Story Highlights• Report singles out countries not doing enough to combat human trafficking
• Worst offenders have 90 days to improve or face possible penalties
• India to receive special evaluation in six months
• Nearly 800,000 people are trafficked across borders each year
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WASHINGTON (CNN) -- India, which advocacy groups say may have as many as 65 million forced laborers, was spared the worst ranking on the State Department's new list of nations where humans are bought and sold.
Countries not doing enough to combat human trafficking could face sanctions if they don't take steps to improve.
The annual Trafficking in Persons report, released Tuesday, says that as many as 800,000 people -- largely women and children -- are trafficked across borders each year. Many are forced into prostitution, sweatshops, domestic labor, farming and child armies. (Watch why India isn't on Tier 3 )
U.S. officials told CNN the question of India's ranking caused a heated debate between Secretary of State Condoleezza Rice and Deputy Secretary of State John Negroponte.
Negroponte wanted India listed as a Tier 3 country, or worst offender. Rice overruled him out of concern about alienating the Indian government. India is on the Tier 2 watch list.
Rice agreed to undertake a special evaluation of India in six months, and then take action if India does not make improvements.
Mark Lagon, ambassador at large for the State Department's Trafficking in Persons office, said Tuesday that "many different variables" played into the decision.
"I would be perpetuating a fraud to say that we don't look at multiple factors in our relationship with countries any time we take a step on a particular issue like human trafficking," he said.
Worst offenders could face penalties
The United States added Kuwait, Malaysia, Qatar and Bahrain to Tier 3 as countries that are destinations for trafficking victims who are exposed to sexual exploitation and forced labor. (Read the report)
Saudi Arabia, a nation considered friendly toward the United States, also is a Tier 3 country.
The State Department also lists Burma, Cuba, Equatorial Guinea, Iran, North Korea, Sudan, Syria, Uzbekistan and Venezuela as Tier 3 countries, defined as those "whose governments do not fully comply with the minimum standards" set by American law and "are not making significant efforts to do so."
These countries have 90 days to take additional steps to combat trafficking or face penalties. Penalties could take the form of sanctions, including withholding of non-humanitarian and non-trade-related U.S. assistance and U.S. opposition to assistance through international financial institutions.
President Bush can waive sanctions if he deems it in the United States' interest.
The Bush administration has increased attention to the trafficking problem in recent years as a part of its focus on promoting democracy and human rights as the cornerstone of Bush's foreign policy agenda, specifically in the Middle East.
The United States, however, is not immune to the problem. The State Department estimates 14,500 to 17,500 people are trafficked into the United States each year.
Trafficking victims rescued in the United States are eligible for a special visa and help getting their passports back from their traffickers.
Other countries on the watch list
The United States put several countries on notice that they risk being put on the Tier 3 list if they fail to take adequate steps to combat human trafficking. China, the Dominican Republic, Egypt, Mexico, the Philippines and Russia were among 32 on a Tier 2 watch list, and under U.S. law will receive special scrutiny and be subject to an interim assessment before next year's report.
India was put on the watch list for the fourth year in a row "for its failure to show increasing efforts to tackle India's large and multidimensional problem," according to the report.
The report found while the Indian government was making significant efforts to combat trafficking, it "did not recognize the country's huge population of bonded laborers," which advocacy groups estimate to range from 20 million to 65 million.
The report also found efforts by Indian law enforcement agencies to punish traffickers "uneven and largely inadequate."
Rahul Chhabra, spokesman for the Indian Embassy in Washington, told CNN that the Indian government is reviewing the report.
The U.S. Trafficking Victims Protection Act of 2000 mandated the State Department report as a way of combating human trafficking around the world and punishing those responsible.
CNN State Department Producer Elise Labott and State Department Correspondent Zane Verjee contributed to this report.