New study: ‘The Potential Consequences of Doing Business with PRC Firms for Belgian Companies’

03 June 2022

EU Today, 3 June 2022

by Gary Cartwright / Photo credits: EU Today

An increased awareness in the west of the People's Republic of China’s use of forced labour, and the suffering of the Uyghur people - a Muslim minority largely based in the Xinjiang region - has led to governments introducing legislation aimed at steering companies away from supply chains leading to forced labour.

A recent study, The Potential Consequences of Doing Business with PRC Firms for Belgian Companiesfrom the Brussels-based European Foundation for Democracy (EFD), authored by Pieter Cleppe, Vice-President of Belgian think tank Libera has, looked at existing legislation in various countries, speculating that ‘the activities of Belgian companies in the global market, may at one point feel or have already been impacted by the consequences of all kinds of new “due diligence” obligations regulations, whether they are Belgian, EU or even U.S. regulations.’

In July 2021, six U.S. agencies published the 'Xinjiang Supply Chain Business Advisory' which includes guidelines and information on dealing with human rights abuses in the PRC province of Xinjiang: these agencies are able to ’issue and/or enforce legally binding measures, which can include, for example, Withhold Release Orders (WROs) from the U.S. Customs and Border Protection (CBP), entry of companies or individuals into the U.S.’

Whilst France, the Netherlands and Germany have already adopted legislation on supply chain care no such legislation currently exists at Belgian level, although in February 2022, the European Commission released its Proposal for a Directive on corporate sustainability due diligence.

This is meant to ‘include effective action and enforcement mechanisms to ensure that forced labour does not find a place in the value chains of EU companies’ as it has concluded that ‘voluntary action does not appear to have resulted in large scale improvement across sectors’.

Belgian Members of Parliament have now proposed due diligence legislation for companies that would ‘impose a duty of care on companies and to make them accountable with regards to respect for human, labour and environmental rights, throughout their value chain’.

The proposal was submitted by the Social Democrat and Green Parties. In February 2021, 60 Belgian companies issued a letter in support of such legislation, lamenting that ‘only 37 per cent of companies practice integrated care, according to a European Commission poll.’

The largest Belgian business association VBO-FEB has called for a ‘nuanced, pragmatic approach’ putting forward a number of principles that need to be followed, including proportionality, avoiding legal uncertainty and fragmentation, opting for a sectoral approach, merely imposing an obligation to make an effort, and avoiding making companies liable for circumstances beyond their control.

The EFD study states that ‘according to a recent study that was commissioned by the European Commission and conduct by the British Institute of International and Comparative Law, Civic Consulting and LSE Consulting, the cost of “due diligence requirements to identify, prevent, mitigate and account for abuses of human rights, including the rights of the child and fundamental freedoms, serious bodily injury or health risks, environmental damage, including with respect to climate” would amount to 0.14 percent of turnover for small and medium-sized enterprises and 0.009 percent for multinationals’

Non-compliance with legislation can carry both legal and reputational consequences.

The study suggests that existing criminal law may already impose due diligence obligations, highlighting a case involving a recent legal complaint in France against fashion retailers.

The claimants are three civil society organisations – Sherpa, Collectif Ethique sur l’étiquette and the European Uyghur Institute. A complaint has been filed with the Paris Prosecutor Office against several multinationals in the garment industry, accusing them of being involved, through their suppliers, in the forced labour imposed on the Uyghur population within the PRC.

The alleged legal basis for the claim is ‘concealment of the crime of aggravated bondage, crime of human trafficking in an organised gang, crime of genocide and crime against humanity.’ Similar complaints have been filed in other European countries. In Germany, in September 2021, and in the Netherlands, in December 2021.

The study concludes that ‘It is therefore of the utmost importance for companies trading with the PRC to pre-empt more legislation or to avoid falling into trouble from U.S. regulation, by ensuring that there is no forced labour in their supply chains.’



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