Chinese exporters who are hoping to evade tariffs as high as 25% on some of their goods are hoping to capitalize on the explosion of exports from Vietnam to the US – and not by simply and legally routing their products through Vietnam as a legal transshipment point, but by masking their true origins, provoking fears that the US might seek to punish the Vietnamese for failing to crack down on this type of fraud.

On Sunday, Vietnam released a statement pledging to increase penalties on trade-related fraud. It was one of the first times an Asian government has ever alleged such misbehavior, and comes after Vietnamese authorities found dozens of fake product origin certificates and illegal transfers presumably by Chinese companies trying to sidestep US tariffs on everything from agriculture to textiles, according to Bloomberg.

The crackdown comes as Vietnam has emerged as one of the fastest growing sources of American imports.

Vietnam

One member of the Vietnamese national assembly’s economic committee said the government is worried it could provoke the wrath of the US if it doesn’t crack down on the flow of mislabeled Chinese products. The sheer magnitude of the jump in Vietnamese exports has prompted some to question how much of this could possibly be due to legitimate commerce.

Some say that a “cottage industry” for circumventing Vietnamese tariffs has emerged out of nowhere.

The Southeast Asian country’s reported shipments to the U.S. have jumped this year as China’s have slumped. While there’s evidence that some of those gains are due to shifting supply chains, analysts have questioned how much of the recent surge is legitimate.

Fraudulent cases discovered by Vietnam’s government include packaging on Chinese goods being changed to say “Made in Vietnam” before certificates of origin are processed. The government cited an example of U.S. customs officials uncovering Chinese plywood being shipped to America through a Vietnamese company.

“A cottage industry for circumventing U.S. tariffs will likely bloom, given the high tariff rates and huge potential profit,” said Chua Hak Bin, a senior economist at Maybank Kim Eng Research Pte. in Singapore. “ASEAN governments will likely crackdown on such re-routing for fear of being seen as a backdoor,” Chua said, referring to the Association of Southeast Asian Nations.

And while the number of ‘questionable’ shipments will always be ‘relatively small’, “there will always be leakages and work-arounds to avoid tariffs. But we do not see it as a widespread phenomenon.”

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