Thai Ambassador Vijavat Isarabhakdi expressed disappointment, saying the report did not recognize "our vigorous, government-wide efforts that yielded unprecedented progress and concrete results." But he said Thailand would continue to collaborate closely with the U.S.
The Trafficking in Persons Report is one of several annual assessments issued by the department on human rights-related topics, but it's unusual in that it ranks nations, which can ruffle diplomatic feathers. It is based on the actions governments take, rather than on the scale of the problem in their countries. Globally, more than 20 million people are believed to be affected in industries such as mining, construction, the sex trade, and domestic service.
"There cannot be impunity for those who traffic in human beings. It must end," Kerry said, describing it as slavery in the 21st century and an illicit business generating annual profits of $150 billion.
Thailand and Malaysia are among 23 countries to receive the lowest ranking, "tier 3." Incumbents at that level include Iran, North Korea, Russia, Saudi Arabia, Syria and Zimbabwe.
Two other nations were also demoted to that level: Venezuela and Gambia. China, put on tier 3 last year, was elevated to a watch list.
President Barack Obama now has 90 days to determine whether to apply sanctions against tier 3 governments.
The president can block various types of aid and could withdraw U.S. support for loans from the World Bank and International Monetary Fund. But the U.S. often chooses not to, based on its national security interests, as it did last year for China, Russia and Uzbekistan.
Given the Obama administration's attempt to deepen its ties with Asia, human rights groups had been watching closely to see if Washington might shy from downgrading Thailand and Malaysia, which attract millions of migrant laborers from poorer neighboring countries in Southeast Asia. Thailand is already being hit with restrictions on American assistance in response to a military coup there last month.
Luis CdeBaca, U.S. ambassador-at-large for human trafficking issues, said U.S. was mindful of the diplomatic sensitivities but ultimately was guided by the facts on the ground and wouldn't flinch from "telling a close friend an uncomfortable truth."
The report paints a grim picture of abuses aboard some Thai commercial fishing vessels. Migrants can remain at sea for several years, working 18 to 20 hours per day for seven days a week, facing threats and beatings.
Both Thailand and Malaysia had faced automatic demotion unless they showed improvement during the annual reporting period that ended March 31. Other countries in a similar position — Afghanistan, Barbados, Chad and the Maldives — were promoted to tier 2.
At the other end of the scale, Chile was upgraded to become one of 31 governments, including the United States, to receive a tier 1 rating. That means countries with that rating have governments that fully comply with the minimum standards in combating human trafficking as defined by a U.S. law.
But Melysa Sperber, director of the Alliance to End Slavery and Trafficking, criticized the United States' performance at home. She said government assistance for trafficking victims was inadequate and was suspended for about a month last year because funds ran out amid budget disputes in Congress.
"That's simply unacceptable when we are marching around the world judging other countries," she said.