Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
Democratic and Republican lawmakers are calling on the Trump administration to take additional actions to tackle the use of third countries by sanctioned nations such as China to transship goods, which they say can circumvent tariffs and duties, sidestep customs scrutiny and muddle the origin of forced labor-tainted products.
The House Select Committee on the Chinese Communist Party, whose chairman, Michigan Republican John Moolenaar, previously introduced a bill seeking to revoke the preferential trade status that China has maintained with the United States for the past two decades, sent a letter to Attorney General Pam Bondi, Secretary of Homeland Security Kristi Noem and U.S. Trade Representative Jamieson Green earlier this month to ask them to take a stand against “unlawful PRC trade practices,” which it says has inflicted “serious harm” on American industries involving automotive parts, textiles and apparel support, as well as allowed for the trafficking precursor chemicals used to produce fentanyl.
The Select Committee on the Strategic Competition between the United States and the Chinese Communist Party, it said, has uncovered numerous instances of China-based actors violating U.S. trade laws through this route. Since the imposition of Section 232 and 301 tariffs on China in 2018, logistics brokers have openly advertised that they can “break…the barriers of international trade and antidumping to let Chinese products enter international markets successfully” and that “transshipment is the only way to avoid high tariffs and import limits.”
“The use of transshipment to evade U.S. tariffs is a serious violation of U.S. law and undermines American economic and national security,” wrote Moolenaar and ranking member Raja Krishnamoorthi, a Democrat from Illinois. “These companies boast of tariff evasion by sending steel, aluminum products, clothing and stainless steel sinks, among other goods, through third countries to the United States, and Europe, including by obtaining false certificates of origin in third countries for goods made in the PRC.”
Transshipment has long been flagged as a pipeline through which banned cotton from China’s Xinjiang Uyghur Autonomous Region can continue to enter the United States. The Helena Kennedy Centre for International Justice at Sheffield Hallam University has dubbed the practice a form of “cotton laundering” that’s easily missed without enhanced supply chain due diligence. A report that it published in 2021 identified more than 50 contract garment suppliers from countries such as Bangladesh, Ethiopia, India, Mexico and Vietnam that it said purchased fabric and yarn from Chinese textile companies that sourced Xinjiang cotton, creating clothing with “no indication to consumers of the cotton’s origin.”
By law, such shipments are allowed to swerve trade enforcement only if the appearance or character of the products they contain have been significantly altered—and their value enhanced—through processing or manufacturing. Importers that knowingly falsify the country of origin label on their imports, the letter noted, are subject to fines and penalties. Companies or individuals involved in knowingly selling or purchasing unlawfully transshipped products, too, also face serious criminal liability.
The committee cited the example of Homeland Security Investigations and the Department of Commerce discovering that Chinese solar manufacturers were illegally routing their products through Cambodia, Thailand and Vietnam to avoid U.S. tariffs. HSI, it said, also found similar textile transshipment schemes where countries falsely declared the origin of the textile products they were importing through free-trade-agreement countries, such as those within the Dominican Republic-Central America region, violating the yarn-forward rule of origin that requires qualifying garments to be made from fabric and yarn woven or spun in a member nation.
“Major textile exporters in Asia—including the PRC—sent 875 million kilograms of yarns and fabrics (valued at $6.3 billion) to the CAFTA-DR region and Mexico in 2022,” Moolenaar and Krishnamoorthi said “This is a 33 percent increase by value and a 111 percent increase by quantity from 2018’s pre-pandemic levels. As the CAFTA-DR region is largely oriented around producing duty-free apparel destined for the U.S. market, this data suggests that the PRC may be using these trade blocs as backdoor entry points into the United States.”
The committee is reintroducing the Protecting American Industries and Labor from International Trade Crimes Act, which would create a new unit at the Department of Justice to criminally prosecute trade violations. It unanimously passed the House of Representatives in the 118th Congress in December but has yet to be taken up by the Senate.
“Although law enforcement has been actively tracking and exposing these transshipment schemes, current enforcement efforts remain insufficient to hold perpetrators accountable and deter future violations of U.S. trade laws,” the letter said. “Stronger trade enforcement measures, including through criminally prosecuting trade criminals, stepping up civil enforcements, and initiating a Section 301 investigation into PRC transshipment schemes, are necessary to protect American industries and workers from these illicit and damaging practices.”
