New E.U. Due Diligence Requirements Offers Insight For U.S. Importers

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Aug. 15, 2024
By: Pietro N. Bianchi

On July 25, 2024, European Union Directive (2024/1760) on corporate sustainability due diligence entered into force. The European Commission explained that the “new rules will ensure that companies in scope identify and address adverse human rights and environmental impacts of their actions inside and outside Europe” and will benefit EU citizens, companies, and developing countries. The cost of realizing these benefits will be borne by businesses, which will be response for the costs of establishing and operating the due diligence process and any “transition costs” needed to adapt the business or its supply chains to due diligence obligations.

Articles 7 to 16 of the directive establish many detailed regulations that create a multi-step process for companies to conduct human rights and environmental due diligence. These are summarized in Article 5, which states that companies are to:

(a) integrate due diligence into their policies and risk management systems;

(b) identify and asses actual or potential adverse impacts and, where necessary, prioritize actual and potential adverse impacts;

(c) prevent and mitigate potential adverse impacts, and bring actual adverse impacts to an end and minimize their extent;

(d) provide remediation for actual adverse impacts;

(e) carryout meaningful engagement with stakeholders;

(f) establish and maintain a notification mechanism and a complaints procedure;

(g) monitor the effectiveness of their due diligence policy and measures; and

(h) publicly communicate on due diligence.

Failure to implement these processes may result in penalties. The EU regulations stand in stark contrast to U.S. regulations on forced labor. Under U.S. forced labor laws, such as Uyghur Forced Labor Prevention Act (UFLPA), goods made with forced labor are not permitted to enter the U.S., no matter how diligent the importer is.

This does not mean that U.S. importers do not benefit from exercising due diligence. Besides preventing a shipment from being detained in the first place, a reasonable degree of due diligence can provide mitigation of penalties or other punishments. U.S. importers can view the E.U. due diligence regulations as a useful roadmap while attempting to comply with U.S. and a necessary step if importing in the E.U. E.U. importers will have to implement the due diligence programs, which should help them comply with U.S. laws, but should also understand that their goods can still be refused entry into the U.S.

If you have questions about UFLPA, forced labor, green initiatives, or supply chain diligence do not hesitate to contact an attorney at Barnes Richardson, & Colburn LLP.