Factories in China are subcontracting apparel production to North Korea and then selling the goods to buyers as Made in China product.
In the interest of keeping costs low, reports have surfaced that Chinese manufacturers are looking across the border to North Korea to have their goods produced, and then labeling and selling them to the world as Made in China. Chinese suppliers send fabrics and raw materials to North Korea, where the garments are then assembled and exported, and finished goods are typically returned to Chinese ports before being shipped off to their destinations.
The bulk of these production handoffs seem to be passing through the Chinese border city of Dandong, where most North Korea trade happens, and clothing agents are at the ready to work as middlemen between Chinese clothing suppliers and buyers from the U.S., Europe, Japan, South Korea, Canada and Russia, a business person speaking on condition of anonymity told Reuters.
“We will ask the Chinese suppliers who work with us if they plan on being open with their client—sometimes the final buyer won’t realize their clothes are being made in North Korea. It’s extremely sensitive,” he continued.
[Read more about country of origin issues: Kering, LVMH Questioned Over Potentially Misleading Product Labels]
The issue is a particularly sensitive one since the United States and North Korea have been exchanging high-level threats over North Korea’s ballistic missile program, and relations are becoming increasingly strained.
Subcontracting to North Korea isn’t a new issue for Western brands. Last year, Australian surf brand Rip Curl publically apologized for accidently making goods in North Korea and selling millions of dollars worth of the clothing wrongly labeled as having been made in China.
“This was a case of a supplier diverting part of their production order to an unauthorized subcontractor, with the production done from an unauthorized factory, in an unauthorized country, without our knowledge or consent, in clear breach of our supplier terms and policies,” the company’s chief financial officer Tony Roberts said at the time.
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However, as sources explained to Reuters, the problem goes well beyond Rip Curl—it’s “widespread” and there are two very big reasons why: manufacturers can save as much as 75 percent producing their clothes in North Korea as wages are as low as half of what the average Chinese worker earns, and, according to a Korean-Chinese businessman speaking on background to Reuters, North Korean workers produce 30 percent more clothes each day than their Chinese counterparts.
The average wage for a factory worker in North Korea is between $75 and $160 a month, compared to rates between $450 and $750 a month in China.
“In North Korea, factory workers can’t just go to the toilet whenever they feel like, otherwise they think it slows down the whole assembly line,” the source said. “They aren’t like Chinese factory workers who just work for the money. North Koreans have a different attitude—they believe they are working for their country, for their leader.”
President Trump has been pushing China to get tougher on North Korea over the nuclear weapons issue and do a better job of enforcing sanctions. This year so far, China has already stopped importing coal from the country, which was a big loss for North Korea and this month the United Nations Security Council prohibited the export of coal, iron ore, lead, lead ore and seafood from North Korea. So far, none of the sanctions include textiles, though if more clothing starts coming into the U.S. by way of North Korea and falsely labeled as Made in China, the U.S. could bring the issue to the table.
In a note about the news, international trade and customs law firm Grunfeld, Desiderio, Lebowitz, Silverman, & Klestadt said goods made in North Korea are contraband and cannot be imported into the United States.
“Purchasing products from North Korea is against the law and violators may be subject to criminal punishment and civil fines,” the note said, adding, of course that those goods can also be seized by U.S. customs. “There have been multiple allegations that Chinese vendors have transshipped goods to the United States through third countries to avoid the huge antidumping and countervailing duty deposits that must be paid on those goods. These latest news stories indicate that China country of origin problems are continuing today.”