AUTHORS

8 March 2023

RELATED expertise

Companies in Australia with over A$100m in annual revenue are obliged by law to report on the risk of forced labour in their international supply chains. That’s all. US importers, however, face the seizure and destruction of products tainted by real or suspected forced labour. Is Australian law heading in the same direction? What might our laws look like in comparison? And what do importers need to consider?

Moulis Legal special counsel Jessica Giovanelli reports on proposals to extend Australia’s modern slavery regulations that, if passed, may impose regulatory and compliance costs on Australian importers of all sizes.

A new ban on imports produced with forced labour – again?

In Australia, modern slavery concerns in supply chains are currently addressed through annual reporting requirements. Companies with annual revenue of over A$100m must file a due diligence statement reporting on risks in the company’s supply chain, which is put on a public register kept by the Australian Border Force. Government agencies, as well as providing annual reports themselves, must not buy products of modern slavery or otherwise use them in procurement projects.

A proposal to go further – by banning the importation of products produced wholly or even partly through the use of forced labour – was introduced into the Australian Parliament, considered by the Senate Committee on Foreign Affairs, passed by the Senate, and introduced into the House of Representatives before the May 2022 election, but then lapsed. It’s back on the agenda after having been reintroduced in a new Bill in November 2022.

The Bill proposes to insert into the Customs Act a new Section 50A, that:

The importation into Australia of goods produced or manufactured, in whole or in part, through the use of forced labour (within the meaning of the Criminal Code) is prohibited absolutely.

The proposal may gain traction following a review of the present laws, due at the end of March 2023. A review of criminal offences relating to human trafficking and slavery is also underway.

If the proposed ban becomes law, importers will face new regulatory obligations, and affected imports could be detained and destroyed.

US experience tells us what could be ahead

Under US laws, certain products are suspected or presumed to have been made with forced labour, including:

  • cotton, tomatoes, polysilicon, aluminium, and polyvinyl chloride (PVC) from China
  • all cotton and cotton-containing products from Turkmenistan
  • all goods produced or manufactured in Xinjiang, China
  • goods produced by certain entities, for example, prisons in Japan and tomato producers in Mexico.

Such goods may be detained on arrival at the US border. If so, an importer must provide evidence that they are not made with forced labour. US Customs and Border Protection will determine whether the goods are subject to the ban, and if they are, they may be destroyed.

Because US law extends to inputs used in the production of the finished product, importers need to show not only evidence about final stage production but also evidence about the raw material and intermediate input stages of production.

The Australian Senate Committee that considered the original proposals here in Australia made a recommendation that echoes the US position:

Recommendation 2: Customs agency should issue rebuttable presumptions for specific goods, companies and/or regions with particularly high risk of being associated with forced labour. Should immediately consider cotton sourced from Xinjiang.

If such a presumption is applied in Australia, importers would likely need to prove to an implementing agency, such as the Australian Border Force, that specific goods are not produced with forced labour. This could involve burdensome standards of proof, such as those faced by US importers.

In particular, “tracing” raw materials and input production would be challenging. A clothing importer would need to know, for example, exactly where all cotton thread in the stitching originated.

Momentum building in labour standards enforcement

Any new Australian laws would be in line with international trends to implement forced labour trade bans.

US bans on the import of products of forced labour have a long history. Originally, such restrictions were used to protect its own products made with slave labour. Today, the objective is to implement international labour organisation standards by causing commercial damage.

The US, Mexico and Canada committed to banning imports of goods produced by forced labour in the Trump-era US–Mexico–Canada free trade agreement (USMCA FTA), which entered into force in January 2020.

Canada implemented the obligation with a ban on imports of the products of forced labour that commenced in July 2020. Canada does not impose a presumption of forced labour. The Canadian Border Services Agency examines case-by-case circumstances to decide whether the goods are prohibited. Canada is also considering reporting requirements like Australia’s, and revising its government procurement policies to allow termination of contracts for products made with forced labour.

In September last year the European Union announced that it too proposes to ban imports made with forced labour. Australia and the EU are currently negotiating their own FTA. Both Australia and the EU have an interest in being seen as progressive in their international rule-making. A mutual obligation to introduce forced labour product bans could conceivably emerge from that treaty, as was the case with the USMCA FTA.

Severity and integrity of an Australian import ban

If enacted, will Australia’s laws comprise a strict, self-executory ban? Will the laws be implemented via agency investigation and administrative decision-making? Or will importers themselves need to prove that products are free of forced labour in order to bring them into the country?

A law banning products from a particular place, or from a government or commercial entity, would be based on the conclusion, embedded in the law-making procedures that brought the ban into effect, that forced labour exists in the place or entity concerned. The law may be a strict import ban, immutable to challenge except via those law-making procedures. Or something less severe might eventuate, such as a “rebuttable presumption” like that applied by the US authorities, which gives the importer a chance to “prove otherwise”. That would operate on a more ‘case-by-case’ basis, but it would still impose compliance obligations on importers.  

Least burdensome for importers would be a system requiring an administrative agency such as Australian Border Force to identify and investigate the possibility of forced labour in a production chain. This would be more work for the agency, and more products could slip through unnoticed – which might make the agency prefer a presumption-based approach. But such an approach could also mean an importer was caught off-guard because it hadn’t examined its supply chain.

To make any new system work there will need to be substantive rules – what are the relevant labour standards? Will countries converge around the standards of the International Labour Organisation, as are applied in the US? Also, procedural rules will be needed – investigation notices and procedures, and review and appeal rights.

In any event, Australia (or any other World Trade Organization (WTO) Member) would need to demonstrate the consistency of forced labour trade restrictions with the General Agreement on Tariffs and Trade (GATT) Article XX “general exception”. Under that exception, WTO Members may adopt measures to protect public morals, human life and health, and measures relating to products of prison labour. Absent one of those justifications, or if it constituted disguised protectionism, any trade ban could be inconsistent with WTO obligations.

Get ready

To the extent that they have been paying realistic attention to their annual reporting requirements, Australia’s largest companies have become educated to the risks of forced labour conditions in their product supply chains, and are likely well prepared for what will eventuate from Australia’s modern slavery regulations review.

For all companies in the business of importing from at-risk locations, or of importing products with inputs potentially from at-risk locations, we would advise carrying out a preliminary audit of your production supply chain. Understanding not only the factual situation itself, but also the preparedness of your suppliers to cooperate, will be useful for your future sourcing decisions. And remember to include contractual protections in your cross-border arrangements to leave open the opportunity to be compensated for any breach of a “no forced labour” warranty.

Where should a multi-country/multi-product importer direct its attention? An understanding of international regulatory standards and countries with the highest risk ratings would be a good start.

 

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.

© Moulis Legal 2023