Initial Assessment report of a complaint filed by a coalition of 28 Canadian organizations on June 21, 2022, about the activities of Diesel Canada Inc

PDF Version (1.29 MB) 

File number: 220841
Complaint filed on: June 21, 2022
Report published on: August 24, 2023

About the CORE

The Canadian Ombudsperson for Responsible Enterprise (CORE) is a business and human rights grievance mechanism established by the Government of Canada. People can file complaints with the CORE about possible human rights abuses arising from the operations of Canadian garment, mining, and oil and gas companies outside of Canada.

For more information, see the Canadian Ombudsperson for Responsible Enterprise website.

What is the purpose of this report?

The CORE is reporting on the initial assessment stage of a complaint filed by a coalition of 28 Canadian organizations on June 21, 2022, about the activities of Diesel Canada Inc. 

Pursuant to section 16 of the CORE’s Order in Council, the parties had an opportunity to comment on the facts contained in the report. A summary of the comments received is at Part 5 of the report.

Who are the parties to the complaint?

The Complainants are a coalition of 28 Canadian organizations listed in Annex 1.

Diesel Canada Inc. is a Canadian garment company. Diesel Canada Inc. (Diesel Canada) was incorporated under the New Brunswick Business Corporation Act on January 29, 2016, with its registered office at Germain Street, Saint John, New Brunswick and mailing address at Dufferin Street, North York, Ontario.^{Footnote 1}

What is the complaint about?

The complaint alleges that Diesel Canada’s supply chain uses or benefits from Uyghur forced labour. The Complainants cite the Australian Strategic Policy Institute’s (ASPI) Uyghurs for Sale which identifies Jiangsu Guotai Guosheng (Jiangsu) as a Chinese supplier company in Diesel's supply chain where Uyghurs allegedly work “under conditions that strongly suggest forced labour.”^{Footnote 2} While some of the information provided and the reports referred to in the complaint refer to Diesel, it is not clear whether it refers to Diesel Canada, Diesel Inc. (the US-based parent of Diesel Canada) or Diesel as an international brand or retailer. According to the Complainants, Diesel has not responded to the allegation raised by the ASPI’s Uyghurs for Sale report published in March 2020. 

To further support their allegations, the Complainants refer to the Laundering Cotton report which states that despite the availability of supply chain traceability and transparency, international garment retailers or brands do nothing to address the risk of forced labour in the Xinjiang region. According to the complaint, the Laundering Cotton report provides evidence that five leading textile companies in China use or benefit from Uyghur forced labour by establishing subsidiaries in the Uyghur region, purchasing Xinjiang cotton through intermediaries and/or engaging or cooperating in forcible labour transfer programmes. Using supply chain tracing, the Laundering Cotton report indicates that these Chinese companies supply semi-finished products to 53 intermediary manufacturers who in turn supply to 103 international brands. The complaint does not clarify whether Diesel Canada is included within these 103 international brands and the report does not refer to Diesel Canada or Diesel.  

The Complainants also allege that Diesel has not addressed the issue of forced labour inputs at early stages of its supply chain. It is not clear whether the Complainants mean Diesel Canada, Diesel Inc. or Diesel as an international brand or retailer. The Complainants refer to the following data or information relating to the pervasive use of Uyghur forced labour in cotton fields and the prevalence of Xinjiang cotton in global garment production and claim that sourcing from anywhere in China “inevitably” means the presence of Uyghur forced labour in the supply chain:

1. One in five cotton garments in the global apparel market is tainted by Uyghur forced labour;
2. Xinjiang (East Turkestan) produces about 19% of the world's cotton (PDF);
3. By 2019, Xinjiang hosted 3,500 cotton, textile and garment factories in which Uyghurs were used as forced labourers;
4. Approximately 2 million Uyghur labourers were forcibly placed in state-sponsored enforced labour transfer programmes across nine Chinese provinces; and
5. China's export strategy (PDF) obscures Xinjiang cotton's origin by transporting cotton, cotton-based yarn and textiles, and semi-finished garments to 53 intermediary manufacturers in third countries which in turn supply to 103 international brands or retailers.

The Complainants indicate that by way of letter dated November 12, 2021, they asked Diesel Canada to conduct human rights due diligence (HRDD) to ensure that they do not benefit from Uyghur forced labour and to cut off relation with Jiangsu. According to the Complainants, they have not received any response to their inquiries or an explanation about how HRDD activities are undertaken.

Part 1 — Summary of the intake stage (or admissibility stage)

1. On July 20, 2022, on the basis of the information provided by the Complainants, the Ombud decided that the complaint was admissible pursuant to section 6.1 of the Operating Procedures. This means that the Ombud decided there was sufficient information in the complaint to form a reasonable belief that each of the three admissibility criteria was met. The threshold for admissibility is a low one. The admissibility criteria are that:
   • The complaint concerns an alleged abuse of an internationally recognized human right;
   • The alleged abuse arises from the operations abroad of a Canadian company in the garment, mining or oil and gas sector; and
   • The abuse allegedly occurred after May 1, 2019, or, if it allegedly occurred before May 1, 2019, is ongoing at the time of the complaint (Section 5.7, Operating Procedures).
2. The Ombud’s decision was communicated to the Complainants on July 27, 2022.
3. On July 28, 2022, the CORE sent an email to Diesel Canada to notify Diesel of the Ombud’s decision. As the email was not delivered, the CORE attempted to notify Diesel Canada in August 2022 both by email and by registered mail that a complaint had been filed against it. On October 13, 2022, the complaint was successfully delivered to Diesel Canada. At that time, the complaint was moved to the initial assessment stage of the complaint process. On October 13, 2022, the CORE received an email from Diesel Canada indicating that the company had not purchased any material from Xinjiang since 2017.
4. On October 24, 2022, an email was sent inviting Diesel Canada to participate in an initial assessment meeting.

Part 2 — Initial assessment

Background

5. Initial assessment is the process for deciding how to proceed with an admissible complaint including how to address any objections from the respondent (the company named in the complaint). The Ombud does not make a decision on the merits of the complaint during initial assessment.
6. The objectives of the initial assessment process are to:
   1. Develop a better understanding of the parties’ positions regarding the allegations including any objections to the complaint from the respondent;
   2. Begin to identify the parties’ underlying needs and interests;
   3. Provide information regarding the role of the CORE and the different dispute resolution processes;
   4. Work with the parties to assess what dispute resolution process may best address the issues raised by the complaint including the allegations and any objections from the respondent.
7. During initial assessment, the Ombud meets with the parties to learn about their views regarding the allegations, respond to their concerns and questions, and seek their agreement to participate in early resolution or mediation. If the parties do not agree to participate in a consensual dispute resolution process, the Ombud will decide how to deal with the complaint including whether to begin an investigation.

The initial assessment process in this complaint

8. The steps taken by the CORE during the initial assessment of this complaint were as follows:
   1. Desk review of the complaint;
   2. Virtual meeting with the Complainants’ representatives on November 18, 2022;
   3. Desk review of Diesel Canada’s responses dated October 13 & November 9, 2022.

What the Complainants told the CORE

9. During the initial assessment meeting on November 18, 2022, the Complainants expressed their willingness to participate in early resolution or mediation including agreeing to terms of confidentiality. The Complainants are willing to work towards a systemic resolution that does not name Diesel Canada, that finds solutions to address the possible use of Uyghur forced labour and that would help Canadian garment companies to undertake appropriate HRDD in this high-risk context.
10. The Complainants also indicated that given the complexity of tracing the origin of textiles particularly from the Xinjiang region, it is preferable to use fibre-origin tracing technology that can map a supply chain from fibre to retail. They indicated their understanding that by using a tracing technology, a garment retailer or importer can ensure that its imported products are not using cotton from the Xinjiang region.

Diesel Canada’s response to the complaint

11. Diesel Canada decided not to participate in an initial assessment meeting. However, it provided the following responses to the complaint on October 13 and November 9, 2022.
12. On October 13, 2022, Diesel Canada asked that its name be removed from the complaint and stated that Diesel Canada Inc. is not involved with any Human Rights Abuse. We do not purchase any material from Xinjiang (East Turkestan) region since 2017. We are completely against any human right abuse, anywhere in the world. We strongly condemn violence and use of force against any individual, ethnic group, or society.
13. On November 9, 2022, Diesel Canada’s CEO indicated that Diesel has reviewed its supply chain and denies the allegations in the complaint that the “company has purchased products from Jiangsu Guotai Guosheng since May 1, 2019, or continues to do so.” Diesel Canada expressed that since the allegation that the company has been sourcing from Jiangsu is without any merits, the admissibility criteria for any investigation by the CORE are not satisfied. As a result, the “review should be discontinued.” Diesel Canada also reiterated its commitments in its owner OTB group’s Code of Ethics (PDF) — implemented prior to May 1, 2019 — to conducting business in a “legally compliant and ethical manner” and to condemning forced labour.

Part 3 — How to deal with the complaint?

14. The Ombud must decide how to deal with the complaint. The Ombud may decide to:
    1. Close the file — The Ombud may decide not to deal with the complaint and to close the file after publishing this report pursuant to section 14(2) of the Order in Council;
    2. Offer mediation to the parties — With the agreement of both parties, the Ombud may decide to offer mediation pursuant to Section 9 of the Operating Procedures; or,
    3. Conduct an investigation using independent fact-finding — The Ombud may decide to investigate the complaint using independent fact-finding pursuant to section 7(b) of the Order in Council.
15. In deciding whether to investigate a complaint, the Ombud considers the overall context of the complaint and relevant factors including whether:
    1. The complaint is frivolous or vexatious;
    2. The complaint is being reviewed or has been reviewed, in another forum;
    3. The Canadian company has already provided a satisfactory response or remedy to the allegations in the complaint;
    4. Relevant information is likely to be available;
    5. Effective remedy is likely to be available: and
    6. A review is likely to lead to unacceptable risk to the complainants or others.
16. In considering whether relevant information is likely to be available, the cooperation of the Canadian company named in a complaint is not determinative. The CORE may consider the availability of information from all reasonably accessible sources. As well, in any final report, the CORE may comment on how the cooperation of the parties impacted on the availability of information and other aspects of the investigation.
17. In considering whether any practical or effective remedy is likely to be available in an appropriate case, the Ombud will consider the possible remedies.

Analysis

18. On their face, the allegations made by the Complainants raises serious issues regarding the possible abuse of the internationally recognized right to be free from forced labour, referred to in following instruments:
    1. Right to be free from slavery or servitude (Article 4, Universal Declaration of Human Rights, 1948);
    2. Right to work, to free choice of employment, to just and favourable conditions of work (Article 23(1), Universal Declaration of Human Rights, 1948; Article 6.1, International Covenant on Economic, Social and Cultural Rights, 1966);
    3. Freedom from forced or compulsory labour (Articles 1 & 2, ILO’s Forced Labour Convention, 1930 (No. 29), Article 8(3)(a), International Covenant on Civil and Political Rights, 1966; The Protocol of 2014 to the Forced Labour Convention 1930);
    4. Freedom from forced or compulsory labour as a means of political coercion or of racial, social, national or religious discrimination. (Article 1, ILO’s Abolition of Forced Labour Convention, 1957 (No. 105)).
19. The seriousness of the human rights impacts arising from the use of Uyghur forced labour is underlined by the report OHCHR Assessment of human rights concerns in the Xinjiang Uyghur Autonomous Region, People’s Republic of China issued in August 2022. The report finds that far-reaching, arbitrary and discriminatory restrictions on human rights and fundamental freedoms were imposed on Uyghurs and other predominantly Muslim communities living in Xinjiang “in violation of international laws and standards” and calls on states, businesses and the international community to take actions in order to end the abuses.
20. Recognizing the seriousness of the use of Uyghur forced labour in Xinjiang, the Canadian government requires Canadian companies that source directly or indirectly from Xinjiang or from entities relying on Uyghur labour or who seek to engage in the Xinjiang market to sign the Integrity Declaration on Doing Business with Xinjiang Entities before receiving services and support from the Trade Commissioner Service (TCS). In addition, the Canadian government’s 2023 budget signaled its commitment to reducing supply chain vulnerabilities and its intention to strengthen Canada’s supply chain infrastructure by shifting critical supply chains away from dictatorships and towards democracies.
21. The complaint raises questions about Diesel Canada’s due diligence activities. Principles 14 and 17 and related commentaries of report OHCHR Assessment of human rights concerns in the Xinjiang Uyghur Autonomous Region, People’s Republic of China indicate that HRDD in high-risk areas such as the Xinjiang region in China be tailored according to the nature and context of a company’s operation, types of vulnerable groups, and the intensity and severity of human rights risks and that a company may need to adopt more robust measures in a high-risk operating context. Despite Diesel Canada’s assertion that it does not source its materials from Xinjiang, cotton tainted by forced labour may enter its supply chain due to the prevalence of Xinjiang cotton in the worldwide cotton supply chain. This may happen, for example, when Xinjiang cotton is used by intermediary manufacturers in third countries for garment manufacturing that is supplied to the primary company. As a result, a robust HRDD is required to identify the potential presence of forced labour in its supply chain.
22. As well, the UNGPs provide guidance regarding the responsibility of a company to be transparent about its HRDD activities. A company whose business operations or operating context poses risks of severe human rights impacts is required to report formally about how it identifies and addresses those serious human rights impacts (Principle 21 and its commentary of OHCHR Assessment of human rights concerns in the Xinjiang Uyghur Autonomous Region, People’s Republic of China). When concerns are raised by or on behalf of affected or other relevant stakeholders, a company needs to provide sufficient information and ensure that its reporting/communication is accessible to the intended audiences.
23. As mentioned above, Diesel Canada provided two separate responses to the complaint and denied the allegations in the complaint on the following basis:
    1. Diesel does not source any materials from Xinjiang.
    2. Diesel Canada has no sourcing relation with Jiangsu: Diesel Canada indicated that it has reviewed its supply chain and found no sourcing relationship with Jiangsu on or after May 1, 2019. As a result, the allegation in the complaint with regard to sourcing from Jiangsu is without any merit.
24. It is necessary for a company not only to adopt ethical, responsible sourcing policies and context-specific HRDD, but also to be transparent about its HRDD, especially when concerns are expressed by stakeholders. Diesel Canada’s failures to respond to the November 12, 2021, letter sent by the Complainants and to engage with the CORE for an initial assessment meeting raise questions about its transparency.
25. Diesel Canada has not provided any details on the review of its supply chain regarding sourcing from Jiangsu, such as when the review was conducted and the findings of the review. As well, whether a company sources directly from Xinjiang is not determinative because given the nature of the cotton supply chain, Xinjiang cotton may be transported and used throughout the world including being blended with cotton or other fibres from elsewhere.
26. It is noted that the complaint alleges, based on the ASPI’s Uyghurs for Sale report, that Diesel has supply relationship with Chinese company Jiangsu. However, it is not clear whether the complaint meant Diesel Canada, US parent Diesel Inc. or Diesel as an international brand or retailer.
27. If the Ombud decides to investigate the complaint, there will be an ongoing opportunity for Diesel Canada to respond and participate including providing additional information regarding its supply chain review, sourcing from Jiangsu, and its HRDD activities.
28. Given the broader context of the complaint and challenges in gathering information on an in-country basis, independent fact-finding may be limited. The availability of the information would need to be assessed as the investigation progresses and would be considered in any final report.
29. The complaint does not name individuals or make individuals identifiable thereby reducing the potential for an investigation to increase risk to individuals. If the Ombud decides to investigate the complaint, an assessment of risk will be ongoing throughout the investigation.

Part 4 — Participation in the complaint process

30. As outlined above, Diesel Canada provided a response to the complaint although it did not respond to the CORE’s invitation for an initial assessment meeting.
31. The CORE’s Operating Procedures provides that full and active participation in the complaint process is part of good faith:
    
    Section 11.1 requires the parties to fully participate in the complaint process including by providing the Ombud with relevant information and documents and making witnesses available on reasonable notice, according to the timelines established by the Ombud.
    
    Section 11.2 provides that where a Canadian company does not participate actively in the complaint process, including refusing to provide relevant information and documents, the Ombud may draw appropriate negative conclusions or adverse inferences during fact-finding.
    
    Section 12.4 provides that the Ombud may consider a party not to be acting in good faith if the party does not actively participate in a review without reasonable explanation.
    
    
32. If the Ombud decides to investigate, they will consider the question on Diesel Canada’s good faith participation at a later stage and will consider the information provided by Diesel Canada. The Ombud may exercise their discretion under section 10 of the Order in Council which provides that they may make recommendations to the Minister on implementing trade measures including any of the following:
    1. Withdrawal or denial of trade advocacy support provided to the Canadian company by the Department of Foreign Affairs, Trade and Development (known as “Global Affairs Canada”);
    2. Refusal by the Department of Foreign Affairs, Trade and Development to provide future trade advocacy support to the Canadian company; and
    3. Refusal by Export Development Canada to provide future financial support to the Canadian company.

Part 5 — Comments from the parties

Comments from the Complainants

33. On June 12, 2023, the Complainants provided comments on the draft initial assessment report. The Complainants assert that the CORE should conduct an investigation using independent fact-finding. To support their assertion, the Complainants apply the factors set out in paragraph 15.
34. First, the Complainants assert that the complaint is not frivolous or vexatious. The Complainants reiterate the evidence provided in the complaint, and say that an investigation is warranted considering
    1. the seriousness of the issues involved, i.e., possible abuse of internationally recognized human right to be free from forced labour;
    2. substantial evidence provided by the ASPI’s report connecting Diesel with Chinese entity, Jiangsu — alleged to be using Uyghur forced labour and characterized as the biggest “Xinjiang Aid project;”
    3. Diesel Canada’s failure to provide details on the alleged review of its supply chain; and,
    4. Diesel Canada’s denial that it does not source from Xinjiang is contradicted by the ASPI’s findings.
35. In response to the issue raised in paragraph 26 of this report, the Complainants assert that the ASPI is not a Canadian organization and their report did not focus on any country-specific subsidiary and did not look into Canadian companies links to Uyghur forced labour. However, being a “directly controlled” subsidiary, “any implication by Diesel in Uyghur forced labour, directly implicates Diesel Canada Inc. by extension.” Diesel Canada is “implicated” if its parent company Diesel is alleged to have links with Uyghur forced labour. According to the Complainants, the Ombud “evidently agreed with this, when she found our complaint against Diesel Canada Inc. to be admissible.”
36. Second, the Complainants note that the complaint is not being reviewed in another forum, nor has it been reviewed in the past in another forum.
37. Third, the Complainants assert that the Ombud should consider Diesel Canada as not to be acting in good faith pursuant to Section 12.4 of the Operating Procedures based on the following:
    1. Diesel Canada did not provide a satisfactory response or remedy to the allegations in the complaint; rather, it merely denied the allegations in the complaint without providing any evidence to support its denial;
    2. Diesel Canada declined to participate in the CORE’s dispute resolution process without providing any reasons;
    3. Diesel Canada failed to respond to the Complainants’ letter dated November 12, 2021.
38. Fourth, the Complainants argue that relevant information is likely to be available in the public domain, including through import data and the ASPI. Also, the Complainants assert that “to the extent there are gaps in the relevant information that is available because of any continued failure to cooperate on the part of Diesel Canada Inc., the CORE may draw adverse inferences during fact-finding.” The Complainants suggest that such recourse might encourage cooperation in the CORE’s process in the future. In contrast, closing of the file would incentivize Canadian companies to not cooperate with the CORE in the future.
39. Fifth, the Complainants note that effective remedies are available as the Ombud may make recommendations to the Minister of International Trade for trade measures including denial or withdrawal of existing trade advocacy support, and/or refusal of future trade advocacy and financing supports. They assert that such measures would encourage not just Diesel Canada Inc., but also all Canadian companies operating abroad to ensure that they are not profiting from Uyghur forced labour.
40. Finally, the Complainants assert that conducting an investigation is not likely to lead to unacceptable risk to the Complainants or others.

Comments from Diesel Canada

41. The draft initial assessment report was sent to Diesel Canada by email on May 30, 2023, and the company was given ten (10) business days to provide its comments. The CORE has not received any comments from Diesel Canada.

Part 6 — Ombud’s decision

42. In order to move forward with mediation or joint fact-finding, the agreement of both parties is essential. While the Complainants initially indicated that they are open to all dispute resolution options, in their comments on the draft Initial Assessment Report, they indicate that they want an investigation of the complaint. Diesel Canada provided two brief responses to the complaint, did not provide any response to multiple requests for an initial assessment meeting and did not provide any comments on the draft initial assessment report. Consequently, it appears that mediation is not currently an option.
43. The Ombud has decided that the allegations against Diesel Canada warrant an investigation using independent fact-finding. The investigation will be limited to considering the alleged link between Diesel Canada and Jiangsu. In reaching their decision, the Ombud considered the factors addressed in paragraph 15 of this report and, in particular, the conflict in the information currently available regarding whether Diesel Canada has or had a supply relationship with Jiangsu after May 1, 2019. In doing so, the Ombud does not weigh the evidence or decide the merits of the complaint. Rather, they consider whether on the face of available information, an investigation is appropriate.
44. In this complaint, the Complainants rely on the ASPI report to support the alleged link between Diesel Canada and Uyghur forced labour. While Diesel Canada briefly denied the allegation and referred to its review of supply chain, Diesel did not provide any details as to:
    1. The timing of the review;
    2. The scope of the review, for example, whether it covered suppliers in Tier 1 or extended to Tier 2 and beyond; and,
    3. The specific findings of the review.
45. While Diesel Canada provided two brief initial responses to the complaint, Diesel did not participate in the initial assessment meeting and did not provide any comments to the draft initial assessment report. Diesel Canada’s non-participation in the CORE’s process raises questions relating to the degree of transparency in Diesel Canada’s HRDD practices, including its approach to responding to allegations of potential abuses of international human rights. Effective HRDD should include an open, participatory and responsive space for addressing complaints or grievances raised by stakeholders including the CORE. Companies demonstrate the transparency required by the UNGPs by dealing with a complaint in a timely and active manner including sharing the results of internal reviews and audits, where appropriate.
46. During the investigation, Diesel Canada will have an ongoing opportunity to participate and provide further relevant information including the information mentioned in paragraph 44. The CORE will assess Diesel Canada’s participation and good faith at the completion of the investigation and may, if warranted, make a recommendation to the Minister under section 10 of the Order in Council regarding the imposition of trade measures. It is noted that recommendations under section 10 relate to trade measures, not to providing effective remedy.
47. While the CORE will proceed with an investigation through independent fact-finding, mediation is available at any stage of the complaint process at the Ombud’s discretion and with the agreement of the parties. The Ombud encourages the parties to consider mediation during which the parties could agree on terms of confidentiality in relation to any information exchanged.

Annex-1

Complainants: A coalition of 28 organizations

1. Canadians in Support of Refugees in Dire Need (CSRDN)
2. Alliance Canada Hong Kong
3. Anatolia Islamic Centre
4. Canada Tibet Committee
5. Canadians Against Oppression & Persecution
6. Canadian Council of Muslim Women (CCMW)
7. Canadian Council of Imams (CCI)
8. Canada-Hong Kong Link
9. Doctors for Humanity
10. East Turkistan Association of Canada
11. End Transplant Abuse in China (ETAC)
12. Human Rights Research and Education Centre, University of Ottawa
13. Human Concern International (HCI)
14. Islamic Circle of North America Canada (ICNA)
15. Islamic Society of North America (ISNA)
16. Justice for All
17. Lawyers for Humanity
18. Muslim Association Canada (MAC)
19. National Council of Canadian Muslims (NCCM)
20. Raoul Wallenberg Centre for Human Rights
21. Canadian Security Research Group
22. Share 2 Care (S2C)
23. Stop Uyghur Genocide Canada
24. Toronto Association for Democracy in China
25. Union of Medical care and Relief Organizations-Canada (UOSSM)
26. Uyghur Refugee Relief Fund
27. Uyghur Rights Advocacy Project
28. Vancouver Society in Support of Democratic Movement