Ottawa tells Washington there is “no basis” for a proposed 10 percent forced labour duty as more than 1,500 submissions pile up ahead of a three-day Section 301 hearing.
By the Peacock Tariff Consulting Canada Trade Desk | Filed July 10, 2026
OTTAWA, July 10, 2026. The Canadian government has told the Trump administration there is “no basis” for hitting Canadian goods with a new tariff over forced labour, drawing a firm line in a written submission that arrived among more than 1,500 filings ahead of a three-day hearing this week in Washington.
The submission, filed Monday with the Office of the United States Trade Representative, argues that Canada’s existing import ban, its supply-chain transparency rules and a freshly tabled enforcement bill together make a new duty both unnecessary and unjustified. “In light of Canada’s existing prohibition, complementary supply chain transparency measures, newly introduced standalone forced labour import legislation and continued commitment to Canada-U.S. co-operation, Canada respectfully submits that there is no basis for the imposition of additional Section 301 duties on Canadian goods,” the government wrote, according to The Canadian Press.
Ottawa also said it “remains committed to working closely with the United States to eradicate forced labour from global supply chains,” signaling that Canada wants to be treated as a partner rather than a target as the two economies keep sparring over the shape of continental trade. The filing was one of more than 1,500 written comments submitted by governments and industry groups before hearings that opened July 7 in the U.S. capital.
The stakes are narrow on paper but wide in principle. Most Canadian exports remain shielded by the Canada-United States-Mexico Agreement, and the proposed action carves out goods that already face separate American duties. Yet the proceeding tests whether that shield holds as the Trump administration searches for durable legal footing for tariffs after a Supreme Court defeat, and whether human-rights enforcement becomes the newest lever in a relationship already strained by metals, autos and softwood.
A new front in a year-long tariff fight
The forced labour case is the latest chapter in a trade conflict that has churned for well over a year. In March, United States Trade Representative Jamieson Greer announced that his office was opening trade investigations into 60 economies, including Canada, under Section 301 of the Trade Act of 1974. The stated concern was that these trading partners had failed to impose, or to effectively enforce, prohibitions on the importation of goods made with forced labour, and that the gap disadvantaged American firms and workers.
The timing was not accidental. In February, the U.S. Supreme Court struck down President Donald Trump’s use of the International Emergency Economic Powers Act, the authority behind his “Liberation Day” tariffs and the fentanyl-related duties that had been slapped on Canada, Mexico and China. That ruling knocked out the president’s favourite tariff tool and forced the administration to look for new legal avenues to rebuild its tariff wall.
Washington settled on a two-track approach. As a stopgap, Trump imposed a temporary 10 percent tariff on imports from nearly every country using Section 122 of the same 1974 statute. Those Section 122 duties were always understood to be short-lived, because the provision limits such surcharges to a maximum of 150 days and a rate ceiling of 15 percent. On the current clock, the Section 122 tariffs are set to lapse at the end of July unless Congress votes to extend them. Section 301, by contrast, carries no comparable time limit or rate cap, which is why trade lawyers describe it as the administration’s vehicle for turning temporary duties into lasting ones.
On June 2, USTR issued its notice of determinations and proposed responsive actions for all 60 economies. The office concluded that the practices at issue were “unreasonable” and that they “burden or restrict” U.S. commerce, findings that make them actionable under Section 301(b). The proposed remedy was an additional tariff of either 10 percent or 12.5 percent, depending on how far each country had progressed toward an effective ban on forced-labour imports.
Canada landed in the lower 10 percent tier, alongside the European Union, Mexico, the United Kingdom, Ecuador, Indonesia and Pakistan. USTR placed those jurisdictions in the group that maintains a forced-labour import prohibition but, in Washington’s assessment, does not effectively enforce it. The steeper 12.5 percent rate was reserved for dozens of economies that USTR said have only partial bans or none at all, a list that runs from Australia, Brazil, India and Japan to Saudi Arabia, South Korea, Switzerland and Vietnam.
Why Washington singled out Canada
USTR’s determination against Canada rested on two central complaints, according to legal analyses of the June 2 notice. The first was what the office characterized as minimal enforcement activity at the border. Since 2020, the Canada Border Services Agency has intercepted roughly 50 shipments on suspicion that they contained goods made with forced labour, and only two of those shipments were ultimately denied entry, according to a review of the filing by the law firm Fasken. USTR contrasted that record with U.S. enforcement volumes, noting that American authorities denied entry to more than 6,000 shipments in 2024 alone.
The second complaint concerned transparency. USTR argued that the CBSA does not publish official enforcement statistics, which the office said makes it nearly impossible to verify how Canada is applying the rules or whether goods compliant with the continental trade pact are being screened. That opacity, in Washington’s telling, has fueled a worry that Canada is becoming a back door for forced-labour goods that have already been turned away by U.S. Customs and are looking for another route into the North American market.
Canadian officials reject the premise. Ottawa points out that it does maintain a legal prohibition on importing goods produced with forced labour, and that the country layered supply-chain reporting requirements on top of that ban. The dispute, in effect, is less about whether Canada has rules on the books and more about whether those rules bite hard enough to satisfy an American administration that has made aggressive customs enforcement a signature policy.
The CUSMA shield, and its limits
For all the alarm the proposal has generated, the proposed action is riddled with carve-outs that blunt its immediate reach for Canada. Goods that qualify for preferential treatment under the Canada-United States-Mexico Agreement, known in Canada as CUSMA and in the United States as the USMCA, are listed among the exemptions, at least for now. So are articles already covered by the sweeping sectoral tariffs the administration has imposed under Section 232 of the Trade Expansion Act, a category that currently spans steel, aluminum, copper, wood products, passenger vehicles and parts, trucks and parts, and pharmaceuticals.
The notice also excludes a long list of goods set out in an annex, including various food and agricultural products, energy products, raw materials and natural resources deemed to be unavailable in sufficient quantity domestically, and civil aircraft and parts. In practice, that means a large share of what Canada sells into the United States would sit outside the proposed 10 percent duty even if it is finalized as written.
The catch, trade lawyers caution, is that the CUSMA carve-out may not be permanent. U.S. officials have signaled that the exemption could be revisited, and its continued availability may hinge on Canada demonstrating tougher enforcement outcomes. In other words, the shield that protects most Canadian exports today is being treated in Washington as a bargaining chip rather than a settled feature of the relationship, a framing that unnerves exporters who have already watched steel, aluminum, autos and cabinetry fall outside the pact’s protection.
That leftover exposure is real. Even with CUSMA in place, Canadian producers continue to pay separate American duties on steel, aluminum, automobiles and cabinetry, and the forced-labour proceeding raises the prospect of yet another layer of cost landing on goods that do not qualify for preferential treatment or that fall outside the annex exclusions.
Ottawa’s defence: legislation as a firewall
At the heart of Canada’s submission is an argument that its own law is moving in exactly the direction Washington says it wants. Canada already had legislation intended to curb forced labour in supply chains, a regime built around mandatory annual reporting to the federal government. Ottawa now argues that a new bill tabled last month goes considerably further and should remove any justification for a tariff.
That measure, Bill C-35, would create a public list of products linked to forced labour in specific regions, assembled using intelligence gathered by Canadian embassies and other authorities. Once a product and region appear on the list, importers would bear the burden of proving that their specific goods were not made through slavery. The approach echoes elements of the American model, in which certain high-risk regions or product categories trigger a presumption of forced labour that importers must rebut with documentation.
Prime Minister Mark Carney and Public Safety Minister Dominic LeBlanc had signaled in June that Ottawa would introduce stronger legislative measures to reinforce the domestic regime and address the concerns coming out of Washington. Canadian officials frame the bill as evidence of good faith, arguing that the country is tightening enforcement on its own initiative and that a punitive duty would undercut, rather than support, the shared goal of cleaning up supply chains.
Canada’s message to USTR, in short, is that cooperation will accomplish more than coercion. The government’s written filing pairs its “no basis” conclusion with a pledge to keep working with the United States, an attempt to reframe the file as a joint enforcement project rather than a contest in which one side must be penalized.
Business groups line up against a blunt tool
Ottawa was not alone in pressing its case. Canadian business and industry groups filed their own submissions arguing that tariffs are a clumsy instrument for a problem that calls for precision, particularly in a North American economy where components and commodities cross the border repeatedly before reaching a final buyer.
Matthew Holmes, a vice-president at the Canadian Chamber of Commerce, urged the U.S. trade office to treat Canada as a distinct case rather than lumping it in with dozens of other economies. “We urge USTR to assess Canada separately under Section 301, suspend consideration of the proposed 10 per cent tariff while Canada’s enforcement reforms are implemented and evaluated, and prioritize targeted bilateral enforcement co-operation over broad country-level measures,” Holmes wrote in his submission.
The agriculture sector was especially anxious about the possibility that the duties could eventually reach goods that comply with the continental pact. Keith Currie, president of the Canadian Federation of Agriculture, warned of “serious concern” that the tariffs could expand to CUSMA-compliant products, which he said would bring “serious and unintended consequences.”
“Canada-U.S. agricultural trade is highly integrated and depends on predictable, timely cross-border movement,” Currie wrote. “Even modest tariffs could disrupt supply chains, increase input costs, and reduce competitiveness, particularly as many agricultural products cross the border multiple times during processing. These impacts would place additional pressure on farmers and agri-food businesses on both sides of the border.”
Notably, some of the loudest skepticism came from the American side. The National Foreign Trade Council, an association of U.S. business enterprises, argued that CUSMA exemptions should be preserved for any future tariffs and questioned whether a broad duty could achieve its stated aim at all. “Broad-based tariffs are a blunt, punitive measure that is unlikely to be an effective tool for eliminating forced labour,” the group wrote. It added that “a comprehensive tariff penalizes all goods from a country, including those from companies that have invested heavily to eliminate forced labour from their supply chains,” a point that aligns closely with the case Canadian firms are making.
The convergence of Canadian and American business voices underscores a recurring theme in this trade war: many of the companies most exposed to the tariffs sit on both sides of the border, and they tend to argue that duties aimed at a country end up taxing an integrated production system rather than a foreign competitor.
Economic impact: small numbers, large uncertainty
Measured strictly by the goods immediately in scope, a finalized 10 percent duty might touch a relatively modest slice of Canadian exports, given the CUSMA and Section 232 exemptions and the annex exclusions. The larger economic cost, business groups argue, is the uncertainty itself. Cross-border supply chains are built on predictability, and the mere threat of a new duty complicates pricing, sourcing and investment decisions long before any tariff takes effect.
That is particularly true in sectors where inputs move back and forth multiple times. A single agricultural product can cross the border repeatedly during processing, and a tariff applied at each crossing, even at a low headline rate, can compound into a meaningful drag on competitiveness. The same logic applies to manufacturing, where parts often shuttle between plants in different countries before a finished good emerges. In those systems, a levy nominally aimed at forced-labour enforcement can behave like a tax on the geography of production.
Timing sharpens the anxiety. Trade analysts note that USTR appears to want its Section 301 forced-labour action ready to take effect around the time the temporary Section 122 tariffs expire at the end of July, so that the durable measure can slot in as the stopgap falls away. USTR has signaled that it intends to move “in a matter of months,” which leaves Canadian firms with a compressed window to prepare for a duty whose final scope and start date remain unsettled.
There is also a strategic dimension. The forced-labour action is one of several Section 301 proceedings the administration has launched, including a broad investigation into structural excess capacity in manufacturing across major trading partners and country-specific cases targeting other economies. Taken together, these measures are designed to reconstruct, on firmer legal ground, much of the tariff architecture the Supreme Court dismantled. For Canada, that means the forced-labour file cannot be read in isolation. It is one piece of a wider effort that could reshape the cost of selling into the United States.
What it means for importers, exporters and Canadian business
For companies that trade across the border, the practical takeaway is to prepare for a more demanding enforcement environment regardless of how the tariff question is resolved. Trade counsel advise Canadian businesses to anticipate inquiries from the CBSA about the origins of their inputs, and to be ready to produce documentation showing that suppliers have been vetted.
A second priority is benchmarking. Legal advisers suggest Canadian firms measure their existing due diligence against the high evidentiary standards applied under the American model, where importers must be able to rebut a presumption of forced labour with detailed traceability records. Under the reforms contemplated in Bill C-35, simple transparency or a posture of neutrality may no longer be a sufficient defence, which raises the bar for documentation and supplier audits.
Exporters, meanwhile, have a strong incentive to keep their goods squarely within CUSMA’s rules of origin, since qualifying products remain exempt under the current proposal. Maintaining and proving preferential status has become a form of tariff insurance, one that could grow more valuable if Washington follows through on hints that the CUSMA carve-out itself might be narrowed for jurisdictions it judges to be lagging on enforcement.
The broader lesson for Canadian business is that compliance and market access are increasingly intertwined. In the emerging landscape, the credibility of a company’s supply-chain controls is not only a matter of ethics and reputation but a determinant of whether its goods move freely or face duties at the border. Firms that invest early in traceability, supplier contracts with audit rights, and robust record-keeping stand to protect both their reputations and their bottom lines.
What comes next
The hearing that opened July 7 is expected to run over three days, with USTR taking testimony from governments and industry groups that requested time to appear. After the hearing concludes, parties will have a short window to file rebuttal comments before the office moves toward a final decision on which tariffs to impose and on whom.
From there, the path narrows quickly. With the Section 122 tariffs set to expire at the end of July and USTR signaling that it wants a durable measure in place, the coming weeks could determine whether Canada faces a new 10 percent duty, secures the separate treatment its government and business community are seeking, or lands somewhere in between with a delay while its enforcement reforms are evaluated. The administration has not said whether any final tariff would apply immediately or allow a grace period for goods already in transit.
The forced-labour proceeding also unfolds against a tense broader backdrop. The two countries recently allowed the deadline for extending their continental trade pact to pass without agreement, leaving CUSMA on a track of annual reviews rather than a long extension, and Canada continues to absorb American duties on metals, autos and other goods. For Ottawa, winning the argument that there is “no basis” for a forced-labour tariff is therefore about more than one line item. It is about defending the principle that Canada’s deep integration with the American economy should be a source of stability rather than a fresh target.
For now, Canadian officials are betting that a mix of law, cooperation and hard data will persuade Washington to hold its fire. Whether that argument prevails will become clear only after USTR weighs the record from this week’s hearing and decides how, and how hard, to wield a tool it has made central to its trade agenda.