Global Affairs Canada and the Canadian Trade Commissioner Service recently issued an advisory to Canadian companies active abroad or with ties to Xinjiang, China (Advisory). The Advisory was issued in coordination with a similar announcement from the Government of the United Kingdom and was followed by an American order to detain certain products, originating in Xinjiang, from entering the United States, effective January 13, 2021.

The Advisory does not amend Canadian legislation but sets clear compliance expectations for Canadian businesses with respect to forced labour and human rights involving Xinjiang, including adoption of voluntary best practices. The Advisory will be relevant to many Canadian businesses, including financial institutions, institutional investors and others.

DUE DILIGENCE

The Advisory urges Canadian businesses with links to Xinjiang to examine their supply chains and ensure their activities do not support repression of ethnic minorities in Xinjiang and across China, including the surveillance apparatus in Xinjiang, detention or internment facilities, or forced labour. Further, the Advisory encourages companies to examine the practices of end-users of their products and services to ensure they are not being used to support these activities.

Canadian businesses that operate in, or have end-users in certain high-technology fields, such as those related to cameras, sensors and biometric devices, are expected to exercise the highest level of due diligence and caution when doing business in China as these products may be used to arbitrarily track Uyghurs and others in Xinjiang.

Given the broad scope of the Advisory and its emphasis on examining supply chains and end-users of services, Canadian financial institutions, institutional investors, and other investors should consider applying due diligence measures to ensure that businesses receiving financing or capital from them do not engage in, or direct the funds received to support, the types of activities described in the Advisory. Such due diligence measures could include, depending on the activities and geographic reach of the counterparty, specific representations and warranties in financing agreements, compliance certifications, due diligence questionnaires, and enhanced monitoring.

IMPORT PROHIBITION

As of July 1, 2020, the Customs Tariff Act prohibits the importation from all countries of goods produced, in whole or in part, by forced labour. This prohibition is enforced by the Canada Border Services Agency. The Advisory cautions companies to ensure their supply chains do not violate this import prohibition.

EXPORT CONTROL

Canada’s Export and Import Permits Act (EIPA) controls the export from Canada of certain controlled goods and technology. Under the EIPA, such controlled goods cannot be exported from Canada where there is a substantial risk that they could be used to commit or to facilitate serious violations of international humanitarian law, international human rights law or serious acts of gender-based violence. The Advisory states that all export permit applications for controlled goods and technologies will be reviewed for risk that the items could be used to commit or facilitate human rights violations.

In addition to avoiding legal risk, compliance with the expectations set out in the Advisory will ensure Canadian businesses are not exposed to adverse reputational risks in respect of Xinjiang-related business.