I don't think the attitude to slavery in the west has been detailed anywhere, but I may well be wrong. For my own purposes, I assume that it is tolerated and the broad statements I have heard about slavery in Genertella (that it's endemic in comparison to Pamaltela, where it's only really found in Fonrit) seem to support this. As is the case with so many things, I imagine that the many different sects and heresies of Malkionism in either the 2nd or 3rd age have widely varying attitudes.
It seems to me that since the west is a caste based society, foreigners fall outside the caste system and therefore can't have the status of true citizens. Any status they are accorded for diplomatic or practical purposes would be only nominal. In the second age the Lunars justify slavery on the basis that it allows a lunar to take custody of those who have not seen the light of the Goddess, and by keeping them within Lunar society hopefully bring them around to the Lunar Way. I imagine that many in the West might see it the same way.
My recommendation, in the absence of clear direction on this, would be to choose the option that best serves your game, and if it prov es to be non-canonical well, that's the way it goes. IMHO the needs of your game should come first.
I have a sample NPC on my site, Lorem the Man Merchant. He's an apostate Malkioni slave trader, who got into the business dealing in slaves after the Ducal Wars. His original merchandise were mostly foreign mercenaries and supporters on the losing side, but now he's developing alternative sources, and markets.