Trade laws and local loopholes have been in the news of recent thanks to the story of a firm that is accused of illegally importing aluminum from China into the USA. This comes at a time when the US is reviewing its trade relationships with some countries. According to the department of justice, the firm managed to evade up to $1.5 billion worth of tariffs through smuggling. Consequently, the US government filed a complaint. Although the charges are serious, the case has been handled through the civil divisions of the courts.
Initial findings indicated that there might be a wider network at work with Perfectus Aluminum being the company at the heart of the scheme. The government would like the court to order the seizure of assets. According to court documents, Perfectus is actually owned by Liu Zhongtian who also happens to be the founder and chairman of China Zhongwang Holidays. The problem is that this company is one of the dominant producers and exporters of aluminum.
Imports that break the trading rules
The case revolves around 2.1 million aluminum pallets which originated from China but were somehow passed into the USA. The operation took place between 2011 and 2014. In fact, the Commerce Department had already instituted a ban in 2010 covering those specific imports. The true nature of the operation was masked using a series of intermediaries which allowed China Zhongwang to end up selling to Perfectus. It is alleged that Mr. Lieu and his family owned and operated many of the companies in the syndicate.
Allegations of exploiting loopholes
The government is interested in this case because it highlights the difficulty of regulating transnational trade in the age of globalization. The US has already hinted at reviewing its import and export rules in order to target those nations with whom it has a large trade deficit. The instant case indicates that there are still some loopholes that can be exploited. The US government has been stringent in pursuing this case. It has asked the court for leave to seize a warehouse that was used as part of the operation.
China Zhongwang has denied the allegations as well as any connection with Perfectus. Some industry observers note that this case could provide insight into why there are many stockpiles of aluminum in Mexico. The operation took on a multinational face when it was discovered that the aluminum would not only be sent to the USA, but was also being sent to countries such as Mexico, Vietnam and Malaysia. If proved, the charges could lend credence to the view from US officials that China is not playing by the rules of international trade and therefore eventually harming the global economy in the long run. The excess of aluminum was likely to lead to a glut in prices, therefore pushing out US producers.
A Domestic Market Dealing with Globalization
Both the USA and Mexico are trying to carve out a place for them in a global trading environment where most countries are open to aggressive overtures from foreign firms. Those that support global trade, argue that the restrictions being put in place make a complex system even more complex. For example, the investigation into this case has shown that there may be related stockpiles at Aluminum Shapes. This is a company that is based in Philadelphia and has some connections to Perfectus. One of the tricks that has been allegedly used is to disguise the aluminum as shipping pallets which are later dismantled and flooded onto the market.
Wider Relevance to USA-China Trade Relations
The US government is pursuing an overtly protectionist stance to international trade. It charges that countries like China have been getting away with bending the rules whereas the more compliant ones like the USA end up developing enormous trade deficits. Investigations such as these are meant to uncover the abuse so as to justify the current policy of placing tariffs and other barriers on countries that are deemed to have an unjustifiably large trade deficit with the USA. The US government is at pains to emphasize that it takes these steps very reluctantly in response to blatant abuses such as the one described above in the lawsuit.
There is certainly some cause for alarm for those that want to protect America’s competitive advantage in international trade. US customs officials were able to find a hoard of aluminum pallets that were estimated to be worth at least $25 million. Perfectus was the owner and further investigations were required to determine who had brought the aluminum to the USA as well as the purpose behind this. A judge denied a petition to release the seized aluminum. The substantial tariffs imposed on certain imports may be behind the attempts to circumvent the rules.
At the moment China has not gone beyond decrying some of the restricts that are imposed on its exporters. Given the fact that the country is able to access these important minerals and sell them at aggressive pricing is a worry for any US company within the energy sector. At the same time, it is hoped that China will not retaliate with its own restrictions on US imports.
The case is still making its way through the courts but the initial findings demonstrate that the US government is serious about controlling trade deficits. Even the most obscure loopholes will be investigated and prosecuted where appropriate. In this case, the first alarm was raised by a fire inspector who was surprised at the large number of aluminum pallets.
As importers and exporters come up with ingenious ways to beat the system, the US government is also increasing its compliance model. This prosecution is yet another example of the proactive steps that are being taken to bring down the US trade deficit. The one risk that is not always discussed fully is the possibility that countries like China may adopt a similarly protectionist stance that might end up harming international trade.
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