In its trade war against China, the Trump administration in the US has added tariffs on a wide range of upstream textile inputs and fashion-related consumer products, raising the spectre of fraudulent rerouting of Chinese textile-garment products through neighbouring regions, notably Southeast Asia.
The US Customs and Border Protection (CBP) agency places textiles and garments at a high risk for non-compliance, given that import duty rates for China-made textiles and garments are now in some cases relatively high. Moreover, a substantial share of the US textile and garment imports from Southeast Asia can claim preferential tariff treatment under the US Generalised System of Preferences (GSP).
It eliminates textile-garment tariffs for many of the world’s developing countries, including Southeast Asia’s Cambodia, Indonesia, Thailand and the Philippines, but excluding China.
“One level to this is the simple relabelling to conceal real origin,” says Dane Chamorro, a Singapore-based senior partner of Control Risks, an international risk consultancy.
Speaking to WTiN, Chamorro, who has a research focus on Chinese factories’ role in supply chains, adds: “As the GSP system has been in place for decades and costs in China have risen, there was also technically legitimate offshoring to places like Saipan where the labour, usually Chinese, had to be imported.”
Other garment ‘rerouting’ locations other than Southeast Asia GSP countries include Vietnam, and – outside the region – Bangladesh and Mauritius, according to Chamorro.
Being clear on what is at stake for the US economy, the CBP in its latest textiles enforcement statistics published in May emphasised that the textile sector is a key component of the US economy, employing more than 550,000 US workers.
Adding even more urgency, in fiscal year 2017, textile and apparel imports generated US$13.5bn, or 41%, of all duty collected by CBP, providing the US government with substantial revenue.
And in the same reporting period, the CBP’s enforcement efforts led to the seizure of around US$4.75m worth of textile products, following CBP visiting 145 factories in 10 unidentified countries to verify production and compliance with US trade preference programmes and testing more than 450 laboratory samples to find nearly 50% of the textile products sampled wrongly classified.
There are, as a result, “schemes designed to circumvent textile tariff and trade laws including false invoicing, false marking and labelling, false claims of origin, illegal transhipment, misdescription, undervaluation, false declarations of right to make entry, false trade preference claims and outright smuggling,” CBP says in its latest textile enforcement statistics, released in May this year (2018).
US-based importers and retailers dealing with fraudulent imports would face stiff penalties under the US’s Wool Products Labelling Act, the Fur Product Labelling Act, and the Textile Fibre Products Identification Act.
Violators are subject to monetary civil penalties, injunctions and other remedies, including consumer redress, in a federal district court action.
Because copies of the statutes, rules and prior decisions in the textile, wool and fur areas have been distributed widely by the Federal Trade Commission (FTC), many manufacturers and sellers know the labelling requirements and would thus be held accountable, according to the FTC.
Julia Hughes, president of the US Fashion Industry Association (USFIA), confirmed a very high level of awareness about the potential of illicit diversion of China-made products, which she thinks should minimise the risk.
“While we are concerned about the wide-ranging effects of a trade war, we do not think that there will be an increase in fraud or illegal shipments,” says Hughes.
“Today, major apparel brands and retailers, especially USFIA members, know where their products are made and constantly monitor production, and that’s not going to change,” she adds.
