Forced Labor Regulatory Activity in the US and Canada: Recent Developments
This blog was originally posted on 7th November, 2023. Further regulatory developments may have occurred after publication. To keep up-to-date with the latest compliance news, sign up to our newsletter.
AUTHORED BY JOANNE O’DONNELL, GLOBAL REGULATORY COMPLIANCE TEAM MANAGER, COMPLIANCE & RISKS
Over the past number of months, there has been a significant increase in regulations in the “S” sphere of the ‘ESG” regulatory world that require or propose to require entities in scope to comply with and disclose their efforts with regard to international human and labor rights in their supply chains.
The regulatory authorities in the US, in particular, have been busy in this regard whilst its Canadian neighbors, who initially lagged behind the US in this area, seem to have made some strides over the past few months. This blog will highlight some of the key recent developments in these two jurisdictions.
In the US, all imports of products made with forced labor from the Xinjiang Uyghur Autonomous Region (Xinjiang) of the People’s Republic of China (PRC) are prohibited under the Uyghur Forced Labor Protection Act (UFPLA) since 21 June 2022.
The US Customs and Border Protection (CBP) applies a presumption that imports of all goods produced, or manufactured wholly or in part in Xinjiang or by entities identified on the UFLPA Entity List, are made with forced labor and are therefore prohibited from entry into the US. The presumption also applies to goods made in, or shipped through, the PRC and other countries that include inputs made in Xinjiang. The presumption can be rebutted if importers demonstrate that the goods were not mined, produced, or manufactured wholly or in part by forced labor. Importers must also demonstrate that they have carried out due diligence to ensure that they do not import any goods made, in whole or in part, by forced labor, especially from Xinjiang. Cotton, tomatoes, and polysilicon are identified as high-priority sectors, whilst the UFLPA Strategy also references apparel and silica-based products as high-priority sectors for enforcement.
On 16 May, the CBP published a Guidance Document setting out recommendations for submissions of supporting documents for CBP forced labor allegation petitions and Withhold Release Order (WRO)/Finding modification requests. In addition, it also released an Allegation Submission Checklist outlining what types of information are most useful to CBP for processing forced labor allegations. The guidelines are intended to standardize the approach for petitioners when organizing supporting documents so that they can be aligned to the forced labor allegation or remediation efforts.
On 21 June, the CBP published a factsheet highlighting its progress and accomplishments during the first year of UFLPA’s implementation for the period 21 June 2022 to 29 May 2023. The data demonstrated that:
- 4,269 shipments, valued at US$1.39 million were stopped and subjected to UFLPA reviews or enforcement actions during this period;
- 679 shipments valued over US$40 million were denied entry whilst 1,608 shipments valued over US$643 million were subsequently released onto the US market. The remaining shipments are pending review;
- The Top 5 industries impacted by the CBP’s enforcement actions were: Electronics; Apparel, Footwear, and Textiles; Industrial and Manufacturing Materials; Agriculture and Prepared Products and Consumer Products and Mass Merchandising;
- The Top 3 countries of origin for products stopped by the CBP during this period were: Malaysia (60%); Vietnam (28%) and China (11%).
On 1 August, the Department of Homeland Security published its 2023 Updates to the Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China. The Strategy, originally published in June 2022, informs the CBP’s enforcement of the UFLPA’s rebuttable presumption that any goods, wares, articles, or merchandise mined, produced, or manufactured wholly or in part in Xinjiang or produced by an entity on the UFLPA Entity List, are prohibited from entering the US. The 2023 updates include changes to Chapter II on Evaluation and Description of Forced-Labor Schemes and the UFLPA Entity List. It also includes additions to Chapter V (Additional Resources Necessary to Ensure No Goods Made with Forced Labor Enter at U.S. Ports) and Chapter VII (Coordination and Collaboration with Appropriate Non-governmental Organizations and Private-Sector Entities).
A number of federal bills were also proposed during the past couple of months including inter alia:
- Disclosures on Affiliations with Uyghur Forced Labor, House Bill 4840, 2023 (HB 4840 (Wexton));
- Penalties and Reporting for Child Labor Violations, House Bill 2956, 2023 (HR 2956 (Kildee)) aka the proposed “Combating Child Labor Act”;
- Penalties for Violation of Child Labor Laws, Senate Bill 3051, 2023 (SB 3051 (Schatz, Young)) aka the proposed “Stop Child Labor Act”;
- Corporate Responsibility for Child Labor Elimination Act, Senate Bill 1434, 2023 (SB 1434 (Hawley)) aka the proposed “Corporate Responsibility for Child Labor Elimination Act”;
- Protecting Children from Child Labor and Unsafe Workplaces, House Bill 4440, 2023 (HR 4440 (Scott, Adams, et al)) aka the proposed “Protecting Children Act”;
- Prevention of Forced Labor in Xinjiang Uyghur, Senate Bill 1770, 2023 (SB 1770 (Rubio and Merkley)) aka the proposed ‘Uyghur Genocide Accountability and Sanctions Act of 2023.’
Compliance & Risks will monitor all regulatory developments in relation to the above bills and will update C2P if these are finalized.
Canada has traditionally trailed behind its US allies in implementing legislation in the “S” sphere of ESG. In April 2019, the Canadian Ombudsperson for Responsible Enterprise (“CORE”) was established as a voluntary initiative tasked with investigating complaints about possible human rights abuses by Canadian companies that work outside Canada in the garment, mining, and oil and gas sectors. CORE’s mandate is to:
- Encourage companies to follow the UN Guiding Principles and the OECD Guidelines;
- Advise Canadian companies on how to create responsible business practices and policies;
- Investigate complaints about possible human rights abuses involving Canadian companies outside of Canada that are involved in the garment, mining, and oil and gas sectors;
- Offer informal mediation services.
Whilst CORE is the first Ombud office globally with a mandate that potentially holds companies accountable for human rights abuses, their remit is somewhat limited by the fact that they can only investigate complaints that originate after 1 May 2019 (although complaints that originate before that date may be reviewed if they are still ongoing). In addition, it can only investigate complaints from companies in the garment, mining, and oil and gas sectors.
The biggest development in Canada in this area is the recent enactment on 11 May of the Fighting Against Forced Labor and Child Labor in Supply Chains Act (Bill S-211) which originated as a private member’s bill back in 2018.
The Act applies to businesses (including corporations, trusts, partnerships or unincorporated organizations) that:
- Produce, sell or distribute goods in Canada or elsewhere;
- Import goods into Canada; or
- Directly or indirectly control a business that is engaged in either of the above activities.
Provided that the business is:
- Listed on a Canadian stock exchange; or
- Has a place of business in Canada, does business in Canada or has assets in Canada and that, based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent financial years:
- has at least $20 million in assets;
- has generated at least $40 million in revenue; and
- employs an average of at least 250 employees.
Entities in scope are required to submit an annual report on the steps taken to prevent and mitigate such risks, which must also be made available on the company website, to the Minister of Public Safety and Emergency Preparedness on or before 31 May each year which means that the first reports are due as soon as 31 May 2024. The Act is scheduled to enter into force on 1 January 2024.
No official guidance has been published yet by the Canadian authorities on implementation of the Act. However, it is anticipated that the Canadian Border Services Agency (CBDA) will release documentation to guide businesses on how they can demonstrate that imported goods are not made with forced or child labor in the near future.
Whilst it is evident that the enactment of Bill S-211 and the establishment of CORE are significant developments, it is noteworthy that during a recent visit to Canada in September, the UN Special Rapporteur on contemporary forms of slavery recommended an expanded mandate for CORE whilst also acknowledging that self-reporting and the lack of a monitoring mechanism under Bill S-211 means that companies in scope could conceal or omit relevant information to protect their reputation and profits.
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