Stephen: Good morning, everybody and welcome to our webinar on Forced Labour and Child Labour in Supply Chains. Let me first say it's great to have you wish us. We hope that today's session will be informative and productive and help you and your businesses address forced labour and child labour risk in supply chains, both in Canada and elsewhere in the world, wherever you are. So let me start by saying that we've got a terrific panel today. You can see them on the screen and I'm going to introduce them as they provide their perspectives over the next 60 minutes. So let me start today by saying that I think that Canada is really at a tipping point when it comes to forced labour and child labour in supply chains. Right now Canada has no legislation requiring companies to report specifically on forced labour and child labour in supply chains. You might think after this session that things are going to change. There is legislation that's been tabled in the Senate. It's past Second Reading. We're going to hear a lot about that in a few minutes. But let's take a step back and look at where Canada really stands right now. Until July, 2020, Canada had no prohibition on the importation of goods made with forced labour or child labour. It still doesn't have a prohibition on the importation of goods made with child labour. July 1, 2020, when the United States, Mexico, Canada Agreement, USMCA, or CUSMA depending on which side of the border you're on, came into force Canada had to abide by its agreement and put in place a prohibition on the importation of forced labour made goods. Accordingly, the customs tariff was amended to do that and while we're 18 months into that forced labour ban there's only been one seizure of forced labour goods late in 2021. So only one seizure of forced labour goods although press reports continue to say that tens of billions of dollars of forced labour made and child labour made goods enter Canada every year. In December the Prime Minister issued mandate letters to his new Cabinet and the Minister of Labour, the Federal Minister of Labour, was tasked with introducing legislation to eradicate forced labour from Canadian supply chains. Three other Ministers in the Cabinet were tasked to support him in that effort. Last week the Federal Government terminated a supply contract that's worth almost over a quarter of a billion dollars because it was alleged that the products supplied were allegedly made with forced labour.
So what are we going to talk about today? We're going to find out more about Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act, that's Bill S-211 in the Senate. We're going to hear from Senator Julie Miville-Dechene on that. Then we're going to hear my comments on the role of the board of directors and also the global context for Bill S-211. Then we'll hear from William Semins on practical insights on how businesses can manage forced labour and child labour supply chain risks. We'll hear from Steven Hill on enforcement at the border. The American experience and what it means for Canadian businesses. Then we'll hear about what can be expected of Canadian businesses going forward from Senator Julie Miville-Dechene and Jerome Lussier. We'll follow that by a Q&A session so if you have questions feel free to put them in the chat and we'll try and get to them before the end of our session.
Let me introduce our first panelist. Senator Julie Miville-Dechene, Canada's leading Parliamentarian in the fight against forced labour and child labour in supply chains, introduced B-S-211, Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act in Canada's Senate in November. The Senator is Co-chair of the All Party Group to End Modern Slavery and Human Trafficking and I'm delighted to welcome her to our panel today to talk about the path to S-211 and what it will mean for Canadian businesses. Good morning, Senator Miville-Dechene.
Senator: Good morning and thank you very much Mr. Pike for this invitation. I come to this issue from a legislative point of you, not a legal one and not a business one. Before my appointment to the Senate I had a long career as broadcast journalist. I was posted in Washington in the 90's. I was also the head of the Quebec Feminist Research Council where I worked on issues like human trafficking. So what drives me is clear. Forced labour is an appalling violation of human rights. We cannot be complicit. Bill S-211 is a tool. A first step in the fight against forced labour and child labour in the supply chains of companies doing business in Canada. Canadian or not. So although it is a Canadian legislation it would apply to foreign entities in Canada. For me, it's been an exercise in patience. Similar Bills have been introduced and re-introduced four times since 2018. I'm pretty optimistic this time around because of a more favourable context in the politics. There's a lot of pressure on government to act and the pandemic has put his issue front and center. Note that Bill S-211 is what we call a private Member's bill which means it is sponsored and supported by a Senator, not the government. Senators have only one vote and do not have the army of lawyers and all the services of the government. It doesn't mean the Bill cannot pass but it takes longer and requires much diplomacy. At it's core Bill S-211 is a supply chain transparency Bill. It requires large companies operating in Canada to report, once a year, on their effort to reduce or prevent the risk of forced and child labour in their supply chains. As we have said, it's time to shed light on the high human costs of low prices. Forced labour reports must be approved by the company's boards of directors. Just like financial statements. The idea is to put financial and non-financial disclosures on equal footing and Mr. Pike will talk about that issue a bit later. S-211 is inspired by the British and the Australian examples but it is a stronger Bill. It includes fines of up to $250,000.00 for companies and liability of officers and directors who neglect to report or who provides false or misleading information. Transparency also implies a reputational risks for companies. They can be named and shamed for not complying or providing a botched report. Let's remember that human rights advocates and NGOs will likely scrutinize reports and identify sub-par companies.
Polls show that Canadian consumers care about these issues. Investors increasingly care as well. In fact, the most powerful "enforcement mechanism" may not be the government interventions but civil society vigilance and consumer preference. So which companies are covered by the Bill? Large ones which have at least 20 million in assets, 40 million in global revenues or 250,000 plus employees. Our threshold is lower than California, France, Australia, which has 100 million in revenues and UK, 62 million in revenues. So S-211 would cover more companies than elsewhere. There has been some debate on this. Obviously business groups what higher thresholds and NGOs want lower thresholds. But there's no magic or objective numbers. It's a political choice. The latest version of this Bill applies to government institution as well and not only to private business. We were told by business groups that government should be exemplary. Why? Well, because there's no strong processes currently in place to prevent forced labour in public procurements and a good example, to which Stephen Pike referred earlier, Canadian Government has bought over 220 million worth of medical gloves from Malaysian companies, Supermax, despite allegations of forced labour. The US blocked a shipment from Supermax last fall but not Canada. So we just learned that the Government of Canada has terminated these contracts but it took months.
I'm conscious that some business might find it difficult to know exactly what constitutes forced labour or child labour under this Bill. Forced labour is a somewhat easier concept to understand because there has to be element of threat or coercion. Like debt bondage or confiscation of documents. Child labour is more complicated and we spend much time trying to define it appropriately. It's clear that not all child labour is to be condemned. Helping in household chores or helping in the family business, for example, are normal in many places. Even in Canada and the US. Bill S-211 define child labour in a way that, of course, includes the worst forms of child labour but it also includes work that it is mentally, physically or morally dangerous or that unduly interferes with schooling, as defined by the international labour organization. Also, Bill S-211 amends the tariff customs to block the entry into Canada of goods made with child labour, in addition to forced labour. This seeks to harmonize our border importation legislation with ESG legislation. So ultimately this Bill pursues two objectives. Aligning business practices with Canadian values and principles and ensuring fairer competition by limiting the ability of companies to employ slave labour to undercut their competitors with more equitable practices. We have had good feedback on this. Politically, mixed reaction to our Bill. Human rights groups find it too timid and business groups finds it too demanding. It's not surprising. The good news is that we have a lot of support in Parliament among Conservatives, Liberals and independent Parliamentarian like me. Also the Liberal Government has promised to legislate on supply chain and forced labour in his last electoral platform in the fall. This is a first. It gives me hope, obviously, that this Bill can be finally adopted. As you know, politics is the art of compromise. I'm proposing a Bill that is incremental to build consensus in Parliament. Many human rights advocates are pushing hard for a stronger Bill with a due diligence clause that could give victims the right to sue companies in Canada. The Bill should be studied in committee next month and it could be improved or reenforced as a result. If the Bill is adopted by the Senate, then it will move to the House of Commons to be reviewed and hopefully adopted. Thank you.
Stephen: Thank you very much, Senator Miville-Dechene. That was a great outline of the path to S-211 and what it's going to mean for Canadian businesses. Certainly it's groundbreaking, and in terms of the evolution of supply chain transparency legislation around the world, it definitely leads everything else that's already in force today. So thank you very much for that. We'll next move on to a talk for a few minutes about the role of the board of the directors and then also the global context for Bill S-211. While the role of the board of directors and how it becomes engaged in supply chain issues, especially human rights abuses, is clear. The role of the board of directors is to lead and in leading directors have a fiduciary duty to the corporation. They have obligation to act honestly, in good faith, with a view to the best interests of the corporation. In fulfilling that duty directors can consider the interests of stakeholders in Canada, consumers, suppliers, NGOs, many of the stakeholders that are providing input and responses to Bill S-211 that Senator Miville-Dechene referred to. Bill S-211, like the UK and Australian Modern Slavery Act, escalates risks and issues relating to forced labour and child labour right onto the board's agenda. The boards of directors of Canadian companies can no longer sit on the sidelines when these issues appear on their agenda, and they will, especially if legislation like Bill S-211 becomes law. So one of the questions to think about, and we're not going to be able to answer it today, but how will a board of directors align the use of forced labour and child labour in their supply chain and operations with the best interests of the corporation? That's a discussion we can spend a whole webinar on but we won't do that today. From my perspective, in board education that I've provided, I've always focused on the fact that boards are responsible for oversight of risk management in the corporation. Forced labour and child labour in business operations and supply chains expose a corporation to a wide variety of risks, many of which are material. Reputational risk; supply chain instability risk; brand erosion risk; litigation risk; regulatory risk; importation risk, and more. That's the board's job but there's other ways that the board becomes engaged. So for example, in the US and Canada activists shareholders are worried about shareholder value when they consider forced labour and child labour risks in supply chain. They've taken up this issue and in the US there's been a quadrupling of shareholder proposals on the issue of human rights violations in supply chains over the past 5 years. They're pushing public companies to conduct human right risk assessments on their supply chain and to provide more supply chain transparency. In fact, forced labour and child labour in supply chains also give rise to unexpected risks that the board has to deal with. For example, we've seen shareholder proposals instigated by a company's poor ranking in the corporate human rights benchmark compared to its competitors. Recently I saw a letter from a group of Senators on the US Senate Foreign Relations Committee to the CEO of an American public company raising concerns about the company's use of workers in the Xinjiang region of China. The letter was cc'd to Larry Fink, CEO of BlackRock, as well as another major investor in the company. So we see all of these forced labour and child labour issues and risk getting to the board and requiring the board to take action. My advice has always been that the board should lead by adopting a policy or code of conduct prohibiting the use of forced labour and child labour in business operations and supply chains. We'll hear more about that later but that's the starting point and it's up to management to operationalize, enforce, monitor and report on this commitment. Without leadership at the top it may not be realistic to expect progress on these issues to somewhat, or somehow, organically develop and thrive within the business. That's my perspective on boards of directors.
Let me take a minute or two now to talk about global legislation and how Canada is really out of step with what's going on in major G7 countries and other progressive Western countries. What are the tools in the tool box for governments? There's four kinds of laws out there. One, import bans on forced labour goods. You see that in the US. We see that in Canada. It's actually being proposed in the Netherlands as well. Number two, supply chain transparency or reporting legislation. We see that in California, in the UK and Australia, and as Senator Miville-Dechene said, that's exactly what Bill S-211 is about. Third tool would be mandatory human rights due diligence legislation which can include a duty to remediate or provide access to remedies in civil court. We see that in France, in Germany, in the Netherlands, in Norway and the long delayed mandatory human rights due diligence legislation we're still waiting for the in EU. Then finally, the fourth, which is much lesser known are targeted legislation or sanctions. We see that in the US with the 2017 Countering America's Adversaries Through Sanctions Act, which entitled three pertains to goods manufactured with the use of North Korean Nationals anywhere in the world. Those products are deemed to have been made with forced labour or in 2021 the Uyghur Forced Labour Prevention Act, that we'll hear more about in a few minutes, which deems goods from Chinese Xinjian, Uyghur autonomous region to be made with forced labour. Briefly, looking over the past 10 years we've seen an evolution of supply chain transparency and reporting legislation in all the countries that I've talked about there. This evolution continues, and depending on what's going on in each country, every country has taken a bespoke approach to what kind of legislation will work best for the businesses and the people of their countries, that are in the laws that are in tune with their legal systems and with their business and legal culture. So let me stop there, providing that context, and the most important takeaway is with all of this legislative and regulatory activity around the world, there have been none in Canada until the USMCA required Canada to take steps to ban the importation of forced labour goods. But as Senator Miville-Dechene talked about with Bill S-211, it's time for Canada to take a step, proudly, to the front of the line and pass legislation that are going to address forced labour and child labour in supply chains of Canadian businesses.
Our next speaker, if I may, is William Semins from the law firm of K&L Gates. He advised companies with business in foreign countries on matters involving Foreign Corrupt Practices Act, in global ethical supply chains. He is also a member of the K&L Gates law firm Ethical Supply Chain Task Force and an expert in how businesses can manage forced labour and child labour supply chain risks. Over to you, Bill.
Bill: Thank you. It's great to be here. There are a couple of buzz words that I heard in both presentations so far. Incremental progress. When we talk about practical application and what can companies do to root out forced labour in its supply chain, it's very important to stay sober and be practical. In the absence of hard due diligence requirements yet, and we know that it's an evolution and that may be on the way, how do companies get their arms around what seems to be an impractical problem to get a hold of and, if not impossible to accomplish, particularly in certain jurisdictions and particularly with impediments to transparency that are in fact very real. You've got lack of information. Lack of access to information. You've got lack of contractual privity beyond the first tier. You've got a lack of leverage beyond first tier suppliers and sometimes even with first tier suppliers. You've got fluid circumstances on the ground where the data that you're trying to gather to be transparent is often volatile and often unreliable. So how do you manage that when you've got supply chains that have thousands of participants, going all the way to the raw materials level, where do you begin? That's where I go back to the Senator's comment about incremental progress. This is an incremental Bill and I would strongly encourage companies that are interested in this area, as part of their ESG initiatives, to take incremental approach to progress. Any progress is better than no progress at all and it's not going to happen overnight. By the way, the kind of data that you need to gather to become transparent, your supply chains, you cannot gather overnight. As we see, Steven Hill's going to talk about it in a few moments, companies that are struggling to get out from under a WRO are having to prove the negative in the absence of the type of data, that if you prepare for and you gather it systematically over time through your relationships with your first tier suppliers and then push that on down, it becomes a much more practical way to manage this risk. One of the things that I'm encouraged about is that nobody wants forced labour in their supply chain. If there were a magic pill that companies could take to discover in their supply chain and eradicate it they would take it.
These initiatives, the questions that we get asked repeatedly are where do I start? What are other people doing? How do I get my arms around this problem? The corporate human rights benchmark, which Stephen referenced, is a great place to sort of see what others are doing. The upshot here is that nobody, even the most sophisticated companies that participate in this, 230 companies participated in the corporate human rights benchmark across 5 high risk industries, and the key findings can be summed up as disconnect, ultimately between the commitment and willingness expressed in their paper, in their policies that say we don't believe in forced labour. We want to eradicate it from our supply chain, on the one hand, and then the lack of actual follow through due diligence, risk assessments, something demonstrative to be able to point to, to say that they are in fact taking steps to even get their arms around their supply chain and where the issues are. That's a good benchmark. When you've got less than 50% of companies that participated in that, conducting any diligence at all, that really says something about the follow through and the current environment. When we talk about incremental progress, you won't know unless you look, and you won't really know unless you really look and you can't do that if the other takeaways, there are two important things that make this different than other areas of compliance. You really do need support from your supply chain. Your first tier partner has to participate. Has to believe in the standards that you set for them and has to flow that up stream to their suppliers, in turn. Addition to that, data has to transfer. You have to get data from down the chain up to you and you can only do really effectively one link at a time over time. Then the final point on that, in terms of how do you get beyond the lack of action, demonstrative action, collective action works. We see a lot of industry groups getting together promulgating standards that they can all agree on. That they can sign onto. That they can pledge to undertake and then again flow those standards down through their supply chain. In terms of practical application, these are some initial thoughts on that. I think that when it comes to operationalizing the corporate commitment to eradicate forced labour and child labour, I think Stephen you nailed it when you talk about it starts with corporate governance; it starts with the board of directors; it starts by understanding what your stakeholders want. If you find yourself in a corporate culture where you value the low cost of goods more than the lives of the people who are creating them, that says one thing, and that's its own crisis to manage.
Stephen: Well, Bill, sometimes I've described it as looking at the supply chain and the board, looking at the tone at the top, but we also have to figure out how the company deals with the tragedy at the bottom.
Bill: Exactly.
Stephen: And that huge disparity from the top to the bottom. Let me ask you a quick question. You were talking about how businesses can deal with these issues but what happens and how do you address a situation where business can't get to the production facility or to the source of raw materials? Any perspectives on that issue and that problem that many businesses face?
Bill: Sure. That's a big problem. I'll give some examples that we're obviously all struggling with Xinjian and we're struggling with polysilicon, we're struggling with cotton and other products from Xinjian. What do you do if you're an apparel manufacturer and you conduct your diligence and you drill down and you've got your cotton aggregator in Beijing, who pulls cotton from all over the country including some fraction from the Xinjian region, and the aggregator can't tell you which of that 5% of cotton, or 10% of cotton, or 30% of cotton, came from Xinjian and moreover they're telling you that my government tells me that I don't have to answer your questions in the diligence process? These are true ethical quandaries for companies to deal with and there's no easy answer to that. The only way that you can address these kinds of things is ultimately through collective action where you're teaming up with other industry participants to set a standard that this is not acceptable and to share in costs of doing things like auditing those facilities. What we're seeing now is sort of reports. They've looked at audit reports out of Xinjiang. They refer to government sources for their data. They don't really talk to the employees. There's no documentation. They say sometimes that they talk to the employees but they don't because there's no proof of it. These are hard issues to deal with because what you're advice? Are you going to exit the market? Are you going to completely divest and where are you going to go? Are you going to the plant in Malaysia that brings in the products from Xinjiang and how are you going to vet them? These are the types of problems that make it appear to be insurmountable. That's why it's almost going to the end of the equation first. It's putting the cart before the horse. You've got to start to set up the building blocks in place. So that's why I tend to focus on first in chain risk management.
So first develop the standards you need. Many large companies that are operating globally already have the code of conduct. Many of them have supplier codes of conduct. Many of them have the types of internal documents that they need to develop in this area but they don't necessarily have the external tools. So once you use those documents that you've created for yourself, you establish the standard and you force that down to your first in chain. We spend a lot of time right now, the battles are being fought in this area in contract negotiation, and many of the companies that I work with have the pieces of paper in place and they're actually taking it out into the field and starting to have these negotiations with their first tier suppliers and pushing them down the chain. So when we talk about what does that contract negotiation look like? There's so much low hanging fruit that you can include. There's so much easy data that you can pull up. So we've talked about the hardest situation with the aggregators in Beijing example. That's the hardest situation. But there's a whole range of data and circumstances that you can manage through the contract. For example, how simple is it to have a rep that no products and services are subject to a WRO? That no suppliers are on the US Commerce Departments entity list. That no products are on the Bureau of International Labour of Forced Labour List. Before a crisis strikes, these are easy reps to get. By the way, it's not about forcing our US standards down on the world, this is a shorthand for compliance. These are easy sort of demonstrable things that suppliers can point to and say, "I can easily determine whether they're on these lists and I can start to work with you to get them off out of our supply chains if they turn out to be on those lists." So there's a lot of tools that are actually available in the contract negotiation process. There are battles being fought over remedial action plans and whether that's appropriate to include in the agreements. How can you be really serious about managing a problem if you have no exit strategy when a problem is discovered in your supply chain. These are things that are negotiated. These are things where you enlist the support of your supply chain. Not in an adversarial way but because you have a universal, a unified interest in eliminating forced labour from the supply chain. It starts with compliance with laws provisions which most agreements have and then it extends to what I would call transactional evidence documentation. Which is what we're starting to see in things like the industry standards which is where a lot of companies turn to develop their own internal policies on this if they don't already have them. We're seeing, particularly in 2021, just a host of new standards being promulgated for industries to follow. One of them that I'm familiar with from this year, given the polysilicon issues, is the solar industries. The SEIA protocols for supply chain transparency. One of the things that I really love about that protocol is that they have a section in there on transactional evidence and the types of evidence that's necessary to gather. In fact the same evidence that you'd have to show in order to get out from under a WRO, or to revoke a WRO. If you look at, for example, the Hoshine WRO from last June, the FAQs point to specific types of documents that you would need to prove that forced labour wasn't associated with the manufacture of the products of raw materials. Guess what? The SEIA protocol has that in it and other industry standards have that in it. IPIECA has guidelines for the oil and gas industry. ESA has for energy storage industry. These are popping up right and left, and it's an important first step with respect going to going back to the notion of collective action, and then you can put these standards in your agreements with your suppliers and force the standards down.
Stephen: I think, Bill, you've really nailed it with that. We're going to hear later from Steven about the WROs but you can't over emphasize the benefits of having contemporaneous transaction related documents produced because after the fact, as Steven will tell us, it's just not doable.
Bill: That's right. Everybody starts to shutdown at that point and get very skittish about what they can rep to.
Stephen: Absolutely. So I think, Bill, that's been a great overview of what companies can do and I think it's really important, for those of us who are enjoying the panels comments, Bill's comments about what's doable and not to focus on the hardest cases but focus on what's doable, internally in your business first, and then move into your first tier suppliers, etcetera. It really has to be, as Senator Miville-Dechene said, this is an incremental process but the time to start is now and that all of this due diligence and all of this information gathering, all of the things that Bill's talking about, also feeds into the report that would be required under Bill S-211 and to be approved by the board of directors. So you want to make sure you've got that supply chain scrutiny and that compliance infrastructure in place with the documentation needed to support it. Thank you very much, Bill.
Bill: Pleasure.
Stephen: Our next speaker is going to talk about the enforcement experience in the US and what it may mean for Canadian businesses. Steven Hill is a partner in the K&L Gates law firm, Washington, DC office. He has over 25 years of experience in a broad array of international trade regulations, importation, exportation and customs compliance and enforcement matters. Steven, welcome. We're glad that you're here with us today. A lot of folks on our call may not understand what goes on at the US border and only hear little bits and pieces about withhold release orders, WROs. Can you maybe provide us with some perspectives on what is a WRO, how are they enforced, where do they come from?
Steven: Yeah, sure. So as you know a WRO is a withhold release order which is something that is short of an outright seizure of goods by customs authority and a WRO is imposed under the authority of Section 307 of the Tariff Act in 1930, which is the broad US customs law. What Section 307 does is it prohibits importing any product that was mined produced or manufactured, wholly or in part, by forced labour including forced or indentured child labour. The law has been on the books for a while. It really wasn't enforced because of a carve out for what were called consumptive goods. That carve out was eliminated in customs law reform about 7 or so years ago and since then you've had a significant increase in the use of Section 307. The issuance of WROs and there's also issuance of what are called findings which are determinations by customs authorities as specific products are made by forced labour which I'm not going to go into as much. But WROs are determinations by customs. They'll issue that determination when they receive the information that reasonably, but not conclusively, indicates that merchandise that's being imported in the US, or is likely to be imported in the US, was made by forced labour in violation of Section 307. What occurs is that the customs authorities will issue a Notice of Detention. So basically they withhold the release of the merchandise from the US market. They don't allow it to be released from customs custody into commerce and then that triggers a process where the US importer can either re-export or prove that the goods were not made by forced labour. I know, Stephen, when we were talking before the call about the standard that the WRO has for issuance, which is where this information that reasonably, but conclusively, indicates that goods are made by forced labour which I understand that that is a fairly low standard compared to other countries, including in Canada I believe.
Stephen: Yeah, maybe I can just fill in that piece of information. The Canadian standard, according to the Canadian Border Services Agency, is they would not seize goods or deem goods to be having been made with forced labour unless they have received legally sufficient and defensible evidence of production by forced labour. So I think of that. It reminds me of sort of the clear and convincing evidence required to overturn. For example, I guess a finding where the rebuttable presumption and the Uyghur Forced Labour Prevention Act, but it's a high standard and for Canadian businesses I think this is something to be concerned about because if you think of it this way, you have goods that are prohibited from entry into the US based on a WRO, there has been no receipt by Canada's Canadian Border Services Agency of legally sufficient and defensible evidence of production by forced labour so they can't go in the US. They can come into Canada, and even if they're legal in the US to be imported, they can be brought into Canada. The challenge is, for Canadian companies is that companies, at least one company whose goods have been banned from entering the US, has made it clear that they'll be diverting products to other markets. That's number one. You also have the US Customs and Border Protection on the record saying they don't want to create loopholes where one of our neighbour countries becomes either a dumping ground for goods produced with forced labour, where they become a major trans-shipment point for goods prohibited in other North American markets. If you unbundle that I think Canadian companies need to know they may be getting goods, receiving goods in Canada that are not permitted to be imported into the US, regardless of the USMCA. There's no fair trade exemptions or forced labour made goods. So Canadian companies need to be aware of how laws are enforced at the US border and be vigilant in terms of understanding whether the goods they're receiving in Canada good be exported into the US. So from a business perspective, the due diligence understanding of the goods, where they're from and how they're made, as Bill has said, are critical.
Steven: And I think for Canadian firms there's both the concern of goods that have never entered the US are potentially goods that are going to the US. The thing about a WRO is that they cover not only goods that are complete manufacture but also goods that are partially of the manufacture of the entity that's identified under the WRO. Bill had mentioned the silicon, the Hoshine WRO which was issued last year, and the FAQ specifically say that the WRO covers any silica based products made by the identified company, and subsidiaries, as well as materials and final goods that are derived from or produced using silica based products, regardless of where the materials or final goods are produced. That would include like component materials, intermediate goods as well as finished goods. So this could potentially impact goods that are coming, partially completed goods, that go into Canada, or some other country, and that are subsequently exported into the US and they're lots of ways for US authorities to understand where goods are coming from. In some cases you might be required to declare, for example in this case, China's the country of origin under country of origin rules, but there are other ways that customs authorities can understand where exactly the goods are coming from. There's no kind of hard rule for determining whether goods are going to be hit by a Detention Notice. It's just if custom authorities have reasonable indication that it's caught up in a WRO. They can do that. Another area where Canadian firms might be impacted again is once goods hit the shore, and then they get a Detention Notice, one of the options is simply to re-export the goods from the US. Customs does not actually seize the goods at that point. So these goods might be headed for Canada or another market but then you may have companies that are exporting goods to the United States, to other countries, they know what the rules are in the US. Perhaps they know that they don't have a supply chain process that sufficiently identifies sources in order to avoid the potential application of a WRO, so they don't even attempt to export the products here, and then you may end up getting products diverted to other markets on that basis as well.
Stephen: Steven, sorry, I was just going to interject. The one thing that Canadian companies also need to be aware of is that every time a WRO is issued there's a press release that goes out by CBP, identifying in detail the importer, the goods, etcetera and that's quite different than what the practice is of the Canadian Border Services Agency in Canada, which releases very little information. In the US, I mean you referred to the Q&A on the Hoshine situation, I think the issue of deterrence is something that the wide publication of Detention Notices and WROs really is something that Canadian companies need to be aware of.
Steven: Yeah. In a way it's kind of good news and bad news, importing into the US, because if you go on the customs website you can find the list of WROs and there were 53 of them right now that are active and over half of them, 35, specifically apply to China. Then the WROs will have a press release. They'll list the suppliers, at least, and indicate if affiliates are also covered. The jurisdictions. Then there are a lot of guidance. Customs is pretty good about putting informed compliance guidance on the website. Some of these WROs have FAQs that will list the specific documentation that Bill had referenced in his presentation. That's the good news. The bad news is that you have this knowledge now, and when you import into the US you have what is called an informed comply or reasonable care requirement, where all importers are expected to apply reasonable care which means doing reasonable diligence in their importations. So if you end up with goods that are under a WRO the expectation is going to be that you have a pretty good story to tell if you attempt to get the goods admitted into customs, the customs territory. That gets back to Bill's discussion about taking these incremental steps to make sure that you have proper diligence built up. You have proper procedures. The procedures are followed internally. It depends upon the specific product. It's not a one size fits all program for collecting this information which is going to require a lot of advanced thinking about this. Dealing with your suppliers. Getting them to deal with their upstream suppliers to make sure that you have sufficient information in place and what I haven't mentioned yet is that once you get the Notice of Detention, you have 90 days from the date of importation to provide information to customs, to hopefully convince them that the goods were not produced by forced labour. That's 90 days from the date of importation so you probably have a few days cut off from that, from the Notice of Detention, but within 90 days, that scant little time to get a compliance program together and get the information that's required for customs purposes. Just delving into that, I have the Hoshine FAQs in front of me and what they talk about is purchase orders, invoices, proof of payment, list of production steps, records of the imported merchandise, transportation documents, manufacturing process reports, list of entities that supplied inputs and then they probably want to see like payroll records. Like records indicating that people who worked were adults, were paid. It's basically proving the negative at that point. It's not that it can't be done, but it's very difficult to do if you're starting from basically square one, once you get hit one of these notices and the clock is running.
Stephen: Wow. I think that's been really information, Steven. I mean you've really provided some great insights into the challenges. In Canada, so far we don't have a WRO enforcement regime, but as Canadian Governments, Federal Government in various departments, are looking at legislation and looking at how these border bans on forced labour goods and potentially child labour goods is enforced. It may be that separate enforcement infrastructure, from a legal perspective and regulatory perspective, these are required and my understanding is that CBP and CBSA are exchanging discussions from time to time so I think it's good for Canadian businesses to know. So thank you very much.
Our next speaker will be Senator Miville-Dechene and Jerome Lussier. Jerome is the Director of Parliamentary Affairs, in Senator Miville-Dechene's office, and has been involved in dealing with forced labour and child labour in supply chain issues for many years, both in the public sector and in the private sector. I'd like to ask you, Senator Miville-Dechene and Jerome, to provide some thoughts on what's going to happen next and what we should expect for Canadian businesses.
Senator: Thank you. I just want to say that I'm very impressed, and it's not always the case, but what the United States are doing at their borders. So I want to say that I've been asking questions around that. I've been pointing at the WRO and what's happening in the States. We're not they're yet. In this case you're ahead. So coming back Bill S-211 I want say that it's important to note, as in all other transparency legislation, that this Bill would not create an obligation of result but just an obligation to report. Others have noted, even with the best of intention in the world, companies have trouble knowing exactly what happens all the way down in their supply chain. So we are hoping that companies will improve the reports over time. But no obligation of result doesn't mean companies can do anything. The law says companies cannot misrepresent their actions and findings and civil society will be watching. I'll let Jerome Lussier continue.
Jerome: Hi. Nice to be here. I'm going to try to give maybe a little more detailed information on the contents of the Bill. Obviously won't be going through it section by section, but basically the practical answer on what Canadian companies can expect if the Bill becomes law, is that they will have to file annual reports on forced labour and child labour issues. I would say that from a legislative perspective it's not for us to say exactly how companies will comply with the law and it's easy to imagine that different businesses might have different approaches or priorities. The Bill is designed to avoid, let's say, simple tick the box exercises. Not always easy to do. We've learned from other jurisdictions in Australia and the UK that unfortunately this tends to happen anyway. But the Bill does give guidance on what must be included in the reports. If I go quickly, the companies must detail their activities, their policies and due diligence processes in relation to forced labour and child labour remediation measures that are in place, level of risks in different parts of their supply chains, an assessment of the effectiveness of these measures in removing risks of forced and child labour in their supply chains. It's important to note that these requirements were intentionally modeled after Australian and UK precedents, especially, and this is partly in response to representations from industry groups who've said that they welcome legislative action but asked us to please align Canadian regulation with foreign regulations, so that at least there would be a possibility for companies to submit equivalent reports or not have to do a similar process many times over and we felt that was a legitimate and fair demand. There are a number of technical issues that I think we won't have time for. I think an important point maybe to bring up, and again this is from a legislative perspective, is that as everyone here knows modern slavery, forced labour, child labour is but one aspect of ESG issues and ESG regulations that are very much front and center these days, it's been alluded to in the past and these questions are becoming law. In Canada we have a Bill, Bill C-25, that already provides mandatory disclosure for diversity issues. This information must be provided in annual reports to shareholders. Our Bill, Bill S-211 has that same requirement so the report must be filed not only with government but also provided to shareholders, annually. Other statutes in Canada have similar mechanisms and I think, in closing, the key point to keep in mind is that, as it was mentioned before, this is an incremental Bill on the issue of modern slavery, but it's likely that in coming years we'll see more action on this front and other ESG issues, because this push is certainly gathering steam and I think the pandemic will only accelerate things. So those were brief more precise remarks but happy for myself, and I guess others, to answer questions.
Stephen: Thank you very much, Jerome. We have a few minutes to answer some of the questions that there is people who put in the Q&A function and the first question is from Anne Chilton and it's addressed to Senator Miville-Dechene. So I'm going to ask Senator Miville-Dechene to answer.
Senator: The question is?
Stephen: The question is that, thank you very much for your effort, Senator. Other than requiring board of directors approval of reporting, are there any other specific aspects of current Australia and UK modern slavery legislation and reporting requirements that you especially like, or would like to see in Canada's framework?
Senator: Well, as Jerome just mentioned, we studied in detail and we talked to many experts in the UK and Australia to avoid the weakest part of their Bills and to try to make it stronger and to copy the best elements of it. So it's mainly what we've done. The report to shareholders that we have included for companies under Federal jurisdiction is an interesting add on. I would say also that we have seen, for example, in the UK that their Bill had no fines at all and this was a problem because many companies were not reporting. So we have put some fines and liabilities to make it stronger. In the UK Bill, for example, there's even a sentence saying, "reporting on nothing will be a report." So if the companies just report that they have done nothing on the issue it's okay. So obviously we want our Bill to go farther so we've taken the best. We've also harmonized our request, our guidelines I should say for the reporting, with the one of Australia in particular. So we've talked a lot and we believe that our Bill takes the best of the international examples.
Stephen: Thank you very much, Senator Miville-Dechene. It was a great question and terrific answer. The next question, I'm going to ask Bill or Steven to answer. Any comments or advice on dealing with the risk of retaliation against auditors that might be sent to Xinjiang and the Chinese blocking orders? Bill or Steven?
Bill: This is a pretty difficult and sensitive question to address and my first comment is going to sound like I'm punting but it's really true. This will really depend on a case by case examination. You have to understand who's doing the retaliating? Who does the reporting to of the retaliation? Certainly, first and foremost, you want to protect your vendors or personnel or experts that you're sending into the region, if you could even get them into the region. Part of the problem that we're seeing now is that you can't get unbiased or credible data out of the region. You've got the Uyghur Forced Labour Prevention Act, which creates a presumption. If you can't get them into the region, or you can't get them in safely, you're not going to be able to develop the kind of information that you need, again in the middle of a crisis, to overcome that presumption. So these are very, very difficult circumstances to manage in the current environment. I think the first step is to understand the credibility of the threat. To take it very, very seriously, again in the current environment. Protect your people first and then make difficult decisions about how you're going to deal with trying to source goods from this region, particularly if your intended market is the United States.
Senator: Some companies have told me that when it's just they discover the country or the region it's just too risky. They pull out. This can be a decision and I would say it's probably sometime easier to do if you're not sure that you can have strong audits.
Bill: Yeah. If you can't gather the data it's time to have a hard look on whether you can continue to do business there. But there's certain industries. What do you do with polysilicon when 90% of it comes from that region?
Steven: Just real quickly, the polysilicon WRO FAQ has this interesting comment about few people have notified CBP of the difficulty to get this information, and they say CBP will engage with importers to ascertain whether they made every reasonable effort to trace their supply chains and guard against use of forced labour. But then the next sentence says, they've strategically didn't use the word 'but' but they could have, "In no circumstances will detain products be released if they were produced or manufactured, wholly or in part, by forced labour." So I think that may come back to the situation, especially like with Uyghur Forced Labour Prevention Act. If you can't get the information you might basically be forced to just abandon sourcing, anything that's connected there because of the presumption.
Stephen: Thank you very much, Steven and Bill, and Senator Miville-Dechene for the answers to that question. Unfortunately our time is up. I want to thank our panel, Senator Miville-Dechene, Jerome Lussier, Bill Semins and Steven Hill. I really appreciate all your insights today and I want to thank all of the attendees for joining us. We hope you found today's session to be helpful and productive and feel free to contact any or all of us if you have any questions going forward. As well, we'll be putting up a link to the recorded version of this webinar and we'll provide that to you as soon it's available. On behalf of the panel, thank you very much. Everyone have a great day and be well.