Mexico, Canada Not as Aggressive on Forced Labor Bans, but Expect More, Lawyers Say

Mexico's ban on the import of goods made with forced labor went into effect three weeks ago, so if importers whose goods were detained by CBP under suspicion of forced labor wanted to re-export to Mexico, that avenue is closed, said Eduardo Sotelo Cauduro, a partner with Sanchez DeVanny, a Mexican law firm.

Sotelo spoke on a June 6 webinar on forced labor compliance hosted by ArentFox Schiff. That firm's customs practice leader, Angela Santos, said the U.S. is much more aggressive so far in enforcing the ban on goods made with forced labor than Canada has been. Canada's ban came into effect in July 2020.

She noted that in the previous fiscal year, CBP examined about 1,500 shipments under suspicion of forced labor, with a value of about $400 million. With four months still to go in the current fiscal year, CBP examined 2,739 shipments, valued at $925 million, she said. Of those, 417 shipments were denied entry, and about 1,300 are still waiting for a decision.

Jessica Horwitz, a partner at Bennett Jones in Canada, said her country's customs agency has not published enforcement data like the U.S. has, but that she's only aware of one detention in late 2021, of apparel, and it was subsequently released when the importer satisfied authorities it did not contain any inputs made with forced labor.

"But that said, the expectation is that enforcement will ramp up in Canada," she said on the webinar. She said more funding has been given to the Canada Border Services Agency to support enforcement.

She said that Canada does not have a presumption that goods from Xinjiang are made with forced labor, as the U.S. does, but there is a business advisory from the Canadian government warning it's a region of concern, and Canada does have sanctions on XPCC, an operator of numerous Xinjiang factories and farms.

Canada has not said so publicly, but anecdotally, Horwitz has heard that CBP has shared information with Canada about its WROs on Malaysian gloves and palm oil.

"It’s safe to assume that Canada is looking to the U.S. for guidance," she said, and so any areas of priority in the U.S., or sectors or products identified by non-profits should be considered high-risk.

Moreover, she said there's political will in Parliament to fight forced labor. A recent law that requires medium and large companies to report what due diligence they have done to root out forced labor in their supply chains was criticized for being too weak, since it does not require due diligence to be undertaken, just a report on what -- if anything -- was done.

Companies that produce, sell or distribute goods in Canada that meet two of three size thresholds -- at least 20 million Canadian dollars in assets, at least 40 million Canadian dollars in revenue or at least 250 employees worldwide -- are subject to the requirement. The first report has to be filed by May 31, 2024.

If a company does not file, there is personal liability for its board and its corporate officers, so Horwitz said the idea is to focus C-suite attention on the issue.

The bill just passed last month, so there are no details yet about how the reports are to be filed and if there are any minimum standards.

Horwitz noted that in terms of the ban on importing goods made with forced labor, the CBSA uses a tariff code to mark goods made with forced labor, so if importers are later suspected of bringing in such goods, an audit can be done for misclassification of tariff codes.

In the U.S., Santos noted that detentions have spread past cotton, tomatoes and polysilicon to include PVC flooring, batteries, steel and aluminum. She said CBP has an internal database of manufacturer IDs that have some connection to Xinjiang, and agents are also using AI to connect shipments from Xinjiang to other regions in China or other countries.

"Significantly and importantly there is no de minimis threshold" in the ban on goods made with forced labor, she said. She said practitioners have seen goods detained where less than 1% of the apparel's content was suspected to be Xinjiang cotton.

Sotelo said when Mexico begins targeting goods, the Labor ministry will be responsible for the investigations, and it will first ask the exporting country's government to examine whether there was forced labor in the supply chain. If that country's government does not cooperate in an investigation, then the importer will have 20 business days to file evidence that its producers do not use forced labor.

"It’s really vague," he said, in terms of what evidence would be sufficient.

The Mexican government would then have up to 360 days to make a determination.

If it decides the import was made with forced labor, it will publish the tariff code affected. Sotelo noted that tariff codes cover multiple products, and would not be limited to a specific country.

"We believe we’re going to see some clarification from the government," he said, to deal with those issues.