The Congressional Select Committee on the Chinese Communist Party is requesting information from the major U.S. auto parts suppliers concerning the unlawful import of merchandise into the U.S. from Qingdao Sunsong, a company based in the People’s Republic of China (“PRC”).
In letters to the CEOs of O’Reilly Automotive (NASDAQ:ORLY), AutoZone (NYSE:AZO), Advanced Auto Parts (NYSE:AAP), and Genuine Parts Company (NYSE:GPC), the committee raises concerns that Qingdao is circumventing Section 301 tariffs by shipping auto parts into the U.S. through Thailand. According to the letter, U.S. retailers like AutoZone (AZO), O’Reilly (ORLY), and Advance Auto Parts (AAP) account for 40% of Qingdao’s sales.
“U.S. retailers are responsible for ensuring their procurement practices do not inadvertently support companies engaged in tariff evasion or other unlawful trade practices,” the letter states, as those found complicit in knowingly purchasing unlawfully transshiped products face serious criminal and civil liability.
“We are troubled by your company’s continued procurement of its product,” the committee says to the heads of O’Reilly (ORLY), AutoZone (AZO), Advance Auto Parts (AAP), and Genuine Parts (GPC).
By claiming to have moved operations to Thailand, Qingdao ships their “Made in China” products through a country that faces lower tariff levels than those imposed on the PRC. Shipments of this nature are only permitted at the lower tariff level when a good has undergone “substantial transformation” in the third country, defined as a “fundamental change in form, appearance, nature, or character.” The committee alleges that Qingdao is neither changing the character of the product, nor transforming any component to justify a lower tariff.
The members of the Select Committee on the CCP has requested answers to questions regarding the increase in orders from Qingdao Sunsong after the imposition of 25% tariffs in May 2019, including; how does the company conduct due diligence of suppliers to ensure they adhere to U.S. trade law; does the company plan to increase purchases from Qingdao in the future; and, are there other instances of conducting business with suppliers under investigation for trade fraud.
Shares of Advance Auto Parts (AAP), O’Reilly Automotive (ORLY), AutoZone (AZO), and Genuine Parts (GPC) are all down ~1% on Friday.
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