Canadian importers should closely examine their supply chains to ensure that they are not inadvertently importing goods that have been produced by forced or compulsory labour. Where the Canada Border Services Agency (CBSA) determines that goods headed to Canada are manufactured using forced labour 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 should conduct comprehensive risk management and due diligence procedures to assess the labour practices at all levels of their supply chain, and keep supporting documentation on hand.
In addition to CBSA actions, Canada has stated that it intends to release legislation to ensure Canadian companies exercise due diligence to ensure they are not using forced labour for any of their products or components. Many jurisdictions have already introduced similar laws, including the United States, Britain, France, Germany and Norway.
Importing goods that are mined, manufactured or produced, in whole or in part, by forced or compulsory labour 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 Canada-United States-Mexico Agreement (CUSMA) that came into effect on July 1, 2020.
The CBSA may detain imported goods that are suspected of having been produced with forced labour 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 labour 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 labour may face fines up to $500,000 and jail time.
Impact 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 should undertake comprehensive risk management and due diligence regarding their entire supply chain to ensure that their goods are not mined, manufactured or produced using forced labour. Not only can association with companies using forced labour 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. The United States recently signed into law new measures to prevent the importation of goods manufactured by forced labour, and related rules are expected to apply in the near future. Importers who bring goods to Canada transiting through the United States should be aware of these measures.
We can help
KPMG's Trade and Customs professionals can help importers, distributors and retailers take preventative steps, including to:
- Undertake a comprehensive review and risk assessment of their supply chain
- Work with our KPMG Law practice to ensure all international supplier agreements contain the appropriate clauses and caveats to mitigate the risk of forced labour.
In addition, KPMG's Trade and Customs professionals may also help liaise with the CBSA, including to:
- Assist with applications to the CBSA for Advanced Rulings on Tariff Classification to address potential classification under tariff item 9897.00.00
- Assist importers with appeals where the CBSA has determined or redetermined goods to be classified under tariff item 9897.00.00 and prohibited from entering Canada
- Undertake and assist with appeals to the Canadian International Trade Tribunal and the Federal Court of Appeal.
Information is current to June 13, 2022. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
Connect with us
For more information, contact your KPMG advisor or one of the following Trade and Customs professionals.