Canada: Increased action on imports produced by forced labor

Importers, distributors, and retailers need to conduct comprehensive risk management and due diligence procedures

Importers, distributors, and retailers need to conduct comprehensive risk management

Canadian importers need to closely examine their supply chains so that goods produced by forced or compulsory labor are not inadvertently imported.

When the Canada Border Services Agency (CBSA) determines that goods headed to Canada are manufactured using forced labor at any stage, these shipments may be detained by authorities and not allowed into Canada. Distributors and retailers are also restricted from owning or selling such prohibited imported goods. As a result, importers, distributors, and retailers need to conduct comprehensive risk management and due diligence procedures to assess the labor practices at all levels of the supply chain, and keep supporting documentation on hand.

In addition to CBSA actions, Canada has stated that it intends to propose legislation to guarantee Canadian companies exercise due diligence so that they are not using forced labor for any of their products or components. Many jurisdictions have already introduced similar laws, including the United States, Britain, France, Germany, and Norway.

Background

Importing goods that are mined, manufactured, or produced, in whole or in part, by forced or compulsory labor are classified under tariff item 9897.00.00 of the Customs Tariff and prohibited from Canada. The Customs Tariff was amended to include this rule, which is also reflected in the agreement between Canada, the United States, and Mexico that came into effect on 1 July 2020.

The CBSA may detain imported goods that are suspected of having been produced with forced labor and reclassify these goods as prohibited goods under tariff item 9897.00.00 in accordance with subsection 59(1) of the Customs Act. Goods classified under this tariff item cannot lawfully be imported into Canada and must be abandoned, destroyed, or re-exported by the importer. The CBSA has released related guidance in Memorandum D9-1-6, in which it states that it will notify the importer that it has detained these goods, under subsection 59(2). At that point, the importer can then provide appropriate documentary evidence before the CBSA decides the appropriate tariff classification of the goods, under section 60 of the Customs Act.

The rules on imported goods produced by forced or compulsory labor can also affect other entities that are not the importers of such goods. The rules provide that distributors and retailers that possess, purchase, sell, exchange, or otherwise acquire or dispose of any imported goods produced with forced labor may face fines up to $500,000* and jail time.

Effect on Canadian businesses

The government expects importers to be sufficiently informed about the activities of their immediate and upstream suppliers, according to Memorandum D9-1-6. To mitigate potential CBSA actions, all businesses sourcing products from abroad need to undertake comprehensive risk management and due diligence regarding their entire supply chain so that their goods are not mined, manufactured, or produced using forced labor. Not only can association with companies using forced labor present a risk to a company's supply chain, but there is also a reputational risk and potential increased media attention.

Canadian businesses that export goods may also be affected by similar rules enacted by other jurisdictions. Recently enacted legislation in the United States provides new measures to prevent the importation of goods manufactured by forced labor, and related rules are expected to apply in the near future. Importers that bring goods to Canada transiting through the United States need to be aware of these measures.

Read a June 2022 report prepared by the KPMG member firm in Canada

*$ = Canadian dollar

 

 

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