Moolenaar, Krishnamoorthi Call For Enforcement Action on Unlawful PRC Trade Practices

Today, Chairman John Moolenaar (R-MI) and Ranking Member Raja Krishnamoorthi (D-IL) of the Select Committee on the Chinese Communist Party, sent a letter to Attorney General Pam Bondi, Secretary of Homeland Security Kristi Noem, and U.S. Trade Representative Jamieson Greer calling for them to take additional action against unlawful PRC trade practices. The letter urges the three officials to investigate and take appropriate enforcement actions against companies that bypass U.S. trade laws by unlawfully shipping products through third countries. It highlights the serious harm these practices have inflicted on many U.S. industries, including automotive parts, textiles, apparel support, as well as the PRC’s trafficking of precursor chemicals used to produce fentanyl.

In the letter, the Chairman and Ranking Member write:

“The PRC’s systematic abuse of U.S. trade laws and protective mechanisms through transshipment, forced labor, and other illicit trade practices represents a clear and urgent threat to American industry and workers. The Select Committee’s bipartisan investigative and oversight work has exposed many examples of relevant concerns. Given such evidence of systemic fraud, we urge your agencies to strengthen enforcement against the PRC’s unlawful trade practices, including by criminally prosecuting trade criminals, stepping up civil enforcement, and self-initiating a Section 301 investigation into PRC transshipment schemes.”

The full letter is available here and copied below.

Dear Attorney General Bondi, Secretary Noem, and Ambassador Greer,

We write today to request additional actions by your agencies to enforce U.S. trade laws and address the People’s Republic of China’s (PRC) unlawful practices that restrict U.S. commerce. The Select Committee on the Strategic Competition between the United States and the Chinese Communist Party (CCP) has uncovered numerous instances of PRC-based actors violating U.S. trade laws—including by unlawfully transshipping products through third countries into the United States—to circumvent tariffs and duties, evade customs enforcement, or obfuscate the origin of products produced in whole or in part with forced labor. Failure to take swift action to hold the PRC accountable for these unlawful practices will result in these actors continuing to inflict severe harm on American industries and workers. We urge your respective agencies to increase their enforcement to curb transshipment. Specifically, we request that the Office of the United States Trade Representative (USTR) launch an investigation of these practices under Section 301(b) of the Trade Act of 1974.

The use of transshipment to evade U.S. tariffs is a serious violation of U.S. law and undermines American economic and national security. To evade Section 301, 232, and 201 tariffs and duties, many PRC companies ship their Made in China products to countries that do not face tariffs at the same level as those the United States imposes on the PRC. Without fundamentally transforming the product, these companies then ship their Made in China products to the United States under the guise of being made in a country other than the PRC. An entire industry of PRC logistics companies has emerged since the imposition of Section 232 and 301 tariffs on the PRC in 2018, with logistics brokers openly advertising that they can “break […] the barriers of international trade and antidumping to let Chinese products enter international markets successfully” and that “transshipment is the only way to avoid high tariffs and import limits.” These companies boast of tariff evasion by sending steel, aluminum products, clothing, and stainless steel sinks, among other goods, through third countries to the United States, and Europe, including by obtaining false certificates of origin in third countries for goods made in the PRC.

As you know, these shipments are only permitted when a product has undergone substantial transformation in a third country—which is defined by the International Trade Administration as a “fundamental change in form, appearance, nature, or character” resulting from processing or manufacturing that significantly increases its value compared to its original value when exported from the country of origin. Importers that knowingly falsify the country of origin label on their imports are subject to significant fines and penalties under 19 U.S.C. § 1592. Companies or individuals found complicit in knowingly selling or purchasing unlawfully transshipped products also face serious criminal liability under Title 18.

In recent years, Homeland Security Investigations (HSI), including through its Global Trade and Investigations division, has investigated a variety of unlawful transshipment networks that facilitate the evasion of U.S. tariffs and trade laws. These investigations have identified multiple cases of PRC goods being rerouted through third countries to circumvent anti-dumping and countervailing duties (AD/CVD), particularly in aluminum, solar panels, and textiles.

In one case, the U.S. government pursued legal action in 2024 against a company that illicitly transshipped Chinese aluminum through third countries, seeking over $11 million in unpaid import duties and up to $62 million in civil penalties. Similarly, HSI in coordination with the Department of Commerce exposed PRC solar manufacturers unlawfully routing their products through Cambodia, Thailand, and Vietnam to evade U.S. tariffs. HSI has also uncovered PRC textile transshipment schemes in which countries falsely label the country of origin of textile products when importing through free trade agreement countries.

Although law enforcement has been actively tracking and exposing these transshipment schemes, current enforcement efforts remain insufficient to hold perpetrators accountable and deter future violations of U.S. trade laws. Stronger trade enforcement measures, including through criminally prosecuting trade criminals, stepping up civil enforcements, and initiating a Section 301 investigation into PRC transshipment schemes, are necessary to protect American industries and workers from these illicit and damaging practices.

In the 118th Congress, the Select Committee uncovered numerous cases of blatant trade fraud that undermine American manufacturers and force American consumers into unwitting complicity in the CCP’s ongoing genocide of the Uyghurs and other ethnic and religious minority groups in Xinjiang. The PRC’s transshipment practices give its companies an unfair advantage, allowing them to flood the U.S. market with artificially cheap goods while bypassing trade enforcement mechanisms. The consequences for American companies are severe—they are frequently burdened with significant debt, forced to lay off workforce, and pressured to shift production overseas.

To address these challenges, the Select Committee has undertaken extensive bipartisan investigative work to expose many cases of these fraudulent trade practices and push for stronger enforcement measures. Today, we are reintroducing the Protecting American Industries and Labor from International Trade Crimes Act, which establishes a new unit at the Department of Justice to criminally prosecute trade violations and passed the House unanimously in the 118th Congress. Below, we highlight some of the key areas we have explored to inform your future enforcement actions.

Automotive Parts

Automotive parts from the PRC are a prime example of the above concerns. Just to highlight one illustrative case study, in 2019, following the imposition of Section 301 tariffs covering automotive parts from the PRC, Qingdao Sunsong—a high-technology automotive parts company—established a facility in Thailand to begin transshipping its rubber hose assembly products to the United States. Indeed, one Qingdao Sunsong public filing reveals that the primary objective of its investments in Thailand was to circumvent U.S. tariffs and allow its products to be shipped to U.S. auto part retailers at Thailand’s lower duty rates. As the filing states, Qingdao Sunsong’s Thailand operation is designed to “ease the cost pressure of U.S. tariffs on products shipped directly from China.”

In June 2022, Qingdao Sunsong applied to be publicly listed on the Beijing Stock Exchange (BSE). The BSE listing process required Qingdao Sunsong to provide a detailed accounting of its international operations, including its operations in Thailand and North America. In a letter to the BSE, Qingdao Sunsong confirmed its rubber hose assembly products produced in China were subject to a 25 percent tariff and that “in order to reduce tariff costs, the issuer shifted its production (from China) to Thailand.” Qingdao Sunsong’s response detailed how it used Thailand-based Virayont Group Co. Ltd. and Imperial Cable Industry Co. Ltd. as fronts to transship its Made in China products to its U.S. subsidiary, Sunsong North America, to avoid higher duty rates.

Qingdao Sunsong’s disclosure to the BSE demonstrates a clear pattern of trade fraud as it indicated that the effect of outsourced processing in Thailand between 2019 and 2021 added only between 12 cents and 23 cents to the value of its power steering hose assemblies. These numbers reveal that processing by Virayont of the products received from Qingdao Sunsong accounted for only 4 to 8 percent of the declared value of assembly, far below the threshold expected to qualify as “substantial transformation” as defined by the U.S. Department of Commerce, which would allow for shipment to the United States at the lower tariff levels accorded to goods produced in Thailand.

Indeed, the Qingdao Sunsong disclosure indicates that Virayont’s added value only constitutes “assembly processing,” which it described as a process that “is relatively simple.” In 2021, Qingdao Sunsong began to use a new wholly-owned subsidiary, Sunsong Thailand, to facilitate this continued practice. As is apparent from its own public financial disclosures, Qingdao Sunsong fails to substantially transform its products in the third country before shipping its products to the United States. Unfortunately, fact patterns like this are not unusual.

Textiles

In the textile and apparel industry, the PRC exploits U.S. free trade agreements (FTA) by transshipping textiles and apparel through FTA countries, fraudulently claiming duty-free benefits while undermining U.S. manufacturers. The FTA system is defrauded when importers claim FTA tariff-free treatment even though the finished item is comprised of yarn or fabric sourced from the PRC or other non-FTA countries. The yarn-forward rule of origin, designed to ensure FTA regional production, is routinely violated through falsified documents, misclassification, and undervaluation—sometimes linked to illicit activities like cartel money laundering.

The PRC also transships textiles and apparel to avoid several penalties its products face, including AD/CVD orders, Section 301 tariffs, and the Uyghur Forced Labor Prevention Act (UFLPA). Trade data confirms that the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) region and Mexico have increased their imports of Asian textile inputs (yarns and fabrics) in recent years, importing billions’ worth of these products. Major textile exporters in Asia—including the PRC—sent 875 million kilograms of yarns and fabrics (valued at $6.3 billion) to the CAFTA-DR region and Mexico in 2022. This is a 33 percent increase by value and a 111 percent increase by quantity from 2018’s pre-pandemic levels. As the CAFTA-DR region is largely oriented around producing duty-free apparel destined for the U.S. market, this data suggests that the PRC may be using these trade blocs as backdoor entry points into the United States.

One example of potentially unlawful transshipment of textiles through FTA countries relates to pocketing fabric, which under the renegotiated terms of the U.S.-Mexico-Canada (USMCA) agreement must be entirely sourced, formed, and finished from a country party to the agreement. Despite this provision, U.S. textile manufactures report no corresponding increase in demand, suggesting potential noncompliance. This rule went into effect in two stages, with a partial implementation beginning January 1, 2022, and all remaining products requiring regional, yarn-forward compliant pocketing as of January 1, 2023.

The consequences of these trade law violations for the U.S. textile and apparel industry have been severe: U.S. textile orders, production, and capacity have plummeted since 2020, with significant plant closures in the past 18 months. Mexico has seen a 16.8 percent decline in the added value of Mexico’s textile and apparel supply chain over the last five years, with the loss of about 80,000 jobs. If the PRC is allowed to hijack U.S. FTAs through transshipment, American jobs and supply chains will continue to suffer.

Apparel Support

Yet another case study of the harmful effects of unlawful transshipments from the PRC is that of M&B Metal Products Company—the only remaining producer of steel wire hangers in the United States. For decades, M&B and its former U.S. industry partners fought tirelessly to stop the PRC from circumventing U.S. trade laws through transshipment, yet the problem persists, demonstrating the urgent need for strengthened enforcement.

In 2002, M&B along with U.S. companies Cleaners Hanger Company (at the time, the largest producer of steel wire garment hangers in the world) and United Wire Hanger filed a Section 421 trade action against the PRC. The surge in imports of steel hangers caused significant market disruption for domestic manufacturers. Between 1997 and 2001, imports of steel hangers from the PRC increased 800% then doubled in the year after the PCR’s accession to the World Trade Organization. In 2003, these companies testified before the International Trade Commission (ITC) and received a unanimous decision that unfairly traded hangers from the PRC could cause market disruption. Yet, despite this ruling, the U.S. Government declined to grant relief. Subsequently, Cleaners Hanger Company filed for bankruptcy and auctioned off all its assets. Over the next four years, the U.S. hanger industry collapsed—seven of eight companies went out of business—until, by 2007, M&B’s Alabama factory was the last remaining hanger manufacturer in the country.

In 2007, M&B filed an antidumping (AD) case against unfairly traded PRC hangers. In 2008, the company secured a unanimous ITC ruling, and the Department of Commerce imposed AD duties ranging from single digits to a countrywide rate of up to 187 percent. Almost immediately after the AD order was signed, however, PRC producers shifted from unfair trade to outright illegal trade—transshipping and circumventing duties to trade enforcement.

Over the next two decades, M&B filed numerous e-allegations with Customs and Border Protection (CBP) but these did not result in enforcement action. Even after the company won successive AD and CVD cases against Vietnam and Taiwan, illegal imports of these products persisted. CBP confirmed multiple cases of transshipment regarding M&B’s numerous Enforce and Protect Act allegations and found evasion of nearly $40 million in antidumping duties. That being said, the company representatives indicate it failed to collect the owed duties.

This case study highlights a much larger trend: China’s systematic use of transshipment and circumvention tactics to evade U.S. trade laws, undermining American industries and eroding the effectiveness of enforcement mechanisms. M&B’s decades-long struggle is not an isolated incident, but emblematic of how weak enforcement allows unfair trade practices to persist. Without decisive action, more U.S. manufacturers will face the same fate as those who have already shuttered their factories and laid off their workforce due to unchecked trade violations.

Fentanyl

In April 2024, the Select Committee released a bipartisan investigative report exposing how PRC companies and criminal networks fuel the U.S. fentanyl crisis by supplying precursor chemicals to Mexican cartels, who then produce and traffic deadly fentanyl into the United States. Despite ongoing efforts, the PRC continues to enable the illicit fentanyl supply chain, with PRC firms openly advertising precursor chemicals on social media and encrypted platforms.

More than 90 percent of illicit fentanyl precursors come from the PRC, with PRC chemical manufacturers exploiting weak enforcement measures and using fraudulent documentation to disguise shipments. Many of these chemicals are transshipped through third-party countries to evade U.S. sanctions.These illicit chemical exports directly undermine U.S. efforts to combat fentanyl trafficking, costing American lives and straining law enforcement resources.

We simply cannot allow the PRC’s exploitation of global trade routes to continue facilitating the trafficking of a drug that is now the leading cause of death for Americans aged 18-45. While reasonable minds can disagree on the use of certain trade tools as a response to the fentanyl crisis, enforcing laws against transshipment and mislabeling of shipments is common ground upon which all Americans can agree.

Conclusion

The PRC’s systematic abuse of U.S. trade laws and protective mechanisms through transshipment, forced labor, and other illicit trade practices represents a clear and urgent threat to American industry and workers. The Select Committee’s bipartisan investigative and oversight work has exposed many examples of relevant concerns.

Given such evidence of systemic fraud, we urge your agencies to strengthen enforcement against the PRC’s unlawful trade practices, including by criminally prosecuting trade criminals, stepping up civil enforcement, and self-initiating a Section 301 investigation into PRC transshipment schemes.

The House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party has broad authority to investigate and submit policy recommendations on countering the economic, technological, security, and ideological threats of the Chinese Communist Party to the United States and allies and partners of the United States under H. Res. 5 Sec. 4(a).

Thank you for your attention to this important matter. We look forward to working with you in a bipartisan manner to address this critical issue and ensure that U.S. trade laws are fully enforced and American industry and workers are protected.