USTR Finds Canada’s Forced Labour Enforcement Insufficient: Key Considerations for Canadian Businesses

On June 2, 2026, the U.S. Trade Representative (USTR) determined that Canada has failed to effectively enforce its prohibition on the importation of goods produced using forced labour, and that such failure is “unreasonable” and “burdens or restricts” U.S. commerce. In response, the USTR has proposed a 10% tariff on Canadian goods not otherwise exempt. These proposed measures are subject to a public notice-and-comment process, including hearings, and may be modified before they are finalized. The USTR has signaled that the administration intends to implement these new measures “in a matter of months.”

This finding follows an investigation initiated on March 12, 2026, under Section 301 of the Trade Act of 1974 into the import regimes of 60 U.S. trading partners (see our previous discussion: US Initiates Investigations of Canada and Other Trade Partners Over Failure to Prohibit Forced Labour Imports).

For Canadian businesses, the proposed Section 301 tariffs require careful assessment. Particularly relevant is the Federal Register Notice, as it identifies several key categories of goods that are carved out from the proposed tariffs.

The USTR’s determination coincides with a potential shift in Canadian forced labour policy, as Ottawa signals its intention to strengthen border enforcement through new legislation.

We outline key considerations for Canadian businesses below.

The Scope of Proposed Duties: Understanding the Exemptions

Section 301 of the Trade Act of 1974 targets foreign acts, policies, or practices that are “unreasonable or discriminatory” and that “burden or restrict” U.S. commerce. These proposed tariffs are intended to address perceived gaps in the enforcement of forced labour import prohibitions. Following recent constraints on alternative tariff authorities, Section 301 has re-emerged as a primary tool of U.S. trade enforcement.

Annex A of the Federal Register Notice outlines specific product exclusions that include certain essential raw materials or products to which additional duties could cause significant economy-wide disruptions or supply chain instabilities. It also notes that (i) CUSMA-compliant goods are exempt as are (ii) articles already subject to Section 232 tariffs (such as steel and aluminum).

While CUSMA-originating goods are currently included in the Annex A exemptions and remain protected from the proposed 10% tariff for the time being, U.S. officials have indicated that this carve-out may not be permanent. The USTR has characterized Canada’s enforcement record as insufficient, and the continued availability of the CUSMA-exemption may depend on Canada demonstrating improved enforcement outcomes.

The USTR Findings Against Canada

The USTR report identifies Canada as one of six economies failing to effectively enforce its forced labour import prohibition. This determination rests on two primary findings:

1. Minimal Interception Data: Since 2020, the Canada Border Services Agency (CBSA) has intercepted approximately fifty shipments on suspicion of forced labour, with only two denied entry. This record is characterized by the USTR as “minimal” when contrasted with U.S. enforcement volumes, which saw more than 6,000 denied shipments in 2024 alone.
2. Transparency and Verification Gaps: The USTR contends that the CBSA’s failure to publish official enforcement statistics makes verifying CUSMA compliance nearly impossible. This lack of transparency has raised concerns that Canada is becoming a destination for forced labour goods rejected by U.S. Customs.

Implications for Canada: A Shift Toward “Hard” Enforcement

Prime Minister Mark Carney and Minister Dominic LeBlanc have indicated that Canada will introduce new legislative measures in June 2026 to reinforce the domestic regime and address U.S. concerns. This policy shift is expected to further develop Canada’s framework in several key areas:

• Mandatory Due Diligence: A transition beyond the current annual reporting model toward a legal requirement for companies to identify, assess, and remediate human rights risks throughout their supply chains.
• Presumptions of Forced Labour: Possible adoption of a model similar to the U.S. Uyghur Forced Labor Prevention Act (UFLPA), under which certain high-risk regions or product categories (e.g., seafood, coffee, cotton, and textiles) would be subject to a rebuttable presumption of forced labour, shifting the evidentiary burden to importers.
• Enhanced CBSA Powers: New enforcement guidance and expanded authority for border officials, including access to corporate records and the ability to require minimum traceability documentation for goods identified as high risk.

Takeaways for Canadian Businesses

Canadian businesses should plan for a more active enforcement environment. Businesses may wish to:

1. Anticipate CBSA Inquiries: Prepare for requests from the CBSA for information related to forced labour.
2. Benchmark Against U.S. Standards: Evaluate current due diligence against the high evidentiary standards applied under the U.S. UFLPA.
3. Document Sourcing Processes: Ensure suppliers are vetted through formal audit rights in contracts. Under proposed legislative reforms, simple transparency or “neutrality” may no longer constitute a sufficient defence to enforcement actions.
4. Monitor Ongoing Developments: Closely follow the evolving Section 301 process and consider participating where appropriate. Requests to appear at the hearings (together with a summary of testimony) must be submitted by June 22, 2026; and written comments are due by July 6, 2026. Hearings are scheduled to take place on July 7, 2026.