The country ranks the worst out of all island Pacific nations in the US State Department's Trafficking in Persons Report 2015.
The Marshall Islands' poor record revolves around the capital Majuro's role as a port of call for foreign fishing and transhipping vessels.
It says Marshall Islands girls are recruited by foreign business owners to engage in prostitution with crew members of the vessels.
It also says some Chinese women are recruited with promises of legitimate work and forced into prostitution after paying large recruitment fees.
The report says the Marshall Islands government is not making significant efforts to improve its record and has failed to effectively implement anti-trafficking laws, with no efforts made to identify victims and a lack of stringent penalties for adult trafficking.
However the report says the ten years' imprisonment for child trafficking is sufficiently stringent.
It says a national taskforce on human trafficking is still in the pipeline for the third consecutive year.
Elsewhere in the Pacific, Papua New Guinea and Solomon Islands are on the report's watchlist because of forced labour and prostitution particularly in the logging and mining industries.
PNG which was has been at the lowest 'Tier 3' level since 2008 has moved up a rank, with some steps found to have been taken to prevent human trafficking.
But the report highlights boys as young as 12 being exploited as “market taxis” - being forced to carry extremely heavy loads for low pay, some of them victims of forced labour.
An estimated one in five workers in PNG are children, some of whom are forced into work or prostitution.
According to the report, tribal leaders reportedly trade exploited labour with each other as well as the services of girls and women for guns and to forge political alliances.
Malaysian and Chinese companies are accused of arranging for women from East Asian countries to enter the country fraudulently and transporting them to logging and mining camps where they are forced into prostitution.
Chinese, Malaysian and local men are also subjected to forced labour in the camps with little pay and at the mercy of debt bondage schemes.