Canada Responds To U.S. Tariff Threat Over Forced Labour Enforcement Concerns

“… the results of this investigation indicate that the acts, policies and practices of Canada related to the failure to impose and effectively enforce a forced labor import prohibition are unreasonable or discriminatory and burden or restrict U.S. commerce.”

This is the June 2, 2026, conclusion of the United States Trade Representative (USTR) in its Report in Section 301 Investigations 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 (Report).

In March 2026, the USTR initiated investigations to determine whether the acts, policies, and practices of various economies (including Canada) related to the failure to impose and effectively enforce a prohibition on the importation of goods produced with forced labour were actionable under Section 301 of the U.S. Trade Act of 1974, as amended (Trade Act). The Trade Act authorizes the Trade Representative to take action to address acts, policies, and practices of a foreign country that are “unreasonable or discriminatory and burden or restrict U.S. commerce.”

Following the USTR’s investigation of 60 trade partners of the United States, the USTR determined that Canada falls into a distinct category among the 60 economies investigated. While 54 economies were found to have failed to both impose and effectively enforce a forced labour import prohibition, Canada was grouped with five other economies (Ecuador, the European Union, Indonesia, Mexico, and Pakistan) that have a forced labour import prohibition in place but have “failed to effectively enforce” it. In other words, the USTR acknowledged that Canada has enacted a legal prohibition on importing forced labour goods but found that Canada is not compelling observance of that prohibition in a manner that produces the desired effect.

The Report specifically noted that Canada has failed to comprehensively investigate the importation of goods subject to U.S. Customs and Border Protection (CBP) Withhold Release Orders or Findings and has not comprehensively addressed forced labour goods produced in regions of concern. Independent reporting cited in the Report highlighted a high risk that Canadian companies are profiting from the importation of forced labour goods, including seafood, coffee, cocoa, and cotton.

Canada has also been described as a "dumping ground" for re-exports of forced labour products barred from entry to the United States. The Report further observed that Canada lacks some of the elements identified by independent research as necessary for an effective forced labour import prohibition, such as a public entity list and a rebuttable presumption.

Having found Canada's enforcement deficient, the USTR concluded that Canada's failure to effectively enforce its forced labour import prohibition is “unreasonable” because it:

1. undermines the universal aim of eliminating forced labour;
2. permits firms that use forced labour to produce goods at lower cost, thereby distorting market conditions;
3. undermines the profitability of firms that do not use forced labour; and
4. contributes to the circumvention of existing forced labour import prohibitions.

The USTR further concluded that this failure “burdens or restricts U.S. commerce” by subjecting U.S. producers to unfair competition from forced labour goods in both export markets and the U.S. market, and by displacing goods produced without forced labour into the United States and other markets.

As a proposed remedy, the USTR has recommended additional duties of 10% on products of Canada (the lower of the two proposed tariff tiers), reflecting the fact that Canada does at least maintain a forced labour import prohibition. Importantly, USMCA-compliant goods of Canada would be exempt from the proposed tariffs. The higher rate of 12.5% was proposed for the 46 economies that have neither imposed a prohibition nor committed to one.

The USTR will be receiving comments on the proposed actions until July 6, and will hold hearings in Washington, set to begin on July 7, to determine what tariffs and other steps will be taken to address “The failure of our most important trading partners to address the importation of goods made with forced labor,” deemed by USTR to be “unacceptable”. As stated by USTR Ambassador Jamieson Greer, Canada’s inaction “…creates a dynamic where American workers are forced to compete globally on an unlevel playing field,” a disparity that will no longer be tolerated.

How did this start?

In 2020, in implementing the Canada-United States-Mexico Agreement (CUSMA), Canada was required to prohibit the importation of goods that have been produced in whole or in part by forced or compulsory labour. This prohibition became law in 2020. In 2024, the Fighting Against Forced Labor and Child Labour in Supply Chains Act amended the Customs Tariff to prohibit the importation into Canada of goods mined, manufactured, or produced wholly or in part by child labour.

According to the USTR’s report, “The information available indicates that Canada is failing to effectively enforce its forced labor import prohibition. Although Canada’s import prohibition came into effect nearly six years ago, the number of enforcement actions Canada has taken to prevent the entry of forced labor goods is minimal.” The report notes that “enforcement statistics suggests that, between 2020 and 2026, Canadian authorities intercepted just 50 shipments for suspicion of forced labor, with only two shipments ultimately prohibited entry”. By comparison, under the U.S. Uyghur Forced Labour Prevention Act, CBP has detained over 43,000 shipments since it was enacted in June 2022.

What’s next?

New tariffs

The USTR has proposed additional ad valorem duties on all products of the investigated economies, subject to a two-tier rate structure and significant exclusions.

A 10% additional duty is proposed for economies that have imposed a forced labour import prohibition (Canada, Ecuador, the EU, Indonesia, Mexico, and Pakistan), have undertaken commitments through an Agreement on Reciprocal Trade (Argentina, Bangladesh, Cambodia, El Salvador, Guatemala, Malaysia, and Taiwan), or have imposed a partial regime (the United Kingdom).

A 12.5% additional duty is proposed for the remaining 46 economies that have neither imposed nor committed to a forced labour import prohibition, including Australia, Brazil, China, India, Japan, South Korea, and others.

These duties would be imposed in addition to all other applicable tariffs, including MFN duties, existing China Section 301 duties, and antidumping and countervailing duties.

The proposed tariffs would not apply to certain categories of goods including:

• USMCA-compliant goods of Canada or Mexico;
• Products subject to Section 232 tariffs (currently covering steel, aluminum, copper, pharmaceuticals, wood products, and vehicles and parts);
• Energy products, including crude petroleum, natural gas, coal, and related fuels;
• Critical minerals and metals, including rare earths, ores, concentrates, and unwrought metals;
• Pharmaceuticals, active pharmaceutical ingredients, vaccines, and chemicals;
• Technology and electronics, including semiconductors, computers, smartphones; and telecommunications equipment;
• Civil aviation articles and parts.

New Canadian legislation

On June 3, Prime Minister Carney said his government supports the “overall objective” of combatting forced labour and that new legislation on forced labour is expected in the coming weeks.

On June 12, the Minister of Foreign Affairs tabled Bill C-35 An Act Respecting the Prohibition of the Importation of Goods Produced by Forced Labour in the House of Commons. The first reading of Bill C-35 has been completed.

The Bill, if passed, would among other things,

1. provide that goods produced by forced labour are prohibited from importation;
2. empower a customs officer to determine whether imported goods are produced wholly or in part by forced labour;
3. empower a customs officer to detain goods for up to 90 days in order to determine whether imported goods are produced wholly or in part by forced labour;
4. authorize the Minister of Foreign Affairs to establish a list of goods in respect of which there are reasonable grounds to suspect that they are produced by forced labour, with the Minister specifying either the person who produces them or the country or region in which they are produced or both; and
5. provide that a person importing goods on the Minister’s list must, at the request of a customs officer, provide the Canada Border Services Agency with the prescribed information, failing which the goods are deemed to be prohibited from importation.

It also makes consequential amendments to the Customs Tariff.

Canadian Ombudsperson for Responsible Enterprise

Prime Minister Carney has indicated that his government is eliminating the role of Canadian Ombudsperson for Responsible Enterprise (CORE). The CORE was intended to be responsible for investigating allegations of human rights violations committed by Canadian companies operating abroad.

Next steps for Canadian businesses

Businesses importing goods into Canada need to prepare for effective supply chain governance and mapping, as well as enhanced supply chain diligence of their business operations and supply chains, in order to identify, prevent and mitigate the risks of forced labour and child labour, and ensure full compliance with Bill C-35.

Stay tuned

We will continue to monitor the actions of the USTR, including the announced imposition of tariffs, as well as Canada’s Ministry of Foreign Affairs with regard to Bill C-35. We can expect that the Bill will be carefully examined in the House of Commons and the Senate, as will the required regulations that will provide more granularity as to the implementation and operation of the Bill.

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