The U.S.-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA) in 2020, boasts some of the strongest labor rights provisions found in any trade agreement to date. However, Canada has gone the extra mile since USMCA took effect, by passing a modern slavery law, which its neighbors lack.

Canada’s law requires affected public and private entities to submit annual reports of their due diligence programs, showing that they and their suppliers are not using forced labor or child labor. The first mandatory report under the law is due on May 31, 2024.

Given that Canada is ahead of the game, will its trailblazing law become North America’s de facto modern slavery law? Yes, it could. Let’s consider the two reasons why — the absence of a federal modern slavery law in the U.S. and Mexico, and their robust trade with Canada.

Modern Slavery Law in North America 

The U.S., Mexico, and Canada renewed their commitment to protect workers’ rights when they signed the USMCA. The agreement includes labor rights provisions based on International Labor Organization standards that are fully enforceable.

In the past, critics have blamed NAFTA for moving U.S. manufacturing jobs to Mexico where wages are lower. The USMCA was designed to level the playing field by strengthening labor rules. Indeed, AFL-CIO, America’s largest federation of unions, supported USMCA, which allows monitoring of Mexico’s labor reform implementation, and compliance with its labor obligations under the agreement.

And yet, out of the three USMCA partners, only Canada has passed a dedicated modern slavery regulation. Neither the U.S. nor Mexico has established a single law comparable with the Canadian law (Fighting Against Forced Labour and Child Labour in Supply Chains Act).

The Canadian Act passed in 2023, provides supply chain transparency via annual reporting. Under the law, reporting obligations are based on consolidated financial statements. Even when individual divisions within a corporation don’t meet the thresholds, they still need to report as a collective. 

Reporting requirements also apply to government agencies, including Crown corporations and subsidiaries owned by the government that function like private entities, such as utility companies.

The law’s reach includes not only Canadian-owned businesses but also foreign entities with business presence in the country. Companies could be fined up to C$250,000 ($185,000) for non-compliance or for knowingly making false or misleading statements.

By comparison, the U.S. has disparate laws to address the issues that Canada’s new law is designed to handle. In the absence of a federal law, California established its own regulation back in 2012, which requires retailers and manufacturers that do business in the state with worldwide gross receipts of more than $100 million to disclose their efforts in fighting modern slavery within their supply chains. 

Other U.S. laws meant to fight or prevent modern slavery include:

• U.S. Tariff Act of 1930. Prohibits importation of goods mined, produced, or manufactured in any foreign country using forced labor or indentured labor, including convict and child labor.
• Title 18 of the United States Code. Section 1589 prohibits knowingly using, providing, or obtaining forced labor.
• Uyghur Forced Labor Prevention Act. Requires suppliers and importers to conduct appropriate due diligence to ensure that they’re not bringing in goods made by forced labor in China’s Xinjiang Uyghur Autonomous Region.

Mexico arguably lags in modern slavery regulations compared with its neighbors. The country’s Forced Labor Regulation took effect in 2023, heralded as a much-needed initiative. It’s a significant first step for the Mexican government’s implementation of USMCA labor provisions.

The regulation bans the importation of goods made by forced labor. All goods found by the Mexican Ministry of Labor and Social Welfare to be produced with forced labor will be published on a list on the ministry’s website. 

The business community lauded the USMCA’s Rapid Response Labor Mechanism, which has successfully resolved at least 13 labor complaints that led to improved wages and better working conditions for Mexican workers, according to a 2023 report by the Brookings Institution.

Robust Trade with Canada

The U.S., Canada, and Mexico’s robust trade relations serve as a foundation for economic growth for the entire North American region. The real GDP of the three countries combined was $24.2 trillion in 2020, representing about 30% of the global GDP — larger than the GDP of China or the European Union.

Canada is the top trading partner of the U.S., with annual trade between the two countries worth $1.95 trillion. Canada is also the top U.S. export market, accounting for 14.2% of all U.S. goods exports.

Canada is Mexico’s fifth largest merchandise trading partner, with merchandise trade between them reaching $49.7 billion in 2022. 

While there’s no official count of the number of companies that will be affected by the Canadian modern slavery law, it’s likely to include a significant number of American and Mexican businesses, due to their long-standing trade ties with Canada. 

The modern slavery law affects public and private entities listed on Canada’s stock exchange and those with assets or presence in Canada or that do business in the country with at least two of these conditions recently: at least $20 million in assets; generated at least $40 million in revenue; and/or employ an average of at least 250 employees.

U.S. and Mexican companies that fall under the above-mentioned categories will be complying with Canada’s modern slavery reporting obligations beginning May 2024. When that happens, Canada’s law could very well serve as the de facto regulation in North America.

With Canada’s emerging leadership in this field, North America is poised to solidify and accelerate its efforts in the global fight against labor exploitation and enforcement of fair workplace standards.  

Brad Gates is regional head for the Americas at Ethixbase360.