Context
The US administration released The Great Transshipment Scam, examining the risk of Chinese goods being routed through third countries to avoid US tariffs. The report identifies more than 40 countries and jurisdictions exposed to such risks. India has been placed in Tier 1, along with other major trading economies.
Shadow Transshipment
- Transshipment refers to routing goods through an intermediate country before they reach their final destination.
- It becomes illegal when the route is deliberately used to conceal the actual country of origin and evade tariffs or trade restrictions.
- Methods may include repackaging, relabelling, limited processing and false documentation.
- However, increased exports from a third country do not by themselves prove illegal transshipment, as they may result from genuine manufacturing or supply-chain diversification.
India-Specific Findings
- The report highlights the Pune–Gujarat–Chennai belt in connection with possible transshipment of pumps and compressors (HS 8413–8414).
- The Global Trade Research Initiative (GTRI) has questioned this assessment, pointing to India’s established manufacturing capacity in these products.
- Liquid pumps: India exported about $1.61 billion globally, including $414.5 million to the US, while imports from China were about $326.4 million.
- Air pumps and gas compressors: India exported around $1.48 billion, including $335.4 million to the US, while imports from China stood at about $1.63 billion.
- These figures indicate that the presence of Chinese inputs does not by itself establish that Indian exports are disguised Chinese products.
US Enforcement Measures
- The US plans to deploy “Detective Border”, an AI-based system to identify suspicious trade patterns.
- It is expected to analyse shipment routes, product details, ownership links and production capacity.
- The system aims to distinguish genuine manufacturing from simple rerouting of goods.
- The US is also seeking stronger country-of-origin rules and measures against tariff evasion.
Implications for India
- Indian exporters may face greater scrutiny of origin and production records.
- The issue could influence India-US trade negotiations, particularly on rules of origin.
- Demonstrating genuine domestic production can strengthen India’s credibility as a manufacturing and export base.
- Expanding domestic production of components and intermediate goods can reduce excessive dependence on Chinese inputs.
- Improved customs cooperation and information sharing can help resolve origin-related disputes while facilitating legitimate trade.
Way Forward
India should strengthen origin verification, digital supply-chain records and customs cooperation with trading partners. At the same time, it should expand domestic manufacturing of critical components and diversify sourcing without disrupting efficient global supply chains.
Conclusion
The transshipment issue highlights the growing importance of transparent supply chains and credible rules of origin in international trade. India needs to combine stronger trade compliance with competitive domestic manufacturing to protect its export interests and market access.
FAQs
- What is illegal transshipment?
It is the deliberate routing of goods through another country to conceal their actual origin and evade tariffs or trade restrictions.
- What does Tier 1 indicate?
It identifies economies where transshipment risks are considered significant within large and legitimate trade flows. It does not imply that all trade from these countries is illegal.
- Which Indian products have been highlighted?
The report has raised concerns about pumps and compressors under HS 8413–8414, particularly in the Pune–Gujarat–Chennai belt.
- Does sourcing from China prove illegal transshipment?
No. Indian manufacturers may legitimately use Chinese components and inputs. Illegal transshipment requires evidence of deliberate concealment of the actual country of origin.
- What is “Detective Border”?
It is a proposed AI-enabled US trade-enforcement system that would analyse shipment and business data to identify patterns associated with possible tariff evasion.
- How can India address the issue?
India can strengthen origin verification, digital supply-chain tracking and customs cooperation, while increasing domestic production and diversifying sources of critical inputs.
