CODES

L'Opinion - - The Wall Street & I'Opi­nion - Chuin-Wei Yap

ping ru­ling by the Com­merce De­part­ment. In Ju­ly, ac­cor­ding to U.S. Cus­toms, two Ca­li­for­nia im­por­ters control­led by a Chi­nese ma­nu­fac­tu­rer tried to dodge the ta­riff by co­ding dia­mond saw blades as grind­stones.

The ma­nu­fac­tu­rer, Da­nyang Like Tools Ma­nu­fac­tu­ring Co., said it was in­de­pendent of the Ca­li­for­nia im­por­ters, Cus­toms said, even though one of them told the agen­cy Da­nyang was its ow­ner. The Ca­li­for­nia firms have dis­pu­ted the charges. Da­nyang didn’t re­spond to calls for com­ment.

In the freight-hea­vy seas south of Chi­na, a belt of smal­ler na­tions has be­come the cen­ter of a li­ve­ly trade sup­por­ting al­le­ged Chi­nese ta­riff eva­sion. Ship­ping hubs from Viet­nam to Sin­ga­pore, ma­ny of which now count Chi­na as their top tra­ding part­ner, evol­ved to help Chi­nese ex­por­ters. Freight bro­kers abound in Pe­nang, an is­land off Ma­lay­sia’s west coast, nest­led among me­tal-roo­fed sho­phouses, high­rise of­fices and gri­my in­dus­trial zones. One bro­ker’s phone num­ber ap­pea­red on a re­dac­ted ship­ping in­voice show­ca­sed on­line by a Chi­nese ship­per as a suc­cess­ful example of its ta­riff eva­sion. The bro­ker was si­tua­ted in a small house near a church in a sub­urb of George Town, Pe­nang’s lar­gest ci­ty.

In Ma­lay­sia, trade midd­le­men re­fer to ta­riff-dod­ging prac­tices as “swit­ching BL,” mea­ning re­pla­cing ship­ping do­cu­ments to dis­guise ports of ori­gin, ta­riff codes or both. “BL” re­fers to the bill of la­ding, a car­go in­ven­to­ry pro­vi­ded by a car­rier.

“I’m not going to say it doesn’t hap­pen,” said Ja­la­lud­din Ha­run, di­rec­tor-ge­ne­ral of the Ma­lay­sian Tim­ber In­dus­try Board. “It may hap­pen. But in Ma­lay­sia, that is one thing we try to re­gu­late, and cus­toms is quite sharp on this.”

Ma­lay­sia would like to check all ship­ments but can’t, said Pad­dy Ha­lim, de­pu­ty di­rec­tor­ge­ne­ral of the Royal Ma­lay­sian Cus­toms De­part­ment. “You’re not going to dis­turb the trade that way, no way. For a few guys, you stop 99 % or even 95 %? That’s not how it works.”

In Chi­na, ex­por­ters swap in­for­ma­tion about ta­riff codes on web­sites such as Yi­shang­huiyou – “Friends Th­rough Com­merce” – an off­shoot of the who­le­sale plat­form 1688.com ow­ned by Ali­ba­ba Group Hol­ding Ltd.

“We want to ex­port a batch of ply­wood trays,” wrote so­meone using the name Zhang Liang on a Yi­shang­huiyou fo­rum in Ja­nua­ry. “What’s the ta­riff code for ply­wood that can make it avoid ins­pec­tions?”

“Our com­pa­ny can help,” re­plied ano­ther user, sug­ges­ting they get in touch. Nei­ther user re­spon­ded to re­quests for com­ment. Mis­clas­si­fi­ca­tion of trade goods has a long pe­di­gree. In 1879, trade at­tor­neys say U.S. ta­riff col­lec­tors said an im­por­ter was co­lo­ring su­gar with mo­lasses to pass it off as a lo­wer-ta­riff pro­duct.

Which code to ap­ply to a ship­ment is of­ten a mat­ter of dis­cus­sion bet­ween a ship­per and a U.S. im­port bro­ker. Chi­nese and other Asian midd­le­men say they de­ve­lop code wor­ka­rounds with U.S. im­port bro­kers, who help with the do­cu­men­ta­tion and re­gu­la­tions.

Consul­ta­tions with ship­pers about how to code pro­ducts have tri­pled in recent months at Quick­sil­ver Cus­toms Bro­kers LLC in San Die­go, said the im­port bro­ker’s ow­ner, Al­cides Sil­va. “De­fi­ni­te­ly we’ve been get­ting more mis­clas­si­fi­ca­tion in­qui­ries,” Mr. Sil­va said, ad­ding that he doesn’t co­ope­rate with them.

“I’ve got a fa­mi­ly to raise, so I’m not going to risk it if some Chi­nese ship­per wants to by­pass the rules,” he said.

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.

The U.S. co­ding sys­tem cal­led HTS – for Har­mo­ni­zed Ta­riff Sche­dule – contains 88 se­pa­rate ply­wood codes, dif­fe­ren­tia­ting by types of wood and thi­ck­ness va­ria­tions down to the mil­li­me­ter.

An in­dus­try group cal­led the De­co­ra­tive Hard­woods As­so­cia­tion has long said Chi­nese ply­wood im­ports crowd out thou­sands of Ame­ri­can jobs and put mil­ls out of bu­si­ness. The U.S. Com­merce De­part­ment ope­ned a dum­ping in­ves­ti­ga­tion in No­vem­ber 2016 re­la­ting to the most com­mon type of ply­wood, cal­led hard­wood-fa­ced.

Al­most im­me­dia­te­ly, Chi­nese pro­du­cers be­gan to ship ply­wood un­der four other codes, from 4412.39.10.00 th­rough 4412.39.50.00, at­tor­neys say. These codes ap­ply to soft­wood-fa­ced ply­wood, which is slight­ly dif­ferent and drew low ta­riffs ran­ging from ze­ro to 8 %.

U.S. im­ports of Chi­nese hard­wood-fa­ced ply­wood fell 20 % in 2017. Im­ports co­ded as soft­wood­fa­ced ply­wood soa­red 549 %.

In No­vem­ber 2017, the U.S. im­po­sed a 183.4 % an­ti­dum­ping ta­riff on hard­wood-fa­ced ply­wood. Chi­nese ship­ments un­der the four soft­wood-fa­ced ply­wood codes ro­cke­ted hi­gher. They were up 983 % in the first half of 2018 from a year ear­lier.

The Chi­nese go­vern­ment for­bids false cus­toms de­cla­ra­tions. “Chi­na is clo­se­ly mo­ni­to­ring the U.S. probe on Chi­nese ply­wood, and hopes the Ame­ri­can side can car­ry out its in­ves­ti­ga­tion fair­ly,” the Chi­nese Mi­nis­try of Com­merce said in an email. It didn’t com­ment on mis­clas­si­fi­ca­tion but has ge­ne­ral­ly re­spon­ded to U.S. trade cri­ti­cisms by ac­cu­sing the U.S. of pro­tec­tio­nism.

U.S. cus­toms au­tho­ri­ties say they ha­ven’t al­ways re­cei­ved full co­ope­ra­tion from Chi­na. “The Chi­nese le­gal sys­tem and the abi­li­ty to go af­ter spe­ci­fic bu­si­ness en­ti­ties in Chi­na are a chal­lenge for us,” said Ms. Smith, the of­fi­cial at U.S. Cus­toms and Bor­der Pro­tec­tion.

The trade lawyer Mr. Bright­bill, who re­pre­sents Ame­ri­can ply­wood pro­du­cers, said some Chi­nese ex­por­ters had ta­ken to co­ding hard­wood-fa­ced ply­wood sheets as parts of rea­dy-to-as­semble kit­chen ca­bi­nets. Im­ports of such ca­bi­net parts rose 18 % in the first six months in 2018, cus­toms da­ta show. The Com­merce De­part­ment in Sep­tem­ber mo­ved to sub­ject such parts to its an­ti­dum­ping or­der and agreed to a probe of Chi­nese soft­wood­fa­ced ply­wood.

Mr. Visse, the Ore­gon im­por­ter, says he re­cei­ved the call of­fe­ring him ta­riff-free Chi­nese ply­wood as the U.S. was in­ten­si­fying its ta­riff threats and U.S. pro­du­cers were as­king for an ex­pan­sion of the kinds of Chi­nese ply­wood sub­ject to an­ti-dum­ping ta­riffs.

Ply­wood was in­clu­ded in $200 bil­lion of Chi­nese pro­ducts on which the Trump ad­mi­nis­tra­tion le­vied ad­di­tio­nal 10 % ta­riffs ef­fec­tive in Sep­tem­ber. That move came on top of ta­riffs the ad­mi­nis­tra­tion im­po­sed in June on $50 bil­lion of Chi­nese im­ports. These we­ren’t an­ti-dum­ping ta­riffs – the ad­mi­nis­tra­tion jus­ti­fied them ba­sed on a law al­lo­wing re­ta­lia­tion for al­le­ged fo­rei­gn dis­cri­mi­na­tion against U.S. com­merce.

Mr. Visse said he tur­ned down the ta­riff-free-ply­wood of­fer, un­com­for­table with the ethics of the pro­po­si­tion. His stance isn’t ne­ces­sa­ri­ly sha­red by his com­pe­ti­tors, he ad­ded.

“With this whole glo­bal trade war bub­bling, I just don’t think people un­ders­tand how com­mon it is to jerk with the sys­tem,” Mr. Visse said. “It’s quite the gro­wing cot­tage in­dus­try.”

SI­PA PRESS

A contai­ner ship sails from Yang­shan Deep Wa­ter Port near Shan­ghai.

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