2021 brings new pressure on Canadian businesses to manage supply chain forced labour risks

A guide to addressing modern slavery in your business and supply chain for Canadian directors and CEOs - Part nine

27 January 2021

As part of the implementation of the Canada-United States-Mexico Agreement (CUSMA), the Customs Tariff Act was amended on July 1, 2020, to prohibit the importation from all countries of goods produced, in whole or in part, by forced or compulsory labour. While the CUSMA quietly became law in Canada, Canadian businesses paid scant attention to this new prohibition. The Canadian government, until mid-January, was silent on enforcement of this prohibition.

Canadian businesses are now quickly waking up and smelling the (fair trade) coffee. On January 12, 2021 the Federal Minister of Foreign Affairs issued an advisory to bring attention to human rights violations in China affecting Uyghurs and other ethnic minorities from the Xinjiang Uyghur Autonomous Region (XUAR). The Minister announced that Canada would not only enforce the CUSMA-driven ban on the importation of forced labour-made goods but it would also require Canadian companies seeking services from Canada's Trade Commissioner Service to affirm an "integrity declaration" that they are not knowingly sourcing products or services from a supplier implicated in forced labour or other human rights violations and committing to conduct due diligence on their suppliers in China to ensure there are no such suppliers.

The Canadian Government also warned Canadian businesses that "In light of the risks inherent in doing business with Xinjiang-related entities, thorough due diligence is essential". (See Part 8: Now is the Time for Canadian companies to "Do Diligence" on their Supply Chains for information on supply chain due diligence.)

Unlike the United States, neither the Canadian Government nor the Canada Border Services Agency have announced any new, enhanced or targeted measures to enforce the ban on goods produced in the XUAR by forced labour.

On January 13, the U.S. Government announced that its Customs and Border Protection (CBP) will detain cotton and tomato products produced in China's XUAR at all U.S. ports of entry. CBP issued a Withhold Release Order (WRO) against these two products produced in China's XUAR based on information it receives that reasonably indicates the use of detainee or prison labor and situations of forced labour. The WRO applies to cotton and tomatoes grown in that region and to all products made in whole or in part using this cotton or these tomatoes, regardless of where the downstream products are produced. This WRO follows an advisory issued by the U.S. Government last year to caution businesses about the reputational, financial, and legal risks of forced labor in China's XUAR.

Canadian businesses must be cognizant of and comply with the restrictions on the importation into the U.S. of goods made with forced labour. U.S. federal law 19 U.S.C. 1307 prohibits the importation of merchandise produced, wholly or in part, by convict labour, forced labour, and/or indentured labour, including forced or indentured child labour. These goods are subject to exclusion and/or seizure by CBP at the U.S. border, and may lead to criminal investigation of the importers.

The Canadian government also recently reminded Canadian businesses that it expects Canadian companies doing business outside of Canada to respect human rights, operate lawfully, conduct their activities in a responsible manner and adopt voluntary best practices and internationally respected guidelines such as the U.N. Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises – including provisions on the elimination of forced labour in their supply chains. Both the OECD Guidelines and the U.N. Guiding Principles contain detailed recommendations on how businesses should carry out supply chain due diligence.

Given the duties of Canadian boards of directors regarding oversight of risk management, boards need to ensure that steps are being taken to adequately assess, manage and address forced labour supply chain risks, import/export risks, reputational risks, class action risks and stakeholder risks.

For further information, please read the first eight parts of our GUIDE TO ADDRESSING MODERN SLAVERY IN YOUR BUSINESS AND SUPPLY CHAIN FOR CANADIAN DIRECTORS:

To find out more about how Gowling WLG can help your business expertly organize and manage due diligence and other governance, compliance and supply chain issues, please contact the author Stephen Pike at Stephen.pike@gowlingwlg.com.


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