Diesel, Hugo Boss, Walmart Facing Canadian Forced Labor Inquiry

First Nike, then Ralph Lauren. Now, the Canadian arms of Diesel, Hugo Boss and Walmart are facing scrutiny from Ottawa’s corporate ethics watchdog over whether their supply chains use or benefit from forced labor in China’s Xinjiang Uyghur Autonomous Region. That’s the embattled territory where human rights groups say that authorities have been cracking down on local Muslim minorities for years.

As with Nike Canada and Ralph Lauren Canada, the Canadian Ombudsperson for Responsible Enterprise, better known as the CORE, conducted initial assessments on the companies following complaints from a coalition of 28 organizations, including Stop Uyghur Genocide Canada, the Uyghur Refugee Relief Fund and the Uyghur Rights Advocacy Project. All three grievances alleged that Diesel Canada, Hugo Boss Canada and Walmart Canada harbor commercial ties with Chinese companies that use Uyghur forced labor, as identified by a 2020 Australian Strategic Policy Institute report and, in the case of the latter two, a 2021 study from the Sheffield Hallam University’s Helena Kennedy Centre for International Justice.

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In Diesel’s case, the complainants linked the Italian retailer with Jiangsu Guotai Guosheng Co., where Uyghurs reportedly work “under conditions that strongly suggest forced labor,” according to the Australian Strategic Policy Institute. The same think tank pegged Hugo Boss to Changji Esquel Textile Co., which the U.S. Commerce Department placed on its Entity List in 2020 for an alleged connection with a state-sponsored labor transfer scheme, much to the consternation—and legal retaliation—of its parent company, Hong Kong’s Esquel Group. Walmart was associated with Qingdao Jifa Huajin Garment Co., Jiangsu Guotai Guosheng Co., Jiangsu Lianfa Textile Co, Luthai Textile Co., Texhong Textile Group and Weiqiao Textile Co., which the two reports said either have operations in Xinjiang or source cotton from the region.

Xinjiang contributes 90 percent of China’s cotton, which in turn makes up one-fifth of the world’s total.

The complainants said that Diesel Canada and Hugo Boss Canada failed to respond to requests that they made in 2021 asking the brands to conduct human rights due diligence. Walmart Canada, they claimed, has never addressed the alleged use of Uyghur forced labor at earlier stages of its supply chain, resulting in misgivings over its due diligence practices and those of its suppliers.

Diesel, Diesel Canada’s parent, told Sourcing Journal that it has found no evidence that its products are produced in whole or part by factories that use forced labor.

“Diesel is deeply committed to ethical sourcing. We respect global human rights and comply with international laws across our supply chain,” a spokesperson said. “We take immediate remedial and disciplinary action if we find that any supplier is not acting in accordance with our code of conduct.”

Walmart Canada, too, said that it has confirmed that none of the entities in the complaint are in its active disclosed supply chain.

“Walmart Canada does not tolerate forced labor of any kind in our supply chain, and we take allegations of human rights violations seriously,” a representative said. “Walmart made it clear to the CORE that we have developed and executed policies, standards, controls and supply chain monitoring systems that support Walmart Canada’s corporate mandate to prohibit the use of forced labor. Our policies are diligently enforced.”

Similarly, Hugo Boss Canada’s German headquarters, which was the subject of a criminal complaint in 2021 for allegedly profiting from “crimes against humanity” in Xinjiang, said that the allegations are “without any basis” and do not take into account the information it provided to the CORE. It said that the agency based its investigation on the “incorrect fact” that Hugo Boss Canada might still be ordering from Esquel Group entities that are not necessarily located in China.

“We believe it is wrong to launch an investigation based on an alleged supplier relationship which no longer exists,” a spokesperson told Sourcing Journal, noting that Hugo Boss began winding down its relationship with Esquel Group in 2020/2021 and, as a result, Hugo Boss Canada concluded its withdrawal from Esquel shipments in 2022.

“Hugo Boss does not source any goods in its direct supply relationship that originate from the Xinjiang region. As a matter of principle, we do not tolerate forced or compulsory labour or any form of modern slavery,” the representative added.

All three companies told the CORE that they denied the allegations. But Diesel Canada did not participate in the initial assessment process, “raising questions related to the degree of transparency in its human rights due diligence practices,” the watchdog said. And Hugo Boss’s response “does not appear to consider fully the complex nature of the garment supply chain.” Meanwhile, Walmart Canada decided not to participate further in the CORE’s dispute resolution process.

As a result, the CORE has decided to conduct an investigation using independent fact-finding to delve into the nature of the alleged business relationships (in the case of Diesel Canada), to more closely “consider the complexities” and examine the indicators of risk (Hugo Boss Canada), and to address the conflict between the allegations and the company’s position (Walmart Canada).

“As mediation between the parties is not currently an option, we will be launching investigations into the allegations outlined in these reports,” Sheri Meyerhoffer, who has helmed the CORE since its inception in 2019, said in a statement. “The investigations will provide all three companies with an ongoing opportunity to provide further relevant information and mediation of the allegations remains open. We are hopeful that the investigation findings will provide the companies with information to support their ability to strengthen their due diligence practices.”

Ottawa is toughening its stance against forced labor. In January, new modern slavery reporting obligations for companies meeting two out of three conditions—namely, possessing at least 20 million Canadian dollars ($14.7 million) in assets, making at least 40 million Canadian dollars in revenue ($29.5 million) in revenue and employing a minimum of 250 people—are set to go into effect in line with enhanced labor obligations through the United States-Mexico-Canada Agreement. Penalties for non-compliance, including false or misleading statements, can result in fines of up to 250,000 Canadian dollars ($184,000).

Canadian law has prohibited the importation of goods made with modern slavery since 2020, a year after it signed the trade pledge, though it has so far enforced the rule only once, when it detained a shipment of women’s and children’s clothing from China in 2021. This could change with fresh alignment with Mexico, which published new provisions to bar the entry of forced labor-made goods into its borders in March.

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