Combating Forced and Child Labour with New Legislation - Does This Impact Your Business?

Jul 17, 2023

Key takeaways

Recent legislation creates new reporting requirements to combat forced and child labour.

Amendments to the Customs Tariff will prohibit importation of goods made with child labour.

Failing to comply with forced and child labour regulations can negatively impact businesses.

Business tax Indirect tax

Limiting the importation of products made with forced or child labour to ensure Canada is not supporting these labour practices is a high enforcement priority of trade regulators. Consistent with this goal, the Fighting Forced Labour and Child Labour in Supply Chains Act (Act) received royal assent in May 2023. The Act creates new reporting requirements for certain parties and amends the Customs Tariff to expand existing prohibitions on goods imported into Canada to include goods manufactured with child labour. The legislation will come into force on Jan. 1, 2024. The first reporting under this Act will be due on or before May 31, 2024 and be in respect to 2023.

Customs Tariff prohibition considerations

The Customs Tariff prohibits the importation into Canada of goods “mined, manufactured or produced wholly or in part by forced labour.” Goods, at the time of import, suspected of violating this prohibition will be detained at the border for examination and determination by the Canada Border Services Agency (CBSA). If the goods are determined to be prohibited, a decision will be rendered if the goods are subject to the prohibition or not and the importer can appeal a prohibition decision or choose to re-export in some cases, or chose to abandon the goods. However, applicable export law may not permit re-exporting. It should be noted that detentions for examinations result in supply chain disruption and additional costs. Abandoning the goods is costly and impacts business severely.

Tariff item 9897.00.00 of the Customs Tariff will be amended. The amendment will apply as of January 1, 2024. The amendment will add the import prohibition on goods mined, manufactured or produced wholly or in part by child labour and legislative definitions for “forced labour” and “child labour” These definitions will be:

child labour means labour or services provided or offered to be provided by persons under the age of 18 years and that

a. are provided or offered to be provided in Canada under circumstances that are contrary to the laws applicable in Canada;

b. are provided or offered to be provided under circumstances that are mentally, physically, socially or morally dangerous to them;

c. constitute the worst forms of child labour as defined in Article 3 of the Worst Forms of Child Labour Convention, 1999, adopted at Geneva on June 17, 1999. 

d. interfere with their schooling by depriving them of the opportunity to attend school, obliging them to leave school prematurely or requiring them to attempt to combine school attendance with excessively long and heavy work; or

forced labour means labour or service provided or offered to be provided by a person under circumstances that

a. could reasonably be expected to cause the person to believe their safety or the safety of a person known to them would be threatened if they failed to provide or offer to provide the labour or service; or

b. constitute forced or compulsory labour as defined in article 2 of the Forced Labour Convention, 1930, adopted in Geneva on June 28, 1930. 

Reporting requirement under the Act

Entities and Government Impacted

The reporting requirements under the Act apply to both government institutions and entities. Government institutions is defined in reference to other legislation and includes, for example, various departments of the federal government and port authorities. Any of these institutions which produce, purchase or distribute goods in Canada or elsewhere are required to file the annual report discussed above.

Entities with a filing requirement are those which meet the tests outlined below; the entity test and the activity test.

Entity Test

An entity can be a corporation, trust, partnership or other unincorporated organization that:

a. “is listed on a stock exchange in Canada;

b. 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:

i. it has at least $20M in assets,

ii. it has generated at least $40M in revenue, and

iii. it employs an average of at least 250 employees; or

c. is prescribed by regulations.”

Activity Test

The reporting requirement for entities is limited to entities who are engaging in the following activities:

a. “producing, selling or distributing goods in Canada or elsewhere;

b. importing into Canada goods produced outside Canada; or

c. controlling an entity engaged in any activity described in paragraph (a) or (b).”

Information to Be Reported

Entities and government institutions will be required to file a report with the regulator by May 31st of each year for the previous year containing the following information:

a. “its structure, activities and supply chains;

b. it's policies and due diligence processes in relation to forced labour and child labour;

c. the parts of its activities and supply chains that carry a risk of forced labour or child labour being used and the steps it has taken to assess and manage that risk;

d. any measures taken to remediate any forced labour or child labour;

e. any measures taken to remediate the loss of income to the most vulnerable families that results from any measure taken to eliminate the use of forced labour or child labour in its activities and supply chains;

f. the training provided to employees on forced labour and child labour; and

g. how the [filer] assesses its effectiveness in ensuring that forced labour and child labour are not being used in its activities and supply chains.”

The clear thread throughout the above information is the transparency of the supply chain and encouraging companies and government institutions to develop sound internal practices for limiting forced and child labour in their supply chain processes.

Practical notes for middle market companies

It has become evident that business trading in goods in Canada and elsewhere will need increased visibility into all aspects of their supply chain from inputs to finished goods and even to packaging. Detentions on import will lead to increased costs and risks and will also lead to questions from border authorities that importers need to be prepared to answer or otherwise potentially forfeit goods in some cases and/or receive penalties if they cannot convince the CBSA that the imported goods were not created with forced or child labour. Business must review their current and future practices and remain vigilant to ensure they are not trading in prohibited goods and to determine if they are subject to the annual report filing requirement. Even without the imposition of the Act, implementing and maintaining a robust control regime to keep the supply chain free from with forced labour and child labour is one key to managing supply chain disruptions, additional logistics and product costs and reputational risk. 

RSM contributors

  • Jaime Seidner
    Managing Director
  • Cassandra Knapman

Get our tax insights in your inbox

RSM tax professionals stay on top of changing legislation and provide perspective to help you keep your business running smoothly.