As many businesses in Canada prepare for the upcoming reporting period under Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act, one issue that deserves significant consideration is Canada’s prohibition on forced and child labour. While the reporting legislation provides some further transparency to third parties on the measures taken by reporting entities to reduce and minimize forced and child labour in their supply chains, the customs prohibitions in Canada pose a significant potential for business disruption, cost and reputational harm, both for importers and other downstream parties, such as distributors, wholesalers, retailers and even consumers. We review the key elements of the prohibitions below.
a) Prohibitions in Trade Agreements
On July 1, 2020, the United States Mexico Canada Agreement (USMCA) entered into force. The USMCA’s Labour Chapter contains various obligations undertaken by the United States, Mexico and Canada in relation to modern slavery. Notably, the parties agreed to the following:
- Pursuant to section 23.3(1)(b) each party agreed to adopt and maintain statues, regulations and practices in support of the International Labor Organizations Declaration on Rights at Work. This includes the elimination of all forms of forced or compulsory labor, and the effective abolition of child labor, and a prohibition on the worst forms of child labor;
- Pursuant to section 23.6 each party agreed to prohibit the importation of goods into its territory from other sources produced in whole or in part by forced or compulsory labor, including forced or compulsory child labor;
- Pursuant to section 23.12 the parties may cooperate, commensurate with the availability of resources, on the identification and movement of goods produced by forced labor and combatting forced labor and human trafficking, including on fishing vessels.
Since the entry into force of the USMCA, both Canada and Mexico enacted prohibitions on forced and child labour.
b) Prohibitions Implemented into Canadian Customs Law
The USMCA treaty obligation was implemented in Canadian law through an amendment to the Customs Tariff prohibiting the commercial importation of goods that are mined, manufactured or produced wholly or in part by forced labour. More specifically, section 136 of the Customs Tariff Act prohibits the import of tariff item 9897.00.00 which includes “goods mined, manufactured or produced wholly or in part by forced labour or child labour.”
Notably, while the USMCA obligation only applied to USMCA parties, Canada’s amendment is not specific to goods of any particular origin – hence it applies to goods imported from everywhere. As a result, companies that import goods that are produced even in part from forced labour, even inadvertently, may be subject enforcement by the Canada Border Service Agency (CBSA). Notably, this prohibition does not have a presumption equivalent to that included in the US Uyghur Forced Labor Prevention Act (UFLPA) for goods made in Xinjiang (this was confirmed by the Federal Court of Canada in Kilgour v. Canada at paras 21-22, 41).
c) CBSA Review of Goods Made in Whole or In Part by Forced or Child Labour
Under the Customs Act, the CBSA has several powers in relation to prohibited goods. This can include detention and disposal of prohibited goods.
In practice, the CBSA has been dealing with goods made with forced or child labour on the basis of a tariff shift- changing tariff classification of the good from what was initially claimed to the prohibited tariff number after an investigation. In brief, if the CBSA has a reasonable indication that a good may be made in whole or in part, they will notify the importer and provide an opportunity for the importer to demonstrate that the goods are not made in whole or in part by forced labor. A previous version of the CBSA’s guidance on forced labor that has been since withdrawn and remains under review, stated that importer will be expected to have documentation in support of importers’ complete supply chain, described as “the entire system of producing and delivering the goods from the initial stage of sourcing raw materials to delivery of the product in Canada.” While this is no longer in force, it is indicative of the position the CBSA may take in such investigations. To the extent that an investigation confirms that goods are made in whole or in part by forced labor the goods will be reclassified and will be inadmissible to Canada. At that point, in certain cases the importer will have the ability to export the goods from Canada.
We note that there has been very little enforcement of this prohibition in Canada to date. Only a handful of publicly known enforcement actions taken by the CBSA on force labour exist.
d) Disclosure Obligations for Goods Made in Whole or in Part by Forced or Child Labour
Section 15 of the Customs Act, in addition to the tariff classification issue, section 15 of the Customs Act requires anyone who finds or has goods in their possession and who “believes on reasonable grounds” that the importation of those goods may be prohibited, to “forthwith” report those goods to an officer.
In addition to the duty to disclose, the Customs Act also places a duty on importers to amend customs documentation in relation to tariff classification once they have a reason to believe that the classification initially declared is incorrect. Under the Customs Act, the CBSA can review customs shipments going back four years. Failure to amend customs declaration when you have a reason to believe that an amendment should be made can result in administrative monetary penalties, in addition to other penalties under the Customs Act, discussed below.
e) Goods Made in Whole or in Part by Forced or Child Labour in Canada
In addition to the obligation to disclosure, for goods that have already entered Canada, section 155 of the Customs Act provides that “[n]o person shall…have in his possession, purchase, sell, exchange or otherwise acquire or dispose of any imported goods in respect of which the provisions of this or any other Act of Parliament that prohibits, controls or regulates the importation of goods have been contravened.” Hence, even though you may not import a good, you continue to have obligations to the extent you have knowledge of the situation. This includes distributors, wholesalers, retailers and even consumers.
f) Penalties under the Customs Act
Penalties for failing to comply with the Customs Act can be significant: pursuant to subsection 160(1), punishment for contravening sections 15 or 155 includes fines of up to CA$500,000, up to five years in jail, or both.
Further, the Customs Act provides for additional remedies as well such as ascertained forfeiture, where if a good cannot be found or it would be impractical to seize the CBSA may determine an amount for that good equal to “the aggregate of the value for duty of the goods and the amount of duties levied thereon” or in relation to conveyances “equal to the value of the conveyance at the time the notice is served” in addition to any interest.
This article is part of a series of business and human rights articles. For questions on Business and Human Rights, please reach out to Sean Stephenson.