According to an investigative report in the Wall Street Journal, the heavy tariffs imposed on Chinese goods has resulted in a large increase in tariff evasion schemes by Chinese companies seeking to sell their goods here. Customs officials, importers and shipping brokers say that the tariff increases are being countered by unscrupulous Chinese manufacturers who are fraudulently shipping products here under false manufacturers codes and through trans-shipping and falsifying the actual country of origin, according to the Wall Street Journal. The result is that the tariffs are failing to protect. The tariff evasion using fraudulent product codes relates to 10-digit designation called an HTS code, of which there are 18,927. These codes are required to identify products and varieties. Unscrupulous manufacturers seeking to evade our tariffs send the products in with codes that designate products that are not on the tariff list. https://www.wsj.com/articles/the-u-s-china-trade-battle-spawns-a-new-era-of-tariff-dodges-1539009200?mod=hp_lead_pos5
One indicator of the misclassification increase is that there were 146 rulings in July, nearly triple the number six months earlier and this is considered the tip of the iceberg. In one example included in the WSJ article, a wood importer in Oregon received a call from a supplier asking if he would like some Chinese plywood tariff free. The importer asked how this would happen and the response was don’t worry about it as the plywood would not contain any Chinese markings and it would be shipped under some other code. Diamond saw blades made in China now carry 82% tariffs. In July, two California importers controlled by a Chinese manufacturer tried to dodge the tariff by coding diamond saw blades as grindstones according to Customs. The maker, Danyang Like Tools Manufacturing Co., claimed independent of the California importers but one of them told the agency Danyang was its owner. The California firms have disputed the charges. American officials estimate the U.S. loses at least $550 million in customs revenue each year to tariff evasion. Customs says less than 5% of U.S. imports are physically opened for checks. And classification cases, when they develop, can be a minefield.
There has also been an increase in the number of whistleblowers filing cases under the False Claims Act which allows individuals to report tariff violations on behalf of the Government and to collect a percentage of recovery by the Government. Some of the whistleblowers reside in foreign nations others live here and report the wrongdoers which sometimes include US companies. Products are being shipped from China and routed through Mexico and Canada to try to evade the tariffs. Individuals who have specific and supportable information who report these infractions can yield up to 30% of the Government’s recovery.
Jeffrey Newman represents whistleblowers who have reported tariff evasion by Chinese businesses.