A letter recently sent to top U.S. officials by the chairman and ranking member of the Select Committee on the Strategic Competition between the U.S. and the Chinese Communist Party (CCP) uses automotive parts as a “prime example” of why additional actions are needed to enforce U.S. trade laws against China.

The letter says China systematically abuses U.S. trade laws and protective mechanisms through transshipment, forced labor, and other illicit trade practices. 

In it, Select Committee Chairman John Moolenaar and Select Committee Ranking Member Raja Krishnamoorthi ask Attorney General Pam Bondi, U.S. Trade Representative Jamieson Greer, and U.S. Department of Homeland Security Secretary Kristi Noem to strengthen their enforcement against China’s unlawful trade practices. They ask for criminal prosecution of trade criminals, stepping up of civil enforcement, and self-initiation of an investigation into China’s transshipment schemes. 

The letter says the People’s Republic of China (PRC) evades Sections 301, 232, and 201 of the Trade Act by shipping their “Made in China” products to countries that do not face tariffs at the same level as the U.S. imposes. 

“Without fundamentally transforming the product, these companies will then ship their Made in China products to the United States under the guise of being made in a country other than the PRC,” the letter says. 

An entire industry of PRC logistics companies has emerged since the imposition of Section 232 and 301 tariffs on the PRC in 2018, the letter says. It adds that logistic brokers even advertise that they can evade tariffs by sending steel, aluminum products, clothing, stainless steel sinks, and other goods through third countries to the U.S. and Europe. 

“As you know, these shipments are only permitted when a product has undergone substantial transformation in a third country — which is defined as a ‘fundamental change in form, appearance, nature, or character’ resulting from processing or manufacturing that significantly increases its value compared to its original value when exported from the country of Origin,” the letter says. “Importers that knowingly falsify the country of origin label on their imports are subject to significant fines and penalties under 19 U.S.C. § 1592. Companies or individuals found complicit in knowingly selling or purchasing unlawfully transshipped products face additional civil penalties as well as serious criminal liability under Title 18.”

 It highlights a 2019 case study following the imposition of Section 301 tariffs covering automotive parts from China. 

“Qingdao Sunsong — a high-technology automotive parts company — established a facility in Thailand to begin transshipping its rubber hose assembly products to the United States. Indeed, one Qingdao Sunsong public filing reveals that the primary objective of its investments in Thailand was to circumvent U.S. tariffs and allow its products to be shipped to U.S. auto part retailers at Thailand’s lower duty rates.” 

The company applied to be publicly listed on the Beijing Stock Exchange (BSE) in 2022, the letter says. The BSE required the company to provide a detailed accounting of its international operations including its operations in Thailand and North America. 

“In a letter to the BSE, Qingdao Sunsong confirmed its rubber hose assembly products produced in China were subject to a 25% tariff and that ‘in order to reduce tariff costs, the issuer shifted its production (from China) to Thailand.’ Qingdao Sunsong’s response detailed how it used Thailand-based Virayont Group Co. Ltd. and Imperial Cable Industry Co. Ltd. as fronts to transship its Made in China products to its U.S. subsidiary, Sunsong North America, to avoid higher duty rates.”

According to the letter, Qingdao Sunsong’s disclosure indicates that outsourcing processing to Thailand between 2019 and 2021 added only between 12 cents and 23 cents to the value of its power steering hose assemblies. This reveals that processing by Virayont of the products received from Qingdao Sunsong accounted for only 4-8%  of the declared value of assembly — below the threshold expected to qualify as “substantial transformation” as defined by the U.S. Department of Commerce, the letter says. 

Substantial transformation allows a company to ship to the U.S. at the lower tariff levels set for goods produced in Thailand, the letter says. 

In 2021, Qingdao Sunsong began to use a new wholly-owned subsidiary, Sunsong Thailand, to continue the practice, the letter says. 

“As is apparent from its own public financial disclosures, Qingdao Sunsong fails to substantially transform its products in the third country before shipping its products to the United States,” the letter says. “Unfortunately, fact patterns like this are not unique.”

The letter also outlines examples in the textiles and apparel support industries. 

It says that while law enforcement has been actively tracking and exposing these transshipment schemes, current enforcement efforts remain insufficient to hold perpetrators accountable and deter further violation of U.S. trade laws. 

“Stronger trade enforcement measures, including through criminally prosecuting trade criminals, stepping up civil enforcements, and initiating a Section 301 investigation into PRC transshipment schemes, are necessary to protect American industries and workers from these illicit and damaging practices,” the letter says. 

China’s transshipment practices give its companies an unfair advantage, allowing them to flood the U.S. market with artificially cheap goods while bypassing trade enforcement mechanisms, the letter says. It adds that the “consequences for American companies are severe.” 

“Failure to take swift action to hold the PRC accountable for these unlawful practices will result in these actors continuing to inflict severe harm on American industries and workers,” the letter says. “We urge your respective agencies to increase their enforcement to curb transshipment. Specifically, we request that the Office of the United States Trade Representative (USTR) launch an investigation of these practices under Section 301(b) of the Trade Act of 1974.”

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