Exporting via a third country may help escape import taxes, but could result in more severe penalties in the long term.
Initiated mainly to circumvent anti-dumping duties and quota restrictions set by importing nations, exporting via a third country has now become a common strategy among China suppliers. Not only are companies setting up offshore offices and factories, some freight forwarders are offering transit trade services as well.
For many suppliers, this measure is a last resort to survive. The EU, for instance, set the anti-dumping duty on China-made ceramic tiles at 73 percent on March 17 this year. At this rate, buyers would have to pay $36,500 in taxes for 1 TEU of ceramic tiles worth $50,000 on top of shipping costs.
Only three companies were awarded reduced levies ranging from 26 to 37 percent.
China Ceramic Industrial Association Foshan office director Lan Wei Bing said the duty will have a significant impact on 80 percent of manufacturers, and may cause 15 percent of the factories to close down. At least 10,000 people are likely to lose their jobs as a result.
While buyers shoulder anti-dumping duties, the cost of doing so may lead them to look for suppliers in countries that have lower or no such taxes.
With transit trade, China-made goods are first sent to a third country. Products are transferred from containers in the transit port to those heading to the final destination. Export documents, including the original copy of the certificate of origin, packing list and bill of lading, need to be filled out and completed according to the third country's requirements. The certificate of origin has to be acquired from legitimate channels such as manufacturers and trading companies based there. Payment should also be made and confirmed in the third country.
Although buyers would have to spend a little bit more on shipping fees, the additional cost will still be much lower than anti-dumping duties.
Transit trade, however, is not an ideal long-term strategy for dealing with anti-dumping duties and other trade restrictions. Using one country as a transit port for several years may cause suspicion and result in more severe penalties.
The fasteners industry, for instance, has had to deal with anti-dumping duties for many years now. Many suppliers in Zhejiang province, one of the main fastener manufacturing hubs in China, exported through Southeast Asia, including Malaysia. Since then, the export volume of fasteners from Malaysia increased significantly, while that from China decreased. This caught the attention of EU trade bodies. By the end of 2010, the EU announced it will be investigating Malaysia's fastener exports.
Many China companies that set up transit trade offices in Malaysia are now thinking of closing shop and possibly moving elsewhere, including Dubai. But suppliers hold a pessimistic view of their future, as frequent relocation is detrimental to business.
To prevent arousing suspicion from importing countries, some makers carry out transit trade in areas where their industries already have a solid footing. The industries there should be strong enough to support a sudden growth in export volume. Moreover, products should not be targeting the same markets to avoid trade conflict with the local industry.
China ceramic tile makers enjoy zero import duties from ports in South Korea, where many of them re-export. Because they cater to different markets, suppliers in South Korea do not feel threatened and see the need to lobby for trade protection policies.
Note: This article "Transit trade lowers costs, ups risks" was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.
All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.
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