Companies Are Being Fined for Using Cambodia to Dodge US Tariffs

As the U.S.-China trade war continues, some companies have resorted to illegal measures to avoid the mounting tariffs between the two countries.

On Wednesday, Reuters reported that the U.S. had discovered several businesses transshipping goods through a Chinese-owned special economic zone in Cambodia in an attempt to disguise their country of origin.

“The Department of Homeland Security has inspected and fined a number of companies for evading tariffs in the United States by routing goods through Cambodia,” U.S. Embassy spokesman Arend Zwartjes told the news agency.

Vietnam’s customs agency made a similar announcement earlier this month, posting on its website that it had discovered numerous instances of companies changing labels and packaging on Chinese goods to read “Made in Vietnam” before trying to export them to America.

The country is expected to be one of the biggest beneficiaries of the trade war between President Donald Trump and Chinese president Xi Jinping as companies shift some of their supply chains away from China to allay extra costs. (Some, like Adidas, were already in the process of moving more manufacturing to Vietnam in search of cheaper labor.) U.S. imports from Vietnam grew by 40% in the first quarter of 2019, while imports from China fell 13.9%.

Cambodia is also expected to get a manufacturing boost if the tariff standoff continues. The recent violations were found at companies located in the Sihanoukville Special Economic Zone, an area developed in partnership with China as part of its Belt and Road initiative. The zone, located adjacent to Cambodia’s only deep-water port, is a hub for factories that produce shoes, textiles, furniture, electronics and other goods. In 2018, it exported $372 million worth of products, up by 68 percent from the previous year, according to the Council for the Development of Cambodia.

So far, President Trump has imposed 25% tariffs on about $250 billion worth of Chinese goods, and after trade negotiations with Beijing broke down last month, he began the process of raising duties on the remaining $300 billion, which would include footwear.

Last week, more than 600 companies — including Macy’s, Walmart and Foot Locker — sent a letter to the president exhorting him to make a deal with China before these new tariffs kick in.

“An escalated trade war is not in the country’s best interest, and both sides will lose,” the letter ended. “We are counting on you to force a positive resolution that removes the current tariffs, fosters American competitiveness, grows our economy and protects our workers and customers.”

This week, hundreds of industry business leaders are in Washington, D.C. to testify about the situation.

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