the legislation during its April plenary. Once the law has entered into force, EU countries will have three years to start applying the new rules.
What are our clients asking about?
"What are the cybersecurity requirements under the EU GPSR?" Answer by Joyce Costello
The GPSR covers items whether interconnected or not to other items, thereby bringing digital products squarely within its scope, and addressing the fact that new technologies impact product safety.
The principal rule, now set out under Article 5, still holds: economic operators may only place or make available safe products on the Union market.
The necessary elements to be considered include the effect on other products, where it is reasonably foreseeable that it will be used with other products,?including the interconnection of products.
Otherwise, it is necessary to refer to the currently proposed Cyber Resilience Act for mandatory cybersecurity requirements. Under the proposal, manufacturers will need to meet specific essential cybersecurity requirements and thus factor cybersecurity into the design and development phase of products with digital elements (‘PDE’s’).
Manufacturers will be required to inform PDE users without undue delay of an incident and any corrective measures that the user can deploy to reduce adverse impacts of the incident.
Further obligations for manufacturers and developers include defining a support period that reflects the time the product is expected to be in use and providing security updates during that period.
The Act also mandates that when placing a PDE on the market, the manufacturer must include a cybersecurity risk assessment in the technical documentation. If their products are also subject to other Union acts, the cybersecurity risk assessment may be part of the risk assessment required by those respective Union acts, and will not need to be supplied separately.
This information is based on the most viewed regulations on C2P this month.
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