A company’s competitiveness will soon no longer depend solely on its costs or its ability to secure supplies. It will also depend on its ability to demonstrate, with supporting documentation, the origin of the products and components it places on the European market.

The EU regulation on goods produced through forced labour, adopted at the end of 2024, will enable national authorities to investigate a product where there are credible indications of the use of forced labour. If these suspicions are confirmed, the goods may be withdrawn from the European market, banned from import or export, or even destroyed at

The text does not apply solely to products manufactured outside Europe. It also applies to goods produced within the EU provided that forced labour is involved at any stage of their value chain.

“It is no longer simply a matter of complying with a regulatory requirement. Companies will have to be able to demonstrate that they truly understand their supply chains,” he summarises a note published in early August by the law firm Elvinger Hoss.

Forced labour: a $236 billion industry

One reason why Brussels is tightening its regulations is that the economic scale of the phenomenon is constantly growing. According to the International Labour Organisation (ILO), 27.6 million people were subjected to forced labour in 2021, the most recent year for which statistics are available. Among them, 17.3 million people work for private companies.

The ILO estimates that this exploitation results in $236 billion in illegal profits every year, forced labour accounts for a shadow economy comparable in size to that of a country such as Greece.

A quiet revolution for Luxembourg importers

The regulation applies to all operators placing a product on the European market, regardless of their size: manufacturers, importers, distributors, retailers or online sales platforms. SMEs are therefore not excluded from the scope of the regulation, although the authorities will need to take their resources into account when conducting their investigations.

The challenge is all the more complex given that Luxembourg’s direct suppliers are mainly European. In 2023, Belgium, Germany and France accounted for more than half of the Grand Duchy’s imports.

In other words, a Luxembourg-based company purchasing a machine in Germany or electrical equipment in Belgium might have to prove the origin of components manufactured in Asia, metals mined in Africa or agricultural raw materials produced in Latin America.

The distinction between the direct supplier and the product’s actual origin thus becomes one of the main compliance challenges.

According to the note from Elvinger Hoss, the regulation does not impose a general duty of due diligence comparable to that set out in the Corporate Sustainability Due Diligence Directive (CSDDD). In practice, a company unable to document its supply chain will have far fewer grounds on which to respond to requests from the authorities in the event of an investigation.

The approach adopted by the European Union is based on the risk. The authorities will focus their resources on products, sectors and geographical areas posing the highest risks. Before launching any formal investigation, they may request information from companies regarding their suppliers, the preventive measures put in place and the steps taken to identify or reduce the risks of forced labour. It is only in the event of a “well-founded concern” (substantiated concern) that a thorough investigation may be launched.

The sectors most at risk

Not all activities carry the same level of risk. By cross-referencing Luxembourg’s foreign trade statistics, the ILO’s research and the OECD’s sector-specific recommendations, five major sectors emerge as being particularly affected.

Although not included in this ranking, the textile and clothing sector nevertheless deserves special attention. Regularly cited by the ILO as one of the sectors most at risk of forced labour, it has not been included here due to a lack of sufficiently consolidated data on Luxembourg’s imports by product category. A dedicated analysis, based on detailed customs classifications, will enable a more precise assessment of its exposure.

Methodology: The figures presented are derived from international trade statistics (UN Comtrade/WITS) and data from STATEC for the Luxembourg aggregates. The ranking provided does not constitute an official list of the sectors covered by the European regulation. It is the result of an analysis combining the weight of Luxembourg’s imports, the complexity of supply chains and the sectors identified as sensitive by the International Labour Organisation (ILO) and the work of the OECD. The countries mentioned correspond to declared trading partners and do not prejudge the origin of all the components or raw materials used in the manufacture of the products.

A topic that also concerns the financial sector

This trend extends far beyond the manufacturing sector alone. For banks, insurers, investment funds and private equity firms, the quality of the supply chain could quickly become a new criterion for analysis.

A company unable to demonstrate the origin of its components will be exposed not only to regulatory risk, but also to risks relating to financing, valuation and reputation. Due diligence carried out during acquisitions or financing transactions could gradually come to incorporate this aspect in the same way as tax, legal or environmental risks.

A new frontier in competitiveness

The EU regulation on forced labour is not merely a new compliance requirement. It reflects a more profound shift in globalisation. For decades, companies have optimised their supply chains with a focus on cost and efficiency. In future, they will also need to be able to demonstrate transparency in this regard.

For Luxembourg-based importers, traceability is gradually becoming a strategic asset. And, in the long term, a genuine competitive advantage.