EU Forced Labour Regulation: What FIEs in China Need to Know

The EU’s forced labour regulation just got clearer — and FIEs in China should be paying attention

On June 26, 2026, the European Commission published long-awaited guidelines on the EU Forced Labour Regulation (FLR), the rulebook that will fully take effect on December 14, 2027. The guidelines are not new law. They are the Commission’s official interpretation of how the FLR will be enforced. For foreign-invested enterprises (FIEs) that manufacture or source in China and sell into the EU, they matter just as much as the regulation itself.

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The headline rule is simple to state and hard to manage: products made anywhere in the world using forced labour, at any point in the supply chain, cannot be placed on the EU market. There are no country exemptions, no industry exemptions, and no minimum threshold. A single non-compliant component sourced three tiers upstream can be enough to trigger a market ban on the finished product.

For FIEs operating manufacturing or sourcing operations in China, this is a direct operational risk.

Why this affects FIEs

Much of the commentary on the FLR guidelines has focused on Chinese exporters. But FIEs in China often sit in a more exposed position.

First, an FIE manufacturing in China and exporting to the EU is itself an “economic operator” under the FLR, regardless of where its parent company is incorporated. There is no carve-out for foreign ownership.

Second, the guidelines introduce a concept the Commission calls “leverage”, a company’s ability to influence its suppliers through contracts, audits, or purchasing power. Large multinational manufacturers and brand owners typically have more leverage than small trading companies, which means they are more likely, not less, to be flagged as priority investigation targets. Scale and supply chain sophistication, in other words, can raise your profile rather than lower it.

Third, many FIEs already carry parallel obligations under the EU’s Corporate Sustainability Due Diligence Directive (CSDDD). The FLR and CSDDD share a similar risk-based logic, which means FIEs with EU parent companies may need to satisfy two different enforcement regimes – one focused on corporate accountability, the other on product market access – using largely the same underlying supply chain data.

How the enforcement mechanism actually works

A common misconception is that EU customs authorities decide whether a product involves forced labour. They do not. The FLR separates investigation from enforcement: the European Commission (for supply chains outside the EU) or national authorities (for cases within the EU) investigate and decide. Customs authorities simply carry out the resulting order at the border.

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For most China-linked cases, this means the European Commission itself will lead investigations — not a single member state’s customs office. Investigations typically move through information gathering, a preliminary phase, and, where the Commission finds a “substantiated concern,” a formal investigation with a nine-month statutory timeline. Companies that can demonstrate an existing, credible due diligence program are in a materially stronger position at the preliminary stage, before a case ever reaches formal investigation.

Outcomes range from removal of a product from EU shelves and online platforms, to component-level replacement and destruction of the non-compliant part, to a full and permanent market ban for products where the risk cannot be remediated.

Where the exposure concentrates

The guidelines flag three factors that push a case up the priority list:

• The scale and severity of the alleged forced labour
• The volume of the product entering the EU market
• How central the affected component is to the finished product.

For FIEs, the practical implication is that supply chains involving multiple sourcing tiers, cross-border components, or inputs from high-risk regions or industries, such as electronics, new energy vehicles, solar, batteries, and textiles, carry disproportionate exposure. Risk does not stay contained at the point of origin. Rather, it travels downstream to the finished product and to the FIE’s brand.

What FIEs should do now

There is roughly 18 months before full application, and the Commission’s own guidance suggests that building a credible traceability and due diligence system realistically takes a year or more. Waiting until closer to the deadline narrows the options considerably.

A practical starting point is a structured and phased approach:

• Map the exposure. Identify all EU-bound product lines and trace suppliers at least three tiers upstream, prioritizing components and inputs from higher-risk sectors or regions.
• Rebuild supplier contracts. Existing procurement agreements were rarely drafted with FLR-style obligations in mind. Contracts need enforceable forced labour clauses, defined remediation timelines, and clear rights to terminate or substitute non-compliant suppliers, drafted in a way that is actually usable as evidence if an investigation arises.
• Institutionalize evidence. Attendance records, payroll documentation, housing conditions, and voluntary employment confirmations need to be collected systematically and retained for at least five years, not assembled reactively once a request arrives.

None of this needs to be built from scratch internally, and for most FIEs it should not be. Supply chain due diligence design, supplier contract review and redrafting, and documentation frameworks are precisely the kind of cross-border compliance work where getting the structure right early saves substantial cost and risk later.

The bottom line

The FLR guidelines confirm what many compliance teams suspected: this is not a narrow, China-specific trade measure, and it is not one that foreign ownership insulates against. It is a broad, product-focused market access rule that rewards companies able to demonstrate with documentation that their supply chains are clean.

FIEs in China are advised to begin mapping supply chain risk, restructuring supplier contracts, and building an evidentiary trail. This will put them at a safer position when full enforcement begins in December 2027 than those that wait for the first inquiry to arrive.

How Dezan Shira & Associates help?

Dezan Shira & Associates advises foreign-invested enterprises in China on supply chain due diligence, supplier contract drafting and review, and cross-border regulatory compliance. To discuss how these rules may affect your supply chain, contact our team.

Whether launching, restructuring, or expanding, we ensure our clients benefit from coordinated input across legal, HR, tax, and financial teams. From startup to exit, our advisory scales with your business—designed to meet both immediate needs and long-term goals.

Allan Xu 

Partner

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