Malaysia has become among the worst offenders in trafficking of humans, the US State Department said in its annual human trafficking report released on Friday.

According to dpa , Malaysia was downgraded to tier 3 as a destination for forced labourers and sex workers who are among the two million undocumented foreign workers in Malaysia.

Workers are attracted by the country's booming economy, only to find themselves in debt bondage and obligations to contractors who place them in jobs.

"A significant number of young foreign women are recruited ostensibly for legal work in Malaysian restaurants, hotels, and beauty salons, but are subsequently coerced into the commercial sex trade," dpa quoted the State Department report saying.

Meanwhile, UK newspaper The Guardian reported that human rights activists are lauding Malaysia’s downgrade, saying that it is proof of Malaysia’s lack of enforcement and political will against human trafficking.

"Malaysia is not serious about curbing human trafficking at all… The order of the day is profits and corruption.

“Malaysia protects businesses, employers and agents (not victims) - it is easier to arrest, detain, charge and deport the migrant workers so that you protect employers and businesses,” the daily quoted Tenaganita director Aegile Fernandez as saying.

Human Rights Watch Asia deputy director Phil Robertson also told The Guardian that Malaysia has continuously failed provide protections for the basic rights of migrant workers.

He said Malaysia’s failure has “created a system where unscrupulous labour brokers, corrupt police and abusive employers can have a field day”.

It also reported Malaysia Social Research Institute executive director Lia Syed saying Malaysia is among the five worst countries for refugees, since it has no policy for refugees at all.

“They (refugees) are not recognised, they do not have legal status, they are just considered illegal migrants. It doesn't matter what country they come from, what their story is, they do not get any support officially from the government,” she told the daily.

The article also quoted Deputy Home Minister Wan Junaidi Jaafar saying earlier this year that Malaysia knows it needs to give more rights for human trafficking victims, but did not want to encourage illegal immigration.

“If we allow these people to start working, everybody will start coming here,” he reportedly said.

Malaysia’s downgrade to tier 3 is automatic, after spending four years on the tier 2 watchlist.

Tier 3 may face US sanctions

Meanwhile according to dpa , of the 188 countries surveyed, 15 were downgraded on the report's tier system while 15 were upgraded. Countries on the report's lowest tier 3 may face US economic sanctions.

Thailand also joins Malaysia in tier 3 - the same level as Iran, Cuba, Zimbabwe and North Korea. This came as no surprise after revelations of slavery in the country's shrimp industry.

The report cites the recruitment of young women into the sex trade, slavery within the seafood industry, as well as the trafficking of Rohingya refugees from Myanmar.

However, China received an unexpected upgrade on the report from tier 3 to tier 2 on the watch list.

Ed Royce, chairman of the House Foreign Affairs committee, disagreed with China's upgrade.

"We know that the system of state-sponsored forced labour continues unchanged and that victims of trafficking from North Korea are routinely sent back to face further abuses," he said.

The report said that women, children and men from China have been forced to work in agriculture in Europe, on foreign-flagged ships and as sex workers worldwide.

Inside China, an estimated 236 million people are forced into labour in "brick kilns, coal mines, and factories, some of which operate illegally and take advantage of lax government supervision," the report said.

Children are forced to beg across China, and mute and deaf individuals are singled out for forced labour, the report said.

Other tier 3 nations

Meanwhile, Venezuela was singled out for the trafficking in rural women and girls into prostitution to tourist centres inside Venezuela and to the Caribbean islands.

In addition, an estimated 30,000 Cuban citizens, including doctors, are performing forced labour in exchange for Venezuela's provision of energy resources to the Cuban government.

Uzbekistan remained in the lowest tier 3, a decision that was lauded by Human Rights Watch and the Cotton Campaign for sending "a message of solidarity to the well over a million Uzbeks forced to pick the country's cotton crop."

The State Department said that "government-compelled forced labour of men, women, and children remains endemic during the annual cotton harvest."

It cited reports that refusal to pick cotton would get children expelled from school, government employees fired and would put financial pressure on businesses.