Chinese Firms Caught Red-Handed: $62 Million Korean Origin Fraud Scheme Targeting US Markets

The South Korean customs authorities have uncovered an alarming trend of Chinese manufacturers falsely labeling their products as “Made in Korea” to circumvent US trade restrictions and tariffs. This sophisticated fraud scheme, involving products ranging from mattresses to battery components, highlights the growing tensions in global trade relations and the lengths to which some companies will go to bypass regulatory barriers.

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Introduction

In a major customs enforcement operation, South Korean officials have discovered that Chinese companies have been using Korea as a transit point to disguise the true origin of their products bound for US markets. Over the past year, approximately 1.2 million counterfeit items worth roughly $62 million (74 billion KRW) have been intercepted. The fraudulent exports have already surpassed last year’s total, with seizures amounting to $23.8 million (28.5 billion KRW) in just the first few months of 2025. This growing trend raises serious questions about supply chain integrity and international trade compliance.

The Counterfeit Scheme Revealed

The investigation exposed sophisticated methods used by Chinese companies to circumvent US trade regulations and tariffs.

Chinese manufacturers shipped products like mattresses, lithium battery cathode materials, and CCTV components to Korean bonded warehouses
Products were relabeled with “Made in Korea” tags and provided with falsified certificates of origin
These items were then re-exported to the US, taking advantage of preferential tariff treatments for Korean goods

Strategic Trade Evasion Tactics

The fraudulent practice appears to be a calculated response to increasing US-China trade tensions and tariff barriers.

Chinese exporters targeted product categories facing significant US tariffs or regulatory scrutiny
South Korean bonded warehouses were used as intermediary points without proper customs clearance
The scheme exploited the relative ease of transit through Korea and its strong trade relationship with the US
The operation specifically leveraged tariff differentials between countries to maximize profit margins

Korea’s Enforcement Response

South Korean customs authorities have mobilized special investigative teams to combat this growing threat to trade integrity.

The Korea Customs Service has established a dedicated “Trade Security Special Investigation Team”
Officials are intensifying inspections of bonded warehouses and transit shipments
Lee Kwang-woo, Director of Customs Investigation, warned that such fraudulent practices undermine international trust in Korean exports
The customs office expressed concern that these violations could lead to expanded non-tariff barriers against legitimate Korean products

Global Trade Implications

This case highlights broader challenges in maintaining trade compliance amid geopolitical tensions and regulatory divergence.

US customs officials are likely to increase scrutiny of imports labeled as Korean-made
Legitimate Korean exporters may face additional compliance burdens and delayed shipments
The incident underscores how trade restrictions can create perverse incentives for fraud and circumvention
Similar schemes may be operating through other countries with favorable US trade relations

The uncovering of this extensive origin fraud scheme serves as a wake-up call for customs authorities worldwide. As trade barriers continue to shift in response to geopolitical tensions, the incentives for circumvention will only increase. Both exporters and importers must now navigate a more complex compliance landscape where the integrity of origin documentation faces heightened scrutiny.