Traditionally considered under the purview of voluntary
Corporate Social Responsibility (“CSR“),
Environmental, Social and Governance
(“ESG“) norms or “soft law”,
addressing human rights concerns when doing business abroad is
quickly becoming a legal imperative for companies engaged in supply
chain management across all industries and sectors, including
retail and consumer products, technology, financial services,
mining, oil and gas, and manufacturing.
Following the recent global regulatory focus on supply chain
risks and related compliance strategies, Global Affairs Canada
(“GAC“) and the Canadian Trade
Commission Service have issued several measures (the
“Measures“), along with a related advisory (the
“Advisory“) to Canadian businesses
designed to address human rights violations in global sourcing. The
Measures and the Advisory specifically address ongoing reports of
human rights violations in Xinjiang, and set out the Government of
Canada’s compliance expectations with respect to Canadian
entities doing business with that region in China.
Canada’s Increasing Use of Human Rights
Measures
It is important to consider the new Measures and Advisory in the
context of the global movement among Canada’s allies towards
recognizing and attempting to respond to human rights violations by
imposing greater expectations and obligations on companies doing
business abroad. In particular, reports of human trafficking,
forced labour and child labour have prompted various jurisdictions
to adopt modern slavery laws and policies.
In Canada, there have been several key developments in this
area:
- Economic sanctions: Canada has enacted new
authorities under the Special Economic Measures Act
(“SEMA“) and the Justice for Victims
of Corrupt Foreign Officials Act (Sergei Magnitsky Law)
(“Magnitsky Law“) allowing the
government to impose economic sanctions against parties involved in
or facilitating gross violations of human rights or acts of
significant corruption. These measures prohibit engaging in
activities directly or indirectly involving listed parties from
Saudi Arabia, Russia, Myanmar (Burma), Venezuela, South Sudan,
Nicaragua, and most recently, Belarus. Significantly, no economic
sanctions measures have been taken against China or Chinese
companies or officials to date. - Export and technology transfer controls:
Effective September 1, 2019, mandatory criteria must be considered
when deciding whether to issue an export or brokering permit under
the Export and Import Permits Act, including whether the
controlled goods or technology could be used to commit or
facilitate a serious violation of international human rights law or
humanitarian law, serious acts of gender-based violence, or
violence against women and children. Further, in response to human
rights concerns, last year GAC’s Export Controls Operations
Division issued restrictive policies regarding exports and
transfers to Turkey, Hong Kong and China (see Canada Changes its Export Policy Toward Hong Kong
– Are Economic Sanctions Next?). - Restrictions on dealing with products made from forced
labour: The Customs Tariff was amended effective
July 1, 2020, as part of the implementation of the United
States-Mexico-Canada Agreement, to prohibit the importation goods
from any country that are produced wholly or in part by forced
labour. Previously, the prohibition only applied to products of
prison labour. The Customs Act imposes additional
prohibitions and reporting requirements regarding any such goods
that have been imported into Canada in violation of this measure.
These measures are enforced by the Canada Border Services Agency
(“CBSA“). - New Modern Slavery Act: An Act to enact the Modern Slavery Act and amend
Customs Tariff was re-introduced in the Canadian Senate
and passed the first reading on October 29, 2020.
Bill S-216 imposes an obligation to publicly report on an annual
basis the measures taken to prevent and reduce the risk that forced
labour or child labour is used in any step of the production of (i)
goods in Canada or elsewhere, or, (ii) of goods imported into
Canada. In addition, it introduces a prohibition on importation of
goods produced in whole or part by child or forced labour. - Nevsun Resources Ltd. v.
Araya: Last year for the first time in Canadian
law, the Supreme Court of Canada held that Canadian private
businesses can be held liable in Canada for violations of customary
international law committed by their subsidiaries abroad. However,
it still remains unclear how these claims would be brought and
decided in Canadian courts.
The Xinjiang Advisory and Measures
Xinjiang Integrity Declaration
Canadian companies that are (a) sourcing directly or indirectly
from Xinjiang or from entities relying on Uyghur labour, (b)
established in Xinjiang, or (c) seeking to engage in the Xinjiang
market, will be required to sign a Xinjiang integrity declaration (the
“Declaration“) when engaging with the
Trade Commissioner Service. The Declaration requires companies to
confirm that they are not knowingly sourcing from suppliers
implicated in forced labour or other human rights violations.
Additionally, the Declaration requires companies to confirm they
are conducting due diligence on their suppliers in China.
Responsible Conduct
The Government of Canada expects companies to take extra care in
ensuring their supply chains comply with the prohibition on the
importation of goods produced, in whole or in part, by forced
labour. GAC notes that it will continue discussions with businesses
and organizations to ensure awareness is raised around risks. The
Advisory also highlights the expectation that Canadian companies
active in the global markets will respect human rights and operate
in a socially responsible manner by adopting voluntary best
practices and by following internationally recognized
guidelines.
Export Control
The Advisory notes the 2019 changes to the Export and Import
Permit Act discussed above, emphasizing that permits will not
be issued for the transfer of controlled goods and technologies
where there is a substantial risk that they could be used to commit
or to facilitate serious violations of international humanitarian
law, international human rights law, or serious acts of
gender-based violence. The Advisory and Measures also note that all
export permit applications will be extensively reviewed to
determine whether the goods, services, or technologies could be
used in connection with human rights violations.
Due Diligence
The Government of Canada is urging businesses with links to
China to thoroughly examine their supply chains to ensure that they
do not support human right violations in Xinjiang and China. The
Advisory provides guidance on potential indicators of forced labour
and other human rights violations, including lack of transparency
on the origins of goods, internment terminology, Xinjiang
government incentives and factory locations.
Those in certain high-technology fields are expected to exercise
the highest level of due diligence on the end-users of their
products, as they may be used to arbitrarily track Uyghurs and
other minorities in Xinjiang.
The Government of Canada advises that third-party audits are
important, but may not be sufficient. Businesses are encouraged to
work with the relevant industry groups and non-governmental
organizations to prevent human rights abuses in their supply
chains.
Takeaways
Potential human rights violations in supply chains have
implications that extend well beyond compliance issues, and touch
on environmental, social and governance concerns. Today, there is
heightened pressure from the market, consumers, and investors, to
ensure supply chains are ethical and free of human rights
violations, such as forced labour.
The Government of Canada has noted that the risks of human
rights violation in the supply chain are not limited to Xinjiang or
China, although the recent Advisory and Measures focus on the
heightened risks of doing business in these regions. Accordingly,
Canadian businesses should take steps to actively monitor their
supply chains and conduct risk-based due diligence.
These steps are increasingly important for companies to take in
light of the heightened legal and reputational implications. Unlike
in the United States, Canada currently does not maintain a
whistleblowing program aimed at detecting prison and forced labour
incidents and detaining implicated goods. Further, the CBSA does
not yet maintain any public list of foreign vendors whose goods may
be detained at the border as being manufactured by prison or forced
labour, similar to the United States Customs and Border Protection’s
list. Therefore, in Canada, compliance due diligence and supply
chain reviews to detect prison and forced labour lie solely on
businesses.
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.
