On October 16, 2024, the Government of Canada announced the launch of consultations on its latest proposed measures to address modern slavery in the supply chain of Canadian businesses (the "Consultations). Most notably, the Government is contemplating the creation of a due diligence requirement for certain goods at higher risk of being made in whole or in part from forced labour.
The launch of these Consultations comes shortly after Public Safety Canada ("PS") submitted its 2024 Annual Report (the "PSC Report") on the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the "Supply Chains Act") to Parliament. The PSC Report discusses the first year of implementation of the Supply Chains Act and the nearly 6,000 reports PS had received by the May 31, 2024 filing deadline.
As discussed in our client alert released when the Supply Chains Act was first passed, this legislation imposed a wide-reaching obligation on companies with a nexus to Canada to report on the actions that they had taken in their prior fiscal year to combat the risk of forced labour or child labour being used in their supply chain. As part of its obligations under the Supply Chains Act, PS was charged with reporting to Parliament on the reports it received. The PSC Report is the first of these reports.
Alongside their preparation of the PSC Report, PS has been engaging with stakeholders to consider what changes should be made to their approach to implementing and enforcing the reporting obligation under the Supply Chains Act for the upcoming year. These developments, along with the Consultations, provide some helpful insights to companies as many of them address not only their 2025 reporting obligations, but their efforts to tackle modern slavery in their supply chain more generally.
1. Consultations on Possible Due Diligence Requirements
The Consultations, which run until November 15, 2024, are seeking stakeholders' views on the following potential measures proposed by the Canadian Government:
- Publication of a list of specified goods at risk of forced labour informed by the International Labour Organization's forced labour indicators and definitions, and supplemented by other sources of information.
- Creation of a supply chain "minimum traceability" process in which importers of specified goods appearing on the above-cited public list would be required to provide documentation regarding the imported goods' supply chain journey.
- Changes to the cost-recovery model whereby the importer of goods deemed to be made by forced labour would be responsible for the payment of all costs associated with the detention, removal, abandonment, and/or forfeiture, including any transport, storage, and/or disposal fees.
- Creation of a streamlined mechanism to settling disagreements between importers and the Government on decisions that prevented the entry into the market of specific goods.
- Strengthening of the legislative and regulatory authorities regarding information collection/sharing, enforcement, and disposition, within North America.
The measures proposed in the Consultations align with the Canadian Government's promise to introduce additional legislation to tackle modern slavery in Canadian supply chains and, interestingly, seem to be focused on forced labour and not explicitly address child labour. However, there remains significant ambiguity in how these proposed measures could be implemented. For example, the Consultations do not discuss in detail the "minimum traceability" process that would be required of importers, and the breadth of this obligation. They also do not discuss in detail how the determination would be made whether a good is at risk of forced labour, and if there will be an opportunity for stakeholders to discuss the goods proposed to be included in the list prior to their publication.
The Consultations make clear that these proposed measures are in addition to the existing measures that are in place, including the prohibition on importing goods mined, manufactured or produced, in whole or in part, with forced labour or child labour. They would also be in addition to the reporting obligation found in the Supply Chain Act, which would continue to apply broadly to businesses with a nexus to Canada.
2. The PSC Report
The PSC Report largely discusses PS' approach to implementing the Supply Chains Act and its findings from the reports that had been submitted by the May 31, 2024 deadline. Notably, PS presents data primarily collected through the questionnaires that were required to be completed when organizations were submitting their reports, as opposed to the texts of the reports themselves.
Though about 6,300 reports had been filed as of July 31, 2024, the PSC Report focuses on the 5,795 reports that were submitted prior to the May 31st deadline. The PSC Report states that 145 of these were submissions from Government departments, with the remainer from private entities that were of the view that they were captured by the reporting obligation.
We have summarized below some of the key findings regarding these reports that were shared in the PSC Report.
(a) Risk of Forced Labour and Child Labour
The PSC Report clarifies that, when asking organizations whether they had identified whether there was a risk of forced labour in their supply chain, they were asking whether the organization had "determined there is some possibility that forced labour or child labour might be used at some point within the supply chain, but does not indicate that forced labour or child labour is certainly being used" [our emphasis]. This was a common point of confusion for organizations, and provides some comfort that admitting to there being risk in your supply chain is not an admission that your products and/or imports include goods made in whole or in part with forced labour or child labour, contrary to the prohibition in the Customs Tariff.
Nearly 80% of private entities responding to the questionnaire indicated that they had identified risks in their supply chain regarding forced or child labour, or had started the process to identify those risks. This can be contrasted with only approximately 55% of government departments stating the same. The risks identified by these entities varied greatly, and a large number of respondents identified more than one potential area of risk. The most commonly identified risk, however, was in relation to the raw materials or commodities used by the entity in their supply chain.
(b) Discrepancy Between Government and the Private Sector in Actions Taken to Combat Forced Labour and Child Labour
The PSC Report's discussion of the initiatives taken by reporting organizations to combat forced labour and child labour appears to indicate that the government is behind the private sector in taking initiatives to address the risk of forced labour and child labour in their supply chain. For example, over 70% of private entities reported having policies and due diligence processes in place related to forced labour or child labour, whereas only about 47% of government departments did. Similarly, about 44% of private entities reported providing some training related to forced labour or child labour, compared to about 18% of government departments. This is in addition to the point previously noted that 80% of private entities indicated that they had identified risks in their supply chain regarding forced or child labour, compared to 55% of governmental departments.
There could be a number of reasons for this significant discrepancy. For example, government departments may be self-imposing a higher bar on these requirements, e.g. taking the view that only training that is solely focused on forced labour and/or child labour (and not training that addresses those concepts as part of a broader program) would be sufficient to indicate that training was being provided in the questionnaire. However, as the discrepancy appears to exist across most categories, the data presented in the PSC Report indicates that the private sector may be a few steps ahead of the government in working to address the risk of modern slavery in their supply chain. As both businesses and governments seek to improve their ability to address these risks and meet the milestones that many set for themselves in their Supply Chain Act reports, it will be interesting to see if this trend continues.
(c) Corrective Measures and Enforcement
The PSC Report does not identify any specific enforcement action being taken against any organizations. In fact, the PSC Report confirms that no orders were issued requiring entities to comply with the Supply Chains Act and no charges were laid against any person.
This is in line with PS' communicated position on enforcement for this first year of reporting. In public consultations on the Supply Chains Act in early 2024, PS indicated that they would be focused on education and encouraging compliance, as opposed to strict enforcement of the Supply Chains Act, at least in the short term. This message was reiterated in the PSC Report, which notes that:
In the first year of reporting, recognizing that the goal of the Supply Chains Act is to increase industry awareness and transparency about risks of forced labour and child labour, Public Safety Canada prioritized raising awareness of the reporting requirements to encourage meaningful action.
Though it is not certain that PS will continue to take this enforcement approach in the near term, it appears likely that they will. This is particularly the case given that there will likely be changes to PS's approach to interpreting the Supply Chains Act and its guidance regarding the same, as discussed below.
3. Potential Changes to the Guidance from PS
PS has been engaged in discussions with stakeholders on how to improve the guidance it issued to advise on its interpretation of the Supply Chains Act (the "Guidance"). This Guidance was critical to many businesses in evaluating whether or not they were subject to the reporting obligations under the Supply Chains Act and how to respond to that obligation if they were. However, as discussed in our previous client alerts on the Guidance (available here and here), the Guidance continued to leave open a number of questions as to how the Supply Chains Act applies to businesses.
Among the issues that PS are looking at is how the reporting obligations apply to foreign companies that have an ownership interest in a Canadian company, the scope of the term "goods", how control is interpreted in different business structures (such as co-ops), how the Supply Chains Act applies to entities that are not producing goods or importing goods into Canada, and what portion of an entity's supply chain must be reported on if they are subject to the reporting obligations. PS is expected to use the results of these discussions to inform an update of the Guidance.
The launch of the Consultations is another significant development for companies considering how to mitigate the risks of forced labour and child labour being used across their supply chains and comply with their reporting obligations as well as the importation and distribution prohibitions under Canadian law. These Consultations may be one of the few opportunities for businesses to provide their input on the implementation of these proposed measures, and we would strongly encourage interested stakeholders to participate.
While preparing for the possible roll out of the measures described in the Consultations, businesses must also begin to consider the preparation of their 2025 reports under the Supply Chains Act. As the next round of reporting begins, it will be critical for businesses who may be subject to the Supply Chains Act to thoroughly review the Guidance, and any possible updates to it, to ensure that they understand PS's expectations for this next round of reporting. Though there may be changes coming, for those that would like to get an early start and have not yet reviewed it, our Guidebook on the Reporting Obligations provides helpful guidance on how to prepare a report that is compliant with the Supply Chains Act.
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