The shadowy world of transhipment – zig-zag routes obscuring the origin of a product – should be looked at more closely. Transshipments are likely to be an important part of all negotiations between China and the United States aimed at regulating their trade dispute.
SHANGHAI – Want to avoid US tariffs? In China, a company called Settle Logistics says it knows a way.
Specifically, this route goes through Malaysia – a 4,600-mile diversion compared to shipping a shipping container from China across the Pacific to the United States. But when these Chinese products arrive in a US port, they will look as if they were from Malaysia, and will be spared customs duties on Chinese goods.
"For These Unfair Trade Barriers Targeting Our Industry In certain countries," Settle Logistics notes on its website, "we can use other approaches to circumvent these trade tariffs in order to expand the markets."
Such zigzags it's called transhipments, and President Donald Trump has used them to justify the trade fight he has selected with a number of countries. They could also gain new meaning if the US and China threatened to collect more than $ 200 billion against each other.
Last month, Trump introduced tariffs on steel and aluminum imports almost everywhere. He came from transhipments, although he made earlier exemptions in some countries , He claims that China uses transhipments to send much more steel to the United States than trade data suggest and that broad tariffs are needed to stop it.
"When you talk to China, I watched where the reporters wrote 2 percent our steel comes from China, well, that's not true," Trump said last month. "They are all exchanging in other countries."
The extent of such a tariff is not clear. Based on available data, many economists do not believe that it plays an important role in US trade. For example, the United States imports only small quantities of steel from Malaysia, Vietnam, Indonesia or other Southeast Asian countries, which are popular with freight forwarders like Settle Logistics.
Nevertheless, the shadow world of transhipment and other trade knitting is set to take a closer look. Transshipments are likely to be an important part of all negotiations between China and the United States aimed at resolving their trade dispute. You could also enter into talks with Europe, South Korea, Canada and other key partners seeking to extend their exemptions from Trump's steel tariffs. Governments may need to be on alert to ensure that they do not become intermediaries and upset Washington, DC.
Canada's Prime Minister Justin Trudeau announced on 27 March that his country will enact a series of regulatory measures to block transhipments. In contrast, South Korea has insisted on ensuring that the actual origins of the cargo are accurately identified and that tariffs are paid.
Transhipment is perfectly legal in most cases. The problems occur when someone disguises the country of origin.
"Product requirement: No" Made in China "logo," says the website of a Chinese freight forwarding company, CT-Chan, which promises that it can help manufacturers avoid US tariffs
The network of Chinese Brokers who bypass tariffs in the West by sending goods through other countries are extensive and sophisticated. The company websites boast of sending steel, aluminum foil, clothing, solar panels and even stainless steel sinks to the United States and Europe while bypassing tariffs.
Many of the mediators try to protect themselves from criticism in China by wrapping themselves up in nationalism. Shenzhen Top & Profit International Forwarding says on its website that it is "breaking the barriers of international trade and anti-dumping so that Chinese products can successfully enter international markets."
Guangzhou-based CT-Chan promotes "Envelope This is the only way to avoid high tariffs and import restrictions."
Top & Profit, CT China and China's Ministry of Commerce, which oversees the trade, declined one Opinion.
Freight companies say they use a variety of techniques. Settle Logistics, in Hangzhou, says on its website that it has a factory in Malaysia and can obtain Malaysian certificates of origin for Chinese-made goods.
Brokers also describe the division of larger orders into a series of shipments from scattered ports in China. The goal is to reduce the likelihood that US retailers will detect and report large shipments.
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Settle Logistics says on its website that it encourages businesses to adhere to trading rules. John Zhao, one of the owners of Settle Logistics, said he offered a needed service by creating alternative routes to the US market.
The services are not cheap, but high tariffs can make them attractive. Shipping goods from China to the United States via Malaysia costs $ 3,000 to $ 4,000 per 40-foot shipping container, at least $ 2,000 more than shipping directly to the United States, brokers said. The additional cost includes $ 500 for a Malaysian Certificate of Origin, at least $ 950 for unpacking goods in Malaysia and repacking in another container and $ 600 or more for the additional ocean freight.
Malaysian agents said the country has no specific anti-dumping law. Nevertheless, it has laws against forgery of documents and requires companies to produce products there to obtain local certificates of origin.
A new era of tariffs could make transhipment even more attractive. Brokers described up to 10 times as many phone calls for price quotes as usual in recent weeks, as trading voltages between D.C. and Beijing heated.
Stamping such transhipment could prove difficult. The United States made great efforts in the late 1990s to tackle the renaming of garments made in mainland China in Hong Kong, said Patrick Conway, a textile retail specialist.
But after US officials gathered enough evidence on a watch list, companies quickly disappeared, said Conway, who is the chairman of the Department of Economics at the University of North Carolina at Chapel Hill. Some of the people involved came later, but at other companies.
"We can expect a Whac-a-Mole game," Conway said.