GDLSK ALERT: Recent News Articles Linking China Production to North Korean Factories- Additional Compliance Measures May be Required

Recent news articles have reported that Chinese apparel manufacturers are using North Korean factories to assist in the manufacture of garments sold for exportation to the United States.  Based on these recent articles, the difference in labor rates, which has traditionally moved Chinese production to lower wage rate countries like Vietnam, has inspired Chinese producers to transfer some production to North Korea.  Unlike Vietnam, however, the goods made in North Korea are contraband and cannot be imported into the United States.  As a result, to hide the fact that North Korean factories are being used, the finished goods will have to be transshipped through China or third countries to the United States and falsely claimed to be products of China or other countries.

Purchasing products from North Korea is against the law and violators may be subject to criminal punishment and civil fines.  (See E.O.13570; International Emergency Economic Powers Act (50 U.S.C. § 1701 et seq.) (IEEPA). In addition, the current administration has made it a point to stop Chinese trade violations and to impose strict enforcement of the recent economic sanctions that have been put in place against North Korea. Criminal penalties of up to $1,000,000, and/or imprisonment for up to 20 years may be imposed on any person who willfully violates this law.  Civil penalties of the greater of $284,582 or twice the amount of the underlying transaction may be imposed administratively against any person who violates this law.  Of course goods made in North Korea can always be seized and forfeited by U.S. Customs.

In the past, Chinese vendors were accused of transshipping goods to the United States through third countries claiming false country of origin in order to avoid the textile and apparel quota limits that had been imposed.  There have also been multiple allegations that Chinese vendors have transshipped goods to the United States through third countries to avoid the huge antidumping and countervailing duty deposits that must be paid on those goods.  These latest news stories indicate that China country of origin problems are continuing today.

Against this background, it is recommended that importers should review their due diligence programs.  Their programs may have to be enhanced to ensure that the claimed country of origin is correct.   Please feel free to contact our office if you should have questions.