Content Origin Rules are Coming. Is the Global Supply Chain Ready?
Though the U.S. administration has yet to clarify its policies related to product content, the apparel industry is already bracing for sweeping changes that could upend sourcing.
By Caletha Crawford
Key Insights
The administration’s proposed 40 percent “transshipment” penalty could become a 30 percent content threshold but the industry still awaits clarity on what new rules of origin will entail—and how it will be enforced
Enforcing origin rules on top of existing duty and tariff provisions could prove costly and complex, especially for man-made fibers, pushing fashion companies to strengthen traceability and compliance systems
Over time, the measures may drive investment away from China and into regional hubs like Vietnam and Central America, though technical categories are likely to remain China-dependent
It’s been six weeks since Donald Trump posted about the trade deal with Vietnam. Since then, the U.S. administration has issued Executive Orders updating the tariff rates on dozens of countries, but it was the specific language in Trump’s Truth Social post on July 2nd that still has the industry puzzled. In addition to the 20 percent tariff on the southeast Asian nation, the president added there would be “a 40 percent tariff on transshipping.” Transshipping, the act of routing goods through another country without “a substantial transformation” to circumvent customs laws, was already on the books as an illegal action, so why this cryptic statement? Over time, it’s become clear that he was likely referring to some sort of origin rule, which had been eluded to in the “Liberation Day” Executive Order. But even more than a month later, no details have emerged.
Tariffs aside, MeiLin Wan, founder and CEO of supply chain traceability consultancy GenuTrace, wouldn’t be surprised if some of this new Customs might is used to step up rules already in place. Take for instance, the origin rules in existing agreements. Plus, CBP hasn’t leaned into audits related to UFLPA but that too could come to pass.
“They can request at least up to five years of records. They haven’t pulled that trigger on any of these companies yet, but there are a lot of things that the government can do now,” she said.
Already, she’s heard from CBP that the agency has invested in audits in CAFTA-DR mills, visiting in person and going through the books over the last year. “Maybe that will be the roadmap. Maybe they’ve learned a lot from that process that they can apply to specific language around these other rules of origin,” she said.
