Tougher United States trade penalties on goods originating in one country being re-shipped from another are not expected to immediately follow new US tariffs, three people in Southeast Asia with knowledge of the matter said, easing a major cause of concern.
Southeast Asian countries, including Vietnam and Thailand, have been explicitly targeted by White House officials for their alleged role in facilitating the so-called transshipment to the US of Chinese goods, which would face higher tariffs if shipped directly from China.
The administration of US President Donald Trump imposed tariffs on goods from dozens of countries from Thursday, and in an executive order, said products determined to have been illegally rerouted to conceal their country of origin would face additional duties of 40 percent. But it did not clarify what constitutes transshipment.
US imports from Southeast Asia’s biggest economies, which rely heavily on exports, are now subject to tariff rates of about 19 percent, many of which have been significantly reduced from previously threatened rates.
Existing US customs guidance states that goods from countries with no free trade agreements with Washington, such as Southeast Asian nations, can be labelled as made in the country where they undergo a “substantial transformation” of components, even if those parts entirely come from another country, such as China.
And with no new US guidance on rules of origin or specification of what transshipment means, some officials in Southeast Asia have told exporters that existing rules apply.
That effectively limits cases of transshipment to illegal activities, like the use of forged export certificates or documents obtained illicitly.
“Currently, all exported goods [from Thailand] are subject to a 19 percent rate because there are no rules on transshipment yet,” Arada Fuangtong, head of the Thai Ministry of Commerce’s Department of Foreign Trade, told Reuters on Thursday.
Her message was echoed by US officials in Vietnam, who told businessmen the tariff of 20 percent would apply to Vietnamese goods, even if they are entirely made with Chinese components and only assembled in Vietnam, according to one person familiar with those talks.
Trade consultants have said rules are vague, and they have advised clients, even before the new wave of US tariffs, to have at least 40 percent of local content for their exports to the US. That is “to be on the safe side”, one of them said.
The US embassy in Vietnam did not immediately reply to a request for comment. The Office of the US Trade Representative did not immediately respond to a request for comment outside US working hours.
“Goods defined by US customs as transshipped are subject to 40 percent duties, but pending any new definition, that’s limited to old definitions,” said a Vietnam-based consultant.
Both people declined to be named in order to speak more freely.
China dependence
According to the US customs guidance, repackaging does not usually cause a “substantial transformation”, but assembly may, depending on the complexity of the operations.
It is unclear if this narrow interpretation of transshipment could be enforced for other countries.
Economic ministries in Indonesia, Malaysia, the Philippines, Vietnam and Singapore did not immediately respond to requests for comment on the issue.
Manufacturers in Southeast Asia, which rely heavily on Chinese components, have been in the dark for months about what Washington would consider transshipment.
Questions remain about whether that would include goods with a large, but yet undefined, share of components or raw materials from China, even when they are legitimately transformed in Southeast Asian nations.
A strict definition of transshipment may come later, multiple investment consultants warned.
An executive order signed by Trump last week said the US will “publish every six months a list of countries and specific facilities used in circumvention schemes”.
That will “inform public procurement, national security reviews, and commercial due diligence”, it said.
“The message from Washington is deterrence,” said Marco Forster, director for Southeast Asia at investment consultancy Dezan Shira and Associates.
“If your supply chain cuts corners, it won’t be treated as a technical error. It’ll be treated as fraud.”
