Strengthening U.S. Illegal Transshipment Enforcement and Origin Management for Exporters

Executive Summary

As U.S. tariff policies become increasingly complex, a critical factor for exporters to manage has emerged: Illegal Transshipment.

In the August 2026 report, The Great Transshipment Scam, the White House analyzed the risks of origin distortion as products from high-tariff countries enter the U.S. via third countries. The report highlights supply chains across Asia and the Americas as potential conduits for illegal transshipment, specifically pointing to practices like simple processing or document manipulation intended to misrepresent the true country of origin.

The U.S. government identifies the following as primary risk factors:

Repackaging
Relabeling
Re-invoicing
Simple circumvention via third countries
Attempts to change origin through minimal processing or assembly
Declaring a country of origin different from the actual place of production

Under U.S. Reciprocal Tariff measures, if the CBP determines that goods were transshipped to evade applicable tariffs, an additional 40% ad valorem duty may be applied. This is in addition to original duties, taxes, fees, and potential penalties or sanctions under relevant laws.

Korean companies sourcing raw materials or components from overseas, such as China, and performing processing or assembly in Korea for export to the U.S., must re-evaluate their origin management practices.

Transshipment Itself Is Not Illegal

First, it is essential to make a distinction: Transporting goods through a third country is not illegal in itself. In international logistics, transshipment at ports or airports in other countries is common due to vessel schedules, air networks, and hub operations. For example, in a route like Korea → Singapore (transshipment) → U.S., the mere fact that goods passed through Singapore does not constitute illegal transshipment. The core issue for the U.S. government is not the logistical act of transshipment, but the concealment or fraudulent alteration of the actual country of origin to evade tariffs. The critical factor is whether the actual production process aligns with the declared Country of Origin.

Why Is the U.S. Focusing on Illegal Transshipment Now?

As U.S. tariffs vary by country, the economic incentive to exploit origin-based tariff differentials has grown. The White House report cites China as a primary example. Since the imposition of Section 301 tariffs on Chinese goods in 2018, China's direct export structure to the U.S. has shifted, with some goods now supplied through new production, processing, and logistics networks involving third countries. While global supply chain restructuring is not inherently problematic, the U.S. government believes that some goods are being subjected to repackaging, relabeling, re-invoicing, or minor processing to appear as if they originated from a new country. Consequently, U.S. Customs' focus has expanded beyond simple trade route changes to actual manufacturing processes and supply chain data.

Does Processing in Korea Automatically Make a Product 'Made in Korea'?

Not necessarily. This is a point of caution for U.S.-bound exporters. Consider a supply chain where China produces parts → Korea imports parts → Korea assembles → U.S. exports. The fact that the product was shipped from Korea does not automatically confer Korean origin. 'Country of Export' and 'Country of Origin' are distinct concepts. When determining origin for U.S. customs, the Substantial Transformation test is a key factor. Generally, this examines whether the manufacturing or processing in the country has substantially changed the name, character, or use of the product. However, the final determination depends on the product's characteristics and the specific manufacturing process. Simple packaging, labeling, or minimal operations are generally insufficient to change the country of origin.

How Does the CBP Make Determinations?

The March 2026 CBP ruling regarding EV charging cables illustrates how specific production process analysis is required. The product used components from Korea, the U.S., China, and Germany, with final assembly in Korea. The CBP did not determine origin based solely on the presence of foreign components. After reviewing the role of each component and the manufacturing process, the CBP determined that the electric conductors produced in Korea imparted the essential character of the finished product, thus designating the origin as Korea. This case demonstrates that origin cannot be determined by a single factor like 'foreign parts' or 'assembly in Korea.' A comprehensive review of the actual manufacturing process, component functionality, and applicable origin regulations is vital.

Supply Chain Structures Requiring Special Attention

1. Repackaging Chinese Finished Goods in Korea

Importing finished goods from China and merely changing the packaging or labels before exporting to the U.S. is a classic example of illegal transshipment risk.

2. Limited Assembly of Chinese Semi-Finished Goods in Korea

If a product's essential characteristics are formed in China and only limited assembly or finishing occurs in Korea, it may not qualify as Korean origin. The level of processing and the role of core components must be evaluated.

3. Changing the Invoice to a Korean Entity

The Exporter and the Country of Origin are different. Even if a Korean company issues the Commercial Invoice and ships the goods, the origin is determined by the production process and relevant regulations, not the invoice issuer.

4. Simple Circumvention via Third-Country Warehouses

Storing goods in bonded warehouses, Free Trade Zones, or logistics centers in other countries does not change the origin. Logistical transit must be distinguished from manufacturing-based origin changes.

Consequences Beyond Additional Tariffs

Under the 2025 U.S. Reciprocal Tariff measures, if the CBP determines that goods were transshipped to evade tariffs, a 40% additional ad valorem duty may be applied, alongside other applicable duties, taxes, and fees. Furthermore, penalties under U.S. customs law may apply. The June 2026 Executive Order, Strengthening Customs Enforcement, prioritizes enforcement against Misclassification, Undervaluation, and Illegal Transshipment, mandating more detailed information submission and increased audits of supply chains.

Origin Documentation for Korean Exporters

BOM (Bill of Materials): Manage and verify that the BOM matches actual production.
Component Origin Info: Identify the production country of key components and secure supplier documentation.
Manufacturing Process: Document the specific manufacturing, processing, or assembly steps performed in Korea.
Supplier Documents: Systematically store invoices, purchase orders, and origin-related documents.
HS/HTS Classification Basis: Maintain documentation for the classification of finished goods and key components.
Production Records: Use work orders, production reports, and inspection records to prove domestic manufacturing.
Consistency in Documents: Ensure that the Commercial Invoice, Packing List, and origin documents align with the information declared by the U.S. importer.

Are KORUS FTA Origin and General Origin the Same?

No. The FTA origin criteria for preferential tariffs under the KORUS FTA and the general U.S. Country of Origin determination serve different purposes and follow different regulations. Additionally, U.S. regulations regarding origin marking, trade remedies, and Section 301 tariffs may apply independently. It is safer to verify the specific origin, tariff, and customs regulations applicable to the product rather than assuming a KORUS FTA Certificate of Origin covers all requirements.

Checklist Before Exporting to the U.S.

What is the actual country of manufacture for the finished product?
What are the key components sourced from third countries like China?
What specific processes are performed in Korea?
How do these processes affect the origin determination?
Do the BOM and actual purchase records match?
Is the Country of Origin on the Commercial Invoice accurate?
Does the U.S. importer's declaration match the Korean exporter's data?

Conclusion

In the 2026 U.S. customs environment, origin is not just a document field but core supply chain data directly linked to tariffs. While using Chinese components or transiting through third countries is not inherently illegal, the key is whether the actual production process matches the declared origin and can be supported by objective evidence. Korean companies should treat Origin Compliance as an integral part of supply chain management.

FAQ

Does using Chinese parts classify the product as Chinese? Not necessarily. Origin is determined by the overall manufacturing process and applicable regulations, not just the origin of one component.
Can I mark it 'Made in Korea' if assembled in Korea? Not automatically. It depends on the extent of assembly, the role of key components, and the specific origin criteria for that product.
Is shipping via Singapore or Vietnam illegal transshipment? No. Logistical transshipment is legal. The issue is the fraudulent alteration or concealment of origin to evade tariffs.
What is the penalty for illegal transshipment? A 40% additional ad valorem duty may be applied under Reciprocal Tariff measures, in addition to other duties, taxes, and potential legal penalties.
What documentation should I prepare? BOM, component origin data, supplier documents, manufacturing process flowcharts, production records, and HS classification basis.
Is U.S. enforcement actually increasing? Yes, through the June 2026 Executive Order and the August 2026 White House report, the U.S. has prioritized enforcement against misclassification, undervaluation, and illegal transshipment.

References

※ This content is for general trade and customs information purposes. Origin and tariff applicability depend on specific products, supply chains, and applicable laws. Please consult with the CBP, a U.S. customs broker, or a relevant expert for the latest requirements before exporting.