Canada: Canada Seizes Imported Goods Alleged To Be Produced With Forced Labour

On November 15, 2021, the Globe and Mail reported the first seizure under the Canadian prohibition on the importation of goods "mined, manufactured or produced wholly or in part by forced labour." According to the CBSA, customs officials seized a shipment of women's and children's clothing imported into Quebec from China. This is the first reported seizure or enforcement action against goods produced with forced labour that has been publicly reported in Canada.

Focus on Human Rights and Supply Chains Involving China

Enforcement actions taken against individual importers are confidential, which means that no details are currently available in the public domain about the importer or exporter/supplier of the goods.

As discussed in a previous blog, however, the Government of Canada issued a business advisory in January 2021 to inform importers and exporters about concerns of human rights violations and the use of forced labour in Xinjiang, China. We understand that the Labour Program of Employment and Social Development Canada (ESDC-Labour) undertook an investigation into the Xinjiang allegations, among others. While no report has been made public, CBSA Policy Memorandum D9-1-6 titled "Goods Manufactured or Produced by Prison or Forced Labour" states that the CBSA may use information gathered by ESDC-Labour's research to identify and detain goods that may have been produced with forced labour. The November 15 media report suggests that the CBSA has begun to take action based on the results of ESDC-Labour's investigations.

There has also been increased media scrutiny of human rights issues in supply chains, which could spur more investigations. On November 5, 2021, CBC Marketplace reported that clothing manufactured by Dandong Huayang Textiles and Garment Co. Ltd. may have been produced using North Korean forced labour at a Chinese factory and imported into Canada by a number of Canadian retailers.

Canada is not the only government to warn companies doing business in certain industries and/or regions about these risks. For example, on January 13, 2021, U.S. Customs and Border Protection issued a "withhold release order" (WRO) against cotton produced in Xinjiang and the downstream products that incorporate it. The United States has also proposed federal legislation, the Uyghur Forced Labor Prevention Act, which would create a rebuttable presumption that any goods made in Xinjiang are made with forced labor. The Government of Canada has not yet taken equivalent steps.

Tariff Classification and Enforcement

In Canada the prohibition on the importation of goods mined, manufactured or produced wholly or in part by forced labour finds expression in the Customs Tariff in tariff item 9897.00.00. Section 136(1) of the Customs Tariff Act specifically prohibits the importation of goods included in that tariff item.

In theory, tariff classification should be based on the goods as they present at the time of importation into Canada. In the case of goods produced with forced labour, however, nothing in the goods themselves indicates the conditions of its production. In the present circumstance, the CBSA may have identified and detained goods suspected of being produced by forced labour on the basis of information gathered by ESDC-Labour in its investigations.

A CBSA officer is empowered by section 59(1) of the Customs Act to re-determine the tariff classification of imported goods and classify them as prohibited goods under tariff item 9897.00.00. As with other tariff classification redeterminations, if an importer, owner, person liable to pay duties, or the person who accounted for the goods, disagrees with the CBSA officer's redetermination, they may request a review by the President of the CBSA, and thereafter pursue appeals as prescribed in the Customs Act  to the Canadian International Trade Tribunal and the Federal Court of Appeal.

Because the import prohibition was implemented through tariff classification, the CBSA's advance ruling process is available to address the potential classification of goods in tariff item 9897.00.00. In September 2021, the CBSA amended its Memorandum D11-11-3 on Advance Rulings for Tariff Classification to clarify that an advance ruling for tariff classification will be issued for goods that may be classified under tariff item 9897.00.00 (which includes Goods manufactured or produced wholly or in part by prison labour and Goods mined, manufactured or produced wholly or in part by forced labour). Importers may consider applying for an advanced ruling as one possible risk assessment and mitigation tool.

Next Steps for Businesses Importing Into Canada

The reported recent enforcement action against apparel imported from China heralds the importance of Canadian importers reviewing their supply chains and conducting risk assessments. There is a significant burden on importers to conduct risk-appropriate due diligence on their supply chains and ensure that goods they import into Canada are not mined, manufactured or produced wholly or in part by forced labour. At a minimum, businesses and individuals that source goods or services from Xinjiang or that source cotton, textile or apparel products generally from China are urged to closely examine their supply chains in respect of such issues.

With increasing enforcement activity potentially resulting from ESDC-Labour's forced labour investigations, Canadian and non-resident importers should take appropriate proactive steps to review their global value chains.

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