Tariff Risk Ahead: U.S. Section 301 Forced Labour Investigations And Canadian Supply Chains

1. Overview

The Office of the United States Trade Representative (“USTR“) has launched Section 301 investigations into 60 economies for failure to impose and effectively enforce a prohibition on the importation of goods produced with forced labour. Canada is among the 60 economies under investigation. The investigations were initiated on March 12, 2026.

2. Why Is the United States Doing This?

The United States has framed these investigations around three core concerns:

1. Competitive harm. Companies using forced labour benefit from artificially lower production costs, undercutting United States businesses and workers.
2. National security. The United States has characterized the elimination of forced labour as an economic and national security priority.
3. Global persistence of forced labour. Despite broad international consensus, the International Labour Organization estimates that as of 2021, 28 million people globally remain in forced labour, representing an increase of 2.7 million since 2016.

Taken together, the 60 economies under investigation collectively account for more than 99% of United States imports. Canada’s inclusion reflects USTR’s view that no economy under investigation has both adopted and effectively enforced a forced labour import prohibition to date.

The breadth of the USTR investigation is informed by the United States’ existing enforcement experience. Since the Uyghur Forced Labor Prevention Act (“UFLPA”) came into force in June 2022, the United States has applied a rebuttable presumption to goods mined, produced, or manufactured wholly or in part in China’s Xinjiang Uyghur Autonomous Region (“XUAR”).¹ Under this framework, the burden falls entirely on the importer to demonstrate, by clear and convincing evidence, that the goods are free from forced labour.² Where goods are denied entry into the United States, importers have limited recourse: they may re-export, abandon, or seek to destroy the goods. Re-exportation is the most common outcome and it raises a significant concern for Canada. Because Canada maintains no equivalent rebuttable presumption, goods that fail to meet the UFLPA’s evidentiary threshold and are excluded from the U.S. market may ultimately be redirected into the Canadian market.

Although Canada does maintain its own import prohibition, its enforcement framework differs. Canada’s prohibition on the importation of goods manufactured or produced using forced labour implements its commitments under the Canada-United States-Mexico Agreement.³ The prohibition was enacted into Canadian law effective July 1, 2020, by way of an amendment to the Customs Tariff and its Schedules, and was subsequently broadened in scope to encompass goods manufactured or produced using child labour through the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Supply Chains Act”).⁴

In practice, however, enforcement activity has been limited. The Canada Border Services Agency (“CBSA”) has publicly identified certain products as potentially subject to detention and inspection on suspicion of forced or child labour, including cotton and cotton products produced or manufactured in China (specifically in the Xinjiang region), tomatoes and tomato paste, and polysilicon (a raw material commonly used in the production of solar cells).⁵ Based on public reports, the CBSA has detained and assessed approximately 50 shipments since the import ban was introduced.

3. What Could This Mean for Canadian Businesses?

The USTR process may pressure the Canadian government to strengthen enforcement of Canada’s import prohibition, including by requiring importers to provide specific documentary evidence before determining the appropriate tariff classification of goods.

Notably, the CBSA released amendments to Memorandum D9-1-6 (Goods manufactured or produced wholly or in part by prison labour) on January 20, 2022, that, although subsequently withdrawn, signalled the direction of regulatory expectations. Those amendments would have required importers to maintain documentation covering their complete supply chain – defined in the D-Memo as “the entire system of producing and delivering the goods from the initial stage of sourcing raw materials to delivery of the product in Canada.” In practice, this would require retaining records that establish the origin, purchase, and transportation of all materials, including raw materials, from every supplier involved in mining, manufacturing, or producing the goods and their components.

Canadian exporters should also be aware that if the USTR process results in adverse findings against Canada, it could lead to additional tariffs or import restrictions on Canadian goods entering the United States market. Historically, Section 301 investigations have resulted in tariff rates ranging from 7.5% to 25%. More immediately, the investigation places a spotlight on whether Canadian businesses are taking meaningful, documented steps to address forced labour and child labour risks in their supply chains. As USTR has noted, “forced labor taints the entire supply chain in which it exists.”⁶

The USTR investigation also serves as a timely reminder that the upcoming Supply Chains Act reporting deadline (May 31, 2026) requires in-scope entities to prepare and file their annual reports on the steps they have taken to prevent and reduce the risk of forced labour and child labour in their supply chains.⁷ McMillan continues to assist businesses and government entities in determining their reporting obligations and in preparing and revising their reports.

Footnotes

1. U.S. Department of State, Uyghur Forced Labor Prevention Act (UFLPA) Fact Sheet (January 20, 2025).

2. See example, U.S. Customs and Border Protection, H317249.

3. Canada-United States-Mexico Agreement, Chapter 23.

4. Fighting Against Forced Labour and Child Labour in Supply Chains Act, S.C. 2023, c.9.

5. Government of Canada, Issue notes—Special Committee on Canada-China Relations: National Security Dimension of the Canada-China Relationship (March 11, 2021).

6. Office of the United States Trade Representative, Initiation of Section 301 Investigations of Acts, Policies, and Practices of Various Economies Related to the Failure to Impose and Effectively Enforce a Prohibition on the Importation of Goods Produced with Forced Labor.

7. For more details, see our previous bulletin on the Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2025