Four Sihanoukville SEZ Firms Linked to Transshipment in 2020

5 min read
The Sihanoukville port in 2014. (kinnla/Flickr)

Four factories in the Sihanoukville SEZ were last year put under investigation for or found to be falsely shipping Chinese plywood, cabinets and pipe fittings to the U.S. as if they were Cambodian-made, according to U.S. Customs documents.

Two of the companies rejected the U.S.’s findings in response to questions this week, but a trade expert cautioned that Cambodia could be effectively put on a watchlist if more cases are found, stifling the country’s genuine exports.

Transshipment occurs when factories import ready-made products and re-export them while falsely claiming to have produced them, in order to allow the original manufacturer to evade trade duties. Amid the U.S.’s “trade war” with China, some Chinese companies have allegedly looked for ways to circumvent increased tariffs by finding transshipment points in the region.

Last week, U.S. Customs announced that it found HiCreek Plumbing, based at Svay Rieng’s Shandong Sunshell SEZ, to be involved in transshipping Chinese pipes and fittings to the U.S., with a site visit finding machinery “unused, dry, and covered in spider webs.”

Documents from the U.S. agency show that in 2020, four other companies were also put under investigation or found to be doing the same with plywood, cabinets and pipe fittings from the Sihanoukville SEZ.

KKFF Bend, LB Wood and Cambodian Happy Home Wood Products were named in U.S. Customs findings as being involved in transshipment, while Cambodia Golden Coast Wood Products is part of an investigation announced in December into the alleged transshipment of wooden cabinets.

The Council for the Development of Cambodia in July 2019 approved Cambodia Golden Coast Wood Products’ Sihanoukville closet and furniture factory for a $5.5 million investment that would add “565 jobs to the area,” according to an article on the website Construction and Property.

In a document dated January 2020, U.S. Customs says KKFF did not respond to multiple requests for information, while site visits found that there were minimal raw materials at the factory, “virtually no manufacturing was occurring,” and workers “indicated most of the company’s pipe fittings were brought in from elsewhere and finished and packed by KKFF Bend.”

Various Chinese manufacturers and U.S. importers disputed the claims, but KKFF’s lack of response is used as support for the allegations. “As the alleged foreign manufacturer failed to respond to CBP’s multiple requests for information, CBP may apply adverse inferences and infer that it is not a manufacturer,” the findings say, using an abbreviation for U.S. Customs and Border Protection.

Meanwhile, findings issued in June for Happy Home and LB Wood redacted many of the two companies’ details and responses. According to the document, in its response, “LB Wood stated that it is [redacted] percent owned by [redacted], which is a [redacted].”

The document adds that U.S. Customs “determined that this investigation was extraordinarily complicated due to the novelty of the issues presented,” though those issues are not clear amid the redactions.

But the findings say the companies’ coastal location “helped facilitate” the alleged evasion.

“Businesses in the Sihanoukville SEZ are located near Cambodia’s only deep-water port and have easier access to raw materials shipped from China than businesses located further inland,” it says.

In a statement on Monday, LB Wood denied that it was involved in the transshipment of plywood from China to the U.S.

“We have a record that we are producing legally in Cambodia. The US customs made an arbitrary decision,” the company said, adding that it had now stopped producing plywood and was appealing the decision in the U.S.’s international trade court.

Mark Shen, general manager for Happy Home, said the case was “not finished yet” as U.S. importers were appealing the case.

“I trust we can win soon,” Shen said in a statement.

He added that the company had sold all its Cambodian assets and moved to Vietnam.

Economist Jayant Menon, an international trade expert and visiting senior fellow at the ISEAS-Yusof Ishak Institute, said the U.S. had previously identified Vietnam, Malaysia and the Philippines as key transshipment points, encouraging the practice to move to other countries like Cambodia.

“[I]f large volumes of trade deemed to be transshipped from Cambodia is suspected by US authorities, then Cambodia risks being placed on the same list, which could affect both genuine and transshipped exports,” Menon said in an email.

Under free-trade agreements, 40 to 60 percent of a product must typically be made in a country for it to be treated as originating there. But “trade war tariffs” between the U.S. and China do not have the same reporting requirements, meaning the last point of export is often the only documentation given for a product’s origins.

“Until explicit rules of origin are employed for products produced in multiple countries, transshipment will continue to be a problem,” Menon said.

Commerce Ministry spokesperson Penn Sovicheat said Cambodian officials were working to eliminate transshipment by pushing companies to get proper rules of origin certification and cooperating with agencies like U.S. Customs.

“We are a country that tries to produce something, and are working hard to have our own brand name. ‘Made in Cambodia’ is marketed all over the world,” Sovicheat said. “[So] we are totally against transshipment. … It’s good for us to have a good name.”

In a statement, the Sihanoukville SEZ said on Tuesday that it “always advocates that enterprises strictly abide by Cambodian laws and regulations and international trade rules, and resolutely opposes any illegal activities.”

It added that government bodies were responsible for supervising the import and export trade of enterprises.

“If the Cambodian government departments need it, we will actively cooperate with them,” it said.

CompanyProductLocationActionDate
HiCreek PlumbingPipes and fittingsShandong Sunshell SEZ, Svay RiengDeterminationFeb. 8, 2021
Cambodian Golden Coast Wood ProductsWooden cabinetsSihanoukville SEZInvestigationDec. 23, 2020
Cambodian Happy Home Wood ProductsPlywoodSihanoukville SEZDeterminationJune 29, 2020
LB WoodPlywoodSihanoukville SEZDeterminationJune 29, 2020
KKFF BendPipe fittingsSihanoukville SEZDeterminationJan. 22, 2020
JC ChemicalsGlycineDeterminationJuly 2, 2018
U.S. Customs’ transshipment investigations and determinations.
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