As described in the video, transshipment is one form of illegal import activities and occurs when false country-of-origin information is provided for imported goods in order to evade U.S. customs duties. Transshipment was a major issue in textile and apparel trade back in days when the quota system was still in place.
According to the media, because of the escalating U.S.-China tariff war, customs fraud such as transshipment is thriving again. Some fashion companies are also using tariff engineering to avoid paying the punitive tariffs in a legal way. Indeed, how to label “Made in ___” can be much more complicated, technical and subtle than we realize.
Related reading:
- How to Legally Avoid Tariffs: The Critical Rules Every Shoe Brand Should Know
- What’s Your Apparel and Footwear Tariff Strategy?
FASH455 Global Apparel & Textile Trade and Sourcing 
When you calculate at the additional transportation costs for transshipments (plus the additional risk of penalties), the additional production costs for “tariff engineering” (plus the risk that these processings will not be accepted by CBP at the end) and the negative effects on the so important lead-times – it is really cheaper than paying 10% additional duties ?
I found this video to be very telling in regards to goods produced in Vietnam. It is interesting to see that while many manufacturers seek out Vietnam as a new area to manufacturer goods, in reality many components are being created in China. In fact, it appears that the additional cost of transferring goods is only contributing to the unsustainable epidemic of manufacturing fashions. This video raises the question if the extra lengths Vietnam goes to is worth it?
I learned a lot about transshipment from watching this video. It is crazy to see the extreme measures some companies would take to avoid paying the high tariffs. The video explained how, sometimes, companies would unload their products at port in Vietnam and very minimally alter their products there before attaching a new origin label. Now, the label will say “Made in Vietnam,” even though the product was almost completely made in China. I found it interesting how non-“Made In Vietnam” products are often mixed with real “Made in Vietnam” products so that it is difficult to tell the difference between them. That is why it is often hard for U.S. customs agents to detect transshipments. This makes me wonder just how many “Made in Vietnam” products were really made in China. Will you wonder too the next time you look at a tag that doesn’t say “Made in China?”
In class, and in the previous case study we discussed how in order to combat the new tariffs some manufactures have started to cheat the system by adding tags that identify the garments as being produced in other countries. Additionally, in class we have been discussing the complexity of the tariff negotiations between the textile and apparel industries. By watching this video, I was able to learn more about how companies do this through transshipment, and engineering their supply chains to get around tariffs. This further shows how although it may seem there is always a simple solution to the trade negotiations, the issues always have many different facets and it may seem impossible to find a compromise that both satisfies both parties and that actually achieves its intended goals. In my opinion, it seems like more regulation needs to be done because as the trade policies continues to change and get more complex, the more companies will try to cut corners in areas such as labor or other production aspects. This way, once new trade regulations can be agreed on they can be the most successful in achieving their goals.
Vietnam is importing more from China than before. The reason for this is companies are moving products to Vietnam and swapping out the country-of-origin information for “Made in Vietnam” and then shipping it to the U.S. This process is called transshipment and it is an illegal form of import activity. They do this to avoid hefty tariffs. The most popular products involved in transshipment is electronics, steel and furniture. Due to the escalating U.S.-China tariff war, how are industry professionals suppose to avoid the hefty tariffs without illegally importing their products? Would applying more regulations help or hurt the companies attempting these activities?
The fact that this tariff avoiding tactic exists indicates to me that tariffs are not a an effective solution, and that the root problem isn’t being dealt with. China is transhipping through Vietnam as a means to avoid those 25% tariffs, and it is very clear that the US is still being taken advantage of in many respects. Rather than attempting to punish the leading manufacturer it would make more sense to give US companies and retailers incentive to source from places other than China or Chinese proxies. For example, offer tax benefits subsidies to retailers who keep their supply chains within the CAFTA and NAFTA regions since at the moment neither trade agreement offers enough benefits over their Chinese counterparts. Taxes based on the environmental impact of sourcing could be interesting as well since modern sourcing sees pieces from multiple countries being assembled into a single product, and the emissions from shipping such long distances is certainly a relevant concern.
Truthfully, this video was a bit demoralizing for me a student studying fashion. As someone who has been enamored by this industry from such a young age, learning about the many dark truths within it makes me disappointed to what trade relations have come to. Seeing the drastic measures that some nations will take in order to steer clear or avoid these high tariffs is very disheartening. Seeing nations take credit for the production and manufacturing that was not of their own making through the removal of the original labels and replacing them with their own. The level of dishonesty is really unfortunate and unethical and it is very unfortunate that potential amount of products that have been tampered with are as high as they may be.
I think this video shows how complicated trading and tariffs are in general. The part that stuck out to me the most is the part about the electronics. There are so many different parts from different countries it is hard to determine the true country of origin. I think, in some ways, apparel is like this too. There could be American grown cotton that was spun in a different country, then that spun cotton could be sent somewhere else to be manufactured into apparel. It puts a lot of questions into the air. Transshipment will likely continue, even though it is illegal. However, transshipment is not the only part of the apparel industry specifically where there is a lack of trust or unethical practices. It is other issue that needs to be resolved, but could potentially always be around.
The video reveals a lot trade problems to us. After watching it, I begin to think that is ‘Made in Vietnam’ purely refers to goods are made in Vietnam? Is the material was actually produced in Vietnam or just assembled there? it is the same as the textile and apparel industry, when a lot of parts or steps are involved, what does ‘Made in __’ truly mean? Transshipment is likely to be illegal but companies are still doing it to bring down the cost of the goods. To avoid tariff from China, such companies are perpetrating a fraud and earn the difference of it.It is really unsustainable and unethical to do that.
Before watching this video, I did not know anything about transshipment. Although it was a new topic for me, I was not at all surprised that this is going on. When there is such a big change in the global economy, for example the high tariffs President Trump placed on China, there was bound to be a huge reaction. I think that it is likely that transshipment will continue, because people are greedy and naturally inclined to find the cheapest way possible to do things. Even though I am not surprised by this practice, I do think that it is very unethical and should be stopped, but I don’t think that it is as urgent as issue as topics such as working conditions and child labor, which the apparel industry is also struggling with.
It was interesting to learn about transshipment. Factories overseas are put under immense pressure to meet demand from fashion retailers and this could cause issues when there is a limited number of workers/ hours in a day. I remember from our case study that even with regulations placed on factories, they still may send the work out to be done. This is just one of many concerns within a factory. While it is not fair to try and evade these duties I see the side of factories doing this because at the end of the day everyone is trying to make a profit for their business and with the different trade regulations/ limitations there may be things in place that say, for example, Vietnam can only send x amount of t-shirts to the US and why should they stop production that is employing people just because they have already exceeded their limit?
To me transhipment is a risk many manufacturers feel is necessary to take. Everyone wants to earn a profit for their hard work and transhipment is their way of making more money off of their exports. With such high tariffs in this day in age, it only makes sense certain manufacturers would try and find a loophole to bypass the tax. I think it is a good thing that transhippers are fined and face jail time for their acts because they are ultimately lying to the consumer about where the product came from. Hopefully the implementation of higher regulations and more in depth inspections will curve this issue.