As Unites States’ (U.S.) sanction against China (Communist Party – CCP) intensifies, especially in restricting her exports of chips and high-tech products, shutdowns of high-tech industries appear unavoidable as exports of high-end electronic goods have shrunk. For survival and maintenance of import-export trade surplus, China recommences production of labor-intensive products bound for Europe and American markets. Below is such a case study analyzing price comparison and counter-tariff measures of China made garment export.
Low labor costs of inmate-produced garments
While ex-President Trump’s first term was about reducing the trade deficit and increasing import tariffs several times, the impact was modest. The CCP moves garment production from factories into prisons. There are many prisons in each province all over China. Smaller prison houses between 1,000 and 2,000 inmates each and larger one houses 4,000 to 5,000 each. All inmates slave daily fulfilling quotas as serving prison sentence.
Although U.S. big buyers like Costco, Walmart, Kmart have human rights protection requirements not to accept prison products, the truth is heavily guarded by strict security procedures. Prison access are guarded by armed policemen, visitors are body and paper checked. Any foreign reporters, mobile phones and video equipment of all kinds that would leave evidence are prohibited.
In order to deceive buyers visiting these factories, many exporters will build model factories consist of label sewing centers, back channel ironing packaging workshops and a few sewing lines. When they visit, temporary actors are employed as workers. When deliveries have problems, pre-made standby stock reserves are used instead.
Furthermore, most United States large buyers generally utilize middle agent procurement. This is much preferable because they are easily bribed.
Use loopholes of ‘place of product origin’ to deceive the United States
If the US is able to trace the place of product origin through custom records, these prison made China garments can be blocked by adding 150% – 200% of import duty. However, it will be much harder to deter if China deceives using the loopholes of the place of product origin. One can only rely on undercover operations, waiting like a cat pouncing on a mouse. The work is endless and voluminous.
It generally operates as follows: an exporter first shipped fabric and accessories from China to Vietnam. In Vietnam, the products are put together, re-labeled, re-packaged in rented warehouses and re-exported to Southeast Asia countries like Cambodia or Bangladesh in local Chinese investment plants so that the certificate of origin is labeled as: 50% Vietnam, 50% Cambodia or Bangladesh. The final products are exported to the United States, which is then taxed at rates applicable to Cambodia or Bangladesh at customs clearance, thus legally avoiding punitive tariffs on China.
Domestically supported preferential policies
The Communist Chinese government has domestic policies in place to counter the import sanctions of the U.S. sanctions. It has increased export tax rebate rate for textile and clothing goods from 15% to 16%. Chinese banks have also been increasing their lending limit and insurance coverage for the textile industry.
In summary, the CCP has used ‘rule of law’ as their slogan, holding ransom 1.4 billion people against the United States. It is in fact about the ‘rule of lie and falsehood’.
Disclaimer: The views expressed here are those of the authors and do not necessarily reflect the views of GNEWS.org.