A resolution published in Mexico’s official gazette on 17 February 2023 and that will apply as from 18 May introduces a prohibition on the import of goods made in whole or in part with forced, compulsory or child labour. The resolution fulfils Mexico’s obligation under the 2020 United States-Mexico-Canada Agreement or “USMCA” (the agreement that replaced NAFTA), which requires each signatory to introduce measures to prevent the import of such goods into their territories to help eradicate forced labour practices.
For its part, the U.S. introduced the Uyghur Forced Labour Prevention Act (UFLPA) on 21 June 2022, which grants increased powers to Customs and Border Protection (CBP) to prevent the import of products linked to forced labour. The UFLPA contains a rebuttable presumption that goods, wares, articles and merchandise mined, produced or manufactured in whole or in part in the Xinjiang region of China, or produced by certain identified entities, are tainted by forced labour practices. (Xinjiang, located in the far-west region of China, is widely known as an area where the Chinese authorities have conducted sweeping crackdowns on Uyghur Muslims and other ethnic minorities.) The UFLPA and accompanying guidance require CBP to apply the presumption unless an importer can demonstrate full compliance with U.S. rules and establish by “clear and convincing evidence” that the goods are free from forced labour (for prior coverage, see the article in the July 2022 issue of Indirect Tax News).
Under existing rules and practice, Canada’s Border Services Agency has authority to make a determination that products intended for import into the country are manufactured using forced labour, and they can detain goods suspected of being tainted and deny import. Additionally, a bill (“Fighting Against Forced Labour and Child Labour in Supply Chains Act”) that is expected to be passed in 2023 and apply as from 2024 would introduce an annual reporting requirement on certain government institutions and private sector entities that produce, sell or distribute goods in Canada or that import goods produced outside Canada, or control an entity that carries out such activities. Affected entities would have to provide details on actions taken to prevent or reduce the use of forced labour in their supply chains, including information on where forced labour may be occurring in the chain and the company’s due diligence procedures. Once the bill is passed, the Canadian government will develop specific reporting requirements, including the format.
Highlights of Mexico’s resolution
The Ministry of Labour and Social Welfare will be responsible for conducting investigations and preventing the entry of products made with forced labour into Mexico. It should be noted that, unlike in the U.S., the Mexican resolution does not impose any due diligence requirements on the importer.
The ministry will be authorised to self-initiate an investigation of specific goods or launch an investigation based on a petition submitted by Mexican citizens or legal entities (in the latter case, the petitioner must be able to provide evidence supporting the forced labour allegation). In addition, where there is an agreement between Mexico and another country, the Ministry of Labor can request the authorities of the other country and the Mexican authorities (e.g., customs) investigate specific goods and the ministry will accept the conclusion reached by these authorities. If no agreement is in place, the Ministry of Labor will conduct the investigation, which will—in any case—begin with a notification to the importer of the affected goods, who will have 20 business days to respond with evidence that its goods were not produced with forced labour.
Once the 20-day period has elapsed, the ministry will have 180 business days (which may be extended for an additional 180 days) to issue a determination (also called a “resolution”) on whether the goods are produced with forced labour. If the ministry concludes that forced labour has penetrated the supply chain, it will add the goods to a list published on its website and notify the Ministry of Economy so that the goods will be prohibited for importation into Mexico. If the ministry does not issue a forced labour determination, the goods will be presumed not to be tainted.
The Ministry of Labour determination will remain in effect as long as the importer does not demonstrate that the goods are not produced with forced labour. The February resolution does not contain any deadlines or rules for importers to rebut a forced labour allegation, so it will be necessary to resort to the USMCA and/or Mexican law to ascertain what legal remedies are available.
BDO insights
With the introduction of the resolution, Mexico joins a growing list of countries/regions worldwide—in addition to its partners under the USMCA—that have stepped up efforts to tackle the forced labour issue.
Mexican companies sourcing products or parts directly or indirectly from an area known to engage in forced labour practices are exposed to legal and reputational risks. Even though not required under the resolution, such companies should consider undertaking heightened due diligence reviews to assess the risk and look for any indicia of forced labour in their global supply chains, processes and systems and keep documentation that substantiates their position that forced labour has not penetrated the supply chain. These steps should help the importer be compliant with Mexico’s resolution and minimise the possibility that products could be detained or denied entry upon import and/or that penalties would be imposed. Such a review would also be relevant in the context of the USMCA when products imported into Mexico are destined for export to Canada or the U.S., where the products could be subject to further investigation under the Canadian/U.S. rules, respectively.
Guillermo Massieu
BDO in Mexico