Trade Compliance

GHY discusses changes to international trade regulations and explores cutting-edge compliance strategies.

To Beat the Trade War, Companies Get Creative Breaking the Rules

Posted January 10, 2019

While U.S. and Chinese negotiators are currently engaged in talks aimed at resolving a trade war that was initially purported to be “good and easy to win” and despite President Trump’s claim that “cost increases have thus far been almost unnoticeable,” companies in both countries have been actively seeking ways to avoid the escalating tariffs on billions worth of goods traded between the world’s two largest economies.

Wall Street Journal reporter Steven Russolillo recently took to the field to explain how some businesses avoid import duties, including several tactics that trade experts say are in “gray areas” of the law, sometimes involving innovative but legally questionable ways to sidestep the rules.

According to U.S. officials, Treasury loses more than half a billion dollars in customs revenue each year due to tariff evasion by means such as “code-fudging” (i.e., deliberate tariff misclassification) and transshipment through third countries.

At the same time that some companies are trying to get around higher costs by breaking the rules, on the flip side, others claim that Beijing is weaponizing them to make doing business painful and costly for U.S. exporters and American-owned companies in China.

The South China Morning Post reported last month that nearly a quarter of businesses responding to a survey by the US-China Business Council said they had been “subject to increased scrutiny from Chinese regulators as a result of the increasing trade tensions.”

As indicated by the paper, in addition to China’s tit-for-tat retaliatory tariffs on a wide range of American products, many U.S. companies say they have experienced “increased regulatory requirements that seemed to grow worse in tandem with the worsening trade relationship between the two countries.” An example of this was the announcement last summer that Beijing was strengthening their phytosanitary inspections and quarantine procedures for American apples, oranges and logs, citing concerns over the introduction of harmful organisms to China.