Ottawa tells Washington there is no basis for proposed Section 301 forced labour duties on Canadian goods as public hearings open and a late July deadline looms over exporters on both sides of the border
Peacock Tariff Consulting Trade Desk
WASHINGTON, July 8, 2026
The Canadian government has told the Trump administration there is no legal or factual basis for imposing new tariffs on Canadian goods over forced labour enforcement, setting up a consequential week in Washington as the Office of the United States Trade Representative opened public hearings on a proposal that would layer an additional 10 per cent duty onto Canadian exports that fall outside the protection of the continental trade agreement.
In a written submission filed Monday with the USTR, first reported by The Canadian Press, Ottawa argued that its existing import prohibition, complementary supply chain transparency measures and newly introduced standalone forced labour legislation together demonstrate that Canada is meeting its commitments. “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. It added that Canada “remains committed to working closely with the United States to eradicate forced labour from global supply chains.”
The Canadian case was among more than 1,500 written submissions from governments, business associations and civil society groups filed ahead of a three day hearing that began Tuesday at the U.S. International Trade Commission in Washington. The hearing is the final formal step before the U.S. Trade Representative decides whether to convert the proposed duties into binding trade action, a decision that trade lawyers expect could come within weeks.
The stakes for Canada are substantial. Although goods that qualify as originating under the Canada-United States-Mexico Agreement, known as CUSMA in Canada and USMCA in the United States, would be exempt from the proposed duties, a meaningful share of Canada-U.S. trade moves without claiming preferential treatment under the agreement. Those flows, along with any shipment that cannot document its North American origin, would face a 10 per cent surcharge at the border on top of any other applicable duties.
A tariff wall rebuilt on new legal foundations
The forced labour investigation is one piece of a much larger legal reconstruction project under way in Washington. In late February, the U.S. Supreme Court struck down the tariffs President Donald Trump had imposed under the International Emergency Economic Powers Act, the authority he had used for his so-called Liberation Day tariffs and for the fentanyl-related duties applied to Canada, Mexico and China.
The administration responded within days. Trump imposed a temporary 10 per cent worldwide tariff under Section 122 of the Trade Act of 1974, a fast but limited instrument that caps duties at 15 per cent and expires after 150 days unless Congress votes to extend it. According to an analysis by the law firm White & Case, that global surcharge lapses on July 24, 2026, and the administration has been racing to have longer term replacement measures ready before the window closes.
Section 301 of the same statute is the chosen vehicle. Unlike Section 122, it carries no practical time limit or rate ceiling, but it requires an investigation, findings and a public comment process. On March 12, 2026, U.S. Trade Representative Jamieson Greer initiated 60 parallel investigations into whether trading partners had failed to impose and effectively enforce prohibitions on the importation of goods produced with forced labour.
On June 2, Greer announced his findings: all 60 economies, together accounting for more than 99 per cent of goods imported into the United States by some estimates, were deemed to have fallen short. “The failure of our most important trading partners to address the importation of goods made with forced labor is unacceptable. This creates a dynamic where American workers are forced to compete globally on an unlevel playing field,” Greer said in the announcement. “We will no longer tolerate this disparity.”
The proposed remedy is a two tier tariff. Economies that maintain a forced labour import prohibition, that have committed to one through an Agreement on Reciprocal Trade, or that operate a partial regime would face an additional 10 per cent duty. All others would face 12.5 per cent. Canada sits in the lower tier, alongside Mexico, the European Union, the United Kingdom, Ecuador, Indonesia and Pakistan, among others. Dozens of economies, including Japan, South Korea, Australia, Switzerland and Brazil, are slated for the higher rate.
Written comments on the proposal closed on July 6. The hearings that opened July 7 will run over subsequent days as needed, with post-hearing rebuttal comments due five days after the final session. Trade practitioners widely expect the USTR to time any final action so that the new Section 301 duties can take effect as the Section 122 surcharge expires in late July.
What Washington says Canada got wrong
Canada occupies an unusual position in the investigation. Unlike the 54 economies faulted for having no import ban at all, Canada has prohibited the importation of goods mined, manufactured or produced wholly or in part with forced labour since July 1, 2020, when amendments to the Customs Tariff came into force as part of Canada’s implementation of CUSMA. Washington’s complaint is not that the law does not exist. It is that the law has barely been used.
The USTR’s supporting report, as summarized in a client alert by the Canadian law firm McCarthy Tétrault, leans on public reporting cited in a 2025 submission by the Coalition Against Forced Labour in Trade. That reporting indicated that, as of September 2024, Canadian authorities had intercepted only about 50 shipments on suspicion of forced labour content, and that just two of those shipments were ultimately barred from entering Canada. The report also alleges that Canada has not moved against goods that U.S. Customs and Border Protection has already identified as products of forced labour.
Canadian trade lawyers counter that the picture is more balanced than the American findings suggest. The Fighting Against Forced Labour and Child Labour in Supply Chains Act, in force since January 1, 2024, requires large companies and government institutions to publish annual reports on forced labour risks in their supply chains. In 2025, according to McCarthy Tétrault, 4,313 entities filed such reports with the Canadian government. The United States has no comparable federal transparency statute, a point Canadian practitioners have been quick to raise as the two governments trade assessments of each other’s enforcement records.
The scale of the underlying problem is not in dispute. Public Safety Canada cites International Labour Organization estimates of roughly 28 million people in forced labour worldwide, including 17.6 million in the private economy. The risk typically sits far upstream of a Canadian warehouse or an American retail shelf, embedded in cotton, seafood, cocoa, minerals, electronics components and other inputs that cross multiple borders before reaching a finished product.
Ottawa’s answer: a tougher regime of its own
Canada’s submission did not rest solely on its existing framework. The centrepiece of Ottawa’s defence is new legislation tabled in Parliament last month. Bill C-35 would create a standalone forced labour import regime to replace the current approach under the Customs Tariff. As described in Canadian Press reporting, the bill would establish a public list of products linked to forced labour in specific regions, built on intelligence from Canadian embassies and other authorities, and would require importers to prove that specific products sourced from listed regions were not made with forced labour.
That structure would shift the practical burden of proof. Under the current system, Canadian authorities must effectively establish that a given shipment is tainted before blocking it, a task that has proven extremely difficult across opaque, multi-tier global supply chains. Under a listing regime with a rebuttable presumption, importers whose goods fall within designated high risk categories would have to come forward with evidence, including supply chain tracing documentation, or see their goods deemed prohibited.
Dominic LeBlanc, the minister responsible for Canada-U.S. trade, signalled the move in June, saying Canada already has a robust regime but would “soon be taking action to make it even stronger, including through the introduction of new legislation this month,” according to a statement cited by McCarthy Tétrault. The timing was not accidental. The legislation landed between the USTR’s June 2 findings and the July 6 comment deadline, giving Ottawa a concrete reform to point to in its written case.
Whether the bill satisfies Washington is another matter. The USTR’s proposed framework rewards countries that both impose and enforce import prohibitions, and Bill C-35 has not yet passed, let alone produced an enforcement record. Canada’s submission asks, in effect, for credit on the strength of legislative intent and an existing, if lightly used, ban.
Business groups push for exemptions, not tariffs
Canadian business and industry groups filed their own submissions, and their message was consistent: whatever the merits of forced labour enforcement, tariffs are the wrong tool for a deeply integrated North American market.
The Canadian Chamber of Commerce urged the U.S. trade office to treat Canada on its own merits rather than as one file among 60. “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,” wrote Matthew Holmes, the Chamber’s vice-president, in a submission quoted by The Canadian Press.
Agriculture groups raised alarms about the risk of the duties bleeding into trade flows that are currently protected. Keith Currie, president of the Canadian Federation of Agriculture, wrote that there is “serious concern” the tariffs could expand to goods compliant with the continental trade pact, which would carry “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.”
American business voices made similar arguments. The National Foreign Trade Council, an association of U.S. companies, called for CUSMA exemptions to be preserved in any future tariff action and questioned the basic design of the measure. “Broad-based tariffs are a blunt, punitive measure that is unlikely to be an effective tool for eliminating forced labour,” the council wrote, adding 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.”
What the proposal would and would not cover
For Canadian exporters and the U.S. importers who buy from them, the proposal’s exemptions matter as much as its headline rates. The USTR’s notice, analyzed in detail by White & Case, carves out several major categories from the proposed duties.
First and most important for Canada, goods qualifying for preferential treatment under CUSMA would be exempt. That carve-out has been a consistent feature of the administration’s broad based tariff actions, including the struck-down IEEPA tariffs and the current Section 122 surcharge, and its preservation here is the single biggest buffer between the proposal and the bulk of Canada-U.S. trade.
Second, articles already subject to Section 232 national security tariffs would be excluded. Those sectoral measures currently cover steel, aluminum, copper, pharmaceuticals, wood products, passenger vehicles and parts, and trucks and parts, with further investigations under way on semiconductors, critical minerals, commercial aircraft and other categories. Canadian steel, aluminum, lumber and automotive shipments, already facing duties ranging from 15 to 50 per cent under Section 232 depending on the product, would not see the forced labour duty stacked on top.
Third, the notice proposes a long list of specific product exclusions in its Annex A, which White & Case notes is identical to the exclusions list used for the current global Section 122 tariff. It includes various food and agricultural products, energy products such as natural gas and electricity, raw materials not available in sufficient quantities in the United States, and civil aircraft and parts. Reporting cited by the financial publication Hashtag Investing indicates the exemptions also reach crude oil and petroleum products, rare earths and specialty metals, and pharmaceuticals.
Finally, the proposal includes a novel textile mechanism that would allow certain volumes of apparel and textile imports from some economies to enter at a reduced Section 301 rate, apparently linked to how much U.S.-produced cotton and textile content those countries import from the United States.
Significant questions remain open. The notice does not say when the duties would take effect, whether goods already on the water would receive a grace period, or how the new tariffs would interact with other Section 301 actions the administration is developing, including its parallel investigations into structural manufacturing overcapacity in 16 major economies. Absent contrary guidance, the default rule is that Section 301 tariffs stack on one another.
The economic calculus for Canadian trade
The practical impact on Canadian business will depend almost entirely on CUSMA qualification. For exporters whose goods clearly originate in North America and who claim preference at the border, the proposed duty changes little directly. But trade compliance professionals have long noted that a surprising share of Canada-U.S. trade historically moved without claiming CUSMA preference, because most-favoured-nation rates on many goods were zero and the paperwork was not worth the effort. Those days are over. Under the emerging tariff architecture, origin documentation has become the difference between duty free access and a double digit surcharge.
For goods that cannot qualify, the arithmetic is unforgiving. A 10 per cent surcharge can erase the entire margin on low margin consumer goods, distribution and food products. U.S. customers are already using the threat of new duties as leverage in price negotiations, and Canadian distributors selling into the American market may face demands for concessions regardless of where the tariff legally lands.
There is also a second, less obvious exposure: Canadian importers. Bill C-35 would tighten Canada’s own border regime at the same time as Washington tightens its own. A Canadian retailer or manufacturer sourcing from abroad could soon face listing based import prohibitions at home, enhanced tracing demands from the Canada Border Services Agency, and forced labour scrutiny on any re-export into the United States. Companies with thin visibility beyond their first tier suppliers, which is to say most mid-sized companies, carry the greatest risk.
The compliance lesson emerging from both capitals is the same. Supplier codes of conduct and one page attestations will not carry weight when a shipment is detained. What counts is evidence: purchase orders, production records, bills of materials, factory and vessel locations, subcontractor lists, recruitment practices and transport documentation, assembled before a border officer asks for them rather than after a container is stuck at the line.
A negotiation inside a larger standoff
The forced labour file cannot be separated from the broader deterioration in the Canada-U.S. trade relationship. The July 1 deadline for the first joint review of CUSMA passed last week without an agreement to extend the pact to 2042, after the Trump administration declined to join Canada and Mexico in endorsing an extension. The agreement now moves to annual reviews until its scheduled expiry in 2036, an outcome that has injected fresh uncertainty into the very exemption on which Canadian exporters are counting to shelter them from the forced labour duties.
That linkage was a recurring theme in the Canadian submissions. If CUSMA preference is the shield, then anything that weakens the agreement, or any decision by Washington to narrow the CUSMA carve-out in the final tariff notice, would transform a manageable irritant into a broad tax on Canadian trade. Many Canadian filings urged the USTR to lock in the CUSMA exemption no matter the outcome of the investigation.
For Ottawa, the episode also illustrates the administration’s post-Supreme Court strategy in miniature. Having lost its broadest tariff authority in February, the White House has been methodically rebuilding equivalent measures on more durable statutory foundations, using Section 122 as a bridge and Section 301 as the permanent structure. The forced labour investigation, whatever its human rights framing, restores the baseline 10 per cent tariff level that applied under the IEEPA regime for nearly all U.S. trading partners. Sector specific investigations into overcapacity, pharmaceutical pricing, digital services taxes and other practices are queued behind it.
What happens next
The hearings that opened Tuesday will continue as long as the witness list requires, with nearly 60 witnesses expected to testify based on the pattern of earlier Section 301 proceedings. Rebuttal comments close five days after the final hearing day. The U.S. Trade Representative will then issue a final determination setting rates, scope, exemptions and timing, with most observers expecting action before the Section 122 surcharge expires on July 24.
The final design could still move. The USTR has specifically invited comment on whether countries that have made enforcement commitments should face lower rates, on the products that should be excluded, and on whether the textile preference mechanism should be extended to other sectors. If Canada’s legislative push and its enforcement reforms are judged credible, the final measure could be narrower, delayed with respect to Canada, or structured with an off-ramp tied to the passage and implementation of Bill C-35.
If not, Canadian goods outside CUSMA protection will enter the U.S. market carrying a 10 per cent surcharge as soon as the final notice takes effect, and Ottawa will face a familiar decision about whether and how to respond. The federal government has so far avoided announcing retaliatory measures tied to this file, preferring to argue its case inside the U.S. process while accelerating its own forced labour reforms.
For Canadian importers, exporters, customs brokers and compliance teams, the direction of travel is clear regardless of the final rate. Forced labour enforcement has moved from the corporate social responsibility report to the customs entry. Companies that map their supply chains, document origin rigorously and treat forced labour due diligence as a border readiness issue will keep their goods moving. Companies that wait for the final Federal Register notice may find that one missing document turns a routine shipment into a trade law problem.