Chinese Firms Exploit Tariff Loopholes in U.S. Exports: "Underreporting Values on Customs Documents"

Under DPP Terms, Sellers Declare Lower Prices Than Actual to Bear Tariff Responsibility

The Financial Times (FT) reported on May 6 (local time) that, as the U.S. government has significantly increased tariffs on Chinese goods, small and medium-sized businesses in the United States and Chinese companies are colluding to evade tariffs by exploiting loopholes in the system. However, in reality, it is difficult to crack down on these practices.

According to the FT, some Chinese suppliers of chemicals and packaging materials are offering to ship products to U.S. small businesses under "DPP terms."

DPP stands for "delivery duties paid," a condition under which the seller bears all costs?including shipping, taxes, and tariffs?to deliver the goods to a location specified by the buyer.

When contracts are made under these terms, the Chinese seller, as a foreign business, registers as a "foreign importer of record" (FIOR) with U.S. customs and is responsible for customs clearance as well as for paying the tariffs.

This practice itself is not illegal and is not uncommon. However, the problem is that there are increasing cases where Chinese companies are attempting to exploit loopholes in this system to avoid the recently raised tariffs.

According to the FT, these companies are underreporting the value of goods or misrepresenting product descriptions on customs documents, resulting in paying significantly less in tariffs than they should.

Foreign companies only need to pay a small deposit to register as an FIOR in the United States. As a result, even if the U.S. government successfully uncovers that a foreign company registered as an FIOR has evaded tariffs, it is practically impossible to impose effective penalties.

This is because, even if large fines or penalties are levied against a foreign company, there is no practical way to enforce them.

Dan Harris, an attorney who works with U.S. companies selling Chinese products, explained to the FT that while the U.S. government can sanction American companies that cooperate in such tariff evasion schemes, "there is little the U.S. government can do" against the Chinese companies involved.