This year has seen unprecedented action on forced labour and modern slavery. Canada’s major trading partners and allies, most notably the United States, have been moving quickly to address the impact of human rights violations in the supply chains of companies subject to their jurisdiction. Canadian firms, if they haven’t already, should be ensuring that their supply chains are fully compliant with existing forced labour and modern slavery laws as well as those soon to be implemented in Canada.
Canada has been considering various legislative reforms for its approach to dealing with forced labour. There are currently four bills before Parliament that address this issue and, in March of this year, Employment and Social Development Canada (“ESDC”) released a report entitled “Labour exploitation in global supply chains: What we heard” (the “ESDC Report on Forced Labour”) that shared the outcome of consultations held in 2019 with industry and civil society on this issue. As discussed below, the ESDC Report on Forced Labour provided some useful insights into how the government may legislatively tackle forced labour in supply chains.
Despite these initiatives, the Canadian government has been criticized for its limited enforcement thus far against forced labour. Based on its public announcements, the Canadian government has seized only one shipment of clothing suspected of being manufactured with forced labour from China, and terminated two of its supply contracts on allegations the Malaysian manufacturers were using forced labour since the prohibition on importing goods produced using forced labour was implemented in 2020. Notwithstanding the limited enforcement action, the Canadian government continues its efforts to enact new legislation targeting the risk of forced and child labour in Canadian companies’ supply chains.
This Part IV of our series on forced labour provides an overview of recent developments in this area outside of Canada, the ongoing legislative initiatives in Canada and how these developments may impact businesses in Canada and abroad. In light of these developments, Canadian companies should be ensuring their compliance organizations are prepared for increased enforcement activity and additional obligations related to forced and child labour that could be brought into force through new modern slavery legislation in the near future.
Recent Developments Outside Canada – US, EU and UN
The United States has been making great strides to crack down on forced labour, and has intercepted more than 1,300 shipments from China since July 2020 related to allegations of forced labour. The U.S. Department of Labor also recently released the 10th edition of its List of Goods Produced by Child Labor or Forced Labor, which added several items to the list and included in-depth supply chain studies of lithium ion batteries, palm oil, and solar panels. It also released new tools that can be used to help companies prevent labour abuses in the production of their goods. In addition, the recent implementation of the Uyghur Forced Labor Prevention Act (“UFLPA”) is expected to further increase enforcement against goods made in whole or in part from forced labour at US borders, given the alleged prevalence of forced labour of Uyghurs in the Chinese region of Xinjiang, and the fact that about 20% of global cotton supply comes from this region.
In Europe, on September 14th the European Commission announced that it was proposing to prohibit products made with forced labour from the European Union. Under the proposal, national authorities would be able to “start investigations on products for which there are well-founded suspicions that they have been made with forced labour. They can request information from companies and carry out checks and inspections, including in countries outside the European Union.” If national authorities find forced labour in a product’s supply chain, they can order the withdrawal of the products already placed on the market, and prohibit the sale and export of these products – companies will instead be required to dispose of the goods.
The United Nations’ Office of the High Commissioner on Human Rights also recently released a report focusing on Xinjiang (the “UN Report on Xinjiang”). Among other findings, the report concluded that certain labour and employment schemes used by the Chinese government in Xinjiang “involve elements of coercion”. Though the allegations have been denied by China, the UN Report on Xinjiang will likely lead to further global action regarding forced labour in Xinjiang and more globally.
Addressing Forced Labour and Child Labour Remains a Canadian Government Priority
Canada’s commitment to “eliminating all forms of modern slavery” was reiterated in the Prime Minister’s December 16, 2021 Mandate Letter to the Minister of Labour, the Honourable Seamus O’Regan and to the Minister of International Trade, Export Promotion, Small Business and Economic Development, the Honourable Mary Ng.
In particular, Minister O’Regan “with the support of the Minister of Public Safety, the Minister of Public Services and Procurement and the Minister of International Trade, Export Promotion, Small Business and Economic Development” was asked to “introduce legislation to eradicate forced labour from Canadian supply chains and ensure that Canadian businesses operating abroad do not contribute to human rights abuses”.
Similarly, Minister Ng is charged with ensuring that a whole-of-government approach is taken while providing support to the Minister of Labour in introducing legislation to eradicate forced labour from Canadian supply chains and “ensuring that Canadian businesses operating abroad do not contribute to human rights abuses”.
ESDC’s Report on Forced Labour
To help inform the government’s policies on forced labour, as noted above, ESDC released its ESDC Report on Forced Labour in March 2022. The report provides the results of the consultations held by ESDC in 2019 on possible measures to address labour exploitation, including child and forced labour, in supply chains. It discusses stakeholder views on the imposition of due diligence requirements on businesses to prevent the use of forced labour (and potentially other human rights violations) in their supply chains. Generally, there was strong support among civil society and businesses for a due diligence requirement, with 71% of surveyed businesses and industry representatives agreeing that businesses should be required to conduct due diligence on their supply chains. The report noted that “some in favour of due diligence also noted that it would only be effective if it is supervised and enforced through potential penalties”.
The ESDC Report on Forced Labour also noted that consultation participants generally agreed that any legislation to tackle forced labour should include the following elements:
- an approach that builds on the strengths, and is aligned with, other effective international legislation;
- a focus on private and public sectors, including Government of Canada procurement contracts;
- an emphasis on partnership and collaboration among all relevant stakeholders; and
- an approach that responds to and meets the specific needs of all genders.
One industry group indicated that transparency reporting measures, similar to those implemented in the United Kingdom and Australia, may be more “comfortable” for its members. Industry groups also asked that the government consider issues such as building capacity for businesses to improve their supply chains using existing tools, allowing time for industries to adjust to their changing responsibilities, and avoiding duplicate reporting procedures, instead allowing for reports to be used in multiple jurisdictions.
As discussed below, some elements of the ESDC Report on Forced Labour can be found in the bills that are currently before Parliament. However, those bills that are most likely to become law do not explicitly impose a due diligence requirement.
Canadian Legislative Initiatives
At this time, there are four bills that have been introduced into Parliament that seek to address the risk of forced labour and child labour in supply chains, namely bills S-211, C-243, C-262 and S-204. We discuss each of these bills below.
1. Bill S-211 – An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff
Bill S-211, An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff was introduced by the Honourable Julie Miville-Dechêne in the Senate on November 24, 2021. As noted below, it is quite far along in the parliamentary review process and, of the bills discussed herein, is the most likely to become law.
Similar to its predecessor, Bill S-216, which we covered in the previous parts of this series, the purpose of Bill S-211 is to increase transparency in supply chains by imposing reporting obligations on specific entities involved in the production or import of goods in an effort to reduce forced labour and child labour.
If passed as-is, Bill S-211 will apply to government institutions and most entities (the definition of which is discussed below) that produce, sell, or distribute goods anywhere in the world, import goods into Canada, or control an entity engaged in any of these activities.
An “entity” within the meaning of the Bill is defined as a business that is listed on a Canadian stock exchange or has a connection to Canada (such as having a place of business in Canada, doing business in Canada, or having assets in Canada) and meets at least two of the following three conditions for at least one of its two most recent financial years: (1) the entity has at least $20 million in assets, (2) the entity has generated at least $40 million in revenue, or (3) the entity employed an average of at least 250 employees. Importantly, these thresholds are based on global financials of the entity, not just its Canadian operations. This definition could therefore capture many foreign firms even if they have very limited connections to Canada.
Bill S-211 requires these entities to:
- provide the Minister with a report of the measures and diligence processes they have implemented to prevent and reduce the risk that forced labour or child labour was used to produce or import goods into Canada, and make the report available to the public, including by publishing it in a prominent place on its website; and
- if that entity is incorporated under the Canada Business Corporations Act, provide the report or revised report to each shareholder, along with its annual financial statements.
Bill S-211 also sets out fines of up to $250,000 for any reporting entities that fail to comply with the provisions or who knowingly make a false or misleading statement. Any party that may have been involved with the infringement by authorizing, consenting, or participating in it is also subject to similar penalties.
Lastly, Bill S-211 will amend the Customs Tariff to prohibit the importation of goods into Canada that are “mined, manufactured or produced” wholly or in part by child labour. This builds on the existing prohibition in the Customs Tariff that prohibits the importation of goods into Canada that are “mined, manufactured or produced” wholly or in part by forced labour.
Bill S-211 has completed all stages of review in the Senate, has passed its first and second reading at the House of Commons, and is currently being considered before the House of Commons’ Standing Committee on Foreign Affairs and International Development. If it passes its third reading at the House of Commons, Bill S-211 could go into effect as early as January 2023, which would create an obligation on the entities described above to file their initial reports by May 31, 2023.
2. Other Bills before Parliament that address forced labour
There are several other bills before Parliament that address forced labour. Though these bills are not as likely to be enacted as Bill S-211, they provide some insight into the kinds of measures that Parliament is being asked to consider when contemplating how to address this issue.
(a) Bill C-243 – An Act respecting the elimination of the use of forced labour and child labour in supply chains
Bill C-243, An Act respecting the elimination of the use of forced labour and child labour in supply chains was introduced in the House of Commons by M.P. Marcus Powlowski as a private member’s bill on February 8, 2022. At this time, Bill C-243 awaits its second reading in the House of Commons and has yet to be considered by the Senate.
Bill C-243 applies to “entities” as defined in Bill S-211, but not to government institutions. However, like Bill S-211, Bill C-243 imposes an obligation on certain entities to report on the measures taken to prevent and reduce the risk that forced labour or child labour is used at any step in their production of goods in Canada or elsewhere, or in the production of goods they import into Canada. To carry out this aim, the Bill calls for an inspection regime and gives the Minister of Public Safety and Emergency Preparedness the power to require an entity to provide certain information.
Further, Bill C-243 amends the Department of Public Works and Government Services Act to require that the Minister of Public Works and Government Services prevent or reduce the risk that forced labour or child labour is used in relation to material or services acquired for the use of a government department. It also requires the Minister to table annually in each House of Parliament a report on the measures taken during the previous year to prevent and reduce such risk.
As written, Bill C-243 would also create a continuing obligation to update the information disclosed in an entity’s annual report and to submit a revised report as soon as feasible after new and relevant information is available.
Similar to Bill S-211, reporting entities who fail to comply with the provisions of Bill C-243 or who knowingly make a false or misleading statement are subject to fines of up to $250,000, along with any parties involved in the violation through consent, authorization, or direct participation.
(b) Bill C-262 – An Act respecting the corporate responsibility to prevent, address and remedy adverse impacts on human rights occurring in relation to business activities conducted abroad
Bill C-262 is a private member’s bill introduced in the House of Commons in March, 2022 by New Democratic Party M.P. Peter Julian. It would place far more onerous obligations on entities than Bills C-243 and S-211. It is also much broader in scope, addressing human rights abuses more generally as opposed to focusing solely on forced labour issues.
Among other obligations, Bill C-262 would impose a duty on entities to avoid causing adverse impacts on human rights outside of Canada as a result of carrying out their business activities, and as a result of their business relationships. Bill C-262 would also require an entity to develop due diligence procedures that would, among other things, enable it to “identify and assess actual and potential adverse impacts on human rights resulting from its activities as well as from its business relationships, including with suppliers or contractors”.
In contrast to Bills C-243 and S-211, Bill C-262 also creates a private right of action for those who allege that they have suffered “loss or damage as a result of a failure by an entity to comply with its obligations to prevent adverse impacts” on human rights. It also has several provisions aimed at reducing jurisdictional hurdles that might prevent Canadian courts from hearing claims brought by international claimants.
Bill C-262 remains at the early stages of the legislative process, and there is no indication that it has the support required for it to become law. However, it is another example of the increasing prominence of forced labour and other human rights concerns that touch on the global impacts of Canadian businesses and business practices.
(c) Global action targeting Xinjiang and Bill S-204 – An Act to amend the Customs Tariff (goods from Xinjiang) or Xinjiang Manufactured Goods Importation Prohibition Act and similar legislation globally
In recent years, there have been moves to clamp down on the alleged use of large-scale forced labour in cotton production in Xinjiang, China, following allegations of widespread human rights abuses related to Uyghur internment camps located in the region.
The Xinjiang region is estimated to account for 20% of the world’s cotton production and 80% of China’s domestic cotton production. To prevent products made by way of forced labour from entering into international commerce, as described below, the U.S. has begun entirely banning imports from Xinjiang under the presumption that products sourced from the region are products of forced labour.
Similarly, the Australian Parliament has enacted legislation that bans the importation of goods from Xinjiang in the People’s Republic of China as well as goods from other parts of the People’s Republic of China that are produced in whole or part by forced labour.
Bill S-204, as currently drafted, takes a slightly different approach. Specifically, it would ban entirely the importation of goods produced wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China regardless of whether they were produced in whole or in part from forced labour. This would make it even more aggressive than its U.S. and Australian counterparts, which leave room for the importation of goods from the Xinjiang region that are not produced using forced labour.
Since being introduced in the Senate on November 24, 2021 by Senator Leo Housakos, Bill S-204 has passed its first reading in the Senate and is currently being debated during its second reading stage. The last debate was during the Senate’s May 10, 2022 sitting.
As mentioned above, the U.S. has already enacted legislation to address forced labour in Xinjiang. Specifically, in December 2021, the U.S. signed into law the Uyghur Forced Labor Prevention Act (“UFLPA”), which aims to curb the flow of products into the country that originate from forced labour in other countries.
The UFLPA prohibits the importation of goods from Xinjiang unless the U.S. government determines that the importer has complied with certain conditions, including establishing that the goods were not produced by forced labour. Specifically, the UFLPA creates a rebuttable presumption that all goods manufactured in Xinjiang are made with forced labour unless the commissioner of U.S. Customs and Border Protection certifies that certain goods are known to not have been made with forced labour. This rebuttable presumption came into effect on June 21, 2022.
Canada has publicly announced its commitment to implementing modern slavery legislation, and there are several bills making their way through the legislative process which could become law, and may come into force in the near term. Although Canada has been slow to kickstart its enforcement efforts in respect of Canada’s ban on the importation of goods made wholly or in part from forced labour, the more aggressive enforcement stance taken by Canada’s international counterparts (namely the U.S.) as well as the release of international reports such as the U.N. Report on Xinjiang are increasing pressure on the Canadian government to do more going forward.
In this context, Canadian companies should be preparing for increased enforcement activity, as well as potential additional obligations related to forced and child labour brought into force through new modern slavery legislation in the near future. Some preliminary steps Canadian companies can take were reviewed in detail in Part III of this series, which include the following:
- establish and support an organizational culture focused on preventing human rights violations, including the use of forced labour;
- implement or modernize company policies, practices, and training programs related to forced labour and supply chain ethics;
- gather information about your supply chain and consider investing in tools to do so more effectively;
- be familiar with the indicators of forced labour – these are the signs the CBSA will likely be looking for when enforcing the prohibition on importing goods produced using forced labour;
- be particularly aware of high-risk sectors and source/destination countries – subject such goods to special scrutiny;
- be cautious when it comes to supplier audits and certification regimes;
- implement robust supply chain due diligence procedures that focus on more than just your immediate suppliers; and
- even if not legally required, consider being transparent about company practices and risk assessments related to forced labour.
Engaging in these activities now will help ensure that companies have appropriate measures in place when enforcement action increases or new obligations related to forced and child labour are imposed. McCarthy Tétrault’s International Trade and Investment Law team has significant experience in assisting clients develop strategies and policies around issues such as these. We will continue to keep our clients apprised of developments in Canada’s work to address modern slavery and forced labour.